Companies That Went Bankrupt From Innovation Lag

In today’s rapidly transforming business world, it seems the only constant is change. Companies that can’t keep up with the pace of change and adapt to disruptive innovation often find themselves floundering. There are quite a few examples of famous market-leading companies that have had to declare bankruptcy as a result of not reading their markets right and not keeping up with innovation.

Eastman Kodak Company (KODK) is one such name that comes to mind, along with Polaroid Corporation, Blockbuster, Inc. and Borders Group. While some of these companies may have been somewhat mismanaged along the way, not keeping up with market changes was certainly a major factor that led to bankruptcy.

Eastman Kodak is the company that, with its cameras and film, brought the phrase a “Kodak moment” into popular use. The company’s cameras tended to be lower-priced, and it made more money on the film that the cameras used. But the company failed to keep up with many of the innovations brought by the digital age. As digital cameras became popular, reducing the need for its photographic film and cameras, Kodak ran into financial difficulties. The company ultimately filed for bankruptcy in 2012, before reorganizing and emerging from Chapter 11 in 2013.

Ironically enough, the company’s research people had actually come up with a digital camera as early as the 1970s, but the company did not see nor seize its potential. Or maybe management didn’t want to cut into the company’s lucrative film sales.

Kodak sold off several lines of business during tough times and is now focused on printing, graphic and professional services for businesses.

Polaroid is another photo industry company that came undone as a result of the digital photography era. Before the emergence of digital cameras, Polaroid cameras were a popular means to get instant photographs. The company was even seen as a representative American company as part of the Nifty 50. However, as digital photography caught on in the 1990s, the company did not respond adequately.

At the same time, its client base, including insurance adjusters and others who need instant photos for commercial purposes started going digital. Ultimately, Polaroid filed for bankruptcy in 2001.

Also on this list is Blockbuster, a video rental company that did not keep up as its market transformed with the availability of other entertainment options in a digital world. For instance, people were able to download videos from the Internet, and cable companies started offering video-on-demand. 

Also, Blockbuster’s competitor Netflix, Inc. (NFLX) adopted a digitally savvy strategy, mailing videos to customers and thereby saving them the bother of a trip to a physical store. Caught off guard by the emergence of Netflix and other competitors, Blockbuster ultimately filed for bankruptcy in 2010.

The online era has also brought about changes in the bookstore business, as e-tail sales, such as sales through Amazon (AMZN), cut into the sales of physical retail stores and e-reading devices, such as Kindle or mobile devices, cut into sales of physical books. The Borders Group of bookstores, which also had an entertainment section in its retail outlets, did not get ahead of this trend, while its main competitor Barnes & Noble, Inc. (BKS) was a bit savvier.  

Other companies cut down on their music and DVD sections, as physical sales started getting hit by the move to online purchases by more digitally adept younger consumers, but Borders didn’t respond as fast. As a result, Borders ultimately filed for bankruptcy in 2011.

So why do some companies not heed certain warning signs and continue to pursue their defined way of running their business? Vijay Govindarajan, a professor at Dartmouth’s Tuck School of Business, has studied this subject and provides some insight. For one, he believes companies that have invested heavily in their systems or equipment don’t want to invest again in newer technologies.

Then there is the psychological aspect in which companies tend to focus on what made them successful and don’t take notice when something new comes about. There’s also the matter of strategic missteps, which may occur when companies are too focused on today’s market and don’t prepare for change or technological shifts in the marketplace.

Companies that don’t respond to market changes brought about by innovation, either because of a fixed mindset or perhaps they didn’t read the market right, tend to miss out on opportunities. If the changes are big enough that an industry’s fundamental business model changes, these old school companies are at risk of losing their market share and ultimately going bankrupt.