Lessons from History
Those who cannot learn from history are doomed to repeat it.
It’s all too easy to focus on the immediate events that surround us, assuming that societal and technological development has moved so far beyond what our counterparts throughout history have encountered, that it’s somehow no longer relevant to us.
However, the key to success is often grounded in an appreciation of what’s gone before.
This is true even in the field of innovation – or at least when one considers what happens to companies and organisations who fail to innovate.
Having an awareness of why a refusal to accept the inevitability of change is an important step to understanding why companies must innovate if they are to survive.
Back in 1999, Blockbuster Video went public with a valuation of $4.8billion. A year or so before, Reed Hastings returned Apollo 13 six weeks late and was hit with a $40 fine. He was so appalled at the punitive nature of the fine (upon which much of Blockbuster’s profits were based) that he set up a new subscription video rental service (with no late fees) called Netflix.
A couple of years later Blockbuster passed up on the opportunity to buy the fledgling company for £50million.
By 2010, Blockbuster was filing for bankruptcy, having failed to change their business model to keep pace with the disruptive innovations Netflix represented.
Their CEO, John Antioco, may have been able to change the course of the company were it not for the fact that the company's investors ousted him in favour of a CEO who wanted to double down on their existing business model (of using penalty fees to create profitability). However, we should also remember that Antioco was also the man who laughed Reed Hastings out of his office.
Hindsight is always 20:20, and it’s easy to look back at where Blockbuster went wrong. How they balked at the idea of changing their business model, how they didn’t consider that disruptive innovations (in their market), like subscription models and streaming media, could impact their profitability.
Mainly, however, Blockbuster’s failure was due to a lack of imagination. With a valuation in the billions and a global chain of retail premises, the senior management of Blockbuster simply couldn’t conceive of a situation where their existing business would not continue to dominate.
And yet, history has shown us that, unless change is embraced, the mighty will always fall. New ways of doing business, new products, new technologies will ALWAYS come along.
Companies that have survived the longest recognise this.
Now let’s compare two very similar, and (in their market) dominant global companies. Kodak and Fujifilm.
Both Kodak and Fujifilm were pioneers in the world of analogue photography – and due to the technical complexity of manufacturing and processing colour film, operated in a duopoly. They were synonymous with colour photography and, to some extent, camera technology. 2001 was the year of peak demand for colour film and both companies were riding high.
Then came digital photography, and a wave that Kodak initially rode. In 1999 they had a 27% market share in digital cameras. However, because the Kodak business model was almost entirely based on film creation and processing, their digital cameras never made them money. In fact, they lost money on every camera sold.
Much of Kodak’s profit was in selling the technology, chemicals and paper to process and print film onto paper. Therefore, they were happy to sell cheap film cameras in order to get a very attractive annuity in the form of people developing films and printing the images.
With the advent of digital photography, Kodak tried to apply the same business logic. They had many patents on the imaging technology, plus an established brand in the photography space – but where they failed was in realising that the future of photography lay in digital sharing, rather than printing physical copies of the images.
To put it bluntly, Kodak tried to apply their previously successful business model to a disruptive technology. In 2012 Kodak filed for bankruptcy.
Contrast this with Fujifilm – the other half of the colour film duopoly.
Fujifilm saw the same signals and the same decline in film and camera sales. Rather than battening down the hatches and trying to weather the storm, the newly appointed president of Fujifilm came up with a 6 year plan to ‘save the company’ – called Vision75 (in reference to the 75th anniversary of the group).
They restructured the group – closing down less profitable aspects of the business and heavily investing in diversification and innovation.
The president recognised that “Fujifilm technologies could be adapted for emerging markets such as pharmaceuticals, cosmetics, and highly functional materials.”
Leveraging the photo film technologies, they created FUJITAC, a variety of high-performance films essential for making LCD panels for TV, computers, and smartphones.
The company also targeted unexpected markets like cosmetics. The rationale behind cosmetics comes from the 70 years of experience in gelatine, the chief ingredient of photo film which is derived from collagen. Human skin is seventy percent collagen, to which it owes its sheen and elasticity. Fujifilm also possessed deep knowhow in oxidation, a process connected both to the aging of human skin and to the fading of photos over time. Thus, Fujifilm launched a makeup line in 2007 called Astalift.
The stories of Blockbuster, Kodak and Fujifilm are the subject of much debate – and the view I’ve presented is an oversimplification of what really happened. However, one thing is clear.
Kodak and Blockbuster are now case studies from history, whereas Fujifilm is worth billions. Other companies that have put innovation at the heart of what they do (such as IBM and Unilever) continue to dominate in their markets because they are not afraid to re-invent themselves and their market offering.
History shows us that disruptive innovation WILL come along and change everything and that it is possible to not only survive, but to prosper. However, organisations need to be flexible and willing to make changes to fundamental aspects of how they do business.
In the case of Blockbuster, the company couldn’t imagine a future where people wouldn’t come into a retail store to choose a video. In Kodak’s case, having built a duopoly around colour film technology, they could not imagine a Kodak that did not have film at the core of their business. Neither of these companies was willing to let go of the past and embrace the future.
Fujifilm was swift and decisive in their strategy. They saw the way their market was heading and they invested in a future that would move them into very different territories. They used their experience and heritage to find adjacencies that might have seemed insane decades before, but as is often said, necessity is the mother of invention.
Maybe the saying should be updated to: Disruption is the mother of innovation.