Why Kodak Failed and Netflix Didn't (A Lesson in Innovation)

Why Kodak Failed and Netflix Didn't (A Lesson in Innovation)

ICYMI: Where Kodak Failed and Netflix Didn't (a lesson in innovation)
ICYMI: Where Kodak Failed and Netflix Didn't (a lesson in innovation)

The fall of a major company is fraught with tragedy, but it can also supply useful lessons that can teach others. At the same time, the success of a company provides an example for others to follow. Such is the case with the decline of Kodak and the success of Netflix: Both provide valuable business lessons and examples of what company leaders should do or not do in their own industries.

Founded in the late 19th century, Kodak pioneered consumer photography and grew to become one of the world’s most widely recognized brands. In the 20th century, it had 90 percent of the film market and was the go-to company for amateur and professional photographers alike.

At one point, the company had 140,000 employees and was ranked among the top five most valuable brands in the United States. Despite years of success, however, the 21st century brought numerous changes. Kodak found film sales declining as the company became less relevant, despite its attempts to revive the brand. Finally, Kodak filed for bankruptcy in 2012.

What happened to Kodak?

Experts largely agree that a failure to innovate was the main reason Kodak declined with the advent of digital photography. Although the company essentially invented the digital camera, it suppressed the technology out of fears it would threaten the profits it made from traditional film. Rather than look forward and adapt to new trends and technology, Kodak resisted change and struggled to keep up.

What did Kodak do wrong?

  • The company abandoned the concepts that made it successful in the first place, including consumer-friendly, easy-to-use cameras — an idea it could have carried into the digital age.
  • Kodak focused on the product itself instead of the value it provided. The company tried to cling to traditional film instead of recognizing — and adapting to — the value that consumers got from digital cameras.
  • Similarly, other experts have suggested that Kodak failed because it had the wrong marketing focus and the wrong idea about its business. The company saw itself as being in the “film business,” which depended on a specific product — traditional film. Instead, Kodak should have seen itself as part of the “storytelling business.” With a focus on telling consumers’ stories rather than just selling film, Kodak might have remained a leader in photography, movies and medical imaging.
  • Kodak was too inwardly focused. Instead of bringing in outside experts to fill in the gaps in the company’s expertise (such as lens manufacturing) and thus better adapt to market changes, Kodak continued to depend on its own, limited, internal strengths.
  • In its (sometimes belated) attempts to keep up with new developments, the company went through several CEOs and restructurings in a relatively short amount of time. Each new CEO brought his or her own ideas and goals to the company. These frequent changes were not only not enough to save the company from bankruptcy, but the frequent changes in leadership and policy were damaging and disruptive to employees.
  • By clinging to traditional photography, Kodak demonstrated that it was too protective of its brand and its original profit source. Kodak might have seen greater success in digital photography if it had partnered with startups led by entrepreneurs who understood the new technology and did not have a deep-seated interest in the legacy that Kodak was trying to cling to.

The company announced in 2013 that it had emerged from bankruptcy, but it continues to struggle to regain the popularity it once enjoyed. Kodak continues to be a harsh example of the damage that companies can experience from a lack of innovation, strict adherence to an original vision and reluctance to seek outward expertise.

A stark contrast to the failure of Kodak is the success of Netflix. This company’s story is still being told, but already it has demonstrated great success, in part because it took an approach that was essentially the opposite of Kodak’s. Netflix started out in 1998 as a mail-order DVD rental service and has flourished into an entertainment leader that creates original TV series and greatly influences how people watch movies and TV.

What did Netflix do right?

Just as lack of innovation was the primary cause of Kodak’s failure, Netflix’s near-constant innovation has brought it an immense success. Some company decisions have been risky and even failures, but it has used both its failures and successes to its advantage and revolutionized the entertainment industry.

What are particular reasons behind Netflix’s success?

  • Netflix has looked ahead, with a long-term perspective it has not traded for more short-term success. At the same time, the company has not been afraid to chase trends, such as viewers’ switch to tablets and smartphones. It also has aggressively pursued growth. This growth has allowed the company to rebound from its less successful efforts, such as the brief separation of Netflix’s DVD and streaming services in 2011.
  • The company understands its competition. Although Amazon and Walmart have been major competitors in the streaming entertainment market, these other players are more concerned about holding their corners of the retail market. At the same time, cable companies such as Comcast appear to be making some of the same mistakes as Kodak: fighting to protect their “turf” instead of evolving that turf to meet changing consumer demands. This gave Netflix the freedom to cannibalize its base DVD business to broaden its successful streaming services.
  • Netflix was adaptable in unfavorable conditions. When studios would not let Netflix license their best online content on agreeable terms, Netflix expanded its business and created that content itself. Netflix’s chief content officer Ted Sarandos told GQ that “the goal is to become HBO faster than HBO can become us.” Among the results of these efforts is the Emmy award-winning series “House of Cards.” This demonstrates that Netflix can continue to deliver value to consumers even as it moves away from its original business, DVD rentals.
  • Rather than relying on existing expertise and fighting to defend the status quo, Netflix encourages creativity and innovation among its employees. The company’s “culture guide” does not track vacations and rewards the most productive employees with even more freedom.
  • Netflix is not afraid to redefine success. The nature of Netflix means it cannot rely on ratings the same way as traditional TV producers. Instead, Netflix must focus on subscribers and analyze which show or movie titles most contribute to attracting and keeping subscribers. Chief Product Officer Neil Hunt told Business Insider that Netflix uses what it calls “valued hours.” This includes how many hours people spend watching Netflix and what proportion of those hours are spent on a single title.
  • Unlike Kodak’s repeated reshuffling of leadership to try to regain its market share, Netflix co-founder Reed Hastings has been the company’s only CEO. While Netflix is admittedly a much younger company, a single CEO that encourages innovation and creativity may certainly be a factor in its success, compared to a series of CEOs that have each attempted to implement their own particular visions.

The growth of Netflix and the decline of Kodak may be considered a twist on the “David and Goliath” story. A small company became an industry leader by remaining flexible and creative in response to consumer demand and advancing technology. An industrial giant crumbled when it grew too dependent on its own legacy and fought against changes in demand and technology. Whatever their industry, business leaders can learn a great deal from these examples of success and failure.

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