Story by Margie Peterson
Image by Shutterstock/Magura
Natalya Vinokurova’s research looks at good ideas that don’t catch on and bad ideas that do.
It’s a business maxim that the failures of big companies can often be blamed on inertia. A big company becomes complacent with success and fails to innovate.
That wasn’t true of the Kodak bankruptcy. Kodak was a company once synonymous with photography, almost the way the “Xerox” company name was used unilaterally as a verb to mean photocopying.
To find out what went wrong for Kodak, Natalya Vinokurova, associate professor of management at Lehigh Business, collaborated with Rahul Kapoor at Wharton in an intensive study of the rise and fall of the once iconic company. They spent long hours interviewing former Kodak managers and company historians as well as combing through records.
“Kodak’s failure to transition from film to digital photography has become a canonical example of a dominant incumbent failing in the face of an industry transition,” wrote Vinokurova and Kapoor.
The failure at Kodak wasn’t for lack of vision or investment. In 1975, Kodak engineer Steven Sasson created the first portable digital camera. However, the image quality was poor, nobody knew how to mass produce the sensors for it, and it needed a separate printer to print pictures. Instead of managing these challenges with the digital camera, management’s response was, “How can we make money on it?”
“It was an issue of timing,” Vinokurova says. “Kodak management saw the advancements of digital photography early, but they didn’t know when the transition would happen. They were too ahead of their time with the digital technology.”
After more than two decades of failing to create a profitable digital market, Kodak tried to diversify. The company developed inkjet printers, introducing the first one in 2007, the same year Apple launched the iPhone. As the iPhone exploded in popularity, consumers no longer had to print their photos.
On January 19, 2012, Kodak filed for Chapter 11 bankruptcy protection.
Vinokurova’s earlier research focused on why some good ideas fail to spread and some bad ideas catch fire. Exhibit A for bad ideas is mortgaged-backed securities, which contributed to the financial crisis of 2007–2008. Facing minimal federal regulation, there was little pushback as mortgage-backed securities grew in popularity.
Before mortgage-backed securities crashed in 2008, versions of these types of securities existed as far back as the 1880s, the 1920s and recently in the 1970s. They failed each time, Vinokurova says.
“The reason the lack of regulation is a problem is because without the regulation, there is no institutional memory,” she explains. “If three times in a row you have an idea that brings about a major financial crisis, causing millions of people to lose their homes, maybe this is not the right idea for this institutional environment.”
In another study, Vinokurova looked at the effects of publishing hospitals’ mortality rates for heart surgery. In the four years after New York State made public the risk-adjusted mortality rates of heart bypass surgery at each in-state hospital where the surgery was performed, the death rate for such operations fell by 41 percent. The hospitals that did fewer heart surgeries had higher mortality rates than those with a higher volume, causing the state to shut down low-volume programs.
Despite those better medical outcomes in New York, only a few states, including Pennsylvania and New Jersey, adopted the protocol of tracking and making public mortality rates by hospital, she says.
Vinokurova attributed the low rate of adoption in part to many states having weak state health departments, while New York’s health department has the power to issue mandates.
As with Kodak, Vinokurova focused on excavating the truth about what went wrong so we can learn from it.
Why it Matters
Analyzing why some bad ideas won’t die and some good ideas fail to catch on helps inform business decisions. Kodak’s failure to maintain dominance showed how important it is for management to remain aware of the interdependencies in the business ecosystem, never underestimating the role of uncertainty in the market.