The previous chapters have shown that digitalisation can bring a huge competitive advantage. Consequently, it places enormous pressure to act on companies that are not yet digital. The danger for late adopters can be found in the impact that digitalisation has on the whole market. Markets that were once protected by very high barriers to entry can be disrupted by digital solutions. 

Enterprises that refuse to adapt to the digital age are endangering their own future. Global market leaders that did not become digital in time have been crushed by digital competitors.

The case of Kodak is a sad story, because it had its digital future in its own hands and let it go.

Kodak was founded in 1888 by George Eastman in New Jersey, United States. Over the next 100 years, it grew into one of the world’s biggest imaging product providers (including cameras, photographic film, photographic paper and chemical supplies for photographic prints).

Kodak invented the first digital camera in 1975 – 15 years before the company’s competitors entered the game. The developer of the first digital camera, Steven Jasson, told the New York Times in an interview that his bosses were not impressed by his invention; he added: ‘They [his bosses] were convinced that no-one would ever want to look at their pictures on a television set.’[1] This did not stop Jasson from developing the first DSLR (digital single-lens reflex camera) in 1989, which already used memory cards. But this time Kodak’s marketing department stopped further progress, in fear of product cannibalisation.

At this point, the digital transformation could not be stopped and the first digital cameras hit the shelves in 1989 (DS-X by Fuji). While the first products were not able to compete on quality with analogue cameras, their quality increased drastically over the next few years and soon reached levels comparable to analogue cameras.

Kodak believed in analogue photography for too long. Even though they had digital technology in their hands, they primarily promoted their analogue products, while their competitors were already growing with digital products. Finally, in 2001 analogue photo cameras experienced a huge drop in sales. Kodak blamed it on 9/11, neglecting to consider that its market had transformed. Contrary to Kodak’s belief, the analogue market did not recover and Kodak’s downfall could not be stopped.

The main reason why Kodak saw a very slow decline over a decade, rather than a rapid death, was its patent portfolio. Luckily, several Kodak patents were related to the core components of digital cameras, thus patent royalties generated a steady income for Kodak. But Kodak was not able to develop successful digital products and services in the meantime. Thus, once the patents ended, Kodak lost an important income source. Even though Kodak had money and time, it was not possible for it to re-enter the market it had lost to its digital competitors. When Kodak finally entered the digital photography market with competitive cameras for consumers and started marketing its digital products, the market was already shifting to the next big thing – smartphones with integrated cameras. At this point, Kodak soon went bankrupt.

Nokia is another story of failed adoption of digitalisation.

Nokia was the first company to introduce a mass-produced GSM phone to the market (1992).[2] The company was able to leverage its momentum and overtake Motorola in 1998 to become the global leader in mobile phones, and held that position for over a decade, from 1998 to 2011. At its peak, in 1999, Nokia was the largest European company by market capitalisation. Despite also being the market leader in smartphones prior to the iPhone’s release, Nokia focused on the efficiency of its production process. Due to the large number of devices sold, Nokia feared making changes to its products. These were bad decisions that would have a high impact on Nokia’s continued business growth.

New players such as Apple seemed to be insignificant at the beginning, because the number of smartphones sold was tiny in comparison to Nokia’s success. But the tides turned when the first iPhone hit the market and started the shift from mobile phones towards smartphones. Nokia failed to adapt in time and lost over 90% of its value within five years. It started desperate moves to stop the death spiral and was forced to drop its own mobile operating system (Symbian), which was seen as a reason for its poor competitiveness. But in the end, it was not enough: Nokia sold its entire mobile phone business to Microsoft in 2014. Nokia was not able to compete with the new technology and reacted slowly after the damage had already been done. Its fear of damaging its current revenues denied Nokia the ability to adopt new trends on time.

These two cases illustrate the impact of digitalisation. 

In order not to fail, enterprises must avoid these critical mistakes:

First, large enterprises have enormous inertia. 

Enterprises must avoid traditional business units with large sales, profit numbers and political power overshadowing innovative projects and business units. New business areas cannot compete with successful existing business areas, but are forced to do so. Traditional areas of focus within strategic meetings are reporting high sales numbers and high profit margins, while new areas cannot stand on their feet at the beginning. As seen at Nokia, the dominance of their mobile phone market denied the company any potential leaps into a smartphone future. It invested its operational focus on maintaining its current business, and was not able to adapt to the smartphone trend.

Second, fear of cannibalisation is another major block for companies seeking to become digital.

Enterprises must carefully transform their business portfolio step by step and allow new business models to replace their cash cows. Kodak earned money at every step of the analogue photography process. It is understandable why it feared digital photography, because it threatened to ruin the whole value chain of its traditional business. Kodak did not want to hurt its analogue photography cash cow as long as it was highly profitable. However, progress cannot be stopped so easily. Companies therefore have to find a way to mitigate the losses in their traditional business and grow into leaders in the digital world. In the end, Kodak’s fear of endangering its then current business led to the company’s bankruptcy.

Third, innovation cycles, especially in the digital arena, are not linear. 

A good example is Moore’s law, which describes how the number of transistors in integrated circuits (i.e. CPUs or central processing units) doubles every second year. Thus, innovations that may seem possible only in the distant future can happen much earlier due to rapid technological advances. Enterprises must not wait until they are forced to catch up, because the exponential learning curve is very steep once a company has fallen behind its competitors.