Case Study: Polaroid’s Inertia on Capabilities and Belief System
Growing up in the 70s and 80s I fondly remember the magic of instant cameras. While we never owned one, my parents’ friends had a Polaroid camera and took pictures that magically transformed from a black square to a colorful image within minutes. Those pictures taken back then still fill our boxes with photographs. But Polaroid the company has been gone for some time by now.
Given that Polaroid – founded in 1937 by Edwin Land – enjoyed an average growth of sales by 23%, profit growth by 17%, and share price growth of 17% from 1948 to 1978, it’s stunning how this company folded within a few years and filed for bankruptcy in 2001. To understand what happened, we need to analyze the history and the corporate culture and believe system that formed Polaroid.
Company Believe System
The founder Edwin Land was a scientist who accumulated over 500 patents in his life time. He firmly believed in the power of technology and dismissed market studies. He didn’t think that customers knew what they wanted and that technology will create the market.
With the invention of the instant picture, the company developed another strong believe, and that was in the razor-blade model. The money with high profit margins of up to 70% was earned with the ‘software’, which is the film, but not with the ‘hardware’ or the cameras. Any technological development served to sell film, which was done through channels such as K-Mart and Walmart.
There were two lines of development that Polaroid pursued: one was to make the cameras better, and the other to make the instant film technology coming closer to professional photo quality. This is why the manufacturing lines were focused on those two areas. The research projects also included huge investments that Polaroid was proud to do. In fact, management asked to attack those goals that other companies wouldn’t do, because of the size of investment required and the time it took.
The believes can be listed as follows:
- Technology rules, market studies are not necessary
- People want prints of their photos
- We are good in lifting huge projects
And that worked well for several decades. But things started to change in the 1980s after Edwin Land retired. While the company still held the belief that people want the photographic memories printed, new avenues had to be explored, such as in the medical space.
Polaroid had certainly all the capabilities for developing great technology for cameras and film, and the sales team was extremely good with those mass retailers. But once the company started to sell into the medical space and pursue digital imaging technology which the company saw coming in time, management didn’t react properly.
The sales team to sell the new medical system named Helios was the same selling to K-Mart and Walmart, against the objections of the engineering team. But this is a different world. Medical professionals require a different set of catering than big box retailers.
Management also feared that with entering the digital imaging world competition suddenly would be expanded to the consumer electronics world with Sony, Toshiba, Hitachi or Intel. And this was nothing that management wanted. While Polaroid hired a huge outside team of digital imaging engineers of 300 in the 1990s, within 5 years nearly all of them had left. The old management was not moving on the position that film is not the business model anymore, that people would move away from print to storing photos digitally.
The irony is that Polaroid had a great digital camera that had a megapixel camera in the early 1990s, but started selling it only in 1996, when there were already 40 other companies who occupied that field. While the digital camera division for end-consumers got good financing, the most money – as much as four times as much – went into Helios. This product fitted exactly in the Polaroid core belief system, while digital cameras did not.
Furthermore digital imaging at this time still lacked behind the quality of analog cameras. Many Polaroid long-term employees kept stating that ‘they had spent their whole career on improving the film quality’ and now they should throw away these achievements?
To summarize the core capabilities as Polaroid saw them:
- Film development
- Analog camera technology
- Selling to big box retailers
The combination of holding too long to outdated core beliefs and limiting their own belief in the company’s core capabilities through management led to an inertia in reacting to market changes. Management did not anticipate or understand in time that the razor-blade model is disappearing. It had a limited mindset in what the core capabilities of the company are and did not build up enough new capabilities to counter the market changes. While management had understood in the 1980s that market studies are in fact an important element and created a group, they were unable to increase the speed of development. The digital camera that Polaroid had brought too late to market in 1996 was already available in 1991. Development cycles had dramatically accelerated and Polaroid’s cycles not.
The advent of digital imaging and the declining need for film was not properly recognized. Polaroid’s own digital team’s proposals was seen as threat to the core capabilities. The huge past investments and advances in film development would have become useless and huge write-offs that management – which was composed of long-term Polaroid employees – was not willing to sacrifice.
Polaroid is a great example of a once innovative company with huge profit margins and growth that had created too firm beliefs in the companies core capabilities and business models. Another factor was that the disruption coming would have eliminated the need for knowledge, capabilities, and achievements that were developed over several decades. Many Polaroid employees showed loss-aversion – where they would lose all their achievements and knowledge – and did not see the changes as opportunities.
Lessons learned from the Polaroid case are:
- Challenge your core believes and capabilities on a regular base.
- Infuse the company with external resources to get a fresh picture.
- Be willing to let go of past investments and consider them sunk costs.
- Mary Tripsas, Giovanni Gavetti; Capabilities, Cognition, and Inertia: Evidence from Digital Imaging; Strategic Management Journal, 21: 1147–1161 (2000)