Case studies of two of the biggest business blunders — New Coke and Kodak — and how they could have been avoided.
t‘s tough to know when it’s time to make a change. If the decision is a business pivot, we need to be extra careful.
There isn’t a clear system or answer that works for every dilemma. But there has to be a better strategy than trusting your gut, especially if you, like me, think your gut’s not always reliable.
Large corporations are no stranger to this struggle. And they don’t always get the answer right to these questions:
When is it best to double down on tradition? When is it best to make a radical shift in strategy?
You may have already heard about the two most notorious examples of large corporate strategy decisions that turned out colossally wrong. One turned from tradition too hastily and radically—Coca-Cola. The other stuck to tradition too tightly—The Eastman Kodak Company.
By examining these examples, we can figure out how these blunders could have been avoided. We can also improve our own business decision making.
Case Study #1 — New Coke
Decision: Change the company’s 99-year-old formula
This is etched into my personal memory. It happened a couple of months before my thirteenth birthday. New Coke was introduced on April 23, 1985 with big fanfare and little prior warning. Production of the original formula ended later that week. Just like that, a firestorm was ignited.
According to Time, Coca-Cola’s headquarters in Atlanta received 40,000 angry calls and letters. A psychiatrist whom Coke had hired to listen in on calls told executives that some people sounded as if they were discussing the death of a family member. The outrage intensified as weeks passed by.
Coca-Cola finally reversed its decision on July 11, 1985, just 79 days after New Coke’s introduction. Peter Jennings interrupted ABC’s daytime programming to announce the breaking news: The original formula was brought back under the name Cola-Cola Classic.
The reviled New Coke faded into obscurity and eventually was discontinued years later. It never captured much market share but did well in a few isolated markets.
Below, three questions that Coca-Cola could have asked to avoid this colossal mistake (and that we can ask ourselves the same things when contemplating big changes).
1. Who am I alienating with this decision?
Every major decision is going to alienate somebody. It’s impossible to make meaningful decisions that everyone will be happy with. This has come up in my own practice in a number of cases. Sometimes it has meant I needed to let a client know that they were not a good fit for the practice.
We and our teams can anticipate how decisions will impact key customers, vendors, employees, and the public if we think through the implications.
Make sure the people you are alienating aren’t the ones the most critical to your success.
2. Can I make this decision a pilot project instead?
Why did Coca-Cola need to discontinue the old formula? Could they have tried the New Coke in a few markets or even release it as another option?
Smaller businesses can have pilot projects as well. It often isn’t absolutely necessary to make a complete shift. At least not right away. We can try it first.
With my company, if our team is contemplating a change to our process, we’ll implement it with new client relationships first. Before we make a change to our service model with the practice, we’ll try it on a limited basis first.
3. What role is my ego playing in this decision?
Roberto Goizueta, Coca-Cola CEO at the time of the change, never admitted the error of the decision. Goizueta claimed that he never once regretted the decision to change Coca-Cola. He even threw a tenth-anniversary party for New Coke in 1995. He continued to drink New Coke until his death in 1997, as Blair Matthew recounts in ‘Coca-Cola’s Big Mistake: New Coke 20 Years Later.’
It’s easy to get emotionally invested in decisions. When it’s clear that a decision was a mistake, it’s best to admit it and move on.
Case Study #2 — Digital Photo Strategy
Company : The Eastman Kodak Company
Decision : Failing to take the lead in digital photography despite having the first patent in digital cameras in 1975
Kodak was the dominant company in the space of photography throughout my childhood. Its brand was deeply embedded in the culture. Important moments were referred to as ‘Kodak moments’ in the popular lexicon.
Kodak had such a commanding share of the photography market, they must have felt invincible. They were a behemoth that thoroughly dominated the sale of film in the United States. One of Kodak’s engineers patented a working prototype digital camera in 1975. But Kodak shelved the digital camera shortly after receiving the patent. The primary concern was that it would cannibalize their bread and butter; film.
Kodak didn’t feel the impact of this decision until later when Fuji Film broke into the US film market with a cheaper alternative. Kodak went from having over 90% of the US market share in film to becoming commoditized by Fuji through extreme competition in the 1980s.
By the late 1980s, digital photography was taking a bite out of traditional film altogether. Kodak was behind the curve.
The company that had the first patent on a digital camera in 1975. That camera never saw the light of day.
Kodak was never able to recover. In 2012, Kodak filed for bankruptcy.
The company has since reconstituted but at a tiny fraction of the market influence that this once great company had.
Here, three questions Kodak could have asked to avoid this outcome. We can ask ourselves the same if we are resisting change.
1. Am I getting complacent about my competitive advantages?
Forbes ran a piece after the bankruptcy announcement. In it, John Kotter says:
“The organization overflowed with complacency. I saw it, maybe in the late 1980s. Kodak was failing to keep up even before the digital revolution when Fuji started doing a better job with the old technology, the roll-film business.”
Whereas Coca-Cola’s decision was lightning fast, Kodak’s complacency in the face of decades of market changes is astonishing.
First, there was complacency about the competition to the traditional business. Then there was complacency about the new digital medium. They were complacent until it was too late.
2. What am I doing to encourage innovation on my team?
Kodak had innovative people working for the company. Steve Sasson, an engineer at Kodak, invented the digital camera in 1976. They decided not to pursue it because they determined it could threaten their core business.
Kodak’s budget and dominant position meant that they were loaded with innovative talent. Ideas were always being generated at the company. New technologies, business strategy changes, and they often came so close to embracing disruption. As explained in Harvard Business Review:
“Before Mark Zuckerberg wrote a line of Facebook’s code, Kodak made a prescient purchase, acquiring a photo-sharing site called Ofoto in 2001. It was so close. Imagine if Kodak had truly embraced its historical tagline of ‘share memories, share life.’
What if they had beaten Mark Zuckerberg to the punch?
But the leadership never really gave the innovators a voice. All Kodak could see from a photo-sharing website was an opportunity to print more pictures.
3. Is my organizational structure stifling change?
Kodak’s senior management in the 1980s and 1990s were unwilling to accept the idea that digital photography would eventually replace traditional photography. As explained in Forbes, they had the data. The trends were clear.
The company’s leaders lacked the agility to change the business model. The lack of agility pervaded the board of directors and the senior executive ranks. In 1989 when Colby Chandler, the CEO, retired, the board had a decision between a traditionalist film candidate and a candidate with a digital focus. They chose Kay Whitmore as CEO, the traditionalist.
It’s good to ask yourself if you have the right team and leadership for where your business is going. There will always be disruptions in business. Are there members of your leadership that resist change?
As we saw in the Coca-Cola example, there are good reasons to resist change. But an organization cannot thrive if it instinctually resists all change.
Tone-deaf leadership seems to be the thread that holds these catastrophes together. In both cases, company decision-makers displayed a lack of humility. The boards and senior management would not adjust to changing facts and circumstances. Until great damage was done.
We’re not always going to make the right decisions either. But if we stay open and willing to adjust to changing facts and circumstances, we can raise our odds.
There is a time to stay the course and stick to tradition. And there is a time to turn things upside down and change our strategy completely.