Tuesday, February 28th, 2012
Last month Kodak declared bankruptcy, and this month it quit selling cameras, something it has been doing since 1900. Did Kodak fail because it did not move from film to digital faster, or because it did not stick to what it knew best, laminating film? A close look tells us something about how other places with deep knowledge and fascination with a given
science or technology might find new success in global business.
What Business Are You In?
The Economist titled its article on Kodak’s bankruptcy “Gone In A Flash”, but watching Kodak go down was like watching a ship slowly sink under the waves in clear shallow water. At one time Kodak controlled 90 percent of the film business and 85 percent of camera sales. In the late 1980s it had a workforce of more than 145,000 people. Today it employs about a tenth that much. It’s not gone, but it is a shadow of its former self.
Conventional wisdom would say that Kodak failed because it defined itself as a film rather a photography business. This says that if Kodak had done so, it could have made the shift to digital earlier.
This is the strategy approach taught in almost every major business school, often using a Harvard Business School case study titled “Marketing Myopia” written 52 years ago by Theodore Levitt, when railroads lost traffic to both cars and trucks. Levitt argued that the railroads thought in terms of products rather than needs, that instead of defining themselves as “railroad companies” they should have called themselves “transportation companies”. Had they done so, they might have invested earlier in containers, multi-modal terminals, barge lines and even package services like UPS and FedEx.
It’s a pretty persuasive argument, but there is another, basic question that deals with the identity of companies: if you think of yourself solely in terms of markets, of your customers and the service you provide them, are you bound to limit yourself in what you can do, in who you serve? What if, in evolving to meet your customer’s needs, you leave behind the things you do best, and no longer engage the interests that brought you into business in the first place?
Almost everyone – people, companies, and communities – have “core competencies” or things they do better than others. These are the abilities that define them. Many successful companies are founded on one person’s fascination with a process or technology that they found application for. They gather people around them who share this fascination, and over time this fascination becomes part of the company culture. Weyerhaeuser, for example, isn’t just a wood products company. The people there love growing trees. Weyerhaeuser has gotten out of a lot of its old lines of business, but the company’s core assets remain vast tracts of forest land.
Kodak’s Core Competency and the Challenge of Digital
Back in 1880, when George Eastman founded the company, traveling with a camera meant loading up a pack horse with a huge camera the size of a refrigerator, glass plates the size of printer paper, bottles and bottle of chemicals, and even a tent to prepare everything in. George Eastman found a way of eliminating the fuss, by pre-coating the chemicals, and over time the company pioneered the laying down of chemicals in very thin “films” on substrate. The company’s expertise was physical chemistry, the physics of how atoms bond together and jointly react to light, heat, radiation and other changes around them.
Kodak’s challenge was that shifting from chemical to digital photography involved a different discipline – circuitry and software. Digital cameras are essentially a box with glass on the front and back and a whole lot of wiring, chips and motors in between. Kodak may have understood more about how to coat that glass on the outside than it did about what went on inside. Look at the companies that have done well in digital photography – Canon, Nikon, and Panasonic – which all come out of a long Japanese tradition of precision manufacturing and electronics. Until digital came along, Kodak had mostly sold cheap plastic cameras that had little or no electronics inside. Kodak’s strategy for cameras had been very close to Gillette’s with razors: give away the holder to sell the consumables.
Kodak had stumbled once before in trying to diversify its film business. In 1988, believing that it could apply its core knowledge of chemicals to medicine, it bought Sterling Drug, one of America’s largest pharmaceuticals companies. By the mid 1990s, however, Kodak had divested itself of most of the company. It may have known physical chemistry, but it did not know biology.
How Might Kodak Have Survived?
What if instead of branching into digital and software, Kodak had instead stuck to making film, but found new markets for its knowledge of chemicals and coatings? What if, instead of trying to call itself a “photography” or “image” company (something Xerox did half-successfully), it had redefined and expanded the markets for “film”?
To answer this, consider some of the other “film” inventions of the past 40 years: Post-It Notes from 3M; breathable fabrics and bandages from Goretex; flat panel displays from Samsung; Teflon pots and prosthetics; polarized glasses; and even osmosis filters for creating clean drinking water.
You might argue that if a company doesn’t focus on one or two markets, it cannot know these well enough to meet their needs and follow their evolution. This is true for many companies, but some are so good at something, so driven by a given fascination or competency, that they can pull off new product development across a variety of markets. Sometimes the markets come to them, asking them to adapt their technologies and know-how to new uses. 3M is one of these companies.
Apple is another, albeit with far fewer products. In each case, it has used its core competency in “ease of use” to create a new platform that others build on, in many different markets. Had Apple stuck just to computers, it would today be competing with Dell and HP for low-margin hardware sales. It updated and downsized the Sony Walkman with the iPod, moving into consumer electronics. It filled the iPod with iTunes, taking on the recording industry. It made those downloads portable, with the iPhone, taking on Nokia and Blackberry. It brought audio and visual together with the iPad, taking on Amazon and Netflix. And now, with iCloud, it is taking on Microsoft. There is one consistent quality here: ease-of-use.
The Lessons for Cities
Today whole communities are trying to reinvent themselves in business, turning from their traditional strengths in machinery or glass or steel or wood products to growth industries like biotechnology, social media, financial services and “green technology”. (This last really isn’t an industry. “Green” is just table stakes.) Often it is not clear what special skills or bragging rights these places have to offer in these new fields.
Maybe it is time for these communities to revisit what they do well, the techniques and technologies that have historically defined them, and instead put money and focus into updating their competencies, and finding new markets as well. One of the reverse sides of global trade is that there is now a world of markets out there, and you can be sure that somewhere someone is facing a new problem that is old to us. That’s what being export-driven is all about, thinking beyond traditional geographies and supplier relationships to find new ones. This is what a lot of what economic gardening is about.
Most places, especially in the industrial heartland, have long work traditions that revolve around technology. America’s original military industrial complex was in the Connecticut Valley and the area south to New Haven, which, not surprisingly, gave rise to a robust machine tool industry that was strong until the early 1980s. In places like this, people spoke “machinery” at the dinner table. As the factories of America empty out, we’re losing these skills, but if communities act quickly enough, they can update the skills and find new markets, just as Kodak should have done.
There are a number of examples of places with special skills that do not have biotechnology or software at their core. They may involve software, but the core fascination is something else. Milwaukee, for example, is expert at process control, maybe because it used to make both beer and cars. Grand Rapids is expert at workplace design. Portland, a place that runs, walks and hikes, does all things outdoors. Boston, which teaches, provides educational materials. And Las Vegas, a major tourism center, entertains.
Let’s take the last example for a minute. With its huge base of gambling casinos, shows and showy buildings, Las Vegas knows how to capture people’s attention and take money out of their pockets. The gambling machine companies that supply Las Vegas with its slot machines have learned how to use the adrenaline-inducing effects of video games like Grand Theft Auto to keep people sitting down. Perhaps Las Vegas can teach the video gaming industry something it has learned on the casino floor or with lounge acts. This seems like a far better business opportunity, long term, than selling health care to desert retirees.
Or how about Detroit, the “Motor City”? Detroit has been expert in motors and engines for more than 120 years, since before Henry Ford. A key shipping point in the Great Lakes, Detroit used to build both boats and the engines that powered them. Later, as the auto industry evolved, this expertise in motors and machinery found its way into windshield wipers, electric windows and air conditioners. Today nearby Ann Arbor is one of the engineering and technology capitals of the world. Combining new and old, Ann Arbor could anchor the new (Nano) Motor City.
Did Kodak prove Harvard wrong? Maybe it is more important to hold on to do what you do well and find new customers for this, than to hold slavishly to markets but lose yourself in the process. Kodak didn’t have to die on the back shelves of Wal-Mart. It could have stayed in the film business, making water filters for Africa. For America’s expert cities, maybe it is time not to reinvent themselves, but to reinvent their customers, and how and where they apply their expertise.
Rod Stevens of Spinnaker Strategies is a business development specialist and change agent who pioneers new sources of revenue. He has worked with entrepreneurs, investors, Fortune 500 companies, universities and municipalities on projects that change how we live, work, learn and play.