Red Zebra Business Centre - Management Memos
February 2012 Making Measurably More For Your Business Since 1985! Page 1
Why is the auto industry so badly undervalued?
Max Williams, Principal Consultant

As we set out to write this edition, Toyota Motor Corporation announced a raft of redundancies in its Melbourne plant.

Predictably, the Federal Government, having quite recently axed a motor industry 'green' innovation scheme, expressed strong support for local manufacturing jobs.

Equally predictably, a number of well known commentators talked up the pointlessness of supporting an industry that isn't viable, and doomed to ultimate failure.

Both the Government, in axing the 'green' scheme, and the commentators who want to see an end to support for the industry, miss the point. The Federal Opposition seems to be even more wide of the mark.

Having begun my career as a graduate trainee at one of our older motor manufacturers, and having been chief engineer at a component supplier, I am very well placed to appreciate how much those activities have contributed to technology transfer into Australia. The industry has also helped develop sound organisational management, and project management skills in this country.

Put another way, the range and scope of skills required by the motor industry drives a technology base we don't get anywhere else.

At one time, we had a vibrant electronics industry. It was killed off by those who could not countenance government support for an industry they didn't understand.

In the 1970's a unique set of standards for an FM radio network had been proposed for Australia. It would suit Australian, as distinct from US, European, or Asian needs. It would have guaranteed a local electronics industry.The Whitlam Government killed it.

Instead, duty was levied on components brought in to build radios and televisions in Australia, but not on the import of complete radio receivers.

Why? Because the bureaucrats decided that an electronics industry was not viable without government assistance. Never mind the support other governments give their industries.

There is a strategic need for Australia to have a sustainable base of high technology skills. If you need it in a crisis, you can't just dial it up. It takes decades to develop.

Since we have one remaining repository for such a technology skills base, why do we want to destroy it?

Have you ever watched a die being sunk - a die which will be used to manufacture the engine hood of a car? The scale of the machinery, the length of the machining time, and the skills of the team managing the manufacture of that tooling is simply mind-blowing.

Nothing compares. And nothing can replace it if we lose it.

In this edition of Management Memos we look at the need to develop a digital strategy for every business. Again, there is widespread resistance to adding new technologies to an existing business, and tackling new ways to engage customers and prospects.

We hope that in reading this edition, you are not blighted by the lack of vision that has bedevilled so many carefully thought out plans for future business development.

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he sad recent corporate collapse of Kodak holds lessons for every business. Kodak failed to adapt to new circumstances, because it worried that its current business would be devastated by the new technology. Instead of grasping new opportunities, Kodak chose to deny the threats. Now, it's probably too late! Even if your business isn't photography, there are lessons to be learned.

Dramatic Case Study Shows Need to "Cannibalise Your Own Business" - Or Become Irrelevant.
At last, Kodak has delivered what many had been expecting for years. Kodak is finally bankrupt.

This is always sad to see, but the question for us is; "Does this example hold any lessons for us today?"

The most obvious is that the fear of 'cannibalising your own business' holds people back from innovation, and prevents us from persevering with our bold steps.

You can see this, by looking at what happened to Kodak.

Digital photography has changed picture taking forever. Kodak, once the world leader in photography, had simply been left behind.

This is really very uncanny, because it was Kodak who invented the digital camera.  Then, because of a fear of  cannibalising its own business, it failed to develop this new technology - leaving others to do it for them.

This was foolish in the extreme, and it shows how badly Kodak had failed to understand the market forces surrounding them. Making matters worse, Kodak failed to understand the new ways consumers wanted to interact with their photos.

It had been 1975 when a Kodak engineer and his team developed the first digital camera. Then Kodak put it back in the closet.

In 1995 Kodak brought its first digital camera to market, the DC40, years before many others would get into digital photography. Stunningly, Kodak never did take advantage of this 'first-to-market' advantage - even though it had been twenty years after the first invention!

The company culture was steeped in the film business. Embracing digital photography meant attacking its cash cow, and eroding the very base on which its position of power and prestige had been built.  Others, with no such ties to the past, quickly filled the digital niche, seeing it grow way beyond expectation.

Kodak's first really serious attempt to capitalise on its digital invention came in 2001 - some 26 years after the original invention, and six years after its first product launch! This was the 'EasyShare' line of point-and-shoot cameras in 2001.

Here was the classic business strategy conflict. Kodak's complete business was built on film and in photo-printing. While Kodak had developed the digital photography technology, there was little incentive to push it.

This fixation with what had been strongly built in the past is demonstrated by a recent comment, said to have been made by a Kodak executive, 'I think film's coming back.'"

Such an outlook is almost universal. Book shops, instead of finding new ways to serve the reading public, failed to adapt to the new age of buying books on-line.
Continued from Previous Column:

Fashion brands, used to commanding high margins, did not re-engineer their supply lines to suit changed circumstances. They simply waited until falling margins crushed them.

So, while Kodak was still focussed (no pun intended) on what had been its core competency throughout its history (film), others were not.  Rivals just kept innovating, introducing features like face detection, smile detection, and in-camera red-eye correction.  Kodak was never the leader in the evolution of digital photography.  It always followed its competitors, and always looked like a "try-hard"

Failing to understand the market forces at play is a fundamental business failure.  Failing to understand market trends is, perhaps, more excusable - but just as devastating in the long run.

Kodak did have one shot at creating a truly novel and useful feature for digital cameras.  In 2005, Kodak launched the world's first wi-fi enabled camera.  The device came with a special card (separate from the SD card) which connected to your Wi-Fi network. Nothing simpler - email photos straight from the camera.

Unfortunately, it was bulky and cumbersome. Despite this, it worked as promised. Emailing photos had become simple.

In the event, the camera failed to sell well, so Kodak killed the whole idea.  About the same time, a group of engineers founded 'Eye-Fi', a successful business built around wi-fi-enabled SD cards for cameras. This was essentially the same concept Kodak had abandoned.

What Kodak missed is that photo sharing was to become the 'killer-app'. You don't kill off an entire category, just because your first attempt got a lukewarm response from the market. If you really believe in the core idea, you make it work!

The most immediate takeout from the fall of Kodak is clear -  Don't be afraid to cannibalise your own business in the name of progress.

This is seen time and again - and particularly in the fast-moving digital revolution.
  • Sony's reluctance to develop a competent digital Walkman left an opening for the iPod.
  • iPads may be eating up some Mac sales, but Apple's bottom line is stronger than ever.
  • This isn't a new story - when transistors arrived, valve manufacturers didn't embrace the new technology and paid the price - they've all gone.

The fate of Kodak is the fate of every business that does not adapt. One adaptation you must make is to develop a comprehensive digital strategy - and that means - "How will you deal with the digital age, in all its potential impacts on your business?"

"Never be afraid to cannibalise yourself" - Steve Jobs

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