The reason why major companies fail to innovate isn’t caused by a lack of willingness to do so. Rather, the problem is that they’re too late in recognizing opportunities (and threats) because they’re too focused on sustaining their core business. History has proven that the best moment to search for innovation is when a product is at its prime. But it’s not as simple as that. This article will discuss 6 classic examples that provide you insight into some common mistakes regarding finding innovation beyond the core business.
1. Kodak
Kodak was once a juggernaut of a company. Dominating the photographic film industry, with a market share of over 80% in the US and about 50% globally. The company employed over 60.000 citizens of Rochester. But in 2012 the giant filed for bankruptcy. Most of the employees lost their jobs. The tragic story of Kodak is a great example of how a major company can have blind spots for opportunities because of its core business.
While Kodak was focusing on photographic film (their cash cow). Kodak’s market was getting disrupted by digital cameras. The issue wasn’t that Kodak ignored searching for innovation altogether; it had over 7000 patents. More so, the problem was that Kodak did not capitalize on the inventiveness of its scientists when their ideas didn’t fit in with the core business.
The best example is from a Kodak engineer named Steven J. Sasson. He actually invented the first digital camera back in 1975. But his management did not take it seriously, it didn’t want to be associated with it. Kodak’s management failed to see digital photography as a disruptive technology because printed photos had been there for over 100 years, and who would want to see pictures on a television screen? At the same time, Kodak did not want to cannibalize its film roll business so it tried to keep the new technology under the radar.
Other inventions did never get properly transformed into products and business models either. Instead, Kodak kept focusing on improving the photographic film. As other companies did focus on digital cameras, the photographic film became more and more irrelevant. Kodak’s problems grew and bankruptcy was on the horizon. Kodak started making more use of its patents. But, it was already too late.
2. Nokia
Nokia’s mistakes teach us a lesson of how previous success can limit the capabilities to innovate. Back in 2007, Nokia had a share of over 50% in the phone market. Nokia could be seen as the first to transform the mobile phone into a fashion accessory. The company was outstanding in developing hardware, it is what made its brand successful in the first place. But that was also what broke it.
Nokia highly believed in its own brand and thought that optimized hardware is what customers desired. But it overlooked the importance of the phone’s software. Where Apple and Android did focus on improving software, Nokia kept focusing on hardware. They thought that big changes (in software) would alienate current users. Eventually, software proved to be of significant importance for the customer experience, and Nokia’s market share shrunk.
Nokia was not able to recognize the potential of smartphones, as its major income stream came from traditional mobile phones. Even though Nokia was one of the first to develop a smartphone back in 1996, it was never able to translate it into an attractive product. The fact that Nokia was afraid to make big changes to their current phones and the fact that they overlooked the importance of smartphones, is what led to the company’s downfall.
3. General Motor’s Hummer
Hummer was originally developed for the US military by vehicle manufacturer AM General. But as its strong and powerful appearance attracted the common Americans (Especially Arnold Schwarzenegger), it became a civilian car. When celebrities started to drive the hummers as well, it turned into an exclusive brand and a status symbol. But the positive image that came with it, turned negative later on.
As more and more cars were sold at a high margin, Hummer was taken over by General Motors in 1998. General Motors decided to roll out even more civilian Hummers and released two other models. Everything seemed well for Hummer but they underestimated one trend, the environmental movement. Activists started pointing out that Hummer was the worst car to drive environmentally. Eco-friendly organizations encouraged consumers to boycott the brand, which resulted in more conscious purchases by Americans. People did not want to be associated with an expensive car that had a negative status. The once strong and wealthy image had turned into a symbol of arrogance and destruction and Hummer could not find an answer to solve that.
Hummer’s story shows how adapting to the market’s trends can be of crucial value. Hummer probably had to innovate the car as soon as the trend started, so that its status would have been changed in time. Of course, hindsight is 20/20. As Hummer’s image did not change, its sales plummeted, and in 2010 Hummer manufactured its last car. The company went into bankruptcy.
GM is trying to bring the Hummer back to life. This time, they try to make use of the trend that hurt them in the first place. The in 2022 expected Hummer, named “Hummer EV” is a 0% emission full electric car. With this new SUV, General Motors Company is confident to bring Hummer back to life.
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4. Xerox
Xerox Corporation was one of the most inventive companies globally. Mainly because of PARC, a research center that developed technologies for the future. PARC invented many successful inventions, some of which have revolutionized the digital world. Although Xerox was not able to capitalize on them correctly, someone else was able to put them to good use.
In 1970, PARC was developing the first prototype of a computer and the Graphical User Interface. The research that PARC did was massive for its future. Unfortunately for Xerox, it was someone else who reaped the benefits. As part of a deal that allowed Xerox to buy a load of Apple stocks, Steve Jobs was given permission to visit PARC and learn about its inventions. With PARC’s work as inspiration, Jobs created the Macintosh which became a legendary success. Meanwhile, the Xerox Alto (Xerox’s version) turned out to be a commercial flop.
The problem was that Xerox did not put in the effort to see the desires of the customers. They had their inventions, but they didn’t want to turn them into attractive products. Mainly due to the fact that Xerox’s CEO saw the future of the company in copier machines, so he didn’t want to spend too much on developing personal computers. While Steve Jobs did see the PC’s inventions as something that was worth the effort. Jobs transformed the inventions into products that improved the user experience. Which turned out to be a great move.
5. BlackBerry Motion
A story of how even a game-changer can fail to innovate. BlackBerry once had 50% of the US market share, as they dominated the mobile phone industry. BlackBerry is well known for the arched keyboard which they introduced. They also offered promising services like unlimited messaging and status updates, which was revolutionary at that time. Facebook proves that offering these services today is still profitable, so what went wrong?
BlackBerry’s story is somewhat similar to Nokia’s. Just like Nokia, BlackBerry believed too much in what they owned. The Customer experience is where BlackBerry turned out to be a laggard. Apple and Android were focusing on making their smartphone’s software as open as possible by creating software that allowed anyone to develop and roll out apps. Meanwhile, BlackBerry only had a small selection of apps to offer and maintained focusing on their core services. That turned out to be a mistake.
BlackBerry also ignored the benefits of touch screens. Instead, BlackBerry focused on what they had by holding on to the arched keyboard. They would also protect their assets such as BlackBerry Motion’s services by limiting its access to Blackberry devices only. That turned out to be a mistake as well. Due to the reason that all the newly created apps of Apple and Android outperformed BlackBerry’s services, BlackBerry lost the war on smartphones.
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6. BlockBuster
Blockbuster often gets named as the company that didn’t see the threat of Netflix. But that’s not the truth. The full story goes deeper and is a lot more complicated than most people know.
As the online transformation set foot into the video market, BlockBuster did not ignore its entire importance. Even Though BlockBuster’s management was not sure of the future of digital movies yet, Netflix and BlockBuster went into negotiations for a potential deal. This was in Netflix’s early stages. The investment in Netflix was too high in the eyes of BlockBuster’s management. So the deal didn’t get through.
As Netflix grew, BlockBuster saw its market share decline. In 2004, BlockBuster decided to get into the online retail business. With a product named BlockBuster Online, it was supposed to be a competitor to Netflix. BlockBuster had a lot of franchise stores that didn’t believe in Blockbuster’s digital ambition and they were afraid that it would cost them their stores. Nevertheless, BlockBuster Online did very well. With a lower price than Netflix, they started getting more subscribers.
In 2007, BlockBuster acknowledged that it had to switch to the online business completely in order to continue growing. So they set up Total Access, a new type of subscription that made it possible for customers to rent DVDs online and when they would return it to a store, they could borrow another DVD for free. Every freely borrowed DVD cost BlockBuster 2$, but it attracted new subscribers so the CEO considered it to be worth it. The new model turned out to be a big success.
Netflix saw it was losing, so they reached out for a deal. Netflix and BlockBuster would forge powers to create a new system that kept Total Access’ strategy. When BlockBuster was just about to sell its online section to Netflix, the deal got obstructed by one of BlockBuster’s major stakeholders. The stakeholder did not believe in losing money by giving DVDs for free and shut the deal down. He got BlockBuster’s CEO fired. The new CEO decided to stop giving free DVDs away and raised the price of Total access. BlockBuster Online’s growth stopped and eventually, BlockBuster went bankrupt.
BlockBuster failed to innovate because the new strategy of BlockBuster Online was not in line with the beliefs of its major stakeholders. For Businesses to succeed in innovation, an agreement of the future’s route is required. Even though a company can be so close to innovate successfully, a conflict of interest can cost its entire future.
As this article shows, a long-term existence is very hard to ensure for large companies. As the world is changing more rapidly, it is only getting worse. We at GroundControl have a clear philosophy on how innovation has the highest chance of succeeding. The 5 conditions for professionalizing innovation is a blog written on the principles for a sustainable innovation ecosystem and is a good starting point for improving your innovation efforts.
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