BMAN 62042 Case Studies in Technology Strategy and Innovation Management

Professor Andrew James

Individual Assignment

Disruption: responses and perspectives matter

Analysis of Case study
Fujifilm: A second foundation from Gavetti et al (2007)

Number of words: 1894

Denis Lopes - 8151427

Ind. Assignment Case Studies MSc IME 2011-12

Denis Lopes: 8151427

The key is on the response The case of Fujifilm: A second foundation from Gavetti et al (2007) presents an example of response to a potential disruptive innovation from the perspective of the incumbent. The key issue raised by this case is the fact that a new technology or a new business model is not inherently disruptive. The outcome, disruption or not, is always contingent on the response actions taken by the incumbents. Fujis response to the threat of disruption posed by digital photography, particularly when compared to Kodaks response, shows that the outcome is contingent on the strategy of response and the speed this response is implemented. It is not enough to be able to identify a threat of disruption, Kodak identified the threat of digital photography more than 30 years ago. Unfortunately, what Kodak might have missed was vision, courage and determination to respond appropriately and fast enough. Fuji differently, had a leader, CEO Shigetaka Komori, with all these elements which implemented the transformation needed. The challenge he took responsibility was unprecedented in the companys history (Gavetti et al, 2007). Fujis response was done by expansion and transformation of the core business of the company. The strategy chosen by Fuji was focused on identifying opportunities for growth, particularly based on 2 main paths: organic growth leveraged on the company competencies, and acquisitions with synergetic or transformational intent. The result was a company with diversified business, ranging from ink-jet dyes to radiopharmaceuticals. One of the most successful results from this strategy, came from the exploitation of core competence of films to LCD flat panels Revenue...had grown 35% between 2005 and 2006, and although... represented only 5-6% of Fujis total sales, it increasingly contributed to profit (Gavetti et al, 2007). Fuji was certainly on the right path. The progress achieved on the new founded company by 2007 (seven years after most of major changes was initiated, and one year after the final plummet of photo film business) showed a promising picture [Komori] felt confident that the company could achieve its target of 200 billion in operating profits for fiscal year 2007. In the same time Kodak was rolling downhill. The successful response of at least one incumbent, in this case Fuji, imposes the need to assess the conditions, context and possible limitations the concept of disruptive innovation might present.

Disruptive: an evolving concept The concept of disruptive innovation was originally created by Christensen as disruptive technology (Danneels,2004). Later, on Christensen book Innovators Solution, the concept evolved to Disruptive innovation. The concept from them on included considerations about the relationship between the technology and the business model. In 2004 the book Seeing whats next authored by Christensen, Anthony, and Roth proposed a framework for predicating (maybe a more precise word would be estimating) the outcome of a competitive battle between an entrant, with a new technology or new business model, against an incumbent. This predicating framework enjoyed great success, particularly between managers and business consultants. On the other hand, the framework has been criticized by several authors (Adner:2002, Danneels:2004, Govindarajan and Kopalle:2006) as lacking rigorous conceptualization and representative support data.All of Christensens case studies are of disruptive technologies that did succeed. Danneels (2004) Christensen has been accused of cherry-picking examples to support his framework (Cohan, 2000 as cited by Danneels, 2004). Some authors would go as far as questioning the entire validity of the process, stating that the examples chosen and the conclusions taken are based on pure hindsight. The real challenge to any theory, especially if it is to be useful managerially, is how it performs predictively. In other words, can the theory be used not only to analyze cases post hoc but also to predict the outcome of cases ex ante? Danneels(2004). Similar comments comes from 2

Ind. Assignment Case Studies MSc IME 2011-12

Denis Lopes: 8151427

Govindarajan and Kopalle (2006) disruptiveness of innovations is viewed as a latent (i.e., unobservable ex ante), but outcome-level, variable, which in turn is affected by organizational level abilities or competences (Henderson, this issue). In one of the examples where the concept was used to predict disruptions, Christensen et al (2004) applied the proposed framework to the rising of a new aviation niche market, which at the time had potential for disruption. On the books example Disruptive planes, they describe a company that was creating a very light jet (a new category of almost personal aircraft) which could revolutionize aviation. This company received a lot of attention of the media, particularly because it was financially backed-up by Bill Gates. The main selling point of this disruption was: a low-cost jet aircraft, easy and safe to flight, with revolutionary new technology (Forbes, 2001). This could sound like an easy disruption to predict, and that might be one of the main reasons the outcome was different, since it called for immediate response from the incumbents. Ten years later, the incumbents had overturned the game and the entrant company was bankrupted (Economist, 2011). This example shows an important aspect of this framework. Definitely outcomes are impossible to predict, they certainly depend on the entrant capabilities, but, equally, are heavily contingent on the incumbents response. It is important now, not to let the impression that threats of disruption are something that should be taken lightly. If the response is not matched to the level of the threat, in intensity and timing of implementation, consequences can be devastating.

Kodak: A different picture The concepts presented on Case studies course unit, identifying disruptive innovations and properly responding to it, can help to explain the doomed situation Kodak end up. This is particularly evident when compared to the success of its main rival, Fuji. The framework of signals of change Christensen et al (2004) was useful to realize that Kodak was aware of the change almost 30 years before it happened, triggered by the invention of CCD (charge couple devices). Despite that, Kodak response was inappropriate. The framework of RPV(Resources-Processes and Values) by Christensen et al (2004), which is part of the concept of identifying disruption, helped to understand that the an unfit organizational routines worked against Kodak. This framework was important on identifying the rigidity of Kodaks processes, particular on product development and hiring practices. Kodak was slow and had complacency culture (Economist, 2012 as cited on Case studies, 2012). The companys values of searching for high profit markets, to justify its structure (large resource base), and focus on one product for main revenue stream, removed the incentives for change. The revenue stream from film business was solid and continuous. This made the incentives to change less interesting. Another important concept to understand the outcomes, presented in the course unit, it is the risks that a disruptive innovation presents to companies focused on a duopolistic competition (Case studies, 2012), in this case Kodak and Fuji duopolistic competition. Fuji was able to realize much earlier it was not competing only with Kodak, and more important, not only on film business. Photographic products generated over 50% of Fujis profits in 2000, but by 2005, Fujis film business barely broke even. (Gavetti et al, 2007). As mentioned here before, the sinking of the film business did not mean the sinking of the Fuji. By 2007 Fuji was growing on several promising markets. This is a different picture from Kodaks bankruptcy in 2012.

Ind. Assignment Case Studies MSc IME 2011-12

Denis Lopes: 8151427

Disruption: perspective matters Fuji successful response confirms the key issue of this case: the conclusion that disruption (here taken as the incumbents failure) is contingent on the incumbent response. A new technology can certainly replace, in some instances radically, an old one. In this case, digital photography almost eliminated photo film use (Bn photos from film-Case studies, 2012), reducing it to small niche markets like professional enthusiasts and nostalgic fans. From the old technologys perspective this meant a disruption. Nonetheless, as Fuji showed, what a technology replacement will mean for the incumbents future will depend on their understanding of the situation, and the bold actions they take. Winning the battle is not everything Both incumbents, Kodak and Fuji, developed the new digital technology, thus showing that a new technology can be taken in. The complicated part for the management, in this case, is that the new business model created by the digital technology was barely profitable for most of the companies selling digital cameras. The situation was made even worst with the converging of cameras into smartphones. Fuji response strategy was to create several businesses that kept the company growing, like: ink-jet printers and consumables, LCD display film, and diversify into new areas such as: cosmetics and pharmaceutical. Oppositely, Kodak response strategy was to insist only on photo business. Kodak won the battle, conquered the digital technology, but lost the war due its low value in the long run. It is worth to include here, with clear awareness of predicting limitations of the framework, that the value of disruptive concept might be on it helping to identify threats, and more important, on it providing the urgency feeling, for some of the changes that needs to be maiden.

A Path recommended: spin-off cosmetics division The diversification strategy of Fuji, based on capitalizing on their core competencies, has been successful. Nonetheless, Fuji should be aware that new game means new rules. Pharmaceuticals and cosmetics are very promising and profitable markets. Fuji certainly should explore this opportunities as they intended. The recommendation is that the cosmetics division should be spin-off from the Fuji corporation. The main reason for this recommendation is that cosmetics market operates on different values than those where Fuji used to operate. Fuji developed it values based on dimensions of performance and efficiency of the products they sold, initially with photo film and, later on, with LCD display films and consumables for printing. Values are hard to change Fuji values are starting to show on their strategy for promoting the cosmetics. The company will try to persuade customers on the basis of functional performance of their product, claiming its past competences on film preservation could provide superior performance. This is a risky strategy, especially due to the common assumption that customers on cosmetics market are more driven by emotional response, rather than substantial rational decision-making. This scenario is completely opposite of pharmaceutical markets, which have a high reliance on performance, thus not justifying a spin-off by this argument. 4

Ind. Assignment Case Studies MSc IME 2011-12

Denis Lopes: 8151427

In the cosmetic market Fuji will be an entrant. They should be aware that incumbents like LOreal, Revlon, Shiseido will certainly respond. Fuji should evaluate how much their values, processes and corporate structure will help or hinder the development of this business. The financial support provided by a large parent corporation might be important to break a path in the competitive market of cosmetics, particularly to develop the marketing and distribution channels. On the other hand, submitting the cosmetic division to the overall RPV of the parent corporation might slow decisions and hinder launching of frequently new products, usual practice of this type of market.

A hard balance To identify the right threats to respond and, once those are identified, to act swiftly is the hardest challenge of any company. The key might be on finding the right balance between the paranoia of everything is a threat, and the complacency of a rosy world. Theories that can help filter the right threats are welcome, but one should never forget that the environment is dynamic and no prediction is final. Everything can be changed until it happens.

Ind. Assignment Case Studies MSc IME 2011-12

Denis Lopes: 8151427

REFERENCES
Adner, R (2002) When are technologies disruptive? A demand-based view of the emergence of competition, Strategic Management Journal, 23: 667-688. Christensen, Clay (1997), The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, HBS Press, Harvard. Case studies (2012) slides. FUJIFILM Case Study: Corporate transformation. A response to disruptive innovation . University of Manchester, MBS. Available from: Blackboard. [Accessed 29/03/12]. Christensen, CM, Anthony, SD and Roth, EA (2004). Seeing Whats Next, Harvard Business School Press: Cambridge, MA Danneels, E (2004) Disruptive technology reconsidered: a critique and research agenda, The Journal of Product Innovation Management, 21: 246-258. Economist (2011) The return of the Eclipse http://www.economist.com/node/21540054 [accessed on 01/03/2011] Economist (2012) The last Kodak moment? http://www.economist.com/node/21542796 [Accessed 29/03/12] Forbes (2001) Plane Deal http://www.forbes.com/2001/04/09/0409feat.html [accessed on 01/03/2011] Gavetti, G. ,Tripsas M. and Aoshima, Y. (2007). Fujifilm: A Second Foundation. Harvard Business School. Ecch, the case for learning. Govindarajan, V and Kopalle, PK (2006) The usefulness of measuring disruptiveness of innovations ex post in making ex ante predictions, The Journal of Product Innovation Management, 23: 12-18.