Change or Die

change

 

The one constant in business is change, but what happens to those unwilling to keep pace with change? As technology proliferates at what often seems like meteoric speeds, the importance of innovation is fundamental. Globalization has resulted in a world where the next competitor can come from anywhere and at any time consequentially companies cannot afford to accept the status quo. Often times companies who have experienced great success succumb to the dreaded FDH syndrome (Fat, Dumb and Happy), failing to recognize that survival requires a culture with innovation ingrained into the very fabric of a company. According to Forbes, the average lifespan of a company has shrunken more than 50 years since the 1920’s where a company lasted on average 67 years compared to today’s average lifespan of 15 years. Those numbers are sobering however there are countless examples of companies who failed to innovate and are no longer around today. IR Optimizer investigates…

Blockbuster

In 1985 founder, David Cook, had the ground-breaking idea of video rental. Within 6 years, Blockbuster was purchased by Viacom for $4 Billion. By 1999, the company had a successful IPO with investors interest spurred by the steady income generated by late fees. Reed Hastings received one of those infamous late fees, $40 for Appolo 13, and after thinking to himself “there must be a better way” Hastings founded Netflix. A year later, with over $800 million in revenue, Blockbuster declined an offer to purchase Netflix for a mere $20 million. By 2002, with Netflix market share growing, Blockbuster’s hay days were far behind them with losses in excess of 1.6 billion. By the time the company recognized the need to innovate, it was too late. In 2010 the once market darling was worth a mere $24 million. Blockbusters fatal error was losing focus of what initially made them successful; innovation.

HMV

HMV was founded in 1921 selling Vinyl records to consumers of all ages. The introduction of CDs and videos were the catalyst that made HMV hundreds of millions. HMV achieved such clout that record companies offered up millions in “co-operative” advertising, helping HMV achieve record profits without the marketing expenditures companies typically required. The 1980’s saw HMV expand around the world. As computer games and DVD’s hit the market, HMV diversified its product offering and continued to thrive. While basking in their success, the 1990’s saw HMV ignore the significant threats of online retailers & downloadable music. While innovators like Amazon pioneered online shopping, Apple introduced digital downloads and Netflix debuted on demand movies, HMV actively ignored the digital market and consequently fell into receivership in 2013. HMV had unrivalled access to media content, significant brand equity and revenues; a perfect combination the company should have leveraged into an internet success. In February of 2017, HMV Canada announced they will have to close all 102 Canadian locations. HMV’s core competency was adapting to new technologies, from selling Vinyl to tapes to CD’s but forgot to adapt to the 21st century ultimately resulting in their downfall.

Kodak

It was over 115 years ago that the first automatic camera allowed Kodak to transform the photography industry. Founded in 1888, Kodak revolutionized an industry that was once relegated to professional studios and established amateur photography. In 1962, 70 years after its inception, the company had over 75,000 employees and surpassed $1 billion dollar in sales. The company controlled nearly 70% of the US film market, had gross margins that ran close to 70% and exceptional brand equity, all of which contributed to Kodak being one of the most successful companies in the United States. In 1975, Steve Sasson, a Kodak employee, invented the first digital camera. By 1981, with Sony having recently launched a digital camera, Kodak conducted an extensive research project that investigated the threat of digital photography. The results clearly identified digital photography as a significant risk to the film industry Kodak domineered and determining that the company had nearly a decade to prepare. This was not the first time Kodak needed to innovate. The company initially gave up a profitable dry plate business taking advantage of film and later invested heavily in color film moving away from black and white. In both circumstances, these strategic innovations contributed to Kodak’s success. Unfortunately, this time Kodak ignored the innovation lag risk instead doubling down on the film market because they considered digital could cannibalize their highly successful primary business. Kodak’s dedication to film left them blinded to the potential disruption their invention, the digital camera, had to the photography market. The 1996 introduction of the Advantix system and preview film was Kodak’s lackluster attempt of integrating digital. The Advantix system continued to emphasize Kodak’s focus on film profits over innovation. The new product allowed its users to view their pictures but instead of providing a new platform to share “Kodak moments” the camera allowed consumers to decide how many prints they wanted. The product was a commercial disaster; consumers didn’t want to buy a digital camera while still needing to pay for printing film. Kodak failed to appreciate that the meaning of amateur photography, the industry they were central in creating, had transformed from printed images to images shared through email and social media. The story of Kodak is a cautionary tale about the importance of companies reinventing themselves. When faced with a technical development that will cannibalize an existing business one must radically alter mindset, leaving existing legacy in the past in order to emerge a new company that embraces uncertainty.

Tune in next week when IR Optimizer investigates companies who embraced innovation resulting in market dominance!

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