The Failure of Kodak: Why New Ideas Feel Risky

Way back in the 1970s, an engineer named Steven Sasson at Kodak invented the first digital camera. Sasson’s invention was ahead of its time by a few years so one would assume that this innovation would put Kodak at the forefront of the digital revolution.

If you have read one of the many articles on the topic though, you’ll know this isn’t the case. Despite being ahead of the curve, Kodak eventually fell far behind (filing for bankruptcy in 2012). The term “Kodak moment” now connotes missed opportunities instead of magic moments to be captured on film.

As Scott Anthony points out in his article on Harvard Business Review “Kodak’s Downfall Wasn’t About Technology,” the fall of Kodak has less to do with the actual digital camera technology and more about the culture of the company surrounding innovation and new ideas.

When Sasson originally brought his prototype to management, Kodak made a large chunk of their profits from selling film for their cameras. As one might expect, this new film-less invention didn’t get a warm welcome from leaders at the company. As Sasson recounts: ¹

My prototype was big as a toaster, but the technical people loved it. But it was filmless photography, so management’s reaction was, ‘that’s cute — but don’t tell anyone about it.’

New ideas can be both incredibly exciting and intensely stressful. On one hand, new ideas are necessary to disrupt an industry and create a unique product/service. On the other hand, they represent a change in the status quo. By definition, a new idea is a departure from what you’re comfortable with and what you may have had success with in the past.

Let’s take a deeper dive into why new ideas are so difficult to adopt pulling from Adam Grant, author of Originals, and others.

We’re trapped in prototypes.

Imagine you’re the leader of a company in dire straits. You’re in a meeting with your top brass looking over ideas that could turn the company financials around. On the table, you have two proposals.

The first proposal is a slight modification on an old idea. When you have used it in the past, the tactic has proven to be relatively successful. Sales and profits both increased. The implementation steps wouldn’t be that hard to come up with since you have already done this tactic in the past.

The second proposal is a stark departure to how your company has worked in the past. It employs new sales tactics, a different marketing strategy, and potentially even new products. This strategy could pay off big, but it also could be a huge bust.

You can probably guess which proposal gets pushed forward in most situations.

In Originals, Adam Grant calls this being “trapped in prototypes.” When we’re examining new ideas on the table, we’re constantly comparing and contrasting the new and novel to ideas that have worked in the past.

In the face of uncertainty, our first instinct is often to reject novelty, looking for reasons why unfamiliar concepts might fail. When managers vet novel ideas, they’re in an evaluative mindset. To protect themselves against the risk of a bad bet, the compare the new notion on the table to templates of ideas that have succeeded in the past.

As we’ll illustrate even further in a minute, new ideas are inherently risky. Our default then is to fall back on what has worked in the past and reject novelty.

We have a clear outcome bias.

I’m not a huge sports fan, but I do love watching Florida Gator football. Whenever I’m watching football with a group of people, someone will undoubtedly get animated and start to yell at the TV after a bad play. If the quarterback throws an interception at a crucial part of the game, the quarterback is instantly blamed for the whole thing despite how many completed passes he has thrown up to this point.

This is a silly example to illustrate a simple concept. We have a clear outcome bias that minimized credit when things go right and places heavy blame when things go wrong. If a pass is complete, we immediately downplay the difficulty and resort to some variation of “Well, that’s what they get paid to do after all.” If the pass results in an interception, we’re on our feet yelling, “That’s the worst play I’ve ever seen in my life.”

This outcome bias exists outside of sports as well. Here’s Daniel Kahneman in Thinking Fast and Slow (p. 203):

We are prone to blame decision makers for good decisions that worked out badly and to give them too little credit for successful moves that appear obvious only after the fact.

Decision makers are under the same scrutiny as the football players on the TV. They make many decisions that may go unnoticed throughout the course of a day or week. It’s only when a decision goes poorly that it attracts attention and blame.

In the face of a clear outcome bias, it’s easier for decision makers to default to safe, popular decisions. If a new idea doesn’t work out, they’re going to receive a heavy dose of blame. If they stick with the safe choice, they’ll fair better in public opinion even if the outcome is poor.

We can build our own story around the past.

We have a strong tendency to explain away the past. Despite how random past events may seem, we construct internal stories that instead attribute past events to hard work, talent, grit, and perseverance. Luck and chance play less of a role when we’re re-examining the past. This is referred to as the narrative fallacy:

the backward-looking mental tripwire that causes us to attribute a linear and discernable cause-and-effect chain to our knowledge of the past. (via Farnam Street)

When our stock portfolio skyrockets, we need to have an explanation. (Because we’re phenomenal at picking winners)

If a deal falls through, we look for a reason why. (Because the other side didn’t understand what they were missing)

Combined with the outcome bias mentioned above, the narrative fallacy makes it even more difficult for decision makers to take risks on new ideas.

If a decision to try a new idea goes south, onlookers immediately begin to create their own story about why the situation didn’t work out according to plan. Their narrative will over-exaggerate factors like intelligence and foresight and under-exaggerate random chance. The narrative would then be: “I can’t believe they missed X, Y, and Z. Those factors clearly indicate that this idea would never have worked. I can’t believe management is so foolish.”

If a new idea ends up working out, the narrative becomes: “I would’ve done the same thing. I mean the market clearly was pointing in this direction. Any smart person would’ve made the same decision.”

***

The prototype trap, outcome bias, and narrative fallacy all combine to form a difficult environment for decision makers.

• The prototype trap causes decision makers to default to the safe bet intuitively.
• The outcome bias and narrative fallacy mean that when a new idea doesn’t pan out decision makers will receive the brunt of the criticism regardless of the circumstance.

Keep these three ideas in mind when you’re contemplating moving forward with a new idea. The cards are stacked against novel ideas from the very start. As William James remarks:

A new idea is first condemned as ridiculous, and then as trivial until finally, it becomes what everybody knows.