Contents
In 1991, the organizational scholar James G. March described how every organization has to do two things at once. It has to exploit what exists, that is, improve it, refine it and use it efficiently. And it has to explore the new, that is, search, experiment and take risks. If you only exploit, you lose the future. If you only explore, you lose the present. Fujifilm is one of the best-known examples of a company resetting this balance at the last minute – an example of the Principle of Exploration and Exploitation.
A business at its peak
Situation
Around 2000, a large part of Fujifilm’s sales and most of its profit come from the photography business. In 2000, Shigetaka Komori becomes president of the company, a manager who has been with the firm since 1963. Global demand for photographic film peaks at precisely this time. After that, it falls quickly, because digital cameras and later cell phones replace film. Fujifilm knew the technology well: as early as 1988, the company had developed one of the first digital cameras.
Link to the principle
At the peak, exploitation is most tempting. The business is running, and every investment in the new looks like waste. March explained why this is dangerous. The returns from the familiar are certain and come immediately. The returns from the new are uncertain and come late. That is why exploitation crowds out exploration almost automatically, especially in successful organizations.
The question of what the company can do
Situation
In 2004, Fujifilm presents its medium-term plan “VISION75,” named after its 75th anniversary in 2009. Komori has the company examine which technologies it has in-house and where they might be needed outside photographic film. He speaks of a “second foundation.” Money flows into films for liquid crystal displays, medical technology and health products, among other areas.
Link to the principle
Exploring here does not mean taking a leap in the dark. Fujifilm looks for new fields that build on existing capabilities. This lowers the risk of the new and at the same time makes use of what has been built up over decades. Exploration and exploitation do not exclude each other. At their best, they mesh.
From film chemistry to skin cream
Situation
In 2006, Fujifilm enters the cosmetics market, and in 2007 it launches the Astalift skincare line. The link to film is closer than it sounds. About half of the materials in film consist of collagen, a main component of skin. From its research into preventing photos from fading under UV light, the company knows about antioxidants. And from film production, it has mastered distributing tiny particles evenly in extremely thin layers. The head of research, Yoshisada Nakamura, summed it up roughly like this: businesses have a life span; technologies do not.
Link to the principle
This is the core of the principle. The know-how is not thrown away when the product dies. It is carried into new applications. Exploration feeds on what has been exploited. Without decades of film research, there would be no cosmetics line.
The hard part: shrinking the old
Situation
In January 2006, Fujifilm announces a restructuring that cuts about 5,000 jobs in its photography division. The film business is not abandoned but downsized and continued. In 2008, Fujifilm acquires the pharmaceutical maker Toyama Chemical. Kodak, the longtime industry leader, files for bankruptcy protection in the United States in January 2012.
Link to the principle
The balance comes at a price. If you explore, you have to shift resources, and they come out of what exists. Fujifilm used the returns from shrinking film to build up new fields and accepted painful cuts to do so. The comparison with Kodak shows what was at stake, even if it simplifies the history of both companies.
What hindsight leaves out
Situation
Today, health care, medical technology, pharmaceuticals and highly functional materials are among Fujifilm’s important business areas. Photography is now only one part of the company. Komori told the story in his own book in 2015.
Link to the principle
In hindsight, the success looks inevitable. It wasn’t. Exploring means that some things do not work out, and a CEO’s account of his own turnaround is naturally favorable. What matters is not that every bet paid off but that Fujifilm placed several bets at all while its core business was still making money.
Key takeaways
Key lessons
- Start exploring while your existing business is still making money.
- Don’t just ask what you sell; ask what you can do.
- Look for new fields that build on the knowledge you already have.
- Be prepared for exploration to draw resources away from what exists.
- Shrink the old deliberately before you lose it suddenly.
Summary
Around 2000, Fujifilm was at the peak of a business that almost disappeared shortly afterward. Shigetaka Komori had the company ask what it could do rather than what it sold, and carried the know-how from collagen, antioxidants and layering technology into cosmetics, medicine and materials. This illustrates James G. March’s principle: exploiting the old finances exploring the new, but only if you shift resources in time.
Sources
- James G. March: Exploration and Exploitation in Organizational Learning. In: Organization Science 2 (1991), No. 1, pp. 71–87.
- Shigetaka Komori: Innovating Out of Crisis: How Fujifilm Survived (and Thrived) As Its Core Business Was Vanishing. Berkeley: Stone Bridge Press 2015.
