Every industry is going through a massive transition. What drives most transitions is a wave of rapid technological changes. These changes either impact a company’s business model or its sales process.
Last week I had a discussion with Jeff Hayzlett, CMO of Kodak, who will share his company’s botched transition into the digital world and the lessons learned at the Sales 2.0 Conference in San Francisco on March 8–9.
The three stages of business-model effectiveness
We can divide businesses in any industry according to their ability to align their business model and processes with emerging technological innovations:
a) The victims of change (e.g., Kodak, the newspaper and magazine industries, Onyx)
b) The technologically enhanced businesses (e.g., Blockbuster, Best Buy, SAP)
c) The technologically advanced businesses (e.g., Netflix, Amazon, Salesforce.com)
Kodak, a victim of change, lost 120,000 employees
Kodak is a classic example of a company that became a victim of change. In 1988, it employed 145,300 people and made a profit of $1.17 billion on $13.3 billion in revenue. By the end of 2009, the payroll slumped to 24,400 employees, revenues were $7.6 billion, and the company posted a loss of $874 million. For years the company was in denial and ignored steadily shrinking film sales. Internal discussions focused on when film was going to be replaced by digital production, but the company was reluctant to let go of the film business, just as newspapers don’t want to abandon print.
Refining the old business process only accelerates its decline
While a technologically advanced business such as Amazon enhances customer value by taking time-consuming steps out of the buying process, victims of change focus on refining the established business model by refining existing processes. When George Eastman invented the camera, he created an ad with the memorable headline, “You press the button, we do the rest.”
The ad was a little misleading, since it didn’t describe the steps in the process Kodak customers had to go through before they could enjoy seeing their pictures.
The victim-of-change process:
1. Go to store; buy film.
2. Go home and insert film into camera.
3. Take pictures until film roll is done (24 or 36 pictures).
4. Go to store and get film developed.
5. Go home and wait.
6. Go to store and pick up developed slides (or prints).
7. Go home and review and sort slides (or prints).
8. Insert slides into slide projector, and set up projection screen.
9. Gather family members together, and project and review slides.
10. Store slides, projector, and screen.
11. Go to store; buy more film.
While Kodak continued to improve film quality and photo-finishing quality, competitors focused on improving their business model and delivered greater customer value.
The technologically advanced process:
1. Take picture.
2. Email from mobile phone or post on Facebook.
The lesson: If you continue to improve what's becoming obsolete, you will become a high-quality victim of change.
The insight: To survive and grow, we need to align our business with the fundamental transitions in the technology marketplace.
The technologically enhanced business vs. the technologically advanced business
In June 2002, Netflix stock traded at $6.99. This month, its share price was more than $62. The company realized that DVD sales and rentals would decline, and people would want to browse titles online instead of driving to a video rental store and searching for titles. In essence, Netflix realized the advantage of Web 2.0 and offered DVDs delivered by mail, as well as video downloads online.
Blockbuster ignored the trend and was reluctant to change from the well-established, in-store sales model (1.0). In April 2002, Blockbuster’s shares traded at $28.60. This month, one share was worth 38 cents.
Another way to compare 1.0 to 2.0 is to analyze the productivity per employee. Last year, Blockbuster’s 30,144 employees created $4.4 billion in sales, which translates into $146,000 per employee. Netflix sales were $1.7 billion. With a payroll of only 1,644 people, that translates into a record-breaking $1 million in sales per employee. Netflix shares traded at $62 this month, and the market cap was $3.32 billion. Blockbuster’s declining fortunes are reflected in the extremely low market cap of only $73.7 million.
The lesson: Companies become successful by creating customer value. What customers perceive as valuable today will inevitably shrink in value tomorrow. The more successful you are with a business model or sales process, the harder it is to adapt when your company is misaligned with the changes that take place in the field of technology.
The insight: Money can buy you the best technology, but it won’t enhance your business unless you adapt your business model and move up to Sales 2.0 so you become a technologically advanced business.
UPDATE: To learn more about how Sales 2.0 processes and technologies can help accelerate your sales, join me at the upcoming Sales 2.0 Conference on March 7-8 in San Francisco.