Innovation and Failure - What the Auto Industry Can Learn from Kodak's Downfall - Amherst Partners
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Innovation and Failure – What the Auto Industry Can Learn from Kodak’s Downfall

Innovation and Failure – What the Auto Industry Can Learn from Kodak’s Downfall

As the automotive industry moves towards inflection points for autonomous and electric vehicles, stakeholders across the industry must prepare for not only a transition to new technological hardware, but also a potential shift in the methodology of end-user consumption. Failure to address either eventuality could be catastrophic.

Technological change has led to lasting business disruptions over the last 30 years and will continue to do so as the rate of technological advancement quickens. Looking back on past disruptors in another industry provides some insight on how the automotive industry should deal with the changes it now faces.

The case of the Kodak Corporation provides lasting lessons on the issue. Long known for its cameras, development chemicals, and film used in both photography and cinema, the company went from a $30 billion valuation in 1997 to bankrupt in 2012. At the end of the day, it was the technology that Kodak developed themselves that was responsible.

Many believe that Kodak stumbled because it failed to see a sea change in digital photo technology coming. That is not actually the case. Kodak developed the first digital camera and commissioned internal reports in the 1980’s and 1990’s which indicated digital technology was the future of the business. They went on to produce some of the first retail digital cameras and acquired thousands of patents related to digital image capturing and archiving. Why then did Kodak fail?

One of the main reasons for failure was that Kodak did not understand how their cutting edge technology would be utilized by the end-consumer. They envisioned the technology supporting their existing business of capturing and printing pictures and invested in platforms for print-ordering of digital images.  In 2001 Kodak purchased a photo sharing site. They did not appreciate the true possibility of people digitally sharing their images and utilized the site to try to drive more printing activity. Had they embraced photo sharing back in 2001 (3 years prior to the founding of Facebook), who knows how far the investment could have gone?

Similarly, OEM’s will have to determine how autonomous technology will be utilized and the priorities of the end consumer. Will autonomy usher in an advanced era of ride sharing, and will that require a shift in the OEM role to that of a fleet operator? What will be the key feature differentiators in vehicle selection as the focus is taken away from the driving experience? Will people desire full autonomy or will it they be looking for augmented capabilities and how do you design around that?

Another reason for the failure of Kodak was that it was not able to act on a large number of its patents and bring the best products to market. This was partially due to a lack of investment in delivery products even as their technical capabilities were improving. The problem was exacerbated when Kodak failed to accept that competing superior products had overtaken the market. At that point, Kodak had the opportunity to license out some of their IP and partner with better hardware developers to maximize value, but they stubbornly forged ahead with inferior products that would not gain general acceptance. Automotive technology developers can learn from this lesson and look for ways to capitalize on their knowledge without burning resources trying to compete on product implementation with third parties with greater capabilities or better hardware designs. Strategic licensing and early partnering will allow for efficient monetization of IP. We may see this occurring in areas such as EV battery design and production.

One other lesson that can be learnt from Kodak is to understand the key underlying skill set behind what you do and how that may be applied elsewhere.

As the film business began falling apart, Kodak was slow to reset their strategy. Kodak’s chief competitor in the film market, Fuji, saw the writing on the wall and set out to reposition their business. In one fascinating example, Fuji realized some of its expertise was in using antioxidant and collagen knowledge to prolong the integrity of their film. Fuji identified human skin as suffering from some of the same issues as film and eventually utilized this antioxidant and collagen expertise to create a line of skin care products.

Kodak, although late to do so, eventually started to rebuild the Company around some of their key capabilities. They took their knowledge of image capturing and printing and realigned themselves as a digital printing company. Similarly, they have used their expertise in film and depositing of small amounts of chemicals and metals to expand into the touchscreen market.

Several automotive suppliers should pay heed to this history as the movement towards electric vehicles continues.  Whether it be the makers of engine parts or exhaust systems, some suppliers will find their parts obsolete. In fact, a recent CALSTART report found that as many as 70% of EV components may be different from a traditional vehicle. These companies will have to look for transferrable core competencies in manufacturing, processes, and design to think about how they can restructure, and begin planning in advance for that switch-over now.

The era of autonomous and EV vehicles is here and continues to advance. Volvo, Uber, and Carnegie Mellon University have partnered to provide autonomous Uber vehicles. Tesla continues to improve EV range while charging stations are built across the major U.S. travel corridors. Those who are able to correctly identify how new technology will be consumed, and what their competitive advantage is within the chain leading up to that consumption, will arise from this disruption as industry leaders. For those whose traditional products are rendered obsolete and are left without an obvious role within the new auto economy, survival is possible if base capabilities can be identified and used in new ways. Adaptation to change and creative thinking will be the cornerstones behind successful navigation of each of these paths.

By James Morden, Managing Director

First published on August 24, 2017