Kodak managers learn gobbledygook theory of strategy, firm foldsPosted: January 16, 2012
Many of you will have heard by now that Kodak is likely to file for Chapter 11 bankruptcy sometime soon. Their present strategy appears to be to wind down the business by selling off many of their patents. I guess my main surprise upon seeing them back in the news was that they were still in business. Apparently, it takes an extended period for these behemoths to fold for good.
The source of my surprise was the fact that I used to teach Kodak managers in both the executive and part-time MBA programs at the Simon School in Rochester, the home of Kodak’s headquarters. Just to be clear, these men and women were great students … bright, curious, open-minded, and typically well-trained. My purpose here is not to jump on the current bandwagon and blame Kodak’s present troubles on the stupid, selfish, rapacious tendencies of its 1%-er senior managers. Quite the opposite. Rather, I’d like to question what role, if any, the things they learned in b-school strategy classes played in the formation of, ultimately, misguided business plans.
Harking back to the late 90s, when I was teaching EMBA classes that were populated with about 1/3 senior managers from Kodak, I vividly remember initiating class discussions about the disruption digital technology was going to have on Kodak’s legacy business. Unlike the automobile manufacturers of the 70s, who really missed the significance of Japanese competition, Kodak managers fully understood that the new digital technologies were going to change their industry forever. Sure, there was a lot of uncertainty about the speed and path by which transformation would occur. But, it wasn’t the case that these smart people didn’t see it coming. They got it. And they were optimistic and dedicated, in my experience to a person, to implementing strategies that would permit Kodak to successfully ride the new technological wave.
Why were they so optimistic? When challenged to discuss it in class, they proudly explained that Kodak’s “core competency” was “color”. The reasoning went something like, “We understand color and its application to photography better than any other firm. This knowledge will be as important for success in digital applications as it was in analog film. Therefore, we are wonderfully positioned for whatever challenges the market presents.” The problem, from my perspective was two-fold: a) the thinking did not seem to go much deeper than this; and, b) the strategy literature did not have much to offer to help them think deeper than this.
Many have complained that the RBV, which is the source of this core-competency thinking, is a tautology: core competencies are unique resources that cause a firm to persistently outperform its peers; all firms that persistently outperform their peers have core competencies. I don’t agree with this complaint. Indeed, my sense that the pioneers of the RBV were on to something substantially influenced my desire to study strategy. That said, the “theory” underlying the RBV doesn’t go much more than one step beyond the tautology. And, much of where it goes is wrong (e.g., having resources that are inimitable is neither necessary nor sufficient for persistent performance advantage).
So, my energetic, smart, dedicated EMBA students, when presented with a strategy theory that was frustratingly close to a tautology, developed a strategic conceptualization of their firm that was – not surprisingly – frustratingly close to one as well. At the end of the day, it seemed to be an article of faith among my students that “knowledge resources about color” were going to save the day. (As we are all only too aware, smart people are masters at locking onto a favored idea and finding all kinds of arguments to support it.) As a teacher, it was incredibly difficult to push them deeper into a critical analysis of how, specifically, this “color know-how” was going to be their lifeline. New competitors, new product distribution channels, radical changes to how photographs are shared and consumed? No problem — we know color!
Part of my teaching frustration, which became part of my research motivation, was that the extant literature did not offer much in the way of tools to help these folks think about such issues in a complete, consistent, and efficacious way. Worse, in my judgement, teaching those folks a shallow set of ideas actually facilitated their transition into a dangerous state of groupthink. Holding up a piece of tautological thinking as the pinnacle of scholarly theory doesn’t exactly encourage students to think beyond tautology.
Our field has more than its share of interesting conjectures (i.e., informally generated speculations). What we need now are more scholars who are willing to roll up their sleeves and dig into the details. And patience. Lots of patience.