When I did my MBA internship at Xerox in Rochester, NY, I had an opportunity of visiting the “other” company in town – Kodak. The personalized tour guided me through their manufacturing facilities, a team presented a lecture on how the 35 mm sprockets had been designed, and a driver provided a golf cart ride around the large sprawling operations and headquarters. At that time Kodak had over 145,000 employees. The pay was so good for the average Kodak employee that I noticed a Kodak manager’s palatial home at the outskirts of Rochester. But, since I was interning at another company also facing international competition from Asia, I considered that Kodak could face the same fate as Xerox. Fuji film was already out there. There was also Agfa from Europe. Polaroid had taken some market share. The barbarians were already at the gate.
Business school case studies always relate to financial models, competitive environments, and other first year standard business courses. They never seem to talk about the embedded culture of a management team — how decisions are made to their self-interest, specially when the team has controlled the top of the hill for many years. And I believe that was the beginning of the death knell of Kodak. The senior management team sincerely believed that it was made of Teflon.
In a New York company, as a personal example, I needed to establish an operation in Europe, and, when I approached the president of the company to go ahead, he replied” in the 30 years of operations, we never needed to get a third party manager.” And I answered that, unless we establish that operation, which would be lynchpin in Europe, we could never compete there. But that president’s remark still rings in my head – “we have been successful so far in the U.S. with what we have done so far, why should we change our ways of doing business? “ Hence the embedded culture of a staid, non-risk taking management team.
I am sure that Kodak management thought along the same lines. The irony of all ironies was that Kodak’s R&D developed digital photography. In 1975 Mr. Steven Sasson invented the first digital camera. In that era, Xerox also had a successful R&D that invented the “mouse.” It seems that Kodak’s R&D as well as Xerox could produce worthwhile technologies, but the senior management team never embraced the new technologies. However, Asian companies were able to see the future on how this digital technology would dethrone the once and mighty Kodak.
Even Kodak itself had been a technology disruptor in the late 1800’s when George Eastman invented a flexible film to be encased in a camera box. Prior to that, photographers used glass plates that shot single images and could only develop those plates in personal labs. The average Joe could never adopt such complicated process.
George Eastman’s approach was to sell the camera boxes with so many shots, and the consumer could ship the box and have a new roll with the prints being made as well. Eastman’s strategy reminded me of Steve Job’s marketing approach – sell a reusable box and sell films for the life of the box (like an iPod with music being sold a la carte). In some ways, Eastman was the Steve Jobs of his era. It was an ingenious approach to selling images. And for many decades thereafter Kodak became the world’s leader in photography.
Maybe it was its hubris that clouded management’s vision to adopt new technologies. It should have embraced the digital technology, no different than the manner in which Eastman adopted flexible film in the late 1800’s. But that is what disruption does – it challenges the embedded culture of management. Some will acknowledge it, others will ignore at its own peril.
I myself notice such presumptions constantly in new companies as well – that my approach to strategy or maintaining the current direction is the right one. Maybe these management teams should see that even one of the largest and oldest icons of American innovation can fall as well. Always look at your rear view mirror, you never know when someone will pass you by.