The Wall Street Journal reports Kodak’s struggle to stay solvent. This may seem like another case of shifting technology and tastes as digital photography–now built into any teenager’s smartphone–has sent the once-mighty names of Instamatic and Kodachrome to the brand scrapheap. But there is a telling paragraph in the WSJ article:
By the 1980s, troubles were mounting as foreign film competitors took share from Kodak and digital technologies emerged. Kodak says it invented the world’s first digital camera in 1975 and spent hundreds of millions of dollars developing digital technology. Yet the fear of cannibalizing its film sales paralyzed the company when it came time to go to market.
Kodak had the keys to the kingdom more than 30 years ago, the rudiments of digital photography arising contemporaneously with the earliest PCs. However, the final sentence reveals the “terrifying” action that held the company back: cannibalization. Open a marketing textbook and you will find the term in context:
Cannibalization: the development of a new product/service that takes sales and market share from existing products.
A company is supposed to defend its sales and share to the bitter end against competitors. Why would it undermine itself, especially if it is fortunate enough to have fielded a market-leading product? The Gale Encyclopedia of Small Business uses Kodak as a prime example of what happens when a company fears cannibalization:
While cannibalization may seem to be very negative, several researchers have found that truly innovative firms are sometimes willing to sacrifice or cannibalize their prior investments. In fact, this may be a type of growth strategy. Professors Chandy and Tellis state that as digital-imaging technology replaces film cameras, Kodak could lose billions of investment dollars in their film-based technologies—including plants and photo development processes. If firms like Kodak try to preserve the value of their investments, they can risk making themselves obsolete. The best strategy is to embrace the new technology and make new products like digital cameras.
Clayton Christensen’s landmark book The Innovator’s Dilemma studies disruptive technologies that upend status quo products and the companies that produce them. In short, Dr. Christensen says that your product will be cannibalized; you might as well do it yourself. However, human nature and basic business education would seem to prevent companies from terminating their own bestsellers. The Innovator’s Dilemma and Good to Great are loaded with dire examples of organizations that lacked the stomach to be cannibals. On the other hand, some corporations have no such qualms…
Apple: It’s easy to cite Apple as a positive case study in most business assessments. They make cool products…and then they kill them off with cooler products. The iPod Mini was the bestselling member of the iPod line, but that did not stop Steve Jobs from introducing the iPod Nano which rendered the Mini obsolete and prevented competitors from taking the lead with digital media players using flash memory. Today, the iPad is changing personal computing and stealing sales from Mac products. Apple’s tablet is also threatening to be the last laugh against Windows-based PCs, proving that Mr. Jobs is a fine cannibal and marathoner.
Gillette: Cannibalization is not just the realm of high tech, as the trusty razor benefits from significant R&D and shrewd product strategy. Gillette has a history of introducing more advanced products while still selling its previous brands, as seen in its transition from the Mach 3 to the Fusion. The older Mach 3 remains on the shelves, becoming a “bargain brand” that does not cheapen Gillette’s image (after all, it used to be the best blade).
Cannibalization may sound gruesome. It has proven distasteful to company after company. Just remember it’s a jungle out there. Ask Kodak as it possibly comes to the end of its photo safari.
POSTSCRIPT: With Steve Jobs’ resignation as CEO, the business world ponders Apple’s future. Cannibalization is listed as one of Apple’s great strengths.