Milo Jones and Philippe Silberzahn report in Forbes:
And that didn’t prevent the Rochester film giant from disappearing. It became a poster child of a firm desperate not to fall behind a disruption it unleashed to the world. Most organizations, when faced with a disruption, resort to “cramming,” i.e. they tend to try to adapt the disruption to their existing business model rather than create the right business model that fits the disruptive opportunity.
So you have a digital strategy. Kodak did too, and that didn’t prevent the Rochester film giant from disappearing. There are lessons to be learned by looking more closely to the story.
After months of hesitation, you finally nailed it. Digital will be everywhere. You will digitize your customer communication, and revamp your Web site. You will have an app, you will connect to Whatsapp, and what not. Oh, and there will be big data everywhere. You’ve got it all covered.
In considering your grand digital strategy, you may want to take a look at a once-great company, Kodak. As everyone knows, Kodak is now defunct and the cause of its demise lies in the digital revolution. The story we all know goes as follows: Kodak’ business model was based on selling films for cameras. As the digital revolution took off, the need for film disappeared. Kodak didn’t notice, and slid into irrelevance. By the time they woke up, they didn’t stand a chance.
Photo by Guy Solimano/Getty Images
The real story is different: Kodak invented the first digital camera in 1975; Kodak’s top management was warned by an internal report that the market would become digital as early as 1995; and it was Kodak which commercialized one of the first digital cameras in 1990. In fact, for all these years, Kodak was at the forefront of the digital revolution.
And boy did it have a strategy! By 1994, Kodak even had a digital-savvy CEO: George Fischer, recruited from Motorola, a technology giant of these days. He had a PhD from MIT, and he made sure that their Board was advised by John Scully, the former CEO of Apple. With the right people at the top, full awareness of the unfolding digital revolution and the leading-edge R&D, Kodak unleashed a very aggressive digital strategy. Kodak invented the first megapixel sensor in 1986. A digital camera was produced with Apple in 1994. That same year, they had 23 distinct digital scanning projects underway. Kodak introduced the first Wifi-equipped digital camera in 2005. By the early 2000s, Kodak had added the Net to its digital strategy, liking Facebook FB +0.63% and various social networks to its photo booths. And the list goes on. In fact, Kodak was so aggressive with its strategy that it even produced a film to make it know, in 2007. Titled “Kodak is not playing grab ass anymore” it has become a poster child of a firm desperate not to fall behind a disruption it unleashed to the world.
And yet, fall behind it did. It turns out that for all these efforts, digital was never at the heart of Kodak’s model. The reason? Its film business was too profitable and Kodak never took the risk of undermining it. In 1976, for example, they had a 90% share of the American market. The film model was so strong that it defined Kodak’s identity to the core. Film people made it to the top, and film manufacturing was defining how Kodak saw the world. Even when the advent of digital became real, Kodak’s response, amid its flurry of digital initiatives, was to invest in printers. The reason? Picture are eventually printed, aren’t they?
As disruptive innovation specialist Clayton Christensen remarked, most organizations, when faced with a disruption, resort to “cramming,” i.e. they tend to try to adapt the disruption to their existing business model rather than create the right business model that fits the disruptive opportunity. This is how, for instance, Kodak came up with a grandiose response to the digital revolution: a digital camera… working with a film, the Advantix. Once a film company, always a film company. But cramming is self-defeating: the existing business model swallows the disruptive business and robs it from its potential.
So you may have a digital strategy, just like Kodak. Activity may be everywhere, and cutting-edge advisors may abound. But if you are not rethinking your existing business model around digital, you may be putting lipstick on the proverbial pig. This imperative will be even more difficult if, like Kodak, your existing model is still performing well. The future seems like a set of airy promises; in the present, the old ways still bring in the cash.
The solution, as suggested by Christensen, is to lodge your digital initiative into a separate entity. This entity will be free to design the right model for the digital opportunity, while your existing model will remain to cater for the existing market. The new entity should also be free to compete with, even to cannibalize, the old way.
In short, creating a digital strategy should not be about digitizing a particular part of your business. It is not about a new website, a new ERP system, or launching a couple of new products. In an increasing number of industries, digitization will ultimately equal reinvention of the industry’s business model. As the sad tale of Kodak vividly illustrates, in such sectors digital initiatives on the margins, even bold and massive, will not save previously wonderful businesses.
