Contents
The story of Polaroid is often told as the story of a company that slept through digital photography. That is not true. Polaroid did research on digital technology early and with a lot of money. What was missing was something else: the willingness to let what it had learned into its own business model. Therein lies an uncomfortable side of James G. March’s Principle of Exploration and Exploitation. Exploration alone is not enough. It must also be allowed to change exploitation.
A company that lives on film
Situation
Polaroid was founded by the inventor Edwin H. Land and became world-famous for the instant camera. Two beliefs shaped the company. First: technological breakthroughs create new markets. Second: in photography, the money is made on consumables, that is, on film. Polaroid therefore sold its cameras at cost or below and made its money on film, following the razor-and-blades model.
Link to the principle
A model like this is pure exploitation at its best. It is well established, profitable and confirmed by decades of success. That is exactly what makes it dangerous. The better what exists works, the more an organization measures everything new against it.
In early
Situation
In the early 1980s, Polaroid invests in research on digital imaging. Starting in the mid-1980s, a dedicated group works on a digital version of the classic instant camera that prints on the spot. The technology for it is not yet mature. The group changes direction and in 1993 has a working prototype of a one-megapixel digital camera for the consumer market – in the judgment of the strategy scholar Giovanni Gavetti, probably one of the first of its kind.
Link to the principle
Polaroid did explore, and seriously so. The company had the knowledge, the people and a head start. Anyone who tells the story as a lack of curiosity overlooks this. The problem did not lie on the side of exploration.
The prototype stays in the lab
Situation
The digital group is convinced that digital cameras are the future. Senior management holds on to the razor-and-blades model. A camera without film does not fit, because it brings no follow-on business. Management prevails. According to Giovanni Gavetti’s account, the group is redirected to a digital medical imaging device, which turns out to be a failure.
Link to the principle
This is where the balance breaks down. The new is not measured by its own prospects but by whether it supports the old business. In this way, every exploration that calls the core business into question is stifled. James G. March calls this mechanism a trap: the familiar brings certain returns, so it gets the resources, and the new never gets enough to prove itself.
The end in 2001
Situation
In the 1990s, the market for digital cameras grows rapidly, and the instant film business shrinks. Polaroid runs into financial difficulties and files for bankruptcy protection in the United States in October 2001. The brand later lives on under other owners.
Link to the principle
The bankruptcy is not the result of a single wrong decision but of a long series of small decisions in favor of the familiar. Each one on its own was reasonable. Together, they left the company without a future.
Not a lack of ability, but of vision
Situation
In 2000, Mary Tripsas and Giovanni Gavetti examined Polaroid’s path in a study in the Strategic Management Journal. Their finding: Polaroid had the technical capabilities. What was missing was management’s willingness to change its picture of its own business. Gavetti therefore distinguishes between inertia in action and inertia in thinking.
Link to the principle
That is the most important lesson of this case. The balance between exploration and exploitation is decided not only in the budget but also in people’s minds. If what you explore is never allowed to touch the assumptions of your core business, it is decoration.
Key takeaways
Key lessons
- Check whether your exploration is allowed to change your core business at all.
- Don’t measure the new only by whether it supports the old.
- Name the core beliefs behind your success and question them regularly.
- Give a promising prototype a real chance in the market.
- Watch for the many small decisions in favor of the familiar, not just the big ones.
Summary
Polaroid did not sleep through digital photography. The company did research early and in 1993 had a working prototype. But management measured the new against the old business model, which made its money on film, and stifled it. Bankruptcy followed in 2001. The case shows the hard side of the principle: exploration works only if it is allowed to change exploitation.
Sources
- James G. March: Exploration and Exploitation in Organizational Learning. In: Organization Science 2 (1991), No. 1, pp. 71–87.
- Mary Tripsas and Giovanni Gavetti: Capabilities, Cognition, and Inertia: Evidence from Digital Imaging. In: Strategic Management Journal 21 (2000), No. 10–11, pp. 1147–1161.
