Journal of Strategic Information Systems 18 (2009) 46–55
Contents lists available at ScienceDirect
Journal
of Strategic
Information
Disruptive technology:
How Kodak
missed the
digital
photography revolution
Systems
journal homepage: www.elsevier.com/locate/jsis
Henry C. Lucas Jr. *, Jie Mein Goh
Decisions, Operations and Information Technologies, Robert H. Smith School of Business,
University of Maryland, College Park, MD 20740, United States
ARTICLE INF O
Article history:
Available online 25
February 2009
Keywords:
Innovation
Information and
communications
technologies
Disruptive technology
Core rigidities
Case study
Qualitative research
ABSTRA
CT
The purpose of this paper is to analyze how a firm
responds to a challenge from a transformational
technology that poses a threat to its historical business
model. We extend Christensen’s theory of disruptive
technologies to undertake this analysis. The paper
makes two contributions: the first is to extend theory and
the second is to learn from the example of Kodak’s
response to digital photography. Our extensions to
existing theory include considerations of organizational
change, and the culture of the organization. Information
technology has the potential to transform industries
through the creation of new digital products and
services. Kodak’s middle managers, culture and rigid,
bureaucratic structure hindered a fast response to new
technology which dramatically changed the process of
capturing and sharing images. Film is a physical,
chemical product, and despite a succession of new
CEOs, Kodak’s middle managers were unable to make
a transition to think digitally. Kodak has experienced a
nearly 80%decline in its workforce, loss of market share,
a tumbling stock price, and significant internal turmoil as
a result of its failure to take advantage of this new
technology.
© 2009 Elsevier B.V. All
rights reserved.
1. Introduction
The purpose of this paper is to explore how firms respond to challenges from rare
transformational technology that threatens a traditional, successful business model. We
propose an extension of Christensen’s theory of disruptive technologies and illustrate
the extensions with a longitudinal case study of Kodak. Kodak is unique in that it
developed and patented many of the components of digital photography, yet this new
form of photography has had a serious, negative impact on the firm. The two main
contributions of the paper are the extension to Christensen’s theory and the lessons
from Kodak’s unsuccessful response to a major technological discontinuity.
The digital camera combined with information and communications technologies
(ICT), specifically the capabilities of the computer to store and display photographs, and
the Internet to transmit them, transformed the major customer processes associated
with photography. The consumer could take many photos at virtually no cost, and delete
unwanted ones by pushing a button. Rather than waiting to develop a photo and then
sending it by mail to another person, the customer uploads the picture to a PC and
sends it as an email attachment to multiple recipients. If the customer wants a hard
copy, she can print a picture locally on an inexpensive color printer on a PC, send it to
an Internet photo service, or go to a store that hada developing kiosk.
* Corresponding author. Tel.: +1 301 314 1968.
E-mail addresses: hlucas@rhsmith.umd.edu (H.C. Lucas Jr.), jgoh@rhsmith.umd.edu
(J.M. Goh).
0963-8687/$ -see front matter © 2009
Elsevier B.V. All rights reserved.
doi:10.1016/j.jsis.2009.01.002
H.C. Lucas, J.M. Goh/Journal of Strategic Information Systems 18 (2009) 46–55
47
1.1. Past research: Christensen’s theory of disruptive technologies
Christensen’s theory of disruptive technologies is one of the most popular for explaining
the plight of the incumbent firm facing a significant new technology. He proposes a theory
of response to disruptive technologies in two books about innovation (Christensen, 1997;
Christensen and Raynor, 2003). He argues that investing in disruptive technologies is nota
rational financial decision for senior managers to make because, for the most part,
disruptive technologies are initially of interest to the least profitable customers in a market
(Christensen, 1997). The highest-performing companies have systems for eliminating
ideas that customers do not ask for, making it difficult for them to invest resources in
disruptive technologies. By the time lead customers request innovative products, it is too
late to compete in the new market. The root cause of the failure to adapt to disruptive
technologies is that the company practiced good management. The decision-making and
resource-allocation processes that make established companies successful cause them to
reject disruptive technologies.
Christensen and Overdorf (2000) present a framework for dealing with disruptive
change that focuses on resources, processes and values. Resources include people,
equipment, technologies, cash, product designs and relationships. Processes are the
procedures and operational patterns of the firm, and values are the standards employees
use to set priorities for making decisions. Managers design processes so that employees
perform tasks in a consistent way every time; they are not meant to change. The most
important processes when coping with a disruptive technology are those in the
background such as how the company does market research and translate it into
financial projections, and how the company negotiates plans and budgets. Employees
exhibit their values every day as they decide which orders are more important, what
customers have priority and whether an idea for a new product is attractive. The exercise
of these values constitutes the culture of the organization. Culture defines what the
organization does, but it also defines what it cannot do, and in this respect can be a disability when confronting a new innovation.
1.2. Extending Christensen’s theory
When a firm is confronted with a discontinuous, highly disruptive technology, senior
management has to bring about significant changes in the organization at all levels. Our
first extension to Christensen is to emphasize the change process required to adopt a
disruptive technology. Senior management has to convince others of the need to move
in a new direction. Specifically we are interested in how middle managers change
themselves and also bring about change in the organization (see Rouleau, 2005;
Balogun, 2006).
Christensen argues that the firm is not ready to adapt a disruptive technology
because it does not see a demand from its customers for the new innovation. He
maintains that high-performing companies have systems in place that tend to kill ideas
that customers are not asking for. We propose to extend this part of his theory to
encompass the culture of the organization, by which we mean the beliefs of employees,
the way the firm organizes itself and the nature of the interactions among employees
(Schein, 1983).
1.3. A first extension: the struggle for change
In confronting a technological disruption, a firm faces a struggle between employees
who seek to use dynamic capabilities to bring about change, and employees for whom
core capabilities have become core rigidities. Management propensities for change
drive the process (see Fig. 1). We describe this ongoing struggle using concepts from
dynamic capabilities, core rigidities and management propensities.
Fig. 1. A framework for responding to disruptive change.
Increase capacity to change
Response to
Disruptive
Technology
Reduce capacity to change
Core
Dynami
Rigiditi
c
es
Capabilit
ies
Attack Rigidities
Organize and
Management
marshal capabilities
Propensities
for change
48
H.C. Lucas, J.M. Goh/Journal of Strategic Information Systems 18 (2009) 46–55
1.3.1. Dynamic capabilities
The theory of dynamic capabilities is an extension of the resource-based view of the
firm (Barney, 1991; Peteraf, 1993; Mata et al., 1995; Eisenhardt and Martin, 2000;
Barney and Arikan, 2001). Dynamic capabilities is defined as “the firm’s ability to
integrate, build external competences to address rapidly changing environments”
(Teece et al., 1997). They “consist of specific strategic and organizational processes
like product development, alliancing and strategic decision-making that create value for
firms within dynamic markets by manipulating resources into new value-creating
strategies” (Eisenhardt and Martin, 2000; Helfat et al., 2007; Teece, 2007).
The theory suggests that a firm has three classes of assets to use in seeking new
forms of competitive advantage when confronted with a novel situation including:
Processes: assemblies offirm-specific assets that span individuals and groups. These
processes have three roles including coordination, learning and reconfiguration.
Positions: specific assets including plant and equipment, knowledge and reputational
assets, that determine competitive advantage at a given point in time.
Paths: the sequence of events that have led to a firm’s current position i.e. “...a firm’s
previous investments and its repertoire of routines constrain its future behavior”
(Teece et al., 1997).
1.3.2. Core rigidities
Dynamic capabilities may not, however, always enable a firm to reconfigure its
business in response to an external threat. Leonard-Barton (1992) introduces the idea
that the core activities of the firm can become so rigid that it cannot respond to new
innovations. Her four dimensions of a core capability include: (a) employee knowledge
and skills; (b) technical systems which embed knowledge and support innovation; (c)
managerial systems which guide knowledge creation and control and (d) values and
norms associated with various types of knowledge.
Leonard-Barton suggests that core capabilities that are appropriate in one situation
may turn out to be inappropriate in another, for example, the challenges for an
incumbent firm from a new entrant. These core capabilities, rather than being dynamic
and helpful in coping with change, become core rigidities that inhibit a response. There
are a number of paths to rigidity. Because corporate resources are limited, firms often
emphasize one discipline, which makes the company less attractive to people from nondominant disciplines. It is easy for technical systems to become outdated, especially
when they involve expensive plant and equipment or complex software. Management
systems also become rigid over time as people respond to incentive and reward
systems; there is little interest in performing tasks that appear to be undervalued by
senior management. It is easy for the organization to fall into the competency trap;
employees convince themselves that their current processes and technology are
superior to a new, disruptive technology, and they fail to respond appropriately.
Rigidities in these core capabilities inhibit individual and organizational learning when
confronted with a rare, technological disruption. Employees may be comfortable with
their existing knowledge and skills and resist learning the new technology. There maybe
little incentive to build new technical and managerial systems, or to learn new
knowledge to create the systems.
1.3.3. Management propensities
Management propensities determine the outcome of the battle between dynamic
capabilities and core rigidities in responding to a transformational technology. This
implication is an extension to research demonstrating the importance of managers in
determining firm performance outcomes (Holcomb et al., 2008; Castanias and Helfat,
2001; Bantel and Jackson, 1989; Hambrick and Mason, 1984). Managers have to
develop a strategy that emphasizes the response to a disruptive technology, and they
must communicate this strategy throughout the firm (O’Reilly, 1989). Senior managers
have to learn a new technology and develop cognitions that change is necessary; they
must lead the change effort (Sherif and Menon, 2004). Managers must also help
subordinates develop cognitions that respond to a new direction for the firm. They must
teach others in the organization about their vision for the firm and see that employees
Organizational culture shapes organizational cognition and has a very important role in its response to technology-enabled transformations. We have adopted Schein’s (1983) definition of culture for the purposes of this paper. Culture is “a
learn this new business model and all that it entails. We refer to these managerial
activities as propensities or managers’ inclinations to act in a certain way.
During the course of responding to the disruptive technological change, complications
result and cause different manage-mentlevels to have different managerial cognitions
(Gavetti, 2005a). If it is desirable to change the overall direction of a firm, senior
managers are likely to be faced with one group of long-term employees who exhibit core
rigidities, and newer employees who are trying to innovate and take advantage of the
firm’s dynamic capabilities.
It is interesting to note that the discussion above has a parallel in the IS strategy
literature. For example, Galliers (2004, 2006) has proposed a framework for information
systems strategizing which focuses on exploitation, exploration and change
management. A firm confronted with a technological discontinuity needs to explore,
utilize its dynamic capabilities and learn a new, agile response to a threat. It needs to
create knowledge, which is a key component of Gallier’s IS strategy framework as well.
1.4. A second extension: organization culture
H.C. Lucas, J.M. Goh/Journal of Strategic Information Systems 18 (2009) 46–55
49
pattern of basic assumptions that a given group has invented, discovered, or developed
in learning to cope with its problems of external adaptation and internal integration – a
pattern of assumptions that has worked well enough to be considered valid, and
therefore, to be taught to new members as the correct way you perceive, think, and feel
in relation to these problems” (Schein,1983, p. 14). Founders teach organizational
members through their actions and through this process, culture is developed, learned
and embedded (Schein, 1985).
Culture operates at both the macro and micro levels within an organization. As defined
by Schein, culture is a multilevel concept that is fragmented across domains such as
different types of management. Literature (Burke, 2002) often focuses on the role of
senior management in creating a firm’s culture; we see a need to consider the role of
middle management which has been less emphasized in prior research (Balogun and
Johnson, 2004; Danneels, 2004). Middle managers are typically the largest managerial
group and they play a key role in implementing firm strategy. Given their position in the
organizational hierarchy, middle managements’ propensities may be different from those
of senior management.
Previous literature on organizational change acknowledges the role of culture in
facilitating, managing, or impeding change (e.g., Burke, 2002; Tripsas and Gavetti,
2000). A bureaucracy is associated with slow response and employees who value
security over risk-taking. Bureaucratic structure leads to organizational inertia (Merton,
1957). Thus, an organization culture that promotes hierarchy and maintaining the status
quo will be resistant to disruptive technologies.
2. The case of
Kodak 2.1. Data
collection
The research reported here comes from primary and secondary sources. We obtained
annual reports from Kodak and searched the literature to build an historical time line of the
key events in digital photography and Kodak’s response to this new technology. We
looked at past Kodak web sites on www.archive.org to get a sense of changes in
marketing and strategy. As a part of a larger project on IT-enabled transformations,
members of a research team visited Kodak and interviewed two employees the company
was willing to make available to us. Also as a part of the larger study we asked Carly
Fiorina, ex-CEO of HP, to expand on her early analysis and comments on Kodak’s history
with digital photography. We consulted a teaching case study, books and a videotaped
interview with one of the Kodak CEOs during this time period.
2.2. The rise and fall of Kodak
George Eastman founded the Eastman Kodak Company in 1880 and developed the
first snapshot camera in 1888. It became clear early on that consumables provided the
revenue; cameras did not need to be expensive because their owners used large
amounts of film. Kodak invested heavily in film and when color photography was
introduced, it was one of the few companies that had the knowledge and processes to
succeed. The company achieved $1 billion in sales in 1962. By 1976, Kodak captured the
majority of the US film and camera market (90% and 85%, respectively). Kodak’s
photofinishing process quickly became the industry standard for quality. As a result, most
of the power of the corporation centered on its massive film-making plant, and historically
CEOs came from manufacturing jobs at the factory (Gavetti et al., 2004).
Kodak’s sales hit $10 billion in 1981, but then competitive pressures, especially from
Fuji, hindered future increases (Gavetti et al., 2004). In 1986, Kodak invented the fist
megapixel sensor capturing 1.4 million pixels to produce ahigh-quality 5 x 7 print. Kodak
had introduced more than 50 products that were tied to the capture or conversion of
digital images. In 1990 Kodak began to sell its Photo CD system in which a consumer
took a roll of film to a photofinisher who placed images on a CDROM rather than paper.
The consumer needed a Photo CD player to see the images on a TV screen. However,
costs were too high and the product never achieved the success Kodak had forecasted.
Kodak went through a total of seven restructurings during the period between 1983
and 1993. In 1993 Kay Whitmore, a Kodak insider, stepped down as chairman to be
replaced by George Fisher, the CEO who had turned around Motorola. The board saw
Fisher as a “digital man”. One of Fisher’s first strategic moves was to refocus Kodak on
photography; he sold the companies in its health segment, collecting $7.9 billion he
used to repay debt (Gavetti et al., 2004). He also went after Fuji and the Japanese
government for restraining the sales of Kodak products. Fisher did not give up on film;
he believed that China was an emerging market with great potential for photography
and invested heavily there in a joint venture with the Chinese government.
By 1996, Kodak had cut $50 million from the cost of film and paper production and had
reduced cycle times; what used to take months could be done in less than a day (Swasy,
1997). By 1997, digital camera sales were increasing by 75% a year while film camera
sales increased by only 3%. By this time there were many new entrants in digital
photography, mostly Japanese electronics firms. In 2000, the value of digital cameras
sold passed the value of film cameras. That year Fisher left as CEO and was replaced by
Daniel Carp. In 2001 sales of analog cameras dropped for the first time.
In 2002, Kodak bought Ofoto, an online picture service, signaling a greater commitment
to digital photography. Kodak’s 2003 annual report’s chairman’s letter stated that Kodak
“implemented a digitally oriented strategy to support revenue and sustainable earnings”.
In the same year, Kodak closed its film camera factory in the US. The 2004 chairman’s
letter reported on progress: “In the first full year of its digital transformation strategy,
Kodak came out of the gate at a full gallop-and we continue to build momentum”. In 2005,
Carp stepped down early as chairman and was replaced by Antonio Perez.
50
H.C. Lucas, J.M. Goh/Journal of Strategic Information Systems 18 (2009) 46–55
Since 1993, Kodak has reduced its labor force by close to 80%through retirements
and layoffs, over 100,000 employees, a strong indication of the difficulties the company
has encountered (see Fig. 2). Kodak net sales reached $20 billion in 1992, and dropped
to below $15 billion in the ensuing 5 years, though some of the decline was due to
divestitures. This change is particularly dramatic when compared with Fuji’s net sales,
which have been growing since 2001. Fuji and other brands began to compete heavily
with Kodak, offering high quality film at 20%below Kodak’s price. By 1993 Fuji hada
21%market share of worldwide film sales (Gavetti et al., 2004). In addition to pressure
from competitors, investors have been highly critical of the company and its
management. Share prices in Fig. 3 rose during Fisher’s first 4 years of leadership
(1993–1997), and then began a precipitous decline during Carp’s chairmanship starting
in 2000.
2.3. The movement to digital photography
The transformation from conventional photography to digital photography took about
two decades. Information and communications technologies play as important a role in
digital photography as the camera, itself. The computer is a vehicle for editing, saving,
storing and ultimately sharing photographs with others. The Internet is the vehicle for
the distribution of multiple copies of an image to different recipients.
Steven Sasson, The inventor of the digital camera at Kodak, remarks on the history
of digital research at the company.
Well, you’d be surprised at some of the breakthroughs and innovations that Kodak
was doing. We were sort of in an odd position where we were certainly supporting
Silver Hallide photography for all our customers, but we were also doing
Fig. 2. Kodak’s net sales and number of employees.
Fig. 3. Kodak’s monthly share price.
H.C. Lucas, J.M. Goh/Journal of Strategic Information Systems 18 (2009) 46–55
51
advanced research into digital imaging. You know, Kodak made the first megapixel
imager in the mid-1980s. We were doing image compression research and even
making products using, what we call, DCT compression back in the mid 1980s. And
we made some of the first cameras. You might be surprised that a Kodak digital
camera went aboard the 1991 space shuttle mission.
Paul Porter, Kodak’s Director of Design and Usability, commented:
We were way ahead of the curve in digital even though we were pretty much a film
and chemical company. We did a lot of research in digital because we knew at some
point in time the world would change. We invented the digital camera. So, being the
first ones there we continuously worked in the labs so to make sure when that change
was made we were prepared for it. So we have the expertise in the research labs to
generate these innovations that make our experience either, more gratifying, more
intuitive or better connected than what other people do.
As prices fell and performance of digital cameras improved in the 1998 time frame, there
was a dramatic increase in the sales of digital products (see Fig. 4). The movement toward
digital photography has a huge adverse impact in firms that had historically been in the
photography business such as Kodak, Fuji and Konica Minolta. When photography moved
from film to digital, it invited a whole new group of competitors into the marketplace.
Companies like HP, Lexmark, Epson and Canon suddenly became photofinishers with
Fig. 4. Sales of digital camera.
Time Line
Stopped selling film based
camera
First full year in digital
transformation
14
Sold Sterling
Divested Clinical
Diagnostics Division
7
15
8
Produced
Photo CD George
system
Fisher became
Acquired
CEO
Sterling Drug
Acquired
IBM copiers
5
6
3
4
Lost
Polaroid
patent
infringement
suit
Invented first
megapixel
sensor
1
10
1985
3,4
13
17
12
Produced
low cost
cartridge
printers
18
Daniel Carp
became CEO
11
2
1 ,2
Antonio
Implemented Perez became
CEO
digital strategy
Outsourced
Acquired
digital camera
Ofoto
production
16
Kodak
charged Fuji
& Japan
WTO rules
against Kodak
9
5
1990
6
7,8
9
10
1995
Fig. 5. Kodak’s time line.
11 12
2000
13 14,1516 1 7
2005
18
2007
their color printers, some of which were designed to work easily with digital cameras to
produce prints. A number of online services like Ofoto sprung up. Fig. 5 shows a timeline
of the key events in Kodak’s history related to digital photography.
52
H.C. Lucas, J.M. Goh/Journal of Strategic Information Systems 18 (2009) 46–55
3. An analysis of Kodak’s response to digital photography
For Kodak, the invention and growth of digital photography was clearly a disruptive
technology that had a dramatic impact on film sales. It was aonce-in-a-hundred-years
change for the company. Unlike the disk drive industry that is prominent in
Christensen’s work, the move to ICT and digital changed the process by which the
consumer captured, displayed and shared images. Table 1 describes how
Christensen’s theory applies to Kodak, and how Kodak’s history deviates from this
theory.
Christensen comments that disruptive technologies produce products that are
typically cheaper, smaller and often more convenient to use than traditional products.
Digital cameras were an expensive curiosity at first, but soon producers improved their
performance and they constantly reduced prices. Digital photography, as noted earlier,
was not just a product, but a change in the entire process of capturing, displaying and
transmitting images. Kodak seriously underestimated how quickly the demand for this
new technology would grow.
Christensen’s theory predicts that firm resource-allocation processes discourage
investment in potentially disruptive technologies. However, contrary to his disk drive
industry examples, Kodak did invest massive amounts in digital photography. Itjust
never had much to show for it. Fisher arrived after Kodak had spent $5 billion on digital
imaging R&D with little coming from the labs. Product development and sales were
scattered over more than a dozen divisions, at one point the company had 23 different
digital scanner projects under development (Gavetti et al., 2004).
Table 1
Christensen’s theory of disruptive technology and Kodak.
Christensen’s theory
How it applies at Kodak
Differences with Kodak
Products based on
The reason is that good
regularly secure funding
disruptive technologies
management itself was
from senior management.
are typically cheaper,
the root cause. Managers
IS p. 10
simpler, smaller and,
played the game the way
frequently, more
it was supposed to be
convenient to use ID p.
played. The very decisionxv
making and resourceallocation processes that
are the key to the success
of established companies
are the very processes
Technologies
can
that reject disruptive
progress faster than
technologies. ID p. 98
market demand. ID p. xvi
Give responsibility for
‘‘...investing aggressively
disruptive technologies to
in disruptive technologies
organizations whose
is not a rational financial
customers need them.
decision for them to
Chap. 5 title, p. 100 ID
make...By and large, a
disruptive technology is
It is the middle managers
initially embraced by the
who must decide which of
least profitable customers
in a market. ID p. xvii
The highest-performing
companies...have wellKodak did try a separate organizational unit
Kodak kept organizing and re-organizing. Data
developed systems for
suggest that when a separate organization was
killing ideas their
created, the digital subunit and traditional
customers don’t want. As
photography had serious conflict over resources
a result, these companies
the
ideas
that
come
find it very difficult to
bubbling in or up to them
invest adequate
they will support and carry
resources in disruptive
to upper management for
technologies-lowerapproval, and which ideas
margin opportunities that
they will simply allow to
their customers don’t
languish. Their job is to
want-until their customers
sift the good ideas from
want them. And by then it
the bad and to make good
is too late. ID xix
ideas so much
ID is from The Innovator’s Dilemma, IS is from The Innovator’s Solution. better that they
At first digital cameras were
more expensive and large;
gradually they became
cheaper, simpler and
smaller
As digital cameras became
smaller and easier to use,
consumers adopted them.
Not clear if they spent less
on photography or not, but
the suppliers of imaging
services changed
Kodak underestimated the
speed with which the
consumer segment would
adopt digital photography
Kodak appears to be more
in a state of denial.
Possibly at first this reason
could have kept them from
investing, but Kodak began
to develop a digital strategy
long after it was obvious to
everyone else that it
needed one
Kodak’s middle
managers impeded
the conversion to
digital
Digital cameras changed
more than the physical
artifact; they changed the
process of photography –
one now captured an image
and a photo was only one
way of displaying the
image. Digital photography
also changed the
distribution, sharing and
copying of images via the
Internet It appeared that
digital cameras created
their own market demand
Kodak thought at first that
the main market for digital
photography would be the
professional photographer,
not the amateur consumer.
It did invest heavily in
digital products, but did not
manage that investment
well ($5 billion by the time
Fisher arrived).
Kodak seemed to be
ignoring customers; it
focused on film because it
was comfortable and so
profitable. The company
had an analog, chemistry
mindset and could not think
digitally
Senior management
allocated resources to
digital products, but middle
managers rejected the
disruptive technology
Senior management was
trying to change middle
management, and had little
success. In this case it was
not middle management
bringing ideas to senior
management; the direction
was the opposite
H.C. Lucas, J.M. Goh/Journal of Strategic Information Systems 18 (2009) 46–55
53
Christensen suggests giving responsibility to disruptive technologies to a separate
organization that will work with customers who are most likely to buy the new
technology. Kodak went through a number of restructurings and at times had a separate
digital organizational unit. In 1994 Fisher separated digital imaging from silver-halide
photographic division to create digital and applied imaging division (Gavetti et al., 2004).
However, it appears that it was not separate enough as there was infighting between
the traditional film business and the digital photography unit. Kodak tried a number of
different organizational structures for the digital business, as an example:
In the Fall of 2000 Kodak reorganized to bring digital and applied imaging and consumer
imaging under one organization, in order to end the internal war between the film and
digital segments (Rochester Business Journal, 12/8/2000).
3.1. Extensions to Christensen’s theory of disruptive technologies
Our analysis of Kodak led to the proposed extensions to Christensen’s theory of an
organization’s response to a technological discontinuity. In the spirit of qualitative
research, we are not trying to generalize the Kodak case to other companies, but rather
are interested in generalizing from Kodak to a theory. Below we discuss how Kodak’s
experiences support our two extensions to Christensen’s theory.
3.1.1. Change
The framework in Fig. 1 suggests that management propensities influence the ability of
the organization to marshal dy-namiccapabilities for change and to attack core rigidities.
What was the result of this ongoing struggle at Kodak? One of the key failures at Kodak
was the inability of the organization to bring about change: it was not able to marshal
dynamic capabilities for change or successfully counter core rigidities. The board of
directors at Kodak hired George Fisher to bring about change, to help convert Kodak into
a digital company and create a digital mindset. Fisher separated the company’s imaging
efforts into a new division of Digital and Applied Imaging. Eventually Fisher arrived ata
“networks and consumables” model for Kodak. The company would be in the middle of the
imaging business with customers, sending photos, using Kodak print kiosks, and printing
photos using Kodak printers and paper (Gavetti et al., 2004).
Middle managers at Kodak did not serve the function of filtering ideas that bubble up
from lower levels of the organization to determine what to pass on to senior
management as Christensen suggests. Instead, middle managers resisted digital
photography for a variety of reasons, a resistance that in the end jeopardized their own
jobs. Fisher and the rest of senior management were unable to overcome these
rigidities.
Kodak had a number of dynamic capabilities, but its capabilities in film overshadowed
those in digital processes. Kodak managers were very successful in developing
processes for manufacturing high-quality film and printing paper.
Kodak also had a number of technological assets that positioned it for success in the
film business, including knowledge of chemistry, film production and patents on its
processes. There were also many complementary assets in place including one of the
best-known brands in the world and advertising programs. Kodak’s historical path was
through film. It was digital technology that represented a completely new path for many
employees. In Kodak’s case almost a century’s experience in film inhibited rather than
facilitated a shift to new technology.
It appears that core competencies that were responsible for Kodak’s success in the
past turned into core rigidities that inhibited its response to digital photography,
particularly in the ranks of middle managers. Kodak employees had a wealth of
knowledge about making film. Some employees were knowledgeable about digital
photography, but they tended to be new employees hired to create change. The
traditional film managers were highly rigid in their adherence to this medium:
“Kodak wanted to get into the digital business, but they wanted to do it in their own
way, from Rochester and largely with their own people. That meant it wasn’t going to
work. The difference between their traditional business and digital is so great. The
tempo is different. The kind of skills you need are different. Kay and Colby would tell
you they wanted change, but they didn’t want to force the pain on the organization.”
by John White. (Swasy, 1997)
“We’re moving into an information-based company,” Leo J. Thomas, SVP and director
of Kodak research...[but] it is very hard to find anything [with profit margins] like color
photography that is legal”. (The Wall Street Journal, 5/22/85)
At Kodak, senior managers failed at bringing about a massive change in the
organization. Fisher converted those at the top of the organization to believers in the
future of digital photography. In an interview Fisher said that he realized later that the
belief in digital did not extend throughout the organization:
The old-line manufacturing culture continues to impede Fisher’s efforts to turn Kodak
into ahigh-tech growth company. Fisher has been able to change the culture at the
very top. But he hasn’t been able to change the huge mass of middle managers, and
they just don’t understand this [digital] world. (Business Week, 10/20/97)
I think that the fear drove paralysis that manifested itself as time went on, to rigidity
with respect to changing our strategy and I didn’t see that at the start...we really had
to work very aggressively to get middle management first of all understanding what
we were trying to do and believe that this was a story of opportunity, that we were in
the picture business, that digital was just a technology just like film was, and that
picture business opportunity was gigantic, and there was a future for them...Their
arguments would be all over the map...Kodak can’t succeed in this market. We’ve
tried some consumer products before and failed miserably. There is no money in this
business; it’s all low margin...There is a new set of competitors...we don’t know
anything about them.
54
H.C. Lucas, J.M. Goh/Journal of Strategic Information Systems 18 (2009) 46–55
I also believe firmly...(that) digital imaging was everything in the future. Therefore we
were either going to be in the picture space...or we weren’t. If we were going to be in
it, we’d have to make an all out assault on digital imaging which meant a step function
change. (George Fisher interview, Gavetti, 2005b)
3.1.2. Organization culture
Kodak also suggested our second extension to Christensen. Some of Kodak’s failure
is due to the culture of the company and employees’ strong belief that Kodak meant
film.
“No matter what they said they were a film company,” says Frank Zaffino (a Kodak
executive)...“Equipment was okay as long as it drove consumables...Executives
abhorred anything that looked risky or too innovative, because a mistake in such a
massive manufacturing process would cost thousands of dollars. So the company
built itself up around procedures and policies intended to maintain the status quo”.
(Swasy, 1997)
Kodak’s strong market share produced a monopoly, rigid mindset according to John
White, who was hired from the Pentagon to work on software. “As in many large old
successful companies, people running it never created a business. They presided over
the franchise...That’s not a good place to train people to be tough” (Swasy, 1997).
Managers at all levels in Kodak also consistently underestimated the growth of the
market for digital cameras. Kodak was convinced that the professional photographer
would be the first adopter and that amateurs would move more slowly. From the sales
statistics in Fig. 4, this prediction was seriously in error.
Kodak’s culture and hierarchical structure also got in the way of an effective response
to digital photography. Kodak was a company that valued harmony, so a manager might
think that there was support for a new innovation because people failed to speak out
against it, even though they opposed the idea. Employees valued hierarchy and
authority:
It was so hierarchically oriented that everybody looked to the guy above him for what
needed to be done. (Business Week, 1/30/95)
At Kodak this arrogance fueled the growth of a nightmarish bureaucracy so
entrenched it could have passed fora government agency....There was an emphasis
on doing everything according to company rulebooks....Meetings were held prior to
meetings to discuss issues and establish agreement in order to avoid confrontations,
which were considered un-Kodak-like. (Swasy, 1997)
4. Discussion and lessons learned
One of the goals of this paper is to propose extensions to Christensen’s theory of
disruptive technology that improve its ability to explain major, IT-enabled
transformations. We believe that the history of Kodak supports Christensen’s theory of
disruptive technology and the dilemmas of the innovator, and at the same time suggests
some extensions to this theory. Generalizing our study of Kodak to Christensen’s theory
of disruptive technology, we added considerations of organization change and culture.
Fig. 1 helps to understand the change processes and the struggle management faces
as it tries to marshal the firm’s dynamic capabilities for change while overcoming core
rigidities in the organization.
A second goal of the paper is to learn from Kodak’s unsuccessful response to the
challenges and threats of ICT and digital cameras that changed the process of
photography. Kodak invested heavily in digital photography, but middle managers and the
culture of the organization made it impossible for the company to capitalize on that
investment. When confronted with a rare, discontinuous change from technology, senior
management in a firm faces the daunting task of changing the organization to embrace
the new technology. Change depends on convincing management ranks that the threat is
serious; after along period of success, core competencies become core rigidities, making
change that much more difficult. Kodak also demonstrates how difficult it is to change an
organization’s culture; a polite, bureaucratic organization staffed by risk-averse managers
is unlikely to respond successfully to a disruptive technology.
In Christensen’s study of disk drives, it was not clear that customers were ready for
new innovations, and the incumbent manufacturers received little feedback suggesting
the need for them. In Kodak’s case, the customer was embracing new technology at a
rapid rate. As Carly Fiorina observed:
Kodak sat on a mountain of cash and profitability in their traditional photography
business and I believe their thinking was digital photography will eat into my traditional
most profitable business. I don’t want that to happen. What I think Kodak miscalculated
about was they weren’t in charge of whether that would happen. Consumers were in
charge. Individuals were in charge. And an individual will always choose... what gives
them greater control, flexibility, freedom, choice.... So suddenly consumers had a new
way of taking pictures that gave them more control, more freedom, more flexibility and
more choice. The consumer became in charge of how fast Kodak’s traditional business
would be eaten away. And Kodak unfortunately didn’t see that in time. (Carly Fiorina
interview, Batavick and Lucas, 2008)
What are the lessons learned from viewing Kodak from the lens of Christensen and our
extensions to his theory? The most important observation is that management has to
recognize the threats and opportunities of new information and communications
technologies and marshal capabilities for change. This change effort involves attacking
core rigidities and the culture of the organization, and bringing all levels of employees on
board, or the change effort will fail. This analysis of Kodak’s
H.C. Lucas, J.M. Goh/Journal of Strategic Information Systems 18 (2009) 46–55
55
history supports the proposed extensions of Christensen’s theory, specifically the need
to change the organization and its culture when responding to a disruptive technology.
The unanswered question is when confronted with a major technological discontinuity,
can managers and organizations change a business model that has been successful for
more than a century?
References
Balogun, J., 2006. Managing change: steering a course between intended strategies
and unanticipated outcomes. Long Range Planning 39, 29–49.
Balogun, J., Johnson, G., 2004. Organizational restructuring and middle manager
sensemaking. Academy of Management Journal 47 (4), 523–549.
Bantel, K.A., Jackson, S.E., 1989. Top management and innovations in banking – does
the composition of the top team make a difference? Strategic
Management Journal 10, 107–124.
Barney, J., 1991. Firm resources and sustained competitive advantage. Journal of
Management 17 (1), 99–120.
Barney, J., Arikan, A., 2001. The Resource-Based View: Origins and Implications. In: Hitt,
M.A., Freeman, R.E., Harrison, J.S. (Eds.), The Blackwell Handbook of
Strategic Management. Blackwell Publishers Inc., Malden, MA, pp. 124–188.
Batavick, F., Lucas, H.C., 2008. The Transformation Age: Surviving A Technology
Revolution with Robert X. Cringely (DVD). Maryland Public Television and
University of Maryland’s Robert H Smith School of Business.
Burke, W.W., 2002. Organization Change: Theory and Practice. Sage, Thousand Oaks,
CA.
Castanias, R.P., Helfat, C.E., 2001. The managerial rents model: theory and empirical
analysis. Journal of Management 27 (6), 661–678.
Christensen, C., 1997. The Innovator’s Dilemma: When New Technologies Cause Great
Firms to Fail. Harvard Business School Press.
Christensen, C.M., Overdorf, M., 2000. Meeting the challenge of disruptive change.
Harvard Business Review 78 (2), 66–76.
Christensen, C., Raynor, M., 2003. The Innovator’s Solution. Harvard Business School
Press.
Danneels, E., 2004. Disruptive technology reconsidered: a critique and research
agenda. Journal of Product Innovation Management 21 (4), 246–258.
Eisenhardt, K., Martin, J., 2000. Dynamic capabilities: what are they. Strategic
Management Journal 21 (10–11), 1105–1121.
Galliers, R.D., 2004. Reflections on information systems strategizing. In: Avergou, C.,
Ciborra, C., Land, F. (Eds.), The Social Study of Information and
Communication Technology: Innovation, Actors and Contexts. Oxford University
Press, Oxford, pp. 231–262.
Galliers, R.D., 2006. Strategizing for agility: confronting information systems inflexibility in
dynamic environments. In: De Souza, K. (Ed.), Agile Information
Systems: Conceptualization, Construction, and Management. ButterworthHeinemann, Oxford, pp. 1–15.
Gavetti, G., 2005a. Cognition and hierarchy: rethinking the microfoundations of
capabilities’ development. Organization Science 16 (6), 599–617.
Gavetti, G., 2005b. Kodak: Interview with Dr. George Fisher (DVD). HBS Publishing.
Gavetti, G., Henderson, R., Giorgi, S., 2004. Kodak (A). HBS Publishing.
Hambrick, D.C., Mason, P.A., 1984. Upper Echelons: the organization as a reflection of
its top managers. The Academy of Management Review 9 (2), 193–
206.
Helfat, C., Finkelstein, S., Mitchell, W., Peteraf, M.A., Singh, H., Teece, D.J., Winter,
S.G., 2007. Dynamic Capabilities: Understanding Strategic Change in
Organizations. Blackwell, Oxford, UK.
Holcomb, Tim R., Michael Holmes Jr., R., Connelly, Brian L., 2008. Making the most of
what you have: managerial ability as a source of resource value
creation. Strategic Management Journal.
Leonard-Barton, D., 1992. Core capabilities and core rigidities: a paradox in managing
new product development. Strategic Management Journal 13 (S1),
111–125.
Mata, F., Fuerst, W., Barney, J., 1995. Information technology and sustained competitive
advantage: aresource-based analysis. MIS Quarterly 19 (4), 487–
505.
Merton, R.K., 1957. Social Theory and Social Structure, rev. ed. Free Press, New York,
NY.
O’Reilly, C., 1989. Corporations, culture, and commitment: motivation and social control
in organizations. California Management Review 31 (4), 9–25.
Peteraf, M., 1993. The cornerstone of competitive advantage: aresource-based view.
Strategic Management Journal 14, 179–191.
Rouleau, L., 2005. Micro-practices of strategic sensemaking and sensegiving: how
middle managers interpret and sell change every day. Journal of
Management Studies 42 (7), 1413–1441.
Schein, E.H., 1983. The Role of the founder in creating organizational culture.
Organizational Dynamics Summer, 13–28.
Schein, E.H., 1985. Organizational Culture and Leadership. Jossey-Bass, San
Francisco, CA.
Sherif, K., Menon, N.M., 2004. Managing technology and administration innovations:
four case studies on software reuse. Journal of the Association for
Information Systems 5 (7), 247–281 (July).
Swasy, A., 1997. Changing Focus: Kodak and the Battle to Save a Great American
Company. Times Business.
Teece, D.J., 2007. Explicating dynamic capabilities: the nature and microfoundations of
(sustainable) enterprise performance. Strategic Management Journal
28 (13), 1319–1350.
Teece, D., Pisano, G., Shuen, A., 1997. Dynamic capabilities and strategic
management. Strategic Management Journal 18 (7), 509–533.
Tripsas, M., Gavetti, G., 2000. Capabilities, cognition, and inertia: evidence from digital
imaging. Strategic Management Journal 21 (10–11), 1147–1161.