Disruptive technology: How Kodak missed the digital photography revolution

1. MOT 석사세미나 1 Disruptive technology: How Kodak missed the digital photography revolution

2. TOC • About the authors • Introduction • Past Research • Extending Christensen’s Theory • The case of Kodak • An analysis of Kodak’s response • Extensions to theory • Discussion and lessons learned

3. Aboutthe authors Henry C. Lucas, Jr. Robert H. Smith Professor of Information Systems at the University of Maryland. Former faculty of the Stern School of Business at New York University. Book : Strategies for Electronic Commerce and the Internet. Information Technology for Management. Jie Mein Goh Jie Mein (JM) is interested in how information technologies transform organizations, businesses and individuals and develops her research projects around this question. Currently, her research focus is in the area of information technology in healthcare. PhD, University of Maryland College Park MS, National University of Singapore BS, National University of Singapore

4. Introduction • To explore how the firms respond to challenges from rare transformational technology that threatens a traditional, successful business model. • Extension of disruptive technologies theory • Lessons from the Kodak case study • Digital Camera + ICT  transformed the major customer processes associated with photography

5. Introduction • Conventional photographing • Digital photographing film photo distribute camera shop (film development) friends & relatives customer customer 3~4 days postal mail (film camera) quality check additional orders friends & relatives internet in a minute quality check store/edit digital file photo digital file PC / Printer distribute friends & relatives customer customer in a minute (digital camera) postal mail developing kiosk

6. Past Research • Christensen’s theory of disruptive technology • Investing in disruptive technologies is not a rational financial decision for senior managers to make because, for the most part, disruptive technologies are initially of interests to the least profitable customers in a market. • Innovator’s Dilemma(1997), Innovator’s Solution(2000) • The decision-making and resource-allocation processes that make established companies successful cause them to reject disruptive technologies. • resources, processes and values • culture

7. Extending Christensen’s Theory • 1. Emphasize the change process • Senior management has to convince others of the need to move in a new direction. • Specifically interested in middle managers • Christensen argues that the firm is not ready to adapt a disruptive technology because it does not see a demand from its customers for the new innovation. (tends to kill ideas that customers are not asking for)

8. Extending Christensen’s Theory • A framework for responding disruptive change • A company faces a struggle between 2 parties…

9. Extending Christensen’s Theory • Dynamic capabilities • Extension of the resource-based view of the firm. • The firm’s ability to integrate, build external competences to address rapidly changing environments. • Teece et al., 1997 • Consists of specific strategic and organizational process like product development, alliancing and strategic decision-making that create value for firms within dynamic markets by manipulating resources into new value-creating strategies. • Eisenhardt and Martin, 2000, …

10. Extending Christensen’s Theory • Dynamic capabilities (cont.) • A firm has 3 classes of assets to use • Processes: assemblies of firm-specific assets that span individuals and groups. • Have three roles of coordination, learning and reconfiguration • Positions: specific assets including plant and equipment, knowledge and reputational assets, that determine competitive advantage at a given point in time • Paths: the sequence of events that have led to a firm’s current position.(a firm’s previous investments and its repertoire of routines constrain its future behavior)

11. Extending Christensen’s Theory • Core rigidities • The core activities of the firm become so rigid that it cannot respond to new innovations. • Leonard-Barton, 1992 • 4 dimensions of core capability = employee knowledge and skill, technical systems which embed knowledge and support innovation, managerial systems which guide knowledge creation and control, values and norms associated with various types of knowledge • core capabilities that a appropriate in one situation may turn out to be inappropriate in another.

12. Extending Christensen’s Theory • Management propensities • Determine the outcome of the battle between dynamic capabilities and core rigidities in responding to a transformational technology. • Holcomb et al., 2008 • Managers have to develop a strategy that emphasizes the response to disruptive technology, and they must communicate this strategy throughout the firm. • long-term employees (core rigidities) • New employees (dynamic capabilities)

13. Extending Christensen’s Theory • 2. Organization culture • Culture is a pattern of basic assumptions that a given group has invented, discovered, or developed in learning to cope with its problems of external adaptation and internal integration. • Schein, 1983. • Culture is a multilevel concept that is fragmented across domains such as different types of management. • Burke, 2002. • Need to consider the role of middle management.

14. The case of Kodak • The rise and fall of Kodak • Founded by George Eastaman, 1880 • Developed the first snapshot camera, 1888 • Camera business  File business • Camera owners use large amount of film. • $1 billion in sales, 1962 • Captured the majority of the US film & camera market (90%, 85%) • Most of CEOs came from manufacturing jobs • Sales hit $10 billion, 1981. • Competition (Fuji)  1986, invent first megapixel sensor. • 1990, Began to sell Photo CD System

15. The case of Kodak • The rise and fall of Kodak (cont.) • 1983~1993, went through 7 restructurings • 1993, CEO George Fisher(from Motorola) • Refocus Kodak on photography / invest China • digital(film) camera sales increase 75% (3%), 1997. • 2000, CEO Daniel Carp • Purchase online picture service company Ofoto, 2002. • Shutdown film camera factory in US, 2003. • 2005, CEO Antonio Perez • Since 1993, reduced its labor force by close to 80%, over 100,000 employees. • Net sales: $ 20 billion(1992)  under $15 billion (1997)

16. The case of Kodak • Kodak’s net sales & # of employees George Fisher Daniel Carp

17. The case of Kodak • Kodak’s monthly share price George Fisher Daniel Carp

18. The case of Kodak • The movement to digital photograph • Transformation took about two decades • ICT play as important role in this • Computer + Internet • Kodak invented megapixel(1986), digital camera. • 1991 space shuttle boarded Kodak digital camera • Around 1998, digital camera shows dramatic increase in the sales • Price down, performance increase • A whole new group of competitors – HP, Lexmark, Epson, Canon …

19. The case of Kodak • Sales of Digital Camera

20. An analysis of Kodak’s response • Christensen’s comment • Disruptive technologies produce product that are typically cheaper, smaller and often more convenient to use than traditional products. • (However) Digital camera were an expensive curiosity at first, but soon producers improved their performance and they constantly reduced prices. • Digital photography was not just a product, but a change in the entire process of capturing, displaying and transmitting images. • Kodak seriously underestimated how quickly the deman for this new technology would grow.

21. An analysis of Kodak’s response • Christensen’s comment • Firm resource-allocation processes discourage investment in potentially disruptive technologies. • (However) Kodak did invest massive amount in digital photography. • Fisher arrived after Kodak had spent $5 billion on digital imaging R&D with little coming from the labs. • Product development and sales were scattered over more than a dozen divisions, at one point the company had 23 different digital scanner projects under development (2004).

22. An analysis of Kodak’s response • Christensen’s comment • Give responsibility to disruptive technologies to separate organization that will work with customers who are likely to buy the new technology. • (However) Kodak went through a number of restructurings and at times had a separate digital organizational unit. • In 1994 Fisher separated digital imaging from silver-halide photographic division to create digital and applied imaging division.

23. Extensions to theory • Change • Dynamic capabilities vs. Core rigidity • Management propersities • Senior Manager  Middle manager  To all • Organization culture • Kodak’s culture: chemical(film) company with harmony • Underestimate the growth of market for digital camera • Professional photographer  Digital camera • Employees values hierarchy and authority. • Don’t speak out against manager though they opposed the idea.

24. Discussion and lessons learned Kodak sat on a mountain of cash and profitability in their traditional photography business and I believe their thinking was digital photography will eat into my traditional most profitable business. I don’t want to that to happen. What I think Kodak miscalculated about was they weren’t in charge of whether that would happen. Consumers were in charge.