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Better, Faster, Cheaper Is Not Innovation: Kodak and Microsoft

Inertia is a force far greater than momentum.

By Adam Hartung, Contributor

There is a big cry for innovation these days.Unfortunately, despite spending a lot of money on it, most innovation simply isn’t. And that’s why companies don’t grow.

The giant consulting firm Booz & Co. just completed its most recent survey on innovation.  Like most analysts, they tried using R&D spending as yardstick for measuring innovation.  Unfortunately, as a lot of us already knew, there is no correlation:

“There is no statistically significant relationship between financial performance and innovation spending, in terms of either total R&D dollars or R&D as a percentage of revenues. Many companies — notably, Apple — consistently underspend their peers on R&D investments while outperforming them on a broad range of measures of corporate success, such as revenue growth, profit growth, margins, and total shareholder return. Meanwhile, entire industries, such as pharmaceuticals, continue to devote relatively large shares of their resources to innovation, yet end up with much less to show for it than they — and their shareholders — might hope for.”

(Uh-hum, did you hear about this AbbottPfizer? Readers that missed it might want to glance at last week’s blog about Abbott, and why it is a sell after announcing plans to split the company.)

Far too often, companies spend most of their innovation dollars on making their products cheaper, operate better, faster or do more.  Clayton Christensen pointed this out some 15 years ago in his groundbreaking book “The Innovator’s Dilemma” (HBS Press, 1997).  Most R&D, in most industries, and for most companies, is spent trying to sustain an existing technology – not identify or develop a disruptive technology that would have far higher rates of return.

While this is easy to conceptualize, it is much harder to understand.  Until we look at a storied company like Kodak – which has received a lot of news this last month.

Kodak price chart 10.5.11
Kodak invented amateur photography, and was rewarded with decades of profitable revenue growth as its string of cheap cameras, film products and photographic papers changed the way people thought about photographs.  Kodak was the world leader in photographic film and paper sales, at great margins, and its value grew exponentially!

Of course, we all know what happened.  Amateur photography went digital.  No more film, and no more film developing.  Even camera sales have disappeared as most folks simply use mobile phones.

But what most people don’t know is that Kodak invented digital photography!

Really!  They were the first to create the technology, and the first to apply it.  But they didn’t really market it, largely because of fears they wouldcannibalize their film sales.  In an effort to defend & extend their old business, Kodak licensed digital photography patents to camera manufacturers, abandoned R&D in the product line and maintained its focuson on its core business.  Kodak kept making amateur film better, faster and cheaper – until nobody cared any more.

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