28 June 2016
Blogs by author: Chris Lindsay, Head of Digital Transformation, BT.
The business world’s littered with companies that didn’t adapt to digital. While we can learn from failures like Kodak, success Agfa has more to teach us.
In all the talk about digital transformation, digital threats, digital predator and prey, Kodak (along with Blockbuster) comes up time and again as an example of what not to do.
The threat was coming. They knew about it. They dismissed it. They failed.
It’s a simple story, but I’m not convinced it teaches us very much. Disparaging talk of Kodak mainly just reinforces that it’s all too easy to sit on the outside and make judgements in hindsight.
There’s also plenty of talk about the Ubers and Airbnbs of this world. Starting from scratch, growing like crazy, disrupting traditional industries, but not sitting on an existing profit and loss structure. Not encumbered by existing customers, products, systems, cultures or channels. When trying to deliver complex projects at speed, a colleague of mine used to say: “God did make the world in seven days, but he wasn’t sitting on an existing base of customers was he!?”
One company that impresses me — that has proven its ability to adapt, transform and survive — is Agfa. This business used to deliver prints and images in much the same way that Kodak did, and it saw some tough times along the way. But CEO Christian Reinaudo had a good grip on what it takes for a business to change and weather seismic shifts brought about by technological developments in an industry.
To give some sense of scale, Agfa’s revenues are €3 billion a year, it employs 11,000 people and (partly because of its history) it has a €1.2 billion pension liability.
Change of customers.
Agfa traditionally served the B2C market, selling canisters of film via highly-distributed channels to millions of consumers. They didn’t know their end customer that well, but they understood the channel and what made it work.
Now, they are most definitely a B2B company, serving high-end and high-volume printing needs. Their most valuable segment is their medical imaging business. In fact, they tend not to think of themselves in the imaging business at all, but rather the medical IT business.
Change of products.
Reinaudo talks about the changes they have made by saying: “We are not a print company anymore, we are now a software and services company. Not because we set out to be but because that’s what our customers need and demand.”
Agfa’s products centre on workflow, collaboration, analytics and recommendation engines for healthcare professionals. It employs more and more software engineers. It has moved from selling a large capital purchase product with maintenance contracts, to a subscription model. And Agfa’s aware it must continue this innovation to remain relevant to customers.
Change of business model.
To make the change from B2C to B2B, Agfa had to change its channels from distribution to face-to-face. And to move from capital purchases to a service model, it needed to restructure its working capital and finances. But here is the complication, it had to both transform and stay the same, simultaneously.
This also required the company to restructure to suit each individual market. The business model in Canada, for example, has to cater to one of the most advanced markets for Agfa services, but Reinaudo explains that India and China are still heavily reliant on film. He also estimates that in the not too distant future, “70 per cent of the business will be pure IT, not printing and film”. This reinforces that the company needs to be able to diversify its offering now while also keeping an eye on the changes that will occur across different markets in the future.
Change of people.
Of the 11,000 employees it has, Agfa sees a turnover of about 10 per cent a year. The company has to work on its proposition to employees — it needs the brightest computing graduates but has to compete with many other industries for these individuals. Everyone in the company has had to change, sales people, research and development personnel, everyone.
The company also found that, on average, it took three years for a decision by the board to have an impact ‘on the ground’. Agfa therefore put processes in place to shorten the management chains, engage more people earlier in the change cycle, and recognise those who made changes quickly.
Agfa is a company that has changed almost everything it does. It survived a massive digital transformation better than many of its notable competitors and that’s why I think Agfa has many lessons for us. It shows what to do and how to survive in the fourth industrial revolution far better than the companies that didn’t make it.