Why do Companies Fail?

Kodak

Reasons for Kodaks Initial Success

in Film-based Photography
Leadership in
Complex Film
Technology

Economies of
Scale
(Cost Advantage)

Kodaks
Razor and Blade
Strategy

Established and vast

Retail relationships

Established Quality
Brand Name
(Price Advantage)

Why was Kodak unable to Sustain Success?

Two Main Factors

For Kodaks Failure

- Change in structure of the

Film Business
- Loss of Kodaks Unique Position in
the Traditional Film Business

- Emergence of Digital
Imaging
- Kodaks inability to adapt
to this new Business

Kodaks Response to the Mavica

Uncertainty about Threat of Digital Technology
(Extent and Timing of Threat)

Kodaks Response
(a) Creation of a new division for digital R&D
(b) Huge R&D investments in digital technology
($5 billion; > 50% of total R&D spend)

Good Move?
Kodak recognized the need to
create capabilities and products
In digital technology

Questionable Move?
(a) Huge investment not necessary
given the uncertainty of digital tech
(b) Diversion of valuable resources from
competing with Fuji in film.

Kodaks Introduction of the Photo CD

Good Decision

Questionable Decision

Good transitional
product

Film was going to eventually

decline anyways.

Preserves the centrality of

film (a core/profitable business)

Other products (camera, printers)

may be more critical in digital
photography

Kodaks Managers rooted in their traditional way of thinking

( Razor and blade strategy successful in film
Digital)

Sustaining Success: The Role of Inertia

Inertia

(a property that causes an individual or a company to resist change)

Cognitive Inertia
- companies get locked into
habitual ways of thinking
about their industry, and
and how to succeed in it

Cognitive Inertia:
The Role of Confirmation Bias
Based on prior experience and/or success, managers develop a point-of-view
about their business, and what determines success in it.

This point-of view (mental model) is difficult to change

Because of prior success

Because managers themselves are unaware that they hold such views.
Due to confirmation bias

The Kodak Example:

Traditional photography is all about consumables (the razor and blade model)
Therefore, digital photography is also about consumables!! (the Photo CD)

Ways to Address Cognitive Inertia

Increase Awareness
That cognitive inertia exists

Guard against the

Experience Syndrome
-The Forgetting Curve
-Use of Younger Managers?

Engage in
Deliberate Analysis

-Seek contradictory information

-Invite views from outsiders

The Fisher Era

Fishers Actions

Divesting businesses unrelated to

the core photography biz.

Milk/extend Kodaks film

business in emerging markets like
China.

Re-position Kodak as an imaging

company (not a film company) in
every part of the digital value chain

The Outcome

Resistance to change behavior in

response to new initiatives
Deeply ingrained view of what drives
success
Established culture (consensus
instead of confrontation)
Rewards and promotions traditionally
linked to the film business
Company town environment

Kodaks Managers were unwilling to change their

actions and behavior quickly

Sustaining Success: The Role of Inertia

Inertia

(a property that causes an individual or a company to resist change)

Cognitive Inertia
- companies get locked into
habitual ways of thinking
about their industry, and
how to succeed in it.

Action Inertia
- companies recognize the
need to change, but they are
unable to act accordingly