Disruptive Innovation and Pentax

Christian Sandström holds a PhD from Chalmers University of Technology, Sweden. He writes and speaks about disruptive innovation and technological change.

As we know, the shift from film-based photography to digital imaging has put

many former camera giants in some serious trouble…

The explosion

0

5

10

15

20

25

30

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Number of film and digital cameras sold in the United States

Kodak…

… Polaroid…

… Leica…

Konica…

… Agfa…

… Bronica…

Pentax has also been in trouble.

Losses and layoffs have become more frequent in recent years.

It’s easy to blame the general recession…

However, recessions are always particularly hard on companies with structural problems.

The interesting thing with the Pentax story is that the problems seem to have come after

the shift to digital imaging.

Let’s go back in history and take a look at how Pentax handled the shift to digital imaging

and what happened after this.

In 1952, Pentax introduced the first Japanese 35 mm camera. Ever since, the company has

had a strong competence base in optics, producing lenses, binoculars and other

optical instruments.

The cameras were exported to the United States under the name

Honeywell Pentax. The

company grew just like the

entire Japanese camera industry

in the period 1950-80.

Analogue cameras are a mix of many technologies: optics, precise

mechanics and some electronics.

Digital cameras are a mix of electronics, optics and some precise mechanics.

Having a strong competence base in optics, Pentax chose to focus on this and develop

digital cameras together with consumer electronics companies.

The first digital Pentax cameras were co-developed with Hewlett Packard, and later on

worked with Casio as well.

The Pentax Optio was co-developed with Casio. Pentax provided the optics and Casio made the electronic components. Thanks to

the modular structure of digital cameras, this kind of collaborations worked well.

The corresponding Casio camera was called Exilim.

The modular, standardized structure also implied that consumer electronics

companies could work on each component.

Memory cards…

Image sensors…

LCD screens…

… could be developed by companies like Sanyo.

Sanyo provided the big camera firms with electronic components, and they could

instead focus on optics, design and development.

Thus, a company like Pentax could survive the shift thanks to the modular structure and

its great skills related to optics.

However, the market for compact cameras became increasingly competitive over time.

Products like Canon Ixus…

… And Nikon Coolpix flooded the market.

It doesn’t matter if a market is growing if it is also becoming

fiercely competitive.

And from 2003-04 and on, sales of compact cameras actually started to decline.

The reasons?

Mobile cameras had become good enough.

SLR cameras had become cheap enough.

Tough competition, declining sales (and prices) of compact

cameras implied that Pentax was in trouble, despite surviving the

shift to digital imaging.

In July 2005, the CEO Mr. Urano said: "We'll shift focus to more profitable single-lens reflex digital cameras, to offset price

declines in compact types."

Since the market for SLR cameras was still growing,

Pentax shifted to this higher segment of the camera market.

Once again, Pentax co-developed digital cameras, this time with Samsung.

“In the digital era the pace of innovation is so fast. We have

embarked on this joint development to increase our speed.”

//Ko Torigoe, Pentax Senior

Executive Officer

This resulted in the Pentax K10.

But this did not really help.

Having been outperformed by Canon, Nikon, Sony and the

others, Pentax only had 3 percent of the DSLR camera

market at this point.

Later on, Pentax launched the K20D, another SLR camera aimed for higher

segments of the market.

The launch was a big PR event…

But despite heavy

investments in developing

SLR cameras,

Pentax lost market shares.

Massive economies of scale and R&D were needed to

survive in this industry and few companies could keep it up.

The SLR segment was subject to very tough competition as well.

Given the competitive climate, Pentax sought to focus more on optics and

expand its medical equipment and optical component business.

"We want to balance our portfolio by making the imaging systems, medical gear and optical device businesses each make up about a third of sales"

// Fumio Urano, CEO of Pentax

Due to these difficulties, Pentax was now bought

by Hoya Corporation.

After a lot of turmoil and the resignation of Mr. Urano, the merger was finally completed

in October 2007.

Pentax had been under increasing pressure from its shareholders to

accept the offer.

In early 2008, Hoya announced that Pentax as a company would cease to exist and only remain

as a brand.

Hoya had bought Pentax in order to enhance its

capabilities in optics.

Pentax had plenty of knowledge related to

endoscopes, intraocular lenses, surgical loupes, biocompatible ceramics.

However, the camera business kept generating losses and

things got even worse when the recession broke out.

After the huge losses, Hoya has announced that cuts will be made, both in production

and in R&D.

These cuts will lead to even less competitive products, which in turn implies even

lower revenues.

Pentax has entered a vicious circle where the problems will

generate even greater problems.

Can such a company survive in the long term?

When a company in a competitve digital market

starts to cut down on R&D, it is usually an indication of a collapse in the near future.

Who knows what will happen… Maybe Hoya will keep the optics and sell the Pentax brand to Samsung or another company that wants

to grow in the camera market.

So, what lessons can be learnt from the Pentax story?

1. Surviving a shift to digital technology does by no

means guarantee success in the long term. On the other hand, such a shift usually

implies an increased competition and a furious

technological development.

2. It is possible to survive digital revolutions by

pursuing collaborations.

3. It is never sustainable to lag behind in a digital

industry. Given the rapid improvements, second-

movers can in the end neither compete on price nor on

performance.

“A revolution is not a tea party” // Chairman Mao

Sources

www.dpreview.com International Herald Tribune The fotolia blog www.auspiciousdragon.net

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www.christiansandstrom.org