How your company can avoid becoming the next Kodak

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out of businessBy Jeff Thommes

Even the most iconic of brands can take a nasty tumble. “What’s Kodak film?” today’s toddlers will soon be asking.

Borders has gone belly up too, leaving us with one less place to buy books and compact discs. But the Kindle and its cousins are muscling into the book market, and the music CD is going the way of the audio cassette.

Looking for a Blockbuster store to rent videos is like playing “Where’s Waldo.” Once a giant in the industry, Blockbuster filed for bankruptcy in 2010, started 2012 with 1,500 stores and continues to shrink But why go to a store to rent a video when you can order online and see as many movies as you want — on TV, on your iPad, wherever, whenever — for $7.99 a month.

What happened? There was no problem with the quality of each company’s product or with its pricing. However, all three were too slow in recognizing the changes occurring around them, and, when they did, they either made the wrong adjustments, or didn’t adjust at all.

Kodak was founded in 1871. It survived for 131 years, hardly a record, but far longer than most. The lesson here is one that no business owner can afford to ignore: No matter how successful your business, no matter how highly your brand is regarded, no matter how superior your product seems to be, you must pay attention to megatrends and trends specific to your industry.

To help keep your business moving forward, you should create a business development model, Such models include three distinct areas: industry assessment, product portfolio management and dynamic modeling revenue growth programs.

Industry assessment involves knowing your industry, competitor behavior, customer demands and trends and megatrends. Megatrends are large unstoppable forces that will cause a major shift in your business, whether you’re ready for it or not. Kodak fell victim to two megatrends — the digital revolution and globalization. Then the global recession accelerated its fall. Kodak saw the revolution coming; it invented the digital camera in 1975. But it failed to recognize how digitalization would impact the photography industry. Globalization impacted Kodak too, with competitors cutting into its market and margins, further weakening its financial core.

Successful industry assessment requires that you track data and understand trends, and the implications of these for your products and services. There is a tendency in small and mid-sized businesses to leave this research to the marketing department. It’s fine for marketing to have prime responsibility, but the CEO and all other department heads must constantly keep abreast of trends. You have to be looking at least three to five years out, and your assessment must be updated annually, more frequently if possible, to provide a fresh benchmark that tests your investments, progress, resource deployment and business direction.

Not only do business leaders have to understand both megatrends and their industry, they must also practice strong product portfolio management — developing new products, improving their quality, pricing them properly and reducing costs whenever possible. Looking at Kodak again, as new overseas film and camera manufacturers offered high-quality, lower-cost products, Kodak chose instead to develop more sophisticated “film-like” digital products that required consumers to “process” images through Kodak in a manner similar to traditional film. The result: Kodak increased its debt by investing in high-end products that failed to meet market demand while losing to cost-cutting competition in the traditional film and camera market.

The third step in the business development model is dynamic modeling revenue growth. While actual calculations can be complex, projected sales can be simplified to this equation: historical sales, less historical erosion, plus or minus core growth, plus new product and service contributions. When the numbers are crunched, the likely outcome is that the business will initially have less working capital than anticipated.

Some businesses figure this out better than others. Consider what Steve Jobs did with Apple in the late 1990s. He paid attention and correctly assessed the trends. With the market for computers was changing, Jobs knew that Apple would have to develop new product revenue streams to remain profitable. His team plotted a bold new direction.

Apple faced challenges similar to Kodak from digitalization and globalization. While home computer sales exploded with new brands, margins tanked but Apple embraced the digital revolution with new products — iTunes, iPod, iPhone, iPad. Its creative legal digital approach to Napster’s success led to 99 cent iTunes reminiscent of the 45 rpm records of a generation ago and helped hasten the demise of the CD-based music market.

The fall of Kodak reminds me of “Other People’s Money,” the 1991 film in which Danny DeVito, starring as Lawrence Garfield, AKA Larry the Liquidator, famously proclaimed: “I’m sure that the last buggy whip company in America made the best damn buggy whips in the world.”

How true. Having a superior product enables a business to outlast its competition. However, if you do not adapt to what’s happening around you, risk going the way of the buggy whip manufacturer.

Jeff Thommes is a director of Beane Associates, a turnaround and crisis management consulting firm with offices in Wilmington and Atlanta. To learn more, visit beaneassociates.com

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