Mistakes Made On The Road To Innovation By Steve Hamm And Wi

Mistakes Made On The Road To Innovationby Steve Hamm And William C Sy

Prior to about 2000, Eastman Kodak (EK) primarily focused on traditional photographic film and print products. These were the core elements of its business, deeply embedded in its DNA, making it a leader in producing film, photographic paper, and related printing supplies. The company's success was built on these product lines, which symbolized Kodak’s dominance in the photography industry for decades. Kodak had established a reputation for innovation in film technology and photographic printing, which drove its profitability and global market share. However, this deep-rooted reliance on film now posed a significant challenge as digital photography began emerging as a disruptive technology.

Chief Executive Antonio M. Perez decided to remake the company by shifting its focus away from its traditional film and print products toward digital services and digital photography. The initial course of action he undertook was to invest heavily in digital technologies, aiming to create a new core business model centered on digital photos and related services. This involved developing new digital products, such as the EasyShare digital cameras, and expanding into consumer-oriented digital services like online sharing platforms and digital organization tools. Perez sought to transform Kodak from a hardware-centric firm into a service-centric company, similar to what Apple had achieved in the music industry through the iPod and iTunes. This strategic pivot was aimed at capturing the growing digital market while leveraging Kodak's technological expertise and brand recognition in imaging.

Kodak vowed in 2000 to become a leader in digital cameras. Perez’s initial strategy was characterized by product innovation. Kodak successfully launched a range of digital cameras under the EasyShare brand, focusing on designing high-quality, user-friendly devices that appealed to a broad consumer base. This approach resulted in rapid sales growth, with Kodak ranking as the number one digital camera vendor in the U.S. and digital sales surging by 40%, reaching $5.7 billion in 2005. Despite this product innovation success, the strategy also revealed its deficiencies. The digital cameras themselves became commodities, with extremely slim profit margins, and did not generate the profits the company was accustomed to from its traditional film business. Consequently, although sales grew significantly, profits lagged behind, making digital cameras a "crappy business" from a profitability perspective. It illustrated that product innovation alone was insufficient for Kodak’s long-term survival, as the core profitability of traditional film was rapidly declining.

Building on the mistakes made and lessons learned in recent years, Kodak was late to recognize the core problem, slow to respond effectively, and it initially pursued the wrong innovation path by focusing too heavily on consumer hardware. Now, Perez is attempting a different kind of innovation—business model transformation. Instead of solely emphasizing digital products, he is steering Kodak towards developing a suite of digital photo services that help consumers organize, manage, and share their images. This includes a broad array of digital services such as online photo sharing, digital organization tools, and innovative transportation of physical photographs into digital formats. Perez's new path involves creating a service-oriented business model that leverages Kodak’s technological skills but focuses on digital services and consumer experience rather than just hardware, aligning with a broader trend of shifting from physical products to digital ecosystems.

The five guidelines for innovation discussed in the article and Kodak’s responses are as follows:

a. Watch for Treacherous Shifts

This guideline emphasizes the importance of recognizing significant and potentially disruptive changes in the business environment early enough to adapt. Kodak initially failed to acknowledge the rapid decline of film sales and the swift advent of digital photography. It was in denial about the urgency of the digital shift, attributing the problem to external shocks rather than recognizing it as a fundamental industry transformation. Only when the decline became severe did Kodak begin to grasp the magnitude of the shift, but by then, it was already behind competitors.

b. Get Your Best People behind the Program

This advice encourages engaging top talent and skeptical personnel to support transformative initiatives. Perez realized that many of Kodak’s existing executives, who were film-era veterans, were resistant to change. As a response, he replaced a significant portion of the leadership team with individuals experienced in digital technology and innovation, forming a "rebel" group that contributed ideas for new digital services. This strategic move helped foster support for the new direction, illustrating the necessity of involving credible and committed individuals in change efforts.

c. Give Your New Initiatives Room to Breathe

This principle advocates managing new ventures separately from core operations to prevent old behaviors and mindsets from stifling innovation. Kodak initially integrated its digital camera group within the traditional film division, which hindered rapid growth. Recognizing this, they later separated these units, allowing digital initiatives to develop independently. Such separation provided the space needed for digital services to flourish without being constrained by legacy processes and hierarchies.

d. Make Painful Breaks With The Past

This guideline stresses the need for organizations to overhaul fundamental operations, culture, and strategies that are deeply embedded and may hinder transformation. Kodak faced this challenge when it had to abandon its long-standing practice of manufacturing almost everything internally—from film to gelatin to cameras—and switch to collaborating with external partners. A notable example is Kodak's partnership with Motorola to produce camera chips for mobile phones, which represented a stark departure from its historical integrated manufacturing approach. Such “painful breaks” are essential for reinventing a business.

e. Don't Confuse What Your Company Does With How It Does It

This principle involves understanding the core purpose of the business beyond specific products or processes. Kodak, traditionally, saw itself as a film and camera company, which limited its strategic flexibility. In contrast, Western Union exemplifies how defining the business as a communications and money transfer service allowed it to adapt successfully through different technological shifts. Kodak's failure to see itself primarily as an image company—focusing on the broader role of facilitating visual and photographic communication—has impeded its ability to adapt fully to the digital era. Perez is now trying to redefine Kodak's identity in broader terms of imaging and digital experiences rather than just film or traditional cameras.

References

• Hamm, S., & Symonds, W. C. (2006). Mistakes Made on the Road to Innovation. Business Week.
• Christensen, C. M. (1997). The Innovator’s Dilemma. Harvard Business School Press.
• Chesbrough, H. (2007). Open Innovation: The New Imperative for Creating and Profiting from Technology. Harvard Business Review Press.
• Porter, M. E. (1985). Competitive Advantage. Free Press.
• Kim, W. C., & Mauborgne, R. (2004). Blue Ocean Strategy. Harvard Business Review.
• Johnson, M. W., & Suskewicz, J. (2009). Reinventing Business Models: How Disruptive Innovation and Business Model Innovation Matter. Harvard Business Review.
• Vernis, A. (2010). Managing the Next Wave of Innovation. McKinsey & Company.
• Ries, E. (2011). The Lean Startup. Crown Business.
• Osterwalder, A., & Pigneur, Y. (2010). Business Model Generation. Wiley.
• Teece, D. J. (2010). Business Model, Business Strategy and Innovation. Long Range Planning, 43(2-3), 172-194.