CXOs - "Kodak Moment" Is Your Biggest AI Risk
Pragati Kumar Dhingra
Founder @ Genifea | Building AI superpowers for estate agents
Kodak used to be the de facto worldwide market leader in photography. It entered Fortune 500 in 1974 and peaked at rank Fortune 27th in 1993. From peak market capitalization of $30 Bn, it was completely wiped out and had to file for bankruptcy in 2012.
Why did Kodak fail so badly? Most people believe that Kodak could not see the emerging digital photography trend and hence became irrelevant with time. What most of us do not realize is that Kodak was at the forefront of digital photography "shift" for many years.
Kodak invented the digital camera; and they launched an online picture network in 1997 - way ahead of others.
"The Kodak Picture Network will give consumers a new way to access, share, and store their pictures--one that is faster, more efficient, and permits sharing over distance more easily than the existing method of selecting extra pictures from a double set of prints and mailing them," said Willy Shih, vice president of Kodak. - 25 Aug 1997
By year 2000, Kodak had invested over $5 Bn in digital investments and was world #2 in digital camera sales.
So here we have a global #1 market leader with huge free cash flows, strong brand, and massive customer base who saw the digital "shift" early, acted on it, made huge investments and still vanished into oblivion, slowly and slowly, over a decade.
Sadly, the phrase that encapsulated the essence of happy memories across the globe became an ominous reference for impending corporate doom - "Kodak Moment".
What happened? Is there a lesson in there for executives navigating the AI "shift" that is currently underway?
Kodak's failing was trying to use the digital shift to sell more prints instead of pivoting to digital business itself.
Every single digital investment that Kodak made had a singular objective - sell more prints. They acted like a film, paper, and chemicals company while customers were looking for ease of saving and retrieving memories.
This is uncannily similar to current Generative AI narratives where AI is being used to incrementally improve a step in the overall business process. Having a voice bot answer customer call or using generative AI for knowledgebase query is not very different from Kodak creating connected camera to order prints directly from your digital camera.
And this is the biggest risk for your business - not seeing AI, generative AI, and future waves of AI as the more fundamental "shift" in business that they truly are; but instead sinking millions into incremental enhancement use cases while firmly believing that you are pivoting to AI driven business.
Don't let anyone tell you otherwise - the responsible AI, data privacy issues, IP issues, emerging regulatory framework etc. are all operational risks that will get resolved over time and most of those resolutions would be favorable for businesses. Your potential "Kodaking" is a much more fundamental strategic business risk that would get worse with time, much worse.
Kodaking is also very hard to detect while it is happening to you - you would be well informed on technology, just like Kodak management was; you would have top notch consultants and strategy teams, just like Kodak management did; you would still be making loads of money, just like Kodak was; you would be making AI investments, just like Kodak was making digital investments - but day by day, quarter by quarter sales become harder, growth vanishes and then you start losing customers - while you are left wondering what else you can do to make them order more prints. It is truly death by a thousand cuts.
So, What Should You Do?
That is the million dollar question.
First things first, you need to know if you are Kodaking before you can plan your next move. I have devised a three tiered framework for anticipating and confirming your Kodaking.
Business Strategy has strong parallels in combat - so here is an overview of the framework in combat terms:
Ideally, your spy network level should be strong enough to detect every kind of attack. However, you would still need other levels as safety nets. Here is an explanation of the levels in business terms.
Level 1 -The Spy Network
The spies see events and information that others inside the company do not see. In your company, this is your strategy think tank supplemented with your customer success managers and product managers who have your customer's pulse. They have an eye on the downstream value and usefulness for your customer; and as soon as they see it stagnating or shifting or being challenged, they already know that your future revenue stream is under threat.
For example, if you are a telecom operator then consumer complaints (B2C) about poor indoor coverage would be first heard by your call center and by kiosks handing out SIM cards at public places; while enterprise customers preferring IoT solution on competitor's 5G network would be first heard by your B2B sales team. Likewise, if you own growth of insurance (or retail financial services) business then your outbound call center would be the first to learn about customers choosing personalized insurance plans from an AI led competitor.
Setting up the spy network is an organization design and communication process problem - how do you make sure timely insights are propagated from the front lines to the strategy war room? The solution would depend on the specific organization and nature of its products.
Level 2 - The Outposts
These are your product usage metrics - a leading indicator of how relevant your product is for your customers. If your customers are reducing their usage of your product then it is usually a very reliable sign that their source of value is shifting.
For example, if you run credit cards for a bank, you would see declining spends of high value customers; if you are a telco you would see reduced data, calls, texts, on-net time; if you are a retail chain you would see reduced frequency of visits, reduced footfall to sales conversions, and reduced ticket size per purchase.
Additionally this data needs to be viewed per segment as certain segments tend to migrate before others do. For best results, segments should be based on utility of usage and not demographics.
If you receive a signal from this data before your spies alerted you then you need to retool your spy network as well.
Level 3 - The Watch Tower
These are your sales operations metrics. As your competition stifles your future revenue streams, you would start noticing gradual increase in deal closure time, decrease in win rates, increase in cost of selling, decrease in deal margins etc. There would always be a bespoke reason for each deal - why it took longer or why it fell through (budget reallocation, purchase moved to next year, executive change, year end vacations, etc.) but trends don't lie. Over a period of time, average number of re-budgeting, exec changes etc. don't increase dramatically - averages stay close to their true trajectory. If your numbers are trending away from averages, chances are there is a more systemic reason and Kodaking is a higher probability reason at this time.
This is a lagging indicator. If you are experiencing this, your business is already under threat and your first two warning systems have failed. You need to assess the situation and take remedial action now - before it is too late.
If you would like to connect and explore how I can help you with your current AI journey and help you build your defenses against Kodaking or just wish to stay in touch then connect with me on LinkedIn and DM me.
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Additional information sources for Kodak history: