Disruptive Innovation and the Leica history

Leica Cameras in deep TROUBLE

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

It’s not an exaggeration to say that Leica is a

camera legend.

The German camera manufacturer

pioneered the 35-millimeter film format.

This is what took photography out of the studios and into

our everyday life.

Leica took photography

from this

And this

To this

And this.

Small, easy

handling and great photos.

Many of the 20th century's most famous photos were

taken by a Leica.

Great photographers such as Henri Cartier-Bresson, Alfred Eisenstaedt, Robert

Capa used the camera.

"With a Leica camera you can do anything"

//Henri Cartier-Bresson, perhaps the greatest photo

journalist in history.

“A big warm kiss, like a shot from a revolver, and like the psychoanalyst’s couch.”

//Henri Cartier-Bresson, describing the Leica camera.

This image of the Vietnam war was captured with a Leica.

Photos of

Marilyn Monroe

The Queen of England has

owned a Leica M3

since 1958. Her Majesty likes it so much that

she was once posing with it on a stamp.

Photos of Picasso (well, not this one maybe)

Images of the Maoist Revolution

Stanley Kubrik used it.

This iconic photo was

taken with a Leica.

The infamous nazi propagandist Leni Riefenstahl used

Leica.

The camera

costs thousands of dollars.

It has been loved and used over

all the world since the 1920s.

German craftsmanship

at its best.

It is a camera legend.

A cult product.

But the 21th century has so far been covered by dark clouds.

Since 2005, two CEOs have been

fired.

In recent years,

Leica has suffered from great losses,

being close to bankruptcy.

2004-2005: - 20 million Euro

Up until today, this trend has

continued.

For a small company with

about 1000 employees, these losses are huge.

The banks have been after Leica for

many years now.

Der Spiegel summarized it powerfully: "Leica overslept and suffers the trend

to the digital photography from losses. Besides the weak dollar

impairs the business abroad, because the cameras become more expensive

larva in Germany thereby."

So, the question is: WHY do so many

companies like Leica ‘oversleep’

technological shifts?

One reason is the furious pace at which digital

technology is developed. (For more info, click here)

In only ten years, digital imaging went from zero to 90 percent of the market.

It’s very easy to oversleep such a rapid shift.

But let’s move back to the Leica story now…

The truth is that Leica had plenty of problems even before the digital

revolution.

In 1930-1960, Leica was very popular

and profitable.

But with the rise of Single-lens reflex (SLR) cameras in the 1950s,

Leica encountered problems.

The rise of the Japanese camera industry put the

company into further trouble.

Leica fans were happy that the company never

entered the broader market segments.

The company instead focused on further

developing its legendary M and R series of cameras.

Ever since, Leica has had financial problems.

Being popular is

not the same as

being profitable.

Over the decades, Leica essentially sustained their

famous camera system.

So, the company was

essentially built around competence in sustaining

and developing a technology which was

about precise mechanics.

Leica’s soul was mechanic and optic.

Not Digital.

And of

course, some marketing and

sales activities, also

related to mechanical products.

However, the company recognized the threat from

digital imaging, and therefore went into it in the mid 1990s.

These efforts resulted in the Leica S1, launched in 1997.

It looked like this:

Not exactly what a Leica normally looks like.

Pretty hard to bring in your jacket and pull up

for a photo…

The S1 was never intended to be a ‘normal’ Leica.

In 1997, it was sold for 15 370 EURO. It

had a sensor of 5140 x 5140 pixels

44 cm x 44 cm Weight: 3,6 kg.

The best version had 75 Megapixels!

The S1 was aimed for studio

photography. It was connected to a computer,

stood on a tripod and had an amazing image resolution.

At first sight, the S1 appears to be very expensive

and strange.

But the business utility was in fact very large. It could produce

printable photos instantly and an infinite number of photos could

be taken at no cost. The alternative would have been film, going to the lab, then scan it. All this would take days, with the S1

it would take minutes!

A fantastic camera. But not exactly ”Leica style”.

In the end only 146 of them were made.

After an ownership change, it was decided

to kill this camera!

Nearly all ’digital’ engineers and marketing people now had to

leave the company.

The new CEO had previously been at a furniture company

which had been saved by positioning it as ’traditional’.

Now the same medicine was going to be used on Leica.

The digital capabilities are cut off in the midst of the digital

camera evolution!

Life must have been very tough for a digital

engineer at Leica.

Sales

Manufacturing The Mechanical engineers

Purchasing

- Everyone must have been against you.

All their routines and competences would have to change in order to succeed

with digital imaging.

Forgive me for speculating, but I suppose most of these

actors cheered silently when the S1 was killed.

At an old, traditional company with a strong brand

and history in mechanical engineering, electronics

must have been regarded as an odd, foreign element.

Organizations are very good at

eliminating foreign elements. And Leica was no exception.

In a disruptive shift

The Core competence

Becomes

A Core Incompetence

Leica’s soul was mechanic and optic.

Not Digital.

Digital was odd.

Having laid off virtually all

digital knowledge,

Leica instead focused further on its strategy of rebadging

Fujifilm digital cameras.

The Digilux 4.3. is identical to a Fujifilm camera, except for the

brand.

Re-branding a non-premium product and charging a

premium price, while Canon and Nikon

came up with smaller and

better cameras all the time.

The success of this

strategy was very modest.

As the financial situation

worsened, Leica eventually realized that something

new had to be done.

Since the ‘low-end’

segment of the market had become a

warzone of competition, Leica instead focused on making their R8 and R9 cameras digital.

It was announced in 2003 that a Kodak digital back would be made compatible with these cameras, in

collaboration with Imacon, a Danish manufacturer of digital backs (who

later merged with Hasselblad).

Having no digital capabilities of its

own, this was deemed to be a good strategy.

But cameras with

digital backs are very expensive and uncomfortable.

After severe delays, the Leica Digital-Modul-R was finally

launched two years later, in 2005.

An official letter was sent to Leica users over the

weekend apologizing the last delay. The date was put

forth due to 'software problems’ (once again a skill

beyond Leica’s soul).

Mario Thurnherr, manager of Leica Camera's Photo

Division, said:

"Our customers had to wait longer than planned for the

unique digital solution from Leica, but are now

rewarded with an outstanding product."

With this bigger and heavier camera, Leica was positioned in

the same segment as Hasselblad, Mamiya, Pentax,

Contax and the others. Some of those actors had already

captured this small, small part of the camera market.

Hence, the Digital-Modul-R did not stop Leica from bleeding.

In early 2005, the situation became desperate.

The company was now bought by Andreas

Kaufmann, a long time Leica enthusiast with a great personal fortune.

Kaufmann recruited a new CEO, an American named Steven K. Lee.

Mr. Lee had a background as vice

president of Best Buy, a huge American retailer

of consumer electronics.

Could someone with this odd background save

Leica from bankruptcy?

At about the same time as Lee came to

Leica, the company had

finally launched the M8, the first digital camera in

its famous M series.

The M8 cost about 5000 USD.

But the high price was not the only problem.

The sensor was below standards, and the camera did

not have those filters which were needed for a digital

camera to work. Without these functions, black colour looks

purple and strange colour patterns show up.

Thus, the M8 was a bad camera, at a bad

price, but with a good brand.

Needless to say, the Photo

community laughed at it.

One photographer described the camera as “unusable,” and said he sometimes felt

like throwing it against a wall. For a company which is used to that customers are in love with their products, these are

indeed hard words.

One of the first things Steven Lee had to do at his new job was to sign 4000

letters, apologizing for this. Pretty tough start.

The M8 had to be redrawn from the

market, retroactively putting in the

required filters.

Quite an embarrassment for a camera legend, known for

its high quality products.

So, why did Kaufmann hire a strategy and

business development guy from an American

retailer?

Lee in an interview: “Now we need to reach people who could and might use a Leica. I use

the example of the American ‘soccer mums’ who would love to take better

pictures, who are the keepers and recorders of their families’ history. It’s not the men. These are well-to-do families interested in excellent

photography. They are our new potential customers.”

Who had ever associated Leica with terms such as ’American soccer-mum’? Pretty different, and ODD.

In addition to this, Lee

wanted to do a couple of pretty odd things:

Build Cameras on demand (like Dell with computers) Replace Leica’s network of specialty dealers with kiosks and internet sales Increase the pace of digital development New forms of collaboration Move into consumer electronics

How all this was going to be

accomplished is not clear (and certainly wasn’t to people at Leica)

In 15 months, Steven Lee had succeeded at Best Buy in producing formidable high-end

PCs, which generated a 20 percent profit

(normal profits were around 10 percent).

A retailer making 20 percent profit in the fiercely competitive PC industry, building this from

scratch in 15 months???

It had been accomplished

through outsourcing of production and clever

business modeling.

Probably Lee wanted to do

something similar with Leica, and obviously he

knew what he was doing.

Lee was known for being

very stubborn and aggressive, not afraid of

conflicts and bullying people if necessary.

Imagine the cultural and intellectual clash between

Steven Lee and a traditional, old firm like Leica!

Lee about the first meeting: “I arrived at 10 o’clock and we

went head-to-head for nine hours straight. No meal breaks.”

The founder’s son, Ernst Leitz had treated his employees like

his own family.

And now an American thunders in, firing and bullying people about some strange soccer-

mum segment!

Lee went into Leica playing hardball, personally approving all expenses over 100 Euros.

He travelled to Asia, re-negotiating prices with suppliers of electronic

components.

He raised prices significantly and thus, sales fell.

The distributor network which was going to be

replaced by internet sales and kiosks, started to get

really angry with Lee since they were threatened.

Lee was not exactly the guy to mess around with. It is

claimed that he started to be rude to people at Leica,

calling them ’dumb farmers’.

The situation got worse when Lee fired three

employees (wrongfully according to the courts) and many highly skilled

technicians threatened to leave in sympathy.

At a small company like Leica, this kind of events can get pretty big.

Managers started to complain to Kaufmann

who decided to fire Steven Lee in early 2008.

Here are some rumours and

comments on the internet about the

event:

"Über diese Entlassung können wir uns auf jeden Fall freuen."

=

"On that dismissal we can anyway be

delighted about"

Leica is one German Company and should be comand by German people. I have one friend mine who works at Leica here in Portugal and many people not like the style and work method from Mr.Lee. So many people are happy whit this end of Mr.Lee at Leica Best,

__________________ Rui Espanhol

Rumours say that Champagne bottles were opened at Leica when Lee left the company.

Lee threatened to sue Leica for

wrongfully dismissing him.

"My mandate was not to

be Mr. Nice Guy“, he said.

“I was trying to revive a company that's broken".

Lee claimed that accusations against him was a smear campaign from people who underperformed

and refused to change.

And, believe it or not, he had some supporters who thought that Lee

was exactly what Leica needed. "He had to hear, 'That's not possible,' over and over again.'' , one said.

Kaufmann took over as CEO and Leica has now

successfully launched a new (working) version of the M8.

In September 2008, Leica also launched the S2, a fantastic camera with 37,5 Megapixels and

many great functions.

It’s priced at 15-20 000 USD.

Whether the S2 and the new M8 will turn things around for Leica or not

remains to be seen.

However, the camera industry is subject to

fierce competition.

Canon, Nikon and the other big Japanese dragons are constantly launching new,

cheaper and better products.

Having a legendary brand is of course an asset, but Leica is less well known to the new generation of photograpers.

We’ll see what happens.

Leica’s soul was and is mechanic and optic.

Not Digital.

Throughout the last

decades, this has become very clear for the company.

We’ll never know whether the S1 camera and the digital developers

that were laid off would have put the company in a better situation.

And we’ll never know whether Steven Lee and his ‘soccer-mum’ concept would have turned Leica

into a growth company.

But ONE thing is clear.

Both the S1 and Steven Lee were odd, foreign elements in an old organization,

with old values.

Leica was and is in desperate need of

change, but the organization

effectively repelled these foreign

elements.

“It was difficult to do what we

wanted as the old management still strongly believed in analogue.”

// Gero Furchheim, spokesman of Leica

This quote is from October

2006!

At this point about 90

percent of the market is digital.

And old management

still believed in analogue imaging!

It makes you wonder…

How many layoffs, delays, apologies

and how big losses are needed before those managers

CHANGE?

Chairman Mao once said that a revolution is not a dinner

party. At Leica, people are painfully aware of this.

http://online.wsj.com/article/SB122152103387739231.html

Disruptive change is not a sweet thing for established companies.

So, the question we looked at here was:

WHY do so many companies like Leica

‘oversleep’ technological shifts?

I think the answer would be this:

Competence becomes

incompetence.

Sources The British Journal of Photography

The Leica website Amateur Photographer

Times Wikipedia

Digital Photography Review Several internet forums

Thanks!

Image attributions

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www.christiansandstrom.org