I guess it shouldn’t surprise me that business strategy work is often about constrained thinking. Thinking “inside the box” is nearly always rewarded well. After all, the person giving the rewards lives in the same box. One of the most pernicious kinds of constrained thinking is “brand thinking.” That is the notion that the value of your existing brand is the starting point for all your products. Living within the box of the brand is definitely constrained thinking.
Brand thinking says “everyone knows us for doing this one thing well, so let’s invest in variations on that thing.” That’s great. And it often works. For example, the Dell computer company has a great reputation for building good (but not wildly innovative) personal computers for individuals. So naturally, when they decided to diversify, they decided that they should build on that brand. They decided to build server computers for businesses. It worked fairly well. As they tried to become more innovative, they had problems with the brand. In some areas, Dell simply bought other brands (Alienware for gaming computers, for example).
On the other hand, brand-thinking also leads to a kind of situational blindness. Essentially, we choose not to see the things we think are outside the brand, or even the market, that we are used to. And in doing so, we nearly always miss opportunities. At least, until our competition points them out to us. Dell was good at electronics manufacturing to the home. Had they looked outside their brand, and focused on their abilities, perhaps in the 1990s, they would have been successful competing with Sony or Sharp for personal electronics. Brand thinking says “no.” They stuck to computing, moving into printers, laptops, and tablets. All have suffered from the “commoditization” of their market.
A strategist is a unique role. To be a successful strategist, you have to do everything you can to resist the boundaries of constrained thinking. But then your ideas have to be judged by people who are PAID based on constrained thinking. And that’s a tough sell.
When we do business capability modeling, we are looking not at the products of a company, or it’s brand, but at what that company can do. We look at what a company has the people to do, the processes to do, the information to do, and the tools or technologies to do. We bring together this knowledge into a complex model of elements, and summarize it as a capability map.
The value of doing this is typically revealed when creating initiatives for the execution of strategy. If a company is doing incremental strategy, there may be one or two areas that have slowed or prevented the company from achieving its goals with respect to its competition. But when a company is following an innovative strategy, there may be a dozen different capabilities that need attention. Some may have to be created from scratch. Capability modeling is a clearly valuable tool in this arena.
However, there is another use for capability modeling that is not often discussed, and that is the need for unconstrained thinking on the part of the strategist.
Could Capability Modeling have saved Kodak?
If you are over the age of 30, and live in a western country, you’ve probably heard of Eastman Kodak. Known for their near monopoly on film and film processing, Kodak was the undisputed king of photography for decades. In 1990, they held 90% market share. They were unbeatable. Remember this logo? It was a very successful brand.
Let’s assume Kodak had done a capability model back in 1990 and had actually paid attention to it. They would not look at their brand or their existing products, but at the things that they do very well. What would be on that list of “things they do well?”
- R&D in chemical-based manufacturing
- Manufacturing of plastic and chemical based products
- Manufacturing of specially treated paper
- Manufacturing of chemical processing equipment
- Consumer-focused marketing
- Motion-picture-industry marketing
Let’s be clear here. These capabilities were not just solid. They were the best in the world.
What’s not on here? Electronics. Electronics manufacturing. Electronics R&D. Electronics Marketing. Not on the list.
So when Kodak started to see the need to expand, they used brand thinking. People see the brand “Kodak” and think photography. So why not go into the manufacturing of digital cameras?
Do you see anything on that list of capabilities that deals with innovation and manufacturing of digital cameras? Heck, they didn’t make that many analog cameras (Nikon, Olympus, and Canon made most of the analog cameras). They had no distribution network, no reputation, no capabilities, no core skills to make cameras of any kind, and certainly not digital cameras.
Even though they were able to leverage their brand for a while, eventually their ability to sell digital cameras fell away and they lost money. Huge sums. At the same time that their analog film business was also losing money.
Now, look at that list again. What do you see? Ignore the fact that this is a film company. Do you see other things there?
The simplest capability to build is the ability to market to a new segment. The hardest is the ability to do R&D and manufacturing well, so let’s drop the marketing for a moment. Not completely, but let’s focus on the hard stuff. Could they have built products based on treated plastics and treated paper? Almost certainly. There’s an entire industry that makes sheets of plastic film for a wide array of different purposes from glass protection to window tinting. What about chemistry based R&D? Could they have created innovative consumer products to compete with companies like Clorox or Proctor and Gamble? Could they have leveraged their chops in chemistry to compete with companies like 3M? Maybe. But only if they had looked first at their core capabilities.
The important thing to note about these industries is that they have not been disrupted by technology the same way that camera film was. While these industries are not easy to compete in, the ability to leverage existing world-class capabilities is more critical to success than the ability to leverage the brand.
Eastman Kodak thought of themselves in the film and photography business. And it was their downfall. Unfortunately, it still is.
And now a challenge…
What about this brand? What are their core capabilities? And what can they be doing with those capabilities?
Are they on the precipice of disruption? You bet.
6 thoughts on “How brand-thinking can kill you, and capability thinking can save you”
A clear articulation of the value proposition for capability modelling/mapping Nick. The only thing I'd add is that an evaluation of the firm's business model might make for an easier progression if the people you have to convince (of the need to change strategic direction) are non-architect types, then use the capability map to drill down to the specific 'whats' that need to change.
Great example that articulates capability thinking. However, there is another factor at play, especially at “CX” levels: corporate culture of risk-vs-rewards, especially the pressures of short-term focus dictated by the (stock) Market.
Capability realization may require a long-term vision and driving the realization requires strong, visionary leaders. Especially those who can stand up to short-term pressures of the Market (or activist stakeholders).
Really interesting what you wrote. Does it relate somehow with capability based planning? Can you expand on that topic? Could it have helped Kodak?
Do you think that enterprise architecture role is close to split between "traditional" enterprise architects focused on standards and systems of record and "vanguard" architects whose work is to identify trends and impacts on strategy and business opportunities, as Gartner suggested?
Thanks for sharing your thoughts and your knowledge.
As Gartner recognizes, there are already many "vanguard" enterprise architects doing this work today. There are also many more IT focused enterprise architects doing technology-focused EA. Each case is distinct and we have to get to the point where we don't judge the profession by the fact that some people don't understand it.
Yes, I believe that if Kodak had used capability thinking, it may still be relevant today, just not as a "photography" company. The collapse of the film market was entirely predictable and their efforts to go into a totally unfamiliar direction (for them) on the basis of the Kodak brand was catastrophic. Capability thinking AT THE STRATEGIC LEVEL would have told them to focus on chemicals, plastics, and photo-sensitive emulsions rather than trying build electronics.
The Term "capability based planning" is a subset of capability thinking, typically used to align IT expenditure to business strategy. By itself, that subset would not have saved Kodak.
I hope this helps,
I wonder whether the use of term "Capability" is throwing some people off? This concept of focusing on underlying core essence and not just the manifestation was proposed by Theodore Leavitt in his famous article "Marketing Myopia" (hbr.org/…/marketing-myopia). A classic example is railroads thought they are in railroad business, not realizing they are in "transportation" business.
Then Gary Hamel and CK Prahalad proposed "Core Competencies", which focused on those competencies that differentiate and contribute to corporate value. hbr.org/…/the-core-competence-of-the-corporation.
Geoffrey Moore also talked about Core and Context – urging companies to focus and invest on core and standardize/outsource the context. en.wikipedia.org/…/Geoffrey_Moore
So philosophically and theoretically, what Nick is proposing is not new and rooted in well-accepted management concepts. So I am in agreement with Nick that firms need to deeply understand the capabilities/competencies that are the source of their success.
The core competences or core capabilities are those which lead to market value, competitive differentiation and brand equity. Sometimes, a company can choose what is seemingly a commodity function and excel at that and make it a competitive differentiation. (For example, Amazon building fulfillment centers way ahead of other ecommerce players and that logistics is one of the key strengths of the firm.)
So applying this to Eastman Kodak, EK's thinking probably is thinking that they are in Camera business, rather than "memorializing memorable moments" business. While I don't know what happened in EK's boardroom, but one can reasonably deduce that is why they might have missed the digital photography business.
At Capstera, in our consulting around strategy to execution optimization, we always urge our clients to identify the capabilities and do a rigorous analysis of Core, Context and Commodity capabilities. Then the goal is to invest and innovate in the core, standardize the context, and outsource the commodity. Of course, one can choose one or more seemingly commodity capabilities and excel at them and make it the secret sauce of a firm's success.
I agree and disagree.
I think the problem is NOT that EK thought that they were in the camera business instead of the "moments" business. They believed that they were in the "moments" business… and THAT WAS THE PROBLEM.
I'm trying to point out that they were in the CONSUMER CHEMICALS business… Light sensitive emulsions and plastics treatment. Not "memorializing moments."
They didn't actually "miss" the digital camera business. They were on top of it. They developed hundreds of patents in digital photography and printing of photos at home.
But they went into the electronics business and the camera business at the same time. They had strength in NEITHER. The winners today had strength in at least one. The major digital cameras are from Nikon, Canon, Sony, Olympus. See any trends… Either Cameras or Electronics. Kodak was neither.
They were in chemically treated photosensitive plastics.
The part I agree with is the references to HBR and Moore. I've been talking about Core and Context for years.