While long-term success is certainly desirable, it comes with its own risks. Highly successful companies display a tendency to fall into the competence trap and to cling to tried and proven structures, processes, and principles without regard for how the corporate world around them is changing. The necessity to adapt to new market conditions and to revise their understanding of customer needs is frequently pushed into the background. Organizational ambidexterity seeks to resolve this dilemma and promote the best of both worlds. The decisive point is the right balance, the interplay between the two worlds. A strong and efficient core business is just as important at this time as the development of new business fields and innovative products. This type of balance cannot simply be implemented top-down and overnight. In-depth transformation is called for.
The powerful begin to falter
Annual revenues of almost $20 billion, technology pioneer, trailblazer in marketing, monopoly. The Google of its day. Superlatives were barely adequate to describe the company that was once the largest producer of camera film. At the beginning of the 1990s, the top managers at Eastman Kodak were at the zenith of their power. Competitors such as Fujifilm in Tokyo, 11,000 kilometers away, were virtually non-existent or were not taken seriously. Ten years later, Kodak was suddenly tottering on the brink of the economic abyss and filed for bankruptcy in 2012. What had happened?
What had become of the so very profitable film business? In the course of the rising mega trend of digitalization, the market for cameras developed at an accelerating pace in the direction of digital photography. The business model of analog photography suddenly had no future. A mentality of “perfect products” and strict production approaches fell short here. The paradox – although Kodak recognized early where market development was headed and even responded with the first digital camera, it missed the moment to convert the structure, processes, culture, and mindset as necessary. In short: Kodak was caught in the competence trap. The tried and proven business model, the highly robust structures, the tightly organized headquarters, and the established competencies – all of this radiated an almost hypnotic power, even on Kodak’s top management. Exploitation at any price.
Skim off the cream, was the motto. Lacking was a sense of the significance of transformation and awareness of the urgent need of this transformation, even (and in case of doubt, precisely) when success is at its high mark. This curse of success has not been limited by any means to Kodak alone. Of the Fortune 500, the powerful and the great from the year 2000, just under half still exist today (you read correctly: just under half). Amazon, Google, Tesla, and Netflix are shaking up the business world and threatening entire industries. But what can be done to stop this flood of disruptive technologies and business models? Is the next 'Kodak case' preprogrammed?
Everything a question of balance
We find approaches to solving the problem in the concept of organizational ambidexterity. Taken from medicine, ambidexterity means being able to use both hands equally well and, in the case of companies, refers to enterprises which, on the one hand, are capable of utilizing existing resources to maximize core business and, on the other hand, strive to generate new knowledge and competencies with the aim of developing new technologies and innovative business models. The secret? Finding the right balance is decisive! The impressive story of Fujifilm shows one form this balance between present and future can take.
Launched as an underdog and for many years living the shadow of the breathtaking sales figures of Kodak, Fujifilm came out of the radical market changes stronger than before. Its recipe for success? The balance between exploitation and exploration. Just like Kodak, Fujifilm recognized early the dramatic changes that would be coming to the market. The decisive difference between Kodak and Fujifilm is found in the implications that were drawn from this recognition. Fujifilm continued to hold on to its existing business model, yes, but at the same time perceived the necessity to invest in new technologies and business areas. The executive suites at Fujifilm did exactly what decision-makers at Kodak failed to carry out. They had the the courage to question their own business model and at the same time to look ahead into the future. There were three elementary questions here.
1.) What new markets can we address with our current capabilities/competencies?
2.) Can we bring about fresh developments on our core markets if we adapt our competencies?
3.) Are there any new markets we can enter with our capabilities/competencies?
The mindset behind these deliberations is expressed in a quote from a Fujifilm manager: “... while the print market shifted and the film market continued to dissolve, we had to refine who we were and how we were going to be successful as the market changed around us.” If the environment changes, the companies’ missions have no choice but to change as well. Fujifilm used the radical transformation on the photography market to redefine its identity and its ways of working and to rethink the questions of what and how. Corporate management saw that the focus on photographic printing and low-end digital cameras promised no more than low profitability in the long run and that the company’s future was in the production of chemical products and in the health care sector. In contrast to Kodak, Fujifilm mined existing potential to diversify its operations further and to strike a balance between core business and new markets. While Fujifilm, with the aid of ambidexterity, impressively mastered the leap into the digital age, Kodak must accept the criticism that it acted too late or did not act rigorously enough. The two stories demonstrate in spectacular fashion that ambidexterity is nothing less than essential for survival!
What we can learn from Eastman Kodak and Fujifilm:
- Digitalization is inexorable. Anyone who is too sure of himself and refuses to question his business model is at risk of waking up to find himself in the “company cemetery.”
- Organizational ambidexterity – not a matter of “either/or”, but of “both/and”.
- If the balance between exploitation and exploration is to be achieved, the right mindset is indispensable. Practicing ambidexterity requires a comprehensive transformation in the company. Top management must take the lead in bringing it about.