Innovate Or Die: The Cost Of Doing NOTHING !









Life is full of magical times, but do you wait for that special ‘Kodak Moment‘ any more? When you turn on the television, do you expect the ‘Blackberry Boys‘ strutting their stuff in a commercial? While catching the latest movies or TV show on Netflix or Amazon Prime, do you come across a slogan that proclaims ‘Be Kind, Please Rewind‘? Have you seen the words ‘The Document Company‘ anywhere lately?

The answer to all of these questions would be a resounding ‘no‘ – for the companies behind these once-popular slogans have either given up their market-leadership positions, declared bankruptcy, shut up shop – or are still present, but in a considerably weakened position. According a report, a measly ~12% of the companies from 1955 Fortune 500 list managed to make it to the same list in 2014 (only 61 companies were present in both the lists). One of the very few constants in the domain of business is ‘creative destruction’ – with old players struggling to keep up as new technologies arrive and markets change, and new companies taking up their positions.

The ability and willingness to innovate play big roles in determining whether a company or a brand – no matter how strong it might be at a given point in time – will be able to survive in the long-run. The basic business models and way of operations in practically every industry keep evolving – and there are many instance of big companies not being able to keep up with the changes, and consequently, going out of business. ‘Innovate or die’ has become the watchword for businesses across the globe. Many famous companies from earlier decades have failed to integrate that elusive ‘innovation culture’ in their working, and have ceased to be relevant at present. Interestingly, the importance of ‘innovation‘ is not limited to IT companies only – and several governmental and social projects have also failed, simply because the brains behind them were not proactive enough. Here are some classic case studies of companies that had ‘ignored innovation’, chosen ‘not to do anything’, and suffered as a result:

  • Mistakes-on-demand from Blockbuster – The two main factors for sustained success in any field of business are: a) identifying future trends, and b) grabbing present opportunities. Blockbuster LLC – once the undisputed leader in the video rental industry – failed spectacularly in both. The company had 9000+ stores across the world, and well over 84000 people on its payroll in 2004 – with hardly any competition in sight. What’s more, it had the chance to acquire Netflix (the company which is most often referred to as the principal cause of Blockbuster’s demise) in 2007, with CEO Reed Hastings practically imploring Blockbuster to take over his company. A mix of complacency, myopic vision and internal board squabbles led to Blockbuster doing nothing at the time. As internet became more and more mainstream, and Netflix started offering online video-streaming options (no more ‘late fees’, no burgeoning costs on physical stores/retail locations) – Blockbuster was unable to cope up, lost customers, and collapsed in a big way. The growth of Netflix ushered in disruptive innovation, and Blockbuster was caught like a deer in headlights.

Note: John Antioco was the CEO of Blockbuster at the time it passed over the opportunity to acquire Netflix.

  • Flight nosedives for Pan Am – With not enough proactiveness and more than little nudges from unforeseen external factors – Pan American Airlines was forced to shut down operations in 1991. The company had its proverbial time under the sun for 64 years (having been started in 1927) – and at its peak, was easily the biggest player in the commercial aviation sector globally. To be fair, Pan Am was innovative enough (upto a certain point) – having overseen the flight of powerful jumbo jets and computerized reservations. However, the terrorist bombing of Flight 103 (in Scotland) resulted in considerable negative publicity for the company – which had already started to bleed as a result of the early-70s oil crisis, dwindling passenger demands, and serious overcapacity problems. The invasion of Kuwait in 1990 was probably the final death knell in the flight path of Pan Am (as oil prices rose sharply). Once the biggest name in the business, Pan American Airlines simply could not adapt to the changes in its operating environment.

Note: Apart from Pan Am, two other major airline companies – Midway Airlines and Eastern Airlines – also shut up shop in 1991.

  • Picture-not-perfect for Eastman Kodak – One of the classic cases of how years of inaction can kill off a perfectly good business. Founded in September 1888, Kodak went from strength to strength right through the previous century – as the popularity of its cameras and films spiked. Remarkably, the company had the chance to move into digital photography as well – with an employee (Steve Sasson) having created the world’s first digital camera way back in 1975. Instead of jumping on the opportunity, those up top at Kodak totally ignored it – due to their failure to understand that digital photography was the future, and a reluctance to ‘cannibalise’ the sales of their existing lineup of cameras. To further complicate matters, Fuji started to undercut Kodak with its lower-price films – while Polaroid started taking away the market with ‘instant photos’. Kodak tried its bit to stay in the game with the Advantix Preview camera system (>$500 million was spent), but the results were disastrous. Remarkably, the company simply chose to stay in denial for many years – as film cameras grew obsolete, and digital imaging became mainstream. The struggles continued, and Kodak was left with no options other than to file for bankruptcy in 2012.

Note: Photography is not just about films and cameras – and that’s the biggest thing that Kodak could not understand. If the company had managed to position itself as a player in the ‘visual storytelling’ business, it might well have been still flourishing. As it were, the digital age just passed Kodak by.

  • (Dis)Connecting People: The fall of Nokia – Last year’s Nokia smartphones have done reasonably well – but the company is nowhere near replicating its halcyon days in the late-90s and the early-’00s. At the time, no one made better mobile phone hardware than Nokia – and the Finnish company had almost no competition to be worried about. What’s more, the company had been surprisingly agile right through its history – having moved in and out of several lines of business, identifying telecom as the focal point, and even bringing out the first smartphones in the world (the Symbian Series 60 handsets) in 2002. In fact, the Nokia Communicator was launched as early as 1996. However, the company dithered while deciding whether to join the Windows Phone platform – and more importantly, it continued to believe that hardware was the most important element in a mobile device – while software wasn’t something worth too much thinking. This short-sightedness is precisely what that led Nokia to the brink – with newer players like Apple and Android showcasing the value of mobile applications, and how a handset can do much more that only send/receive calls and text messages. In essence, Nokia was not quite in favour of doing the necessary transition – and was sadly mistaken in its belief of being able to catch up with smartphone vendors later. Microsoft acquired Nokia in September 2013 (a ‘monumental mistake’), and sold the mobile assets in 2016. The belated attempts to use the Android platform cannot mask over the heavy price that Nokia had to pay for not innovating – properly and in time.

Note: The squeeze from the high-end smartphone models and the low-end developing markets (with brands like Huawei and HTC joining the fold) well and truly stifled Nokia.

  • Yahoo! The fall of the mighty – For a company that survived the big dot com bust in 2000 and had ~10X increase in sales in the 2001-2008 period, the fall was – let’s just say – unforeseen. The tale of Yahoo! Is one of a series of missed opportunities, and a futile determination to stick to being a web portal – at a time when its principal rivals were turning to search, or becoming social media giants (or, for that matter, better news aggregators). Unbelievable as it might seem now, Yahoo! messed up chances to acquire Google (Terry Semel, the CEO at the time refused to agree with the $3 billion price) in 2002, and Facebook (the deal would have gone through if the offer had been even $0.1 billion higher) – while a great takeover offer from Microsoft was also scorned at (the bid of $44.6 billion was deemed as too low). The inputs from a string of CEOs ill-equipped to save the sinking ship did not help matters – and Marissa Mayer’s ill-advised (and outrageously overvalued) acquisition of Tumblr was yet another gross mistake. At one point of time, Yahoo! released 24 different company descriptions in 24 years – clearly indicating a lack of focus. A failure to make it big as a search engine (a deal was struck with Bing in 2009), poor performance as a social media site, and the general drop in popularity of web portals ensured that Yahoo! had little chances of a comeback.

Note: With Flickr, Yahoo also had the opening to make a Instagram-like photo sharing portal (well before Instagram!). That opportunity was glossed over too.

Taking A Break…

Even half a decade back, a ‘family lunch’ meant just that – everyone stepping out together to a nice restaurant. With the growth of food tech in general, and food delivery apps in particular – it has become easier than ever for the average Joe to order food without leaving his comfy couch. Restaurants, irrespective of their size, have also realized that they need to be a member of these services (Swiggy, Foodpanda, Zomato, etc.) to remain profitable. By April 2016, the number of active users of the Swiggy app had crossed the 1 million mark.

And Back…

  • Unused innovations at Xerox – If you do not innovate, you die. If you do innovate but then take no tangible action on your innovations, you die too. Xerox – the once-immensely popular print and document processing service provider – is one of the best examples of the latter. Its ‘914 photocopier’ was a roaring success, there were no dearth of resources, and ‘scientific excellence’ was something that the company became renowned for. Established in 1970, Xerox’s Palo Alto Research Center (PARC) threw up a series of top-notch innovations – right from graphical user interfaces and laser printing, to PC prototypes, LANs and mouse – over the next three decades. Sadly though, Xerox never grasped the fact that it could move out of the ‘office photocopier’ business, and become a name to reckon with in the overall computing industry. The company just sat on its valuable innovations, and gave them away to competitors (Microsoft, HP and Apple were some of the companies that benefited from Xerox’s technologies). In 2000, the share price of Xerox had dropped to below $4 – and many short-term debts and other problems had piled up. Another tragic tale of lost opportunities.

Note: According to recent reports, Xerox will be taken over by Fujifilm. The deal will be worth $6.1 billion.

  • Blackberry fell off a cliff – The rise and fall of Blackberry (Research-in-Motion) has a lot in common with that of Nokia. Once considered the ‘ultimate smartphone’, Blackberry simply got too comfortable with its heady success – and failed to look out for the technological disruptions heading towards the mobile platform. Company co-founder Michael Lazaridis once famously said ‘I don’t get this’, while pointing at an all-touchscreen handset – a quote indicative of the tunnel vision that the company suffered from. Indeed, the management could never think of a smartphone as anything more than a mobile phone with a QWERTY keypad, decent network connectivity, options for push email (a USP of Blackberry phones) and robust security features. The world had, however, moved on – and by the later years of last decade, both Apple and Google had started to churn out handsets that qualified as ‘all-round smart devices’. The biggest point of difference was the third-party app support – with the Blackberry App World remaining a pathetic distant cousin of the App Store and the Play Store. Odd product choices damaged the situation further – with the weird Blackberry Passport having few takers. The first Blackberry touch-based smartphone (running on Blackberry 10) came out six years after the launch of the first-generation iPhone. Blackberry Messenger (BBM) was, on the other hand, replaced by WhatsApp by most users. Innovation and implementation have to be fast – and Blackberry missed out in a big way. From being the undisputed market leader, the brand is presently flirting with irrelevancy (0.0482% market share last year).

Note: In late-2016, Blackberry handed over its hardware-making licenses to TCL. To be fair, last year’s TCL Blackberry KeyOne did fairly well in terms of sales.

  • Enron ran out of energy – A mixture of innovation shortcomings and unethical financial practices spelt doom for Enron (founded in 1985) – which had once been listed as one of the top 6 energy companies in the world. By 2000, Enron was in the list of top Fortune 500 companies (peaking at number 7) – and was widely viewed as the most ‘innovative’ company in the United States. Soon after though, things started to go pear-shaped for the company – firstly with the broadband telecom networks that caused big losses, and then with the rapidly falling market capitalization figures following the recession at the turn of the century. Instead of coming up with solid plans to tide over the problems and make a smooth transition, all that Enron did at the time was hide/overstate its actual earnings – all under the watch of the then-CEO Jeffrey Skilling. It later came to light that the company had been inflating its income since 1997 (by close to $600 million). From a high of $90.56 in 2000, Enron’s share price tumbled to $0.26 in December 2001. The company had the base and the resources to tackle the problems and stay innovative – but chose to go with underhand practices. The infamous ‘Enron Scandal’ was the final nail in the company’s coffin.

Note: Arthur Andersen, the firm that had famously tried to destroy Enron’s audit documents to cover up losses, made a comeback in 2014, with ‘Andersen Tax’.

  • Posts stop for USPS – The United States Postal Service presents yet another case of business inertia. It has been in existence since 1775 – and has witnessed huge volumes of posts and document transfers in the previous century. Over the years, USPS has been innovative enough – taking the American postal system to higher efficiency and convenience. However, it has not been able to keep up with the current age of digital, paperless communications and smarter service providers – as rivals like UPS and DHL have have grown and consolidated their positions. USPS, meanwhile, have hardly done anything to retain its competitiveness – and the unfavourable government regulations have not helped either. Postal services as a whole are falling behind – USPS, with its outdated services, are, expectedly, suffering. Faxes, emails, text messages have all combined to bring down the dependence of people on snail mails drastically.

Note: In a bid to cut down on costs, many locations of the USPS have been closed down in recent years.

  • Fading of Borders – Bookstores are good. And there was a time, when there were none better than the Borders Group – which started out from Ann Arbor (Michigan) in 1971. Throughout the US, there were superstores – and the company went for international expansion, with stores in Canada, Singapore, Australia, New Zealand and the United States. Sometime in the 90s though, the popularity of the Borders bookstores started falling – and ironically, the ‘size advantage’ that it had was what that turned against them. In other words, the huge bookstores – established on prime real estate locations at hefty charges – were no longer viable, simply because there were not enough sales. The need of the hour was prompt innovation – which, in this case, meant moving on to online sales of books (just like principal rival Barnes & Noble did). Borders did not consider the fact that the ‘traditional way of buying books’ was fast going out of fashion – and curiously, invested more on expanding their physical stores. No heed was paid to the opportunity of creating an ebook reader like Nook or Kindle either. The idea of moving to CD/DVD sales just as the world was warming up to digital music did not make much sense – while outsourcing book-selling rights to Amazon did not benefit the company. The widespread economic recession in 2008-09 was a big blow, and a couple of years later, the company was liquidated (with almost 11000 employees laid off).

Note: When Borders belatedly turned its attentions to ebooks, Cruz and Kobo were some of the devices it created ebooks for. The attempt was half-baked, the readers were not popular, and the Border ebooks failed.

Time for another break…

Unwillingness to innovate – or a failure to innovate ‘correctly’ – is a problem that bugs the public sector as well. There are many instances of governmental bodies planning perfectly good projects – which flop due to inadequate or improper innovations (i.e., poor execution). There are two broad reasons behind the failure of government-initiated innovations:

  1. Fear of failure – While the margins for error in the private sector are also decreasing, entrepreneurs still feel that they can take the occasional risks to take their companies forward. In the public sector though, a single mistake can lead to huge losses and probable firing. Staying ‘safe’, and well away from (potentially rewarding) risks is viewed as the better option.
  2. Detached from reality – The greater the bureaucracy in a government, the more is the chance of senior-level decision-makers being detached of the actual situations at the grassroot levels. As such, they can greenlight innovative drives that might have worked well in an ‘ideal’ economy – but fall flat due to the many existing bottlenecks. Unless the person/group of people have updated, real-world knowledge, innovations – however well-intentioned – will fail.

Back again..

  • Tower Records come tumbling down – Another flourishing company that was brought to its knees by the typical ‘big company syndrome’. From Elton John to Colin Hanks (who made the ‘All Things Must Pass’ documentary as a tribute to Tower Records) – celebrities and general public alike were big fans of these physical music stores. The collections and variety were impressive – and music could also be ordered through the stores. Founded by Russ Solomon, Tower breezed through the 80s and the 90s with high sales and very impressive revenues. However, no one from the company realized in time that Tower Records was becoming too big for its own good – with its aggressive expansion plans. As internet grew and digital music became the go-to option for more and more people, the large retail stores grew non-viable. In addition, the competition with big players like Walmart and Best Buy (who started giving out hefty discounts on music records) hastened the end for Tower Records. A combination of digital platforms like iTunes and Napster, along with indiscriminate expansions, killed off what was – at one time – a market leader in the music industry. Tower Records filed for bankruptcy in 2004 and 2006.

Note: Illegal music downloads are causing heavy damages to the music stores. For Tower Records, an inability and an accompanying unwillingness to adapt to the changing environment, made the difference.

  • General Motors stutters – From being top of the class to going bankrupt (in 2009) – the 101-year old journey of General Motors (‘old GM’) makes for an interesting read. By 1954, the company had a whopping 54% share in vehicle market of North America (in 2009, that figure had dropped to <20%). The need to innovate and improve was completely bypassed by GM – with the changing customer needs & preferences, and the latest automotive technologies being reduced to footnotes. Over time, the vehicles that GM turned out came to be viewed as outdated and uncompetitive (the time to make them was also inordinately high). Upstart competitors started to eat away at the market – and the financial policies taken by the company (particularly since 2006) were mostly poor. Moreover, the infrastructure involved huge amounts of fixed costs (unlike many of its rivals) – and as demands slackened, the company still had to bear heavy expenses. The acquisition of Fiat was poorly handled. However, the standout ‘failure to innovate’ factor for GM would be the killing of the EV1 electric car. There is a lot of buzz over autonomous cars at present – and GM could have had a huge headstart if it had persisted with the EV1.

Note: ‘New GM’ came into being in 2009. It bought many of the assets (and the ‘General Motors’ brand name) from the now-defunct ‘old GM’.

Food For Thought…

Innovation is something that encompasses nearly every facet of our lives. It would be a folly to consider its scope limited to businesses. For instance, the importance of social innovation is steadily increasing – with equity, fairness, social inclusion and collective well-being being some of its key elements. Just like a company suffers if it is not proactive enough, a society stagnates if ‘social innovations’ are ignored.

The Buck Does Not Stop Here

There are many other instances of well-known brands getting caught up in a time-wrap, failing to innovate as per circumstances, and facing failure. From Napster, Abercrombie & Fitch and Polaroid (which, incidentally, was one of the ‘Kodak-killers’), to Radio Shack, Toys-R-Us, MySpace and – there is no dearth of businesses that were flourishing – only to be overtaken by competitors later. Remember the Motorola RAZR? It was a breakthrough device at its time – but its popularity was short-lived.

The Lessons Learnt

So, why do companies stay away from the required innovations, even when they have the brains and the means to move with the changing times? The reasons can be multiple – right from a reluctance to make the necessary additional investments, an over-reliance on strategies/products that were successful earlier, and not being prepared for sweeping market changes (more often than not, caused by technological advances). There are cases of companies that are doing well getting into a comfort zone…a veritable ‘innovation blind spot’ – and failing to pay heed to warning signs.

The biggest mistake that all of the companies listed here (and many others) made was to try and find the ‘one best way’ to do business – a way that will stand the test of time. However, there is no such holy grail of operating. Unless a brand transitions itself over time and adopts innovations (i.e., embraces an ‘innovation culture’) – the act of not doing anything can prove to be very costly.

It has been proven time and time again that status quo does not work in the business field. Innovate or perish – after all, that’s the name of the game!

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