A failure of focus: Lessons from Kodak

By Nitin Pangarkar March 5th, 2012StrategyInnovation

“You press the button, we do the rest.”

So went the advertising slogan coined by Kodak in the late 19th century.

It was a motto that opened the door to mass-market consumer photography – a popular
culture pioneered by Kodak, but which its recent sorry decline has shown it failed to
keep pace with.

The habit of button-pressing is of course more popular then ever – see Facebook,
Tumblr, Flickret. But for Kodak, recently forced to file for bankruptcy protection, the
company’s failure to reinvent itself to the instant gratification realities of the digital era
meant there was increasingly little of “the rest” for it to do.

Founded by inventor and philanthropist George Eastman, Kodak’s little yellow film
packages became one of the world’s most recognised brands. Indeed for much of the
twentieth century Kodak was an American industrial icon – at one point enjoying a
similar status as tech giant Apple does today.

Since the turn of the century however, the fortunes of the once mighty photographic firm
have plummeted. By early 2012 Kodak’s shares were trading at around 40 cents, down
from $40-45 just seven years earlier. The NYSE even went as far as to warn the
company that it risked being delisted.

So where did it go wrong?

Kodak factfile

 Kodak was founded by George

Eastman in 1892, credited with
inventing the first photographic
film
in roll form

 Kodak was added to the Dow

Jones Industrial Average in 1934,
remaining a Dow component for
seven decades

 A Harvard study in 1976 found

that Kodak accounted for 90
per cent of film sales and 85
per cent of camera sales in the

US
 In 1988 Kodak employed
145,000 worldwide. Most recent
figures put it now at just over
18,000
One common explanation about Kodak’s
demise is that it missed the digital revolution –
or simply that the ubiquity of digital cameras
made photographic film redundant while
Kodak bosses buried their heads in the sand.
While that explanation has some merits, it is
far from the full picture. In fact Kodak was a
pioneer in the development of digital cameras,
producing the first prototype megapixel digital
camera in 1975.

Presented to sceptical Kodak executives, the bulky device was powered by no less than
16 batteries and took a full 23 seconds to record a single image, using a cassette tape
as the equivalent of today’s memory card. (You can see a picture of the camera on this
Kodak blog, the title of which is a story in itself: “We had no idea”)

Even when digital cameras reached the consumer market in the mid- to late-1990s,
some of Kodak’s early models competed with models from Olympus and Sony for top-
selling spots. In fact, the early cameras made by Canon, the current global leader in
digital cameras, lagged well behind those of Kodak in terms of consumer acceptance as
well as critical reviews.

Kodak didn’t lack technical expertise either and, even today, has considerable
intellectual property in the digital imaging space with its thousands of patents worth
several billion dollars. Why then is Kodak struggling to survive despite a strong start in
the promising – and still rapidly growing – arena of digital imaging?

Bridging the gap

I suggest that successful innovators must be able to integrate (as in combine) external
and internal knowledge. An excellent example of this is the case of Fanuc, the
Japanese maker of machine tool controls.
Based near the foot of Japan’s iconic Mount Fuji, Fanuc used to make mechanical and
hydraulic controls in the 1970s. But after the first oil shock in 1973, operating costs of
those controls became prohibitive because they consumed a lot of oil.

In response, Fanuc began a huge effort to shift to computer controls. It overcame gaps
in its own knowledge by partnering with diverse sources including the University of
Tokyo, its customers, end-users and sometimes even existing as well as potential
competitors, such as GE and Siemens which had their own aspirations in this industry.

The external knowledge from these partnerships was combined with a number of other
elements including its own internal knowledge, some bold strategic bets (being the first
to use an Intel microprocessor in a dusty, dirty and hot factory environment) and a far-
sighted leadership which had the vision of global leadership.

Not only did Fanuc manage to successfully adopt new electronic technology, it also
became a dominant leader. Indeed a recent Bloomberg article recently called it “The
Microsoft of machine tools” – a company whose products effectively run the world’s
factories.

Kodak’s failure to adapt to the new technology stands in stark contrast to Fanuc’s case
because Kodak had greater resources in terms of its brand reputation, its finances and
its technological prowess in digital imaging. Kodak’s failure lay in its strongly inward
focus.

Although it was a pioneer in the technical aspects of digital imaging, it lacked skills in
areas such as lens making and manufacturing (making efficient and reliable electronic
devices) to successfully commercialise products based on its innovations in digital
imaging.

Critical integration

Kodak did make efforts to outsource its camera manufacturing (and thus fill some gaps
in expertise), the outsourcing arrangement did not achieve the integration of external
knowledge with Kodak’s own internal knowledge that was so critical to continued
innovation. As a result, Kodak remained stuck in the lower end of the digital camera
spectrum and could never compete in the high end of the spectrum, which is where the
bulk of the profits are.
That all begs the question: Why did Kodak fail to achieve the integration of external and
internal knowledge? After all, Kodak was for decades a greatly admired company which
owned an iconic brand. It had mastered all aspects of the film business including R&D,
manufacturing, marketing and worldwide distribution.

The answer lies in the quality of management. Unlike Fanuc which had the towering
figure of Dr Inaba, a key scientist in his field of robotics and numerical controls; in its
effort to provide the visions needed to adapt to the new technologies and then lead the
world market, Kodak went through a number of CEOs – it is on its fourth CEO since
1990.

The short tenure of each CEO made working towards a distant goal of industry
leadership in the fast evolving technology of digital imaging rather difficult.

Very often, when CEOs change, they bring new priorities and the pursuit of a distant
goal can be easily ‘misplaced’ in these reshuffles, or, worse yet, the goals themselves
may be changed. Kodak also went through numerous restructurings which were
traumatic for the employees and sometimes also taking it into unfamiliar and
hypercompetitive markets such as printers, again diluting its focus.

The key stumbling block was its inability to convert its

technical expertise into tangible products that could be sold
profitably
Complacency also played its part. Kodak is based in Rochester, New York, where it was
the largest employer and has a towering influence. It has helped many local causes – in
fact of one of the premier music schools in the world (the Eastman School of Music at
the University of Rochester) bears the name of Kodak’s founder.

Possibly, in its efforts to continue to be good to the local community, Kodak let its costs
get out of control. Like many corporate peers such as GM, legacy costs (funding
generous retirement packages) became a huge burden, especially when revenues
started to decline.

So what lessons do Kodak’s problems hold for others?

From my perspective, the key stumbling block was its inability to convert its technical
expertise into tangible products that could be sold profitably (in other words a
sustainable business model). Kodak had several gaps in its expertise to design a
complete business model but lacked the clarity of vision or the continuity of leadership to
acquire the resources in a systematic fashion, let alone integrate them with its
considerable internal knowledge of digital imaging.

Other companies facing similar technological discontinuities would do well to remember

the critical role of integration of internal and external knowledge to achieve innovation,
which would, in turn, improve their chances of successful adaptation.

_____________________________________________
______________________________________________________________________

Barabba argues that four interrelated capabilities are necessary to enable

effective enterprise-wide decision-making—none of which were particularly
well-represented during pivotal decisions at Kodak:

1. Having an enterprise mindset that is open to change.Unless

those at the top are sufficiently open and willing to consider all options, the
decision-making process soon gets distorted. Unlike its founder, George
Eastman, who twice adopted disruptive photographic technology, Kodak’s
management in the 80’s and 90’s were unwilling to consider digital as a
replacement for film. This limited them to a fundamentally flawed path.

2. Thinking and acting holistically.Separating out and then optimizing

different functions usually reduces the effectiveness of the whole. In
Kodak’s case, management did a reasonable job of understanding how the
parts of the enterprise (including its photo finishing partners) interacted
within the framework of the existing technology. There was, however, little
appreciation for the effort being conducted in the Kodak Research Labs
with digital technology.

3. Being able to adapt the business design to changing

conditions.Barabba offers three different business designs along a
mechanistic to organismic continuum—make-and-sell, sense-and-respond
and anticipate-and-lead. The right design depends on the predictability of
the market. Kodak’s unwillingness to change its large and highly efficient
ability to make-and-sell film in the face of developing digital technologies
lost it the chance to adopt an anticipate-and-lead design that could have
secured the it a leading position in digital image processing.

4. Making decisions interactively using a variety of methods. This

refers to the ability to incorporate a range of sophisticated decision
supporttools when tackling complex business problems. Kodak had a very
effect decision support process in place but failed to use that information
effectively.

While “The Decision Loom” goes a long way to explaining Kodak’s slow
reaction to digital photography, its real value is as a guidepost for today’s
managers dealing with ever-more disruptive changes. Given that there are
few industries not grappling with disruptive change, it is a valuable book for
any senior (or aspiring) manager to read.

Barriers to Change: The Real Reason

Behind the Kodak Downfall


Kodak is bankrupt. Usually, when this hits the news it is analyzed by the numbers people
who, looking at five years’ worth of financial data, give their quantitative and financial
explanation of the failure. More qualitative types will go back 10 years sometimes, and even
go beyond finances to talk about strategy, CEOs, competition, and the like. Recent well-
done Financial Times articles (here and here) go back even further for Kodak. And yet people
still fail to see Kodak’s real problem.

The Kodak problem, on the surface, is that it did not move into the digital world well enough
and fast enough. Recent articles dig a bit more and find that there were people who saw the
problem coming — people buried in the organization — but the firm did not act when it
should have, which is decades ago. Kodak faced the technological discontinuities challenge,
first clearly articulated by my colleague Clay Christensen: a new technology has fierce
competitors, low margins and cannibalizes your high margin core business. And Kodak did
not take decisive action to combat the inevitable challenges.

Everyone thinks of all this in terms of strategic decisions either avoided or made poorly.
What no one seems to do is go back and ask: Why did Kodak make the poor strategic
decisions they made? In 1993 they brought in from the outside a technology expert to be
CEO. George Fisher was believed to be almost as good as Jack Welch or Lou Gerstner. Great
CEO, people buried in the hierarchy who had all sorts of good ideas, and still poor strategic
decisions. Why?

Answer: The organization overflowed with complacency. I saw it, maybe in the late 1980s.
Kodak was failing to keep up even before the digital revolution when Fuji started doing a
better job with the old technology, the roll-film business. With the complacency so rock-
solid, and no one at the top even devoting their priorities toward turning that problem into a
huge urgency around a huge opportunity, of course they went nowhere. Of course strategy
sessions with the BIG CEO went nowhere. Of course all the people buried in the hierarchy
who saw the oncoming problems and had ideas for solutions made no progress. Their bosses
and peers ignored them.

How can CEOs learn from Kodak’s failure? Historically, Kodak was built on a culture of
innovation and change. It’s the type of culture that’s full of passionate innovators, already
naturally in tune to the urgency surrounding changes in the market and technology. It’s these
people – those excited about new ideas within your own organization - who keep your
company moving ahead instead of falling behind. One key to avoiding complacency is to
ensure these innovators have a voice with enough volume to be heard (and listened to) at the
top. It’s these voices that can continue to keep a sense of urgency in your organization. If
they are given the power to lead, they will continue to innovate, help keep a culture of
urgency and affect change.
How Kodak Failed
There are few corporate blunders as staggering as Kodak’s missed opportunities in digital
photography, a technology that it invented. This strategic failure was the direct cause of
Kodak’s decades-long decline as digital photography destroyed its film-based business
model.

A new book by my Devil’s Advocate Group colleague, Vince Barabba, a former Kodak
executive, offers insight on the choices that set Kodak on the path to bankruptcy. Barabba’s
book, “The Decision Loom: A Design for Interactive Decision-Making in Organizations,”
also offers sage advice for how other organizations grappling with disruptive technologies
might avoid their own Kodak moments.

Steve Sasson, the Kodak engineer who invented the first digital camera in 1975,
characterized the initial corporate response to his invention this way:

But it was filmless photography, so management’s reaction was, ‘that’s cute—but don’t tell
anyone about it.’

via The New York Times (5/2/2008)

Kodak management’s inability to see digital photography as a disruptive technology, even as

its researchers extended the boundaries of the technology, would continue for decades. As
late as 2007, a Kodak marketing video felt the need to trumpet that “Kodak is back “ and that
Kodak “wasn’t going to play grab ass anymore” with digital.

To understand how Kodak could stay in denial for so long, let me go back to a story that
Vince Barabba recounts from 1981, when he was Kodak’s head of market intelligence.
Around the time that Sony SNE -0.8% introduced the first electronic camera, one of
Kodak’s largest retailer photo finishers asked him whether they should be concerned about
digital photography. With the support of Kodak’s CEO, Barabba conducted a very extensive
research effort that looked at the core technologies and likely adoption curves around silver
halide film versus digital photography.

The results of the study produced both “bad” and “good” news. The “bad” news was that
digital photography had the potential capability to replace Kodak’s established film based
business. The “good” news was that it would take some time for that to occur and that Kodak
had roughly ten years to prepare for the transition.
The study’s projections were based on numerous factors, including: the cost of digital
photography equipment; the quality of images and prints; and the interoperability of various
components, such as cameras, displays, and printers. All pointed to the conclusion that
adoption of digital photography would be minimal and non-threatening for a time. History
proved the study’s conclusions to be remarkably accurate, both in the short and long term.

The problem is that, during its 10-year window of opportunity, Kodak did little to prepare for
the later disruption. In fact, Kodak made exactly the mistake that George Eastman, its
founder, avoided twice before, when he gave up a profitable dry-plate business to move to
film and when he invested in color film even though it was demonstrably inferior to black
and white film (which Kodak dominated).

Barabba left Kodak in 1985 but remained close to its senior management. Thus he got a close
look at the fact that, rather than prepare for the time when digital photography would replace
film, as Eastman had with prior disruptive technologies, Kodak choose to use digital to
improve the quality of film.

This strategy continued even though, in 1986, Kodak’s research labs developed the first
mega-pixel camera, one of the milestones that Barabba’s study had forecasted as a tipping
point in terms of the viability of standalone digital photography.

The choice to use digital as a prop for the film business culminated in the 1996 introduction
of the Advantix Preview film and camera system, which Kodak spent more than $500M to
develop and launch. One of the key features of the Advantix system was that it allowed users
to preview their shots and indicate how many prints they wanted. The Advantix Preview
could do that because it was a digital camera. Yet it still used film and emphasized print
because Kodak was in the photo film, chemical and paper business. Advantix flopped. Why
buy a digital camera and still pay for film and prints? Kodak wrote off almost the entire cost
of development.

As Paul Carroll and I describe in "Billion-Dollar Lessons: What You Can Learn From The
Most Inexcusable Business Failures of the Last 25 Years," Kodak also suffered several other
significant, self-inflicted wounds in those pivotal years:

In 1988, Kodak bought Sterling Drug for $5.1B, deciding that it was really a chemical
business, with a part of that business being a photography company. Kodak soon learned that
chemically treated photo paper isn’t really all that similar to hormonal agents and
cardiovascular drugs, and it sold Sterling in pieces, for about half of the original purchase
price.

In 1989, the Kodak board of directors had a chance to take make a course change when Colby
Chandler, the CEO, retired. The choices came down to Phil Samper and Kay R. Whitmore.
Whitmore represented the traditional film business, where he had moved up the rank for three
decades. Samper had a deep appreciation for digital technology. The board chose Whitmore.
As the New York Times reported at the time,

Mr. Whitmore said he would make sure Kodak stayed closer to its core businesses in film and
photographic chemicals.
via The New York Times (12/9/1989)

Samper resigned and would demonstrate his grasp of the digital world in later roles as
president of Sun Microsystems and then CEO of Cray Research. Whitmore lasted a little
more than three years, before the board fired him in 1993.

For more than another decade, a series of new Kodak CEOs would bemoan his predecessor’s
failure to transform the organization to digital, declare his own intention to do so, and
proceed to fail at the transition, as well. George Fisher, who was lured from his position as
CEO of Motorola to succeed Whitmore in 1993, captured the core issue when he told the
New York Times that Kodak

regarded digital photography as the enemy, an evil juggernaut that would kill the chemical-
based film and paper business that fueled Kodak’s sales and profits for decades.

via The New York Times (12/25/1999)

Fisher oversaw the flop of Advantix and was gone by 1999. As the 2007 Kodak video
acknowledges, the story did not change for another decade. Kodak now has a market value of
$140m and teeters on bankruptcy. Its prospects seem reduced to
suing Apple AAPL +1.03% and others for infringing on patents that it was never able to
turn into winning products.

Addressing strategic decision-making quandaries such as those faced by Kodak is one of the
prime questions addressed in Vince Barabba’s book, “The Decision Loom.” Kodak
management not only presided over the creation technological breakthroughs but was also
presented with an accurate market assessment about the risks and opportunities of such
capabilities. Yet Kodak failed in making the right strategic choices.

This isn’t an academic question for Vince Barabba but rather the culmination of his life’s
work. He has spent much of his career delivering market intelligence to senior management.
In addition to his experiences at Kodak, his career includes being director of the U.S. Census
Bureau (twice), head of market research at Xerox XRX -1.67% , head of strategy at General
Motors GM -1.6% (during some of its best recent years), and inclusion in the market
research hall of fame.

Vince Barabba

“The Decision Loom” explores how to ensure that management uses market intelligence
properly. The book encapsulates Barabba’s prescription of how senior management might
turn all the data, information and knowledge that market researchers deliver to them into the
wisdom to make the right decisions. It is a prescription well worth considering.

Barabba argues that four interrelated capabilities are necessary to enable effective enterprise-
wide decision-making—none of which were particularly well-represented during pivotal
decisions at Kodak:
1. Having an enterprise mindset that is open to change.Unless those at the top are
sufficiently open and willing to consider all options, the decision-making process soon gets
distorted. Unlike its founder, George Eastman, who twice adopted disruptive photographic
technology, Kodak’s management in the 80’s and 90’s were unwilling to consider digital as a
replacement for film. This limited them to a fundamentally flawed path.

2. Thinking and acting holistically. Separating out and then optimizing different functions
usually reduces the effectiveness of the whole. In Kodak’s case, management did a
reasonable job of understanding how the parts of the enterprise (including its photo finishing
partners) interacted within the framework of the existing technology. There was, however,
little appreciation for the effort being conducted in the Kodak Research Labs with digital
technology.

3. Being able to adapt the business design to changing conditions.Barabba offers three
different business designs along a mechanistic to organismic continuum—make-and-sell,
sense-and-respond and anticipate-and-lead. The right design depends on the predictability of
the market. Kodak’s unwillingness to change its large and highly efficient ability to make-
and-sell film in the face of developing digital technologies lost it the chance to adopt an
anticipate-and-lead design that could have secured the it a leading position in digital image
processing.

4. Making decisions interactively using a variety of methods. This refers to the ability to
incorporate a range of sophisticated decision support tools when tackling complex business
problems. Kodak had a very effect decision support process in place but failed to use that
information effectively.

While “The Decision Loom” goes a long way to explaining Kodak’s slow reaction to digital
photography, its real value is as a guidepost for today’s managers dealing with ever-more
disruptive changes. Given that there are few industries not grappling with disruptive change,
it is a valuable book for any senior (or aspiring) manager to read.

Eastman Kodak is often mischaracterized as a company whose managers didn’t

recognize soon enough that digital technology would decimate its traditional business.
However, what really happened at Kodak is much more complicated — and instructive.

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Eastman Kodak Co. is often cited as an iconic example of a company that failed to grasp the
significance of a technological transition that threatened its business. After decades of being
an undisputed world leader in film photography, Kodak built the first digital camera back in
1975. But then, the story goes, the company couldn’t see the fundamental shift (in its
particular case, from analog to digital technology) that was happening right under its nose.
The big problem with this version of events is that it’s wrong. Moreover, it obscures some
important lessons that other companies can learn from. To begin with, senior leaders at
Kodak were acutely aware of the approaching storm. I know because I arrived at Kodak from
Silicon Valley in mid-1997, just as digital photography was taking off. Management was
constantly tracking the rate at which digital media was replacing film. But several factors
made it exceedingly difficult for Kodak to shift gears and emerge with a consumer franchise
that would be sustainable over the long term. Not only was a major technological change
upending our competitive landscape; challenges were also affecting the ecosystem we
operated in and our organizational model. Ultimately, refocusing the business with so many
forces in motion proved to be impossible.

A Difficult Technology Transition

Kodak’s first challenge had to do with technology. Over the course of more than a century,
Kodak and a small number of its competitors had developed and refined manufacturing
processes that enabled consumers to capture and preserve images for a lifetime. Color film
was an extremely complex product to manufacture. The 60-inch “wide rolls” of plastic base
material had to be coated with as many as 24 layers of sophisticated chemicals:
photosensitizers, dyes, couplers, and other materials deposited at precise thicknesses while
traveling at 300 feet per minute. Wide rolls had to be changed over and spliced continuously
in real time; the coated film had to be cut to size and packaged — all in the dark. With film,
the entry barriers were high. Only two competitors — Fujifilm and Agfa-Gevaert — had
enough expertise and production scale to challenge Kodak seriously.
The transition from analog to digital imaging brought several challenges. First, digital
imaging was based on a general-purpose semiconductor technology platform that had nothing
to do with film manufacturing — it had its own scale and learning curves. The broad
applicability of the technology platform meant that it could be scaled up in numerous high-
volume markets (such as microprocessors, logic circuits, and communications chips) apart
from digital imaging. Suppliers selling components offered the technology to anyone who
would pay, and there were few entry barriers. What’s more, digital technology is modular. A
good engineer could buy all the building blocks and put together a camera. These building
blocks abstracted almost all the technology required, so you no longer needed a lot of
experience and specialized skills.
Semiconductor technology was well outside of Kodak’s core know-how and organizational
capabilities. Even though the company invested lots of money in the basic research and
manufacturing of solid-state semiconductor image sensors and developed some notable
inventions (including the color filter array that is used on virtually every color image sensor),
it had little hope of being a competitive volume supplier of image sensor components, and it
was difficult for Kodak to offer something distinctive. Contrast this with Sony Corp., which
entered the sensor business to support its electronic video recording business. As an
electronics company, its organizational capabilities were far more aligned with what was
needed to succeed. What’s more, it jumped in early.
But Sony and other Japanese consumer electronic companies also had to adjust to the changes
brought on by digital technology. Sony’s Trinitron color television, once a category leader,
was overrun by “plug-and-play” modular digital components — in this case, liquid crystal
displays, flat panel displays, and TV chips that made designing a television set easier. As
Yukio Shohtoku, retired executive vice president of Panasonic Corp. explained to me,
modularization “makes consumer products, our consumer products, a commodity.”
Once consumer electronic products transitioned to digital, Shohtoku noted, leading brands
such as Panasonic and Sony lost their competitive edge in those markets. This explains how
hundreds of companies, many of them startups, could move into imaging and how a company
such as GoPro Inc., based in San Mateo, California, could appear out of nowhere and take the
consumer video recorder market by storm. It’s a situation that many makers of technology
products are now facing or may soon face.

Scaling Down Is Hard

While the technology presented one set of problems, figuring out how to manage declining
film sales while trying to extract maximum profits presented another. Growing companies
learn how to invest in manufacturing efficiency and in achieving scale economies. As
volumes increase, unit costs go down and capital efficiency improves. But scaling down is
hard to do. It helps if your capital base is fully depreciated, but what if you have to reduce the
size of your production runs? At a certain point, you just don’t have enough volume anymore
to absorb your fixed costs.
In Kodak’s case, film had a finite shelf life, so as sales declined, the company had to figure
out how to shrink the size of production batches without driving unit costs up too far or
forcing the selling price up, which would have led to a death spiral. I remember when the
yearly sales of a particular type of Kodak film went below a single wide, roll production
batch. Shrinking the run length would drive up the proportion of time and materials expended
in setup, and shifting to smaller production lines would incur additional capital expense,
something that would have been impossible to justify. Having a product line made up of
many film types worked well when sales were going up but worked against the company as
volumes shrank. Discontinuing products pushed film photographers (especially professionals)
to digital, and it further drove down cost absorption. For a while, Kodak was fortunate that
motion picture print film manufacturing was able to absorb a huge proportion of factory
overhead. But when theaters finally moved to digital projection, the company couldn’t slash
costs fast enough to keep up with declining volumes.
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Declining scale was also a big problem for Kodak in its retail distribution network. Once the
volume of film sales at retail stores started to drop, holding onto shelf space became harder.
This is not a unique problem — it happens in other markets that are being affected by low-
cost imports, market fragmentation, or the cyclical decline of products as newer, more
sophisticated products are introduced. But in Kodak’s case, the category was disappearing.
For many years, Kodak management was careful not to talk about the problem publicly to
prevent it from becoming a self-fulfilling prophecy (something critics misconstrued as
management not grasping the gravity of the situation). One could argue that exiting the
business and forcing consumers to transition to new solutions was the right way to go. But
that would have required Kodak to give up billions of dollars in profits and abandon products
like motion picture print distribution too soon, without having other products to capture the
demand.
Ecosystem Troubles

The third part of Kodak’s problem had to do with its ecosystem. Much has been written about
the importance of building an ecosystem when a new product or service has to leverage
complementary assets. Kodak built a unique and powerful ecosystem to support film-based
photography. While the majority of its profits came from manufacturing and selling film,
retail partners made large profits from photo finishing. For retailers, it was a wonderful
business because it brought customers into their stores multiple times: first to purchase film,
then to drop off exposed film for developing and printing, and finally to pick up the prints.
Each visit brought ancillary purchases, and photofinishing was one of the top two or three
profit generators for many retailers and chain stores. But the end of analog imaging was
bringing this golden era to an end.
In hindsight, there were two ecosystem design problems. First, as analog photography
declined, there was no reason for retailers to be loyal to Kodak products; many were just as
happy to use chemicals and paper from Fuji. Second, Kodak management didn’t fully
recognize that the rise of digital imaging would have dire consequences for the future of
photo printing.

Organizational Inertia?

Kodak management has been criticized for compromising its digital efforts because it wanted
to protect film. But the criticism is overblown. Responding to recommendations from
management experts, from the mid-1990s to 2003 the company set up a separate division
(which I ran) charged with tackling the digital opportunity. Not constrained by any legacy
assets or practices, the new division was able to build a leading market share position in
digital cameras — a position that was essentially decimated soon thereafter when
smartphones with built-in cameras overtook the market.
A complicated and emotional issue was how to deal with the thousands of people in the
legacy businesses that were destined to shrink. Most of the individuals in question knew they
didn’t have the right skills for the new businesses; their jobs were to maximize profits from
the declining businesses for as long as possible. A few people could make the transition, but
the truth is that commoditized digital businesses tend to have lower profit margins and can’t
afford to carry a lot of costs — particularly legacy costs.
The organizational challenge was even more pronounced at a senior level. For many
managers of legacy businesses, the survival instinct kicked in. Some who had worked at
Kodak for decades felt they were entitled to be reassigned to the new businesses, or wished to
control sales channels for digital products. But that just fueled internal strife. Kodak ended up
merging the consumer digital, professional, and legacy consumer film divisions in 2003.
Kodak then tried to make inroads in the inkjet printing business, spending heavily to compete
with fortified incumbents such as HP, Canon, and Epson. But the effort failed, and Kodak
exited the printer business after it filed for Chapter 11 bankruptcy reorganization in 2012.

What Might Kodak Have Done?

With the benefit of hindsight, it’s interesting to ask how Kodak might have been able to
achieve a different outcome. One argument is that the company could have tried to compete
on capabilities rather than on the markets it was in. This would have meant directing its skills
in complex organic chemistry and high-speed coating toward other products involving
complex materials — a path followed successfully by Fuji. However, this would have meant
walking away from a great consumer franchise. That’s not the logic that managers learn at
business schools, and it would have been a hard pill for Kodak leaders to swallow.
For Kodak, it might also have meant holding on to Eastman Chemical Co., a unit it spun off
in 1994. After emerging from Chapter 11 bankruptcy protection in 2013, Kodak chose to
stand its ground in the imaging business. Today, it is a much smaller company that sells
products such as commercial printing solutions, while Eastman Chemical, based in
Kingsport, Tennessee, has become a major player in industrial chemicals, fibers, and plastics.
(Ironically, Eastman Chemical might end up being George Eastman’s most lasting legacy.)
Yet another potential path for Kodak might have been proactively exiting its legacy
businesses in a timely way, as IBM Corp. did. From the early 1990s through the 2000s, IBM
managed to do this very efficiently, exiting markets that included printer manufacturing, flat
panel displays, personal computers, and disk drives. For the company that’s doing the exiting,
exiting legacy businesses is an opportunity to restructure and shed a lot of costs. Kodak
eventually did this with its consumer film business, which is now owned by Kodak’s U.K.
pension plan. But for an organization exiting its traditional business, the real challenge is
keeping an innovation pipeline full of new products and services that can replace the old
ones. As Kodak has shown, that can be a formidable challenge.

Lessons for Managers

Every situation is different, but the experiences of Kodak suggest some sobering questions
for managers in industries undergoing substantial technology-driven change. Among them
are:
Is our core technology converging to the point of being replaced by a general-purpose
technology platform? If so, the company could lose manufacturing scale and early-mover
advantages — such as being far down the legacy manufacturing learning curve.
Is the technology that underpins our business likely to shift to a digital/modular
platform that will lower barriers to entry? If so, commoditization pressure will be
inevitable, and the company must prepare to live on much lower margins.
Do we have a capital-intensive legacy business? If so, can we develop a strategy for scaling
down production volumes that is both capital efficient and keeps production costs from rising
excessively? This is key to maximizing cash flow while trying to execute a transition. It will
involve using older equipment or repurposing production assets to make alternate products.
How does the balance of power in our ecosystem change as technology shifts impact
different parts of the value chain differently? Will the interests of partners cause our
company to do things that are contrary to its long-term interests? This requires thinking about
how ecosystem partners will manage the transition and adjusting strategy accordingly.
The first reason: the contradiction between the logical strategy and strategic innovation. The
second reason: the contradiction between the radical revolutionary change, and change is
slow gradual The third reason: the contradiction between the markets and resources in
strategic The fourth reason: the contradiction between competition and cooperation The fifth
reason: the contradiction between the orientation to the world or to stay at the local level
Lessons learned:1. All companies respond to the (stalemate
innovation) or (innovation solution) means that there are
things that may occur (new innovations, for example) could
topple entirely greatest company regardless of the (Kodak
then it was 100 years old)2. No one should be on companies
to stay on the safe side and counting the billions that only
derive.3. Always thinking companies in any industry is
working now, because competitors are doing it, and industries
are changing their forms over time. The example that Johnson
& Johnson were not thinking manufacture of contact lenses
for the eyes, even though they have the necessary technical ..
and when I thought again with making correctly held that the
industry should be intervention and this is what actually
happened...

4. must have an independent companies working group

mission to destroy the company through the introduction of
new products! Or create new technology leads to blow up the
current technology in which it operates.5. You must buy big
companies small companies developing new technology that
could help her in the core business. And must be careful here,
because the company waited to enter the technology into
effect, it would be too expensive to purchase them. An
example is clear .. was when Yahoo and Google Maakruzov
buying opportunity before .. Note What to do their
day.Finally, take a lesson from this story is that evolution and
change in the external environment of the company inevitably
calls to intervene and act in some way, and this change will be
a new opportunity or your leads for bankruptcy
Kodak’s declaration of bankruptcy earlier this month closed a glorious chapter in the history
of photography.
With the introduction of the first automatic snapshot camera more than 110 years ago, Kodak
transformed photography from an alchemy-like activity dominated by professionals into a
hugely popular—even obligatory—one that became an integral part of people’s lives.
To get an idea of how instrumental Kodak was in shaping photography, just think about life
before Kodak.
There was no “Kodak moment”.
Photography was mostly confined to professionals who took formal portraits in studios.
Kodak got photography out of studios and into family life. Understanding how it did this is
vital to grasping the reasons for its failure.
The availability of the technology was not enough to establish the practise of popular
photography. Ideas about what should be photographed, when and by whom also had to be
constructed.
Kodak played an important role in this, with high-profile advertising campaigns aimed at
establishing the need to preserve significant occasions such as family events and vacations.
These were labeled Kodak moments, a concept that became entrenched in everyday life.
The family member who captured these Kodak moments was, usually, the wife. This, once
again, was Kodak’s doing.
For the first half of the 20th century, Kodak brought out ads featuring the “Kodak girl”, who
symbolized the modern, adventurous female. However, in keeping with normative
expectations of the time, she was not only modern and fashionable, but also a responsible
wife and mother.
Kodak’s ad campaigns emphasized how—if women were to appear as responsible and caring
wives and mothers—they were morally obliged to keep a meticulous record of their family’s
history. They could do this by preserving those Kodak moments.
As a result of Kodak’s efforts, women went on to become the most lucrative market segment
for photography. It was that loyal contingent of “soccer moms” that funded Kodak’s
inexorable rise: they took more pictures than everyone else, printed them, shared them at
coffee mornings, saved them in albums and displayed them in the living room.
Thus, when digital technology arrived in the photographic industry, Kodak inhabited a world
that was largely its own creation.
There was no one more steeped in it than Kodak. This became obvious to me when I spent a
day with Kodak’s top management in their Rochester headquarters in the U.S. about 11 years
ago. By the end of the day, I was convinced that this company was not going to be around
much longer. A few years later, I wrote that Kodak was pursuing a fundamentally flawed
strategy, and hence were throwing good money after bad. Six years later, I was sad to see my
prediction come true.
Here are the top five reasons for Kodak’s demise:
1. Caught in Time
 2.
Kodak’s top management never fully grasped how the world around them was changing.
They hung on to now obsolete assumptions about who took pictures, why and when.
Kodak always thought that people would never part with hard prints and that people valued
film-based photos for their high quality. In other words, they saw digital as a direct substitute
for film based photography. It was interesting to see how little this mindset had shifted even
20 years later. In the end, digital cameras came to dominate not because they offered higher
quality or because everyone was able to or inclined to get a set of hard prints easily, but
because they did not feel the need to.
2. Every Picture Tells a Story
With digital, a significant shift in mind-set occurred in the meanings associated with cameras.
Rather than being identified as a piece of purely photographic equipment, digital cameras
came to be seen as electronic gadgets.
The implications of this shift were enormous.
With digital devices, newcomers such as Sony were able to bypass one of Kodak’s massive
strengths: its distribution network. Instead, digital cameras became available in electronic
retail outlets next to other gadgets. Kodak was now playing on Sony’s and other entrants’ turf
rather than its own. Similarly, Kodak’s brand came to be associated with traditional
photography rather than digital.
3. Back to the Future
“Digital” disrupted Kodak’s neat equilibrium in yet another important way; women were no
longer the main customers, men were.
With women giving way to men as primary users of cameras, Kodak—which excelled at
marketing to women—lost its footing. With digital cameras, images could be viewed on the
camera, phone or a PC without any need for hard prints.
For Kodak, the severing of the link between taking photographs and hardcopy prints was a
serious concern. While men took lots of pictures, their role had never been that of family
archivists (a role reserved for women). Hence they tended to take pictures that industry
insiders called “transient”.
Kodak was in uncharted territory and rather than accepting it as the new reality, it kept trying
to recreate the photography universe of yesteryear, one based around sentimental images
taken by women at family reunions and vacations.
4. The Camera Never Lies
Even when the writing was very much on the wall, Kodak’s attempts were at best half-
hearted.
Unwilling to let go of the extremely lucrative (gross margins of nearly 70%) film business, it
tried for many years to prolong the life of film through smaller cameras and digitally coded
film and hybrid technologies such as Photo CD.
Its digital imaging division, locked up in its headquarters in Rochester, always appeared to be
under pressure to create synergies between film and digital. But doing digital from Rochester
was always going to be a challenge. The best example is Kodakgallery.com, Kodak’s attempt
to generate revenue from digital images. The site was essentially a digital version of its
analogue offerings. Digital’s potential was never fully realized at Kodak.
5. Over-Exposed
Kodak did not realize its own limitations, and consequently its strategy for revival never had
much of a chance.
As articulated by the current chairman and CEO, Antonio Perez, it was: “To make Kodak do
for photos what Apple does for music: help people to organize and manage their personal
library of images. In an ideal world, consumers of the future will snap pictures on Kodak’s
cameras, save them on its memory cards, put them on paper through its printers, and edit
them on in-store digital kiosks.”
Trying to engulf the consumer in the Kodak universe was always unrealistic. Whereas a
company like Apple could probably do it with its design and plug-and-play capabilities,
Kodak could not and it died trying.
Lessons Learned
Kodak followed a template used by many incumbents facing technological challenges to their
hegemony.
First, they try to ignore the new technology hoping it would go away by itself.
Then they deride it using various justifications (too expensive, too slow, too complicated etc).
After that, they try to prolong the life of the existing technology by attempting to create
synergies between the new technology and the old (like Photo CD). In doing so, they keep
delaying any serious commitment to the new order of things.
The truth is that when it was dabbling in digital versions of its analogue products, Kodak
should have also invested in several start-ups based in Silicon Valley.
These Valley-based companies would not have been encumbered by Kodak’s legacy assets,
its emotional attachment to the brand, and its product-based mentality. Led by twenty-
somethings on shoestring budgets these start ups would have been led by people who get
digital. They would not have been hung up about brands, or current revenue sources. They
would have been perfectly comfortable with the high mortality rate of digital business
models. They would also have been at ease with empowering users and living with the
unpredictability that it ushers in.
Finally, they would not have lived in a “photographic universe”, unlike the people in
Rochester, and would have been much more willing to allow a convergence between pictures
and activities such as social networking or gaming.
In short, Kodak needed to let the new generation of users and entrepreneurs take charge. It
should have embraced uncertainty and be prepared to be driven in unforeseen directions—a
far cry from how the company had spent its life.
The challenges Kodak faced were not unique.
The important things were to avoid the attachment and weight of legacy assets onto new
ventures; refrain from prolonging the life of existing product lines while trying to create false
synergies between the old and the new; and, most of all, to base strategy around users, rather
than the existing business model.
Dr Kamal Munir is a Reader in Strategy & Policy at Cambridge Judge Business School,
University of Cambridge. This is the latest article in The Source’s management

5 Innovation Blind Spots That Nokia and

Kodak Overlooked

W hen the mantra “innovate or die” is invoked, two companies

who are often mentioned as examples are Nokia and Kodak. But in what
ways, exactly, did these two companies fail to innovate? and what lessons
can we learn from their failures?

Here are 5 innovation blind spots that I identified that ultimately doomed them to failure …
1) They Defined Their Business Too Narrowly
Nokia began life in a small village in Finland, as a paper mill. It branched out into electronics
in the 1960s and in 1979 created the first cellular network in the world. Soon after, Nokia
launched the Mobira Senator, its first car phone.
In the late 1990s and early 2000s, Nokia was the global leader in mobile phones. Profits were
sky-high. The shareholders were ecstatic. No doubt Nokia thought its name would be the
Kleenex of mobile phones.

Then, companies who were focused on the internet arrived, with people who understood that
data, not voice, was the future of communication.

Fast forward to 2013, when Nokia’s hardware division was acquired by Microsoft. It was the
end of Nokia’s glory days.

In a TechCrunch article, Daniel Gleeson, states that Nokia just didn’t grasp the whole concept
of software, or the idea of developing an ecosystem around apps. Nokia’s focus was hardware
and they got stuck there.
Adam Leach worked with Nokia’s original smartphone platform, Symbian, on projects
including the Nokia Communicator, one of the first smartphones ever developed. Talking
about his experience in collaborating with Nokia, he said the attitude was “it’s got to be a
phone first, it’s a phone, phones sell.”
Nokia’s reluctance to switch from a focus on hardware to one on software left it eating the
dust of other companies.

Similarly, Kodak made the monumental blunder of clinging to analog cameras instead of
moving quickly to digital — A side note: Kodak invented the first digital camera. The reason,
as Forbes notes, the members of the organization were so tied to the idea that their paychecks
came from the sale of consumables such as film, chemicals and paper. No consumables, no
profit, was their assumption.
So what is the lesson learned? Be careful about how you define your business. Make it broad
enough to encompass the possibility of change and deep enough to reach down to the core
concerns of your customers.
2) They Forgot About the Customer
George Eastman, founder of Kodak, once said his goal was to “make the camera as
convenient as the pencil.” With that attitude, and the development of dry-plate technology, he
launched both an iconic American company and the entire practice of amateur photography.
The “Kodak moment” embodies the idea of being able to capture special memories, easily
and inexpensively. Later, Eastman bet his company’s future on new technology (leaving dry-
plate photography behind and embracing film) because he saw how the new would serve the
customer better than the old. He similarly jumped on color film early, even though it was
inferior to black and white film for a long time during its development.

Somehow, Eastman’s wisdom did not survive. Later on, leadership at Kodak thought only
about profit and hung on to outdated technology. They forgot the customers and the
customers moved on to competitors who offered technology that made their lives easier.

Nokia, in its lack of expertise about software, didn’t pay enough attention to the compatibility
of apps, even designing phones that didn’t work with games that consumers had played on
their previous Nokia phones. This lack of focus on the customer’s needs is a nail in any
company’s coffin.

So what is the lesson learned? Keep the customer at the center. Spend time getting to know
the customer and thinking about how to solve their problems.
3) They Moved Too Slowly
Fast innovation is hard when things are going well. One of the big mistakes Nokia made was
that it didn’t transfer its smartphone platform from the original Symbian OS to the next-
generation one,MeeGo, soon enough. Its decision to try to compete with Android by open
sourcing Symbian in 2008 came a few years too late.
Kodak, too, moved with inexcusable slowness in the face of industry changes, considering
they saw it coming well in advance. The company did a study in 1981 that indicated they had
about ten years to prepare for the transition to digital photography – but they completely
failed to embrace this new technology. In fact, they mostly hid from it.

So what is the lesson learned? Be nimble and courageous. Make the tough calls to embrace
new technology/products, even if (especially if) your organization is profitable and
comfortable. Tweaking existing products can only take you so far.
4) They Didn’t Listen to Their Own People
Kodak, with all its resources, had an early start with digital cameras. It knew about the
technology almost 20 years before sales of digital cameras eclipsed analog in 2002. But not
only did upper management not listen to its own market research department, who sounded
the alarm that the company had only a decade to transition to digital, one of its very own
engineers actually developed the first digital camera – and they hushed it up.

According to Steve Sasson, the Kodak engineer who invented the first digital camera in 1975,
people within the company reacted to his new invention by saying, “That’s cute—but don’t
tell anyone about it.” Sasson was unable to convince anyone in Kodak of the potential of his
invention. Soon Sony and others put inexpensive digital cameras on the market, and Kodak’s
moment was lost.

The warnings from inside the organization were ignored, and in 2012, Kodak filed for chapter
11 bankruptcy.

So what was the lesson learned? Make sure innovators, from every level of the organization,
have a voice and then listen to them.
5) They Failed to Foster a Culture of Innovation
In other words, they got complacent.

Nokia’s early history of innovation (from paper mill to electronics to smartphones) could not
survive the company’s complacency and attachment to hardware. They became overly
satisfied with their success, and failed to plan effectively for future advances.

Kodak’s leaders also neglected to help employees see digital as an opportunity. They saw
only that digital innovations would eradicate film and photofinishing services, and they
looked no further.

In 1999, CEO George Fisher told the New York Times that Kodak had “regarded digital
photography as the enemy, an evil juggernaut that would kill the chemical-based film and
paper business that fueled Kodak’s sales and profits for decades.”
Innovation can be threatening. In some cases you have to let go of one product or service
while you are transitioning to a new one, like Tarzan letting go of one vine with the hope that
he can reach the next one – it’s scary.

So what was the lesson learned? Make innovation a tangible component in

your organization’s culture. Reward accordingly. Help your employees swing from one vine
to the next.
So what?
Nobody says innovation is easy and not all innovation blind spots are fatal. We are fortunate
that we can learn lessons from the blunders of companies like Nokia and Kodak and look for
ways to see beyond our own innovation blind spots.
Pros and cons of short and long-term planning

Many businesses and organisations will at some stage have to consider planning for the
future, especially when it comes to deciding on the right cabling solution. Whether it be to
maximise growth, increase profits, or to simply improve conditions for members of staff,
there is often a need to look forward.

The periods involved in development projects can often vary, especially when it comes to
implementing a new cabling system. Many companies are simply focused on keeping up with
the latest trends, believing that fundamental upgrades may not be necessary later down the
line.

However, other businesses, particularly those within the tech sector, are determined to stay
ahead of the curve, meaning they require a system that is easy to adapt to the perceived future
strain that could be placed on a firm's network.

Not planning for the future is not an option

Perhaps one of the biggest headaches companies face when planning out their cabling
infrastructure is how far they are prepared to go in terms of accommodating new technology.

Fresh developments, including higher bandwidths for voice, data, CCTV or video streaming
can pose a substantial challenge for any organisation's network, with upgrading often found
to be the only option for many businesses.

Widespread fundamental differences can result in complete upheaval of your network, posing
serious implications in terms of cost, downtime and service.

It means that not making some sort of plan for the future could result in your network being
left vulnerable to breaking under the strain of the increased demands that come as part of the
changing everyday requirements of a digital business.
Budget

Money is often seen as a decisive factor in the planning of any commercial project, with
many firms finding a noticeable difference in costs for short or long-term planning.

Perhaps the most obvious difference is the fact that a short-term project will only take around
a few hours, days or weeks to complete, while longer-term strategies can take months and
sometimes even years.

The longer-term efforts will often place a greater strain on resources, such as documentation
and infrastructure and will subsequently require an increased budget.

It is therefore hugely important that those in charge of a long-term project adequately assess
the capabilities of an organisation, as this will help to ensure that goals are met in a
sustainable way.

In contrast, short-term projects will often not need as much money to complete, purely
because they do not require as much time or resources to finish.

This means that the budget needed for such projects is less substantial. Although planning is
still very important for successful implementation, a short-term project often does not require
the same amount of scrutiny.

Impact on the company

The greater levels of complexity for long-term projects means that multiple objectives may
need to be covered by those in charge of planning such strategies. Considerations include
how the project will help to satisfy the needs of a business, as well as its impact on members
of staff.

Many companies in overseeing long-term projects will have a series of goals and ambitions
for the everyday operations of their firm, which could range from expanding into new
technologies, to growing a network in order to accommodate an increasing workforce.

In contrast, short-term projects will often have a single focus, consequently making them
easier to evaluate, manage and analyse. For instance, some firms may just want to update
their system so that it is capable of simply being able to handle communications made
through VoIP, while not needing anything more advanced. However, they do still need the
expertise of specialists.

It is therefore essential that you evaluate the overall goals of your business. Where does it
ultimately want to be? What services should it be offering to customers?

14 Pros and Cons of a Business Plan

Should you create a business plan? Most people will say that you should have at least some
sort of outline that helps you guide your business. Yet sometimes an opportunity is so great
that you’ve just got to jump right in and grab it before it disappears. If you want funding or
growth to be sustainable, however, there is a good chance that you’ll need to create a business
plan of some sort in order to find success. Here are some of the pros and cons of a business
plan to consider as you go about the process of creating and then running your business.

What Are the Pros of a Business Plan?

A business plan is a guide that you can use to make money. By understanding what your
business is about and how it is likely to perform, you’ll be able to see how each result receive
can impact your bottom line. With comprehensive plans in place, you’ll be prepared to take
action no matter what happens over the course of any given day. Here are some more benefits
to think about.

1. It gives you a glimpse of the future.

A business plan helps you to forecast an idea to see if it has the potential to be successful.
There’s no reason to proceed with the implementation of an idea if it is just going to cost you
money, but that’s what you do if you go all-in without thinking about things. Even if the
future seems uncertain, you’ll still get a glimpse of where your business should be.

2. You’ll know how to allocate your resources.

How much inventory should you be holding right now? What kind of budget should you
have? Some resources that your business needs to have are going to be scare. When you can
see what your potential financial future is going to be, you can make adjustments to your
journey so that you can avoid the obstacles that get in your way on the path toward success.
3. It is necessary to have a business plan for credit.
In order for a financial institution to give you a line of credit, you’ll need to present them
with your business plan. This plan gives the financial institution a chance to see how
organized you happen to be so they can more accurately gauge their lending risks. Most
institutions won’t even give you an appointment to discuss financing unless you have a
formal business plan created and operational.

4. A business plan puts everyone onto the same page.

When you’re working with multiple people, then you’re going to have multiple viewpoints as
to what will bring about the most success. That’s not to say that the opinions of others are
unimportant. If there isn’t any structure involved with a business, then people with a differing
opinion tend to go rogue and just do their own thing. By making sure that everyone is on the
same page with a business plan, you can funnel those creative energies into ideas that bring
your company a greater chance of success.

5. It allows others to know that you’re taking this business seriously.

It’s one thing to float an idea out to the internet to see if there is the potential of a business
being formed from it. Creating a business plan for that idea means you’re taking the idea
more seriously. It shows others that you have confidence in its value and that you’re willing
to back it up. You are able to communicate your intentions more effectively, explain the
value of your idea, and show how its growth can help others.

6. It’s an easy way to identify core demographics.

No matter what business idea you have, you’re going to need customers in order for it to
succeed. Whether you’re in the service industry or you’re selling products online, you’ll need
to identify who your core prospects are going to be. Once that identification takes place, you
can then clone those prospects in other demographics to continue a growth curve. Without
plans in place that allow you to identify these people, you’re just guessing at who will want to
do business with you and that’s about as reliable as throwing darts at a dartboard while
blindfolded.

7. There is a marketing element included with a good business plan.

This allows you to know how you’ll be able to reach future markets with your current
products or services. You’ll also be able to hone your value proposition, giving your brand a
more effective presence in each demographic.

What Are the Cons of a Business Plan?

A business plan takes time to create. Depending on the size of your business, it could be a
time investment that takes away from your initial profits. Short-term losses might happen
when you’re working on a plan, but the goal is to great long-term gains. For businesses
operating on a shoestring budget, one short-term loss may be enough to cause that business to
shut their doors. Here are some of the other disadvantages that should be considered.

1. A business plan can turn out to be inaccurate.

It is important to involve the “right” people in the business planning process. These are the
people who are going to be influencing the long-term vision of your business. Many small
business owners feel like they can avoid this negative by just creating the business plan on
their own, but that requires expertise in multiple fields for it to be successful. A broad range
of opinions and input is usually necessary for the best possible business plan because
otherwise the blind spots of inaccuracy can lead to many unintended consequences.

2. Too much time can be spent on analysis.

Maybe you’ve heard the expression “paralysis by analysis.” It cute and catchy, but it also
accurately describes the struggle that many have in the creation of a business plan. Focus on
the essentials of your business and how it will grow. Sure – you’ll need to buy toilet paper for
the bathroom and you’ll want a cleaning service twice per week, but is that more important
than knowing how you can reach potential customers? Of course not.

3. There is often a lack of accountability.

Because one person is generally responsible for the creation of a business plan, it is difficult
to hold that person accountable to the process. The plans become their view of the company
and the success they’d like to see. It also means the business plan gets created on their
timetable instead of what is best for the business and since there isn’t anyone else involved, it
can be difficult to hold their feet to the fire to get the job done.
4. A great business plan requires great implementation practices.
Many businesses create a plan that just sits somewhere on a shelf or on a drive somewhere
because it was made for one specific purpose: funding. When a solid business plan has
assigned specific responsibilities to specific job positions and creates the foundation for
information gathering and metric creation, it should become an integral part of the company.
Unfortunately poor implementation has ruined many great business plans over the years.

5. It restricts the freedom you once had.

Business plans dictate what you should do and how you should do it. A vibrant business
sometimes needs its most creative people to have the freedom to develop innovative new
ideas. Instead the average plan tends to create an environment where the executives of the
company dictate the goals and the mission of everyone. The people who are on the front lines
are often not given the chance to influence the implementation of the business plan, which
ultimately puts a company at a disadvantage.

6. It creates an environment of false certainty.

It is important to remember that a business plan is nothing more than a forecast based on
plans and facts that are present today. We live in a changing world where nothing is 100%
certain. If there is too much certainty in the business plan that has been created, then it can
make a business be unable to adapt to the changes that the world is placing on it. Or worse –
it can cause a business to miss an exciting new opportunity because they are so tunnel-
visioned on what must be done to meet one specific goal.

7. There are no guarantees.

Even with all of the best research, the best workers, and a comprehensive business plan all
working on your behalf, failure is more likely to happen than success. In the next 5 years, 95
out of 100 companies that start-up today will be out of business and many of them will have
created comprehensive business plans.

The pros and cons of a business plan show that it may be an essential component of good
business, but a comprehensive plan may not be necessary in all circumstances. The goal of a
business plan should be clear: to analyze the present so a best guess at future results can be
obtained. You’re plotting out a journey for that company. If you can also plan for detours,
then you’ll be able to increase your chances to experience success.

Pros and Cons of Planning

LEARNING OUTCOMES

 Explain benefits of planning.

 Explain the drawbacks of planning.

Achieving business goals starts with planning.

Planning is the process of setting goals and defining the actions required to achieve
the goals.Planning begins with goals. Goals are derived from the vision and mission
statements, but these statements describe what the organization wants to achieve,
not necessarily what it can achieve. The organization is affected both by conditions
in its external environment—competitors, laws, availability of resources, etc.—and its
internal conditions—the skills and experience of its workforce, its equipment and
resources, and the abilities of its management. These conditions are examined
through a process called a SWOT analysis. (SWOT will be discussed in greater

detail in another module.) Together, the vision and mission statements and the
results of the situation analysis determine the goals of the organization. This idea is
illustrated by the figure that follows.
Using the mission, vision, and values of a company, along with situation analysis, can help the company
set goals.

The rest of the planning process outlines how the goals are to be met. This includes
determining what resources will be needed and how they can be obtained, defining
tasks that need to be done, creating a schedule for completing the tasks, and
providing milestones to indicate progress toward meeting goals. The planning
process will be discussed in more detail in the following section.

Benefits of Planning

In today’s chaotic environment, planning more than a few months in advance may
seem futile. Progress, however, is rarely made through random activity. Planning
does provide benefits that facilitate progress even when faced with uncertainty and a
constantly changing environment. Some of the benefits include the following:

 Planning provides a guide for action. Plans can direct everyone’s actions toward
desired outcomes. When actions are coordinated and focused on specific outcomes
they are much more effective.
 Planning improves resource utilization. Resources are always scarce in
organizations, and managers need to make sure the resources they have are used
effectively. Planning helps managers determine where resources are most needed so
they can be allocated where they will provide the most benefit.
 Plans provide motivation and commitment. People are not motivated when they do
not have clear goals and do not know what is expected of them. Planning reduces
uncertainty and indicates what everyone is expected to accomplish. People are more
likely to work toward a goal they know and understand.
 Plans set performance standards. Planning defines desired outcomes as well as
mileposts to define progress. These provide a standard for assessing when things are
progressing and when they need correction.
 Planning allows flexibility. Through the goal-setting process, managers identify key
resources in the organization as well as critical factors outside the organization that
need to be monitored. When changes occur, managers are more likely to detect them
and know how to deploy resources to respond.
Drawbacks to Planning

Planning provides clear benefits to organizations, but planning can also harm
organizations if is not implemented properly. The following are some drawbacks to
planning that can occur:

 Planning prevents action. Managers can become so focused on planning and trying
to plan for every eventuality that they never get around to implementing the plans. This
is called “death by planning.” Planning does little good if it does not lead to the other
functions.
 Planning leads to complacency. Having a good plan can lead managers to believe
they know where the organization is going and how it will get there. This may cause
them to fail to monitor the progress of the plan or to detect changes in the
environment. As we discussed earlier, planning is not a one-time process. Plans must
be continually adjusted as they are implemented.
 Plans prevent flexibility. Although good plans can lead to flexibility, the opposite can
also occur. Mid- and lower-level managers may feel that they must follow a plan even
when their experience shows it is not working. Instead of reporting problems to upper
managers so changes can be made, they will continue to devote time and resources
to ineffective actions.
 Plans inhibit creativity. Related to what was said earlier, people in the organization
may feel they must carry out the activities defined in the plan. If they feel they will be
judged by how well they complete planned tasks, then creativity, initiative, and
experimentation will be inhibited. Success often comes from innovation as well as
planning, and plans must not prevent creativity in the organization.

Key Points

Goals and plans do not have to be formal documents. In small organizations, they
may exist only in the minds of the manager. But research and experience have
shown that planning brings clear advantages to an organization, whether through
formal procedures or informal intuition. However, when plans become the object
instead of a means to an objective, they can have negative consequences for the
organization. For example, General Motors missed the opportunity to become the
first American automaker to produce an electric car because it was committed to its
plan rather than its goals. GM had EV-1 prototypes designed and produced in the
1990s and literally destroyed the cars rather than sell them.