Strategic Management Journal

Strat. Mgmt. J., 21: 1147–1161 (2000)

CAPABILITIES, COGNITION, AND INERTIA:
EVIDENCE FROM DIGITAL IMAGING
MARY TRIPSAS1* and GIOVANNI GAVETTI2
1
Harvard Graduate School of Business Administration, Boston, Massachusetts,
U.S.A.
2
The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania,
U.S.A.

There is empirical evidence that established firms often have difficulty adapting to radical
technological change. Although prior work in the evolutionary tradition emphasizes the inertial
forces associated with the local nature of learning processes, little theoretical attention has
been devoted in this tradition to understanding how managerial cognition affects the adaptive
intelligence of organizations. Through an in-depth case study of the response of the Polaroid
Corporation to the ongoing shift from analog to digital imaging, we expand upon this work
by examining the relationship between managers’ understanding of the world and the accumu-
lation of organizational capabilities. The Polaroid story clearly illustrates the importance of
managerial cognitive representations in directing search processes in a new learning environ-
ment, the evolutionary trajectory of organizational capabilities, and ultimately processes of
organizational adaptation. Copyright  2000 John Wiley & Sons, Ltd.

INTRODUCTION this paper we expand upon this work by examin-
ing how managerial cognition influences the evo-
Organizational change is difficult. Even when lution of capabilities and thus contributes to
established firms recognize the need to change in organizational inertia.
response to shifts in their external environment, In the tradition of evolutionary economics,
they are often unable to respond effectively. much research has focused on how existing tech-
Technological change has proven particularly nological capabilities, codified in the routines,
deadly for established firms, with numerous procedures, and information processing capabili-
examples of established firm failure in the face ties of the firm, limit its adaptive intelligence
of radical technological change (Cooper and (Arrow, 1974; Nelson and Winter, 1982; Teece,
Schendel, 1976; Majumdar, 1982; Tushman and Pisano and Shuen, 1997). A firm’s prior history
Anderson, 1986; Henderson and Clark, 1990; constrains its future behavior in that learning
Utterback, 1994; Tushman and O’Reilly, 1996; tends to be premised on local processes of search
Christensen, 1997). Existing explanations for fail- (March and Simon, 1958; Levitt and March,
ure to adapt to radically new technology have 1988; Teece, 1988). When learning needs to be
focused on the nature of a firm’s capabilities.1 In distant, and radically new capabilities need to be
developed, firms often fall into competency traps,
Key words: technological change; organizational learning; as core competencies become ‘core rigidities’
dynamics of capabilities; managerial cognition; inertia (Leonard-Barton, 1992). A firm’s nontechnologi-
*Correspondence to: Mary Tripsas, Harvard Graduate School cal assets also influence the direction of its tech-
of Business Administration, South Hall 219, Soldiers Field
Road, Boston, MA 02163, U.S.A. nological trajectory (Dosi, 1982). Firms are more
1
Since we are focusing on the distinction between capabilities likely to develop technologies that can utilize
and cognition, we use the term ‘capabilities’ broadly to rep- existing complementary assets—assets essential
resent a number of noncognitive factors including capabilities,
competencies, assets, and resources. for the commercialization of the technology

Copyright  2000 John Wiley & Sons, Ltd.

or ‘dominant logic’ for the firm based 2 Digital imaging is the capture. the firm is more digital imaging. 1982). Finally. despite early invest- While most innovation scholars have empha.2 The firm provides a particularly likely to fail (Mitchell. Helfat. we perform an in-depth historical product components—established firms also suffer case study of a firm undergoing a radical tran- (Henderson and Clark. 1992. sition. 1997. When a new technology is how managerial cognitive representations may ‘competence destroying’ in that it requires mas. leaving their imprint on involved in digital imaging see Rosenbloom. As of managers often have difficulty adapting their the end of 1998 there were over 70 firms that had entered mental models. 1955). Hambrick and Mason. 1999). Porac et al. storage. cognition. play a central role in terms of constraining organi- tery of an entirely new scientific discipline. phy firms in that it requires the mastery of new scientific domains such as semiconductors/electronics as well as the 1993. and the worldwide digital performance (Barr. given Polaroid problems and thus how they search for solutions. Firm founders also play a significant role tomer relationships. 1997). 1986). of the firm—knowledge about interfaces among and inertia. For instance. and Burton. and Huff.1148 M. development of different distribution channels and new cus- 1997). manipulation. 1997). These explaining organizational inertia. particularly its combination of capabilities and cognition helps knowledge of customers. 1999. they must rely ficulty.. Tripsas. At Sproull. 1995. capabilities in explaining incumbent inertia and 1979. 1998). 1984). only recently of beliefs. Stimpert. 1986). 1997). 1990). computer and graphic arts indus- of the historical environment on the development tries all converging on the industry. in rapidly changing environments top has consumer demand for digital imaging skyrocketed. resulting in poor organizational the digital camera market with over 250 models available. camera market is expected to reach $10 billion by the year Brown and Eisenhardt. More subtly. as senior managers the same time. and ultimately. For instance. We examine subsequent failure. the firm has so on the role of cognition in explaining organi. For instance. mission. ments and leading-edge technical capability in sized the role of capabilities. and Anderson. Since market. 1989. the development lished firms are more likely to fail (Tushman of a firm’s capabilities (Zyglidopoulos. We analyze how the Polaroid Corporation nological change destroys the value of a firm’s has responded to the ongoing shift from analog to existing complementary assets. 1994). In order to explore technology destroys the ‘architectural knowledge’ the relationship between capabilities. Mgmt. These beliefs include a shared sense of Digital imaging is competence destroying for analog photogra- who the relevant competitors are (Reger and Huff. imaging competitive landscape with firms from the photogra- Hannan. their belief in a razor/blade busi- work together over time they often develop a set of beliefs. 2000 (Future Image Report. Gavetti (Teece. We explore why Polaroid has had dif- managers are boundedly rational. While the first digital cameras arrived on the market in the late 1980s. Tripsas and G. the on historical experience as opposed to current firm made significant investments in developing knowledge of the environment (Kiesler and technical capability related to digital imaging. makes it more likely to explain organizational inertia in the face of to develop technologies that appeal to existing radical technological change. when a new Gavetti and Levinthal. estab. Ltd.) There is also a great deal of uncertainty about the digital the organization long after their departure (Baron. and output of an image using digital technology. Copyright  2000 John Wiley & Sons. 1986. with an emphasis on understanding the on simplified representations of the world in order role of both capabilities and cognition in to process information (Simon. zational behavior. J. senior management’s belief in pursuing large- Cognitive representations are typically based scale ‘impossible’ technological advances. Strat. others have focused areas related to digital imaging. given the critical influence of top management Empirical evidence supports the importance of teams on strategic decision making (Mintzberg. They managerial cognition influences the development influence the manner in which managers frame of new capability. imperfect representations form the basis for the We find that by restricting and directing search development of the mental models and strategic activities related to technology development. The industry is growing rapidly. far not performed well in the digital imaging zational inertia (Garud and Rappa. 2000). beliefs that drive managerial decisions. trans- on their shared history (Prahalad and Bettis. compelling example in that. 1997). Given the influence phy. a firm’s Our goal in this paper is to explore how the existing marketing capability. We focus on cog- customers as opposed to a new set of customers nition at the level of the senior management team (Christensen. (For more detail on the technologies in establishing beliefs. consumer electronics.. Peteraf and Shanley. 21: 1147–1161 (2000) . when tech.

that made Polaroid a household word. We stopped case study of the Polaroid Corporation’s historical interviewing/collecting material when a level of involvement in digital imaging. and interview dealt with the emergence of strategic beliefs in data were collected on the evolution of Polaroid’s the digital competitive arena. First. Research and development. Polar- present at different points in Polaroid’s history in oid focused on making improvements to the order to understand how the organization had instant camera. and first. but brought in at various points in time in order to also the impact that cognition has on such proc. a 5-pound keting. Mgmt. we included individuals pictures. Finally. compared differences. we conducted This research is based on an in-depth. From that point forward. and how it changed over time. employees who had moved to other companies. mid-level project managers. 21: 1147–1161 (2000) . Through ongoing research. mar. Capabilities. It was Land’s work in instant photography. we felt that this approach would be most asked to discuss their specific role in the com- useful for theory building (Glaser and Strauss. and manufacturing were all represented in device that produced low-quality brown and white our sample. Third. In asked them to broadly discuss the evolution of addition. data analysis. internal memos. other senior Polaroid was founded in 1937 by Edwin Land. In many cases this process involved oid was able to significantly improve the picture Copyright  2000 John Wiley & Sons. how- Second. Analysis began with a cluster methodology business press articles on both Polaroid and the (Aldenderfer and Blashfield. managers. and Inertia 1149 ness model delayed commercialization of a stand. Every key man- esses. Researchers then met. and conceptuali- set of historical annual reports. Given the open. Cognition. but based on a relationship among capabilities. Ltd. we included individuals from multiple ever. organization charts. J. esses of organizational change thus requires We interviewed individuals present during the examining not only the central inertial forces ‘Land era’ (before 1980) as well as outsiders associated with developing new capabilities. Interviewees were first inertia. 1967). 1984). and the factors that activities related to both digital imaging and the constrained or inhibited this process. Miles and Huberman. 1994. reports. A third set of questions specifically of public data. in 1948. by taking a long-term historical perspec. Interviews traditional instant photography business. and common set of questions. financial analyst zation have been iterative (Glaser and Strauss. Strat. it included individ- Polaroid’s foundations: 1937–80 uals from multiple levels of the organizational hierarchy. Yin. lution of the organization. Polar- evolved. groupings related to both capabilities and co- and technical papers helped to document the evo. ager involved in Polaroid’s digital imaging efforts was contacted and interviewed. Publicly available data included a complete Data collection. In total. prior studies of Polaroid’s history. gnition. interviewing retired employees as well as alone digital camera product. Company archives sup. and plemented publicly available data. ended nature of our questions regarding the Interviews were open ended. Historical stra. line research scientists and marketing specialists. inductive 20 interviews with 15 individuals. A combination business. Some individuals were contacted multiple times as we worked METHODS AND DATA through the iterative process of data collection and theory development. We then 1967. Our sample varied POLAROID IN DIGITAL IMAGING along three dimensions. facilitate digital imaging efforts. company archives. resulting in a final set of tegic plans. saturation was reached (Glaser and Strauss. We were greatly aided researcher identified common words and topics by extensive prior historical work on Edwin Land for clustering. (McElheny. Understanding proc.. pany. repeated the clustering. Cluster labels included both firm and Polaroid’s position in instant photography capabilities and managerial beliefs/mental models. we interviewed a sample of current and ex-Polaroid employees. digital imaging activities vis-à-vis the evolution tive we gain insight into the evolutionary nature of activities in the traditional instant imaging of both capabilities and cognition. lasted from 1 hour to all day. We interviewed ex-CEOs. and 1967). based on his invention of light-polarizing filters. oid introduced the first instant camera. 1984) where each digital imaging industry. Polar- functional areas. 1998). cognition.

knowledge included not only a strong understand. 1948–80 could not be understood through market research. mass market retailers such as K-Mart and Wal- Mart. Polaroid was clearly a technology-driven. at the end 1948 and 1978. 21: 1147–1161 (2000) . ment of the eyepiece for the SX-70 camera in introduce color. The evolution of these plants over time firm and years of innovation related to instant resulted in two distinct manufacturing capabili- photography.S.. Firm performance was excep. Polaroid man- 1963 First instant color print film agement firmly believed that success came 1964 Colorpack camera through long-term. without inciting a competitive response. Tripsas and G. nology to add an autofocus feature to some of phy developments). Polaroid was able to establish a strong presence tography. subsequent search activities related to digital Finally. 1965 Polaroid Swinger. both a camera manu- in a clear set of firm capabilities and managerial facturing plant and a color negative plant were beliefs resulting from both Land’s imprint on the built. Land himself Beliefs: 1980 held over 500 patents. The firm’s patent position was so strong that when Kodak entered the instant Land was a strong character. Polaroid spent over $2 million on the develop. profit growth of 17 percent.3 Polaroid’s science and instant photography (McElheny. For this purpose. notorious for his photography market in 1976 Polaroid successfully autocratic manner and strong control of Polaroid sued them for patent infringement and was able to as well as his absolute commitment to both exclude Kodak from the U. Ltd. Mgmt. first low-priced This philosophy was summarized by Land in camera (under $20) 1972 SX-70 (one-step developing with no the 1980 Annual Report’s Letter to Shareholders. large-scale research projects. His imprint can be codified in a number ing of silver halide chemistry. He therefore did not believe in performing market Year Advance research as an input to product development. ‘What we were good at Copyright  2000 John Wiley & Sons. but also a foun. The firm’s knowledge of the technol. tered around its dominant position in instant pho. waste) where he wrote. This innovative use of channels contributed to Polaroid’s success. mented in an interview. team at the end of this period. which were sold As one would expect. and enable one-step development the mid-1970s. ties: one in precision camera assembly and ties and beliefs were and how they influenced another in thin film coating. not market-driven company. 1950 First black and white film Consistent with this philosophy. We next review what these capabili. its cameras. tional. J. with average annual compounded sales Manufacturing was another of Polaroid’s growth of 23 percent. strengths. The firm also used sonar tech- (see Table 1 for a list of major instant photogra. While manufacturing of both cameras and share price growth of 17 percent between and film was originally subcontracted. For instance. ‘Do not undertake the program 1978 Sonar automatic focusing unless the goal is manifestly important and its achievement nearly impossible. market. the firm had strong distribution through imaging (see Figure 1). 1998). Strat. Do not do any- thing that anyone else can do readily. Gavetti quality. ogies relevant to instant photography technology was unsurpassed in the industry.’ A member 3 After a lengthy court battle. Polaroid’s capabilities cen. Polaroid’s technology and products would create 1948 First instant camera: sepia (brown and white) film a market. of the 1960s Land decided to bring manufacturing This period of strong performance culminated in-house. Land considered science to be an instrument for the development of prod- Table 1. in 1991 Polaroid was awarded of senior management during that time com- $924. By avoiding direct compe- Capabilities: 1980 tition with traditional cameras. decrease the development time required. primarily through specialized camera stores.5 million in damages from Kodak. ucts that satisfy deep human needs—needs that opments.1150 M. Polaroid’s major instant photography devel. of beliefs that dominated the senior management dation in optics and electronics.

. tionary in that it was waste free: after exposing ‘Our research and engineering efforts continue to the film. in 1972. While Polaroid had Another firmly held belief of management was initially made money on both camera hardware that customers valued a physical instant print. lengthy proj.’ of this need. there was a strong belief in the inventions. Several projects during this period were exem. razor/blade business model. driven by a belief that customers spending half a billion dollars on its development required ‘photographic’ quality. Cognition. As Land a razor/blade pricing strategy. Film prices and netic records to be viewed in television satisfied thus margins were then increased. ‘None of the prices on cameras in order to stimulate adoption electronic devices which prepare tapes or mag.’ The success of the Polaroid mental. This strategy the conditions imposed by that early dream [of was extremely successful. products such as video camcord. For instance. Throughout this period there was also an plary of this belief. The camera was revolu. Mgmt. J. instant camera was taken as prima facie evidence ects that other firms would hesitate to tackle. Annual Report’s Letter to Shareholders stated. Strat. The evolution of capabilities and beliefs at Polaroid was major inventions. Ltd. As the 1982 over an 8-year period. and Inertia 1151 Figure 1. The firm dropped wrote to shareholders in 1981. and over time a funda- an instant print]. The one-step SX-70 cam. level of performance consistent with the best era was a huge commercial success and served in photography. commonly held belief developed: Polaroid Copyright  2000 John Wiley & Sons.’ to reinforce the firm’s belief in funding major Finally. Large-scale. Capabilities. it ejected a picture that developed as be challenged to bring our amateur systems to a the customer watched. the obsession with matching the quality of traditional firm announced the SX-70 instant camera after 35 mm prints. and film in 1965 with the introduction of the For this reason. 21: 1147–1161 (2000) . and subsequent demand for film. a decision was made to adopt ers were not considered competition. ‘Swinger’ model.

surface mount assembly. IC design. Gavetti could not make money on hardware. about 90 percent of the employees in The Helios business model was also consistent the microelectronics lab were newly hired. software design.’ This work culminated in a The capabilities and beliefs articulated above had 1990 patent (U. with the belief in the razor/blade model used in Developing radically new technical capability. In addition. addition. instant imaging. and was ‘technical challenge—we can do it. #4. These digital imaging search The PIF concept built on both Polaroid’s prior efforts were led by a new CEO. image processing. It was also.676) for an ‘electronic a profound influence on Polaroid’s approach to camera system with detachable printer. A 1981 strategic planning document laser to expose a dry film material. Helios used a high-energy technologies.’ digital imaging. an Similarly. 42 percent of R&D dollars were devoted investment during this period was in a medical to exploring a broad range of digital imaging system called Helios. manufac- capabilities (e. and instant film for image output. Although the media was not instant CAD/CAM/FEA design. The microelectronics Rather than provide customers with the capability laboratory opened up in 1986 after a capital to view images on something like an LED screen. image enhancement. In one of our interviews.g. For the manufacture of instant film. there was a clear investment dollars to digital imaging technologies. its development still leveraged Polaroid’s While peripherally related to prior technical chemical knowledge base. and with an they were provided with an immediate print. 21: 1147–1161 (2000) . Bill McCune. As the 1984 Annual Report’s Letter to shareholders stated. ‘If you on the broad support for Helios. As ex-CEO following the sale of the hardware. razor/blade model..937. is that in the photographic efforts were guided by a desire to eventually business all the money is in the software. was quite consistent with Polaroid’s was to come from the sale of high-margin media belief in the primacy of technology. be on instant film. instance. and fiber optics. operating budget of about $10 million/year. ‘We compared ourselves to Bell Labs. the product was consistent with the belief and as part of this effort work began on a that consumers valued an instant physical print.’’ I think most people understand it but maybe not The Electronic Imaging group’s exploratory as fully as they should.e. In commenting McCune stated in one of our interviews. software for would be useful for improving the software sales. and beliefs. Tripsas and G. had taken over film-manufacturing capabilities. one manager in have good technical people you shouldn’t be the electronic imaging area told us. consumable/software piece of the product. ‘We believe that there is BEYOND INSTANT PHOTOGRAPHY— considerable potential in developing new hybrid DIGITAL IMAGING SEARCH: 1981–89 imaging systems that combine instant photogra- phy and electronics. Since the digital camera was McCune began by committing substantial bundled with instant film output. McCune. Ltd. J. it leveraged the firm’s strong a Polaroid employee since 1939. the development optical design. Strat. advanced for X-rays. Since the output was to who took over for Land in mid-1980. This product making hardware but we never made money on it … So the fundamental objective in these things concept combined electronic semiconductor was to find ways to advance products but that (CCD) sensors for image capture. In An electronic imaging group was formed in 1981. The majority of the profit stream however. film). Mgmt. of Helios was influenced by both prior capabilities PC board design. these technologies primarily with the thin film coating capabilities utilized in covered new scientific ground for Polaroid. none develop an instant digital camera/printer product of it’s in the hardware … We were good at termed ‘PIF’ for Printer In the Field. film.1152 M. how- the presidency in 1975 and was a long-time ever. Like the PIF concept. microelectronics laboratory.. consistent with the firmly held belief in a research colleague of Land’s.. ‘[Helios] was Copyright  2000 John Wiley & Sons. only afraid of going into whole new technical areas. one of the individuals involved in elec- ex-CEO began his comments with the following: tronic imaging development commented. investment of about $30 million. to knowledge of electronics for turing of the Helios media was quite consistent instant cameras).S.’ software (i. By The second major area of digital imaging 1989. capabilities and beliefs. Our orientation One of the things that’s terribly important. It was targeted identifies the following technological areas for at radiologists as a higher-resolution substitute exploration: microelectronics.

A Senior management beliefs also influenced the series of image recorders was sold. This influenced search activities that did take place.. could do. directed towards the development of new techni- although the electronic front-end was clearly cal capabilities. In particular. channels. It was all mixed up. low-cost resulted in a gradual shift in those same capabili- electronics manufacturing capability would have ties and beliefs. Consistent with 1983. a senior manager said. oid’s top management viewed the transition to slides or transparencies. can make a buck outside of the consumable area Polaroid’s weakness in product development was … and so I think that Helios was part of that characterized by one digital imaging manager as same business model. could have been successful at developing either we tried to bite off the whole world … new of these capabilities. not invest in: low-cost electronics manufacturing As one member of the electronic imaging group capability. Ltd. rather than establish new distribution razor/blade business model. developed and shipped during this period. and Inertia 1153 not. the existing sales force was chartered While the beliefs of senior management clearly with selling electronic imaging products. starting in evolution of marketing capability. These machines were used to print images the belief that technology was dominant.’ follows: ‘Polaroid didn’t have a sense of the Helios also fit the belief in large-scale invention. Polaroid Resulting capabilities and beliefs: 1990 would have to have developed low-cost elec- tronics manufacturing capability and rapid product The actions taken from 1980 to 1989 were influ- development capability—two areas in which enced by prior capabilities and beliefs. new this. As a consequence. but there was not much else we In order to compete successfully in the hard. It had an electronic front smaller margins in the hardware business. these ter. J. This is why it was always well funded introduction of innovative products in a market and well taken care of. new that. the firm never based on newly acquired knowledge. ‘The technology … totally oblivious to what it means to get a product was too costly. ‘We were not really and new marketing and sales capability. a consistent with this view precluded any invest- small number of electronic imaging products were ment in them. So it fell into the conventional would have been necessary to permit the timely wisdom. Strat. fast product development capability money on the film. It fit comfortably into it. as opposed to the years Polaroid was commenting. Digital imaging was therefore viewed pri- machines were never sold in large quantities. but it’s a film product and you make the same time. These products were once again building on exist. For made these products consistent with the instance. but also Polaroid was particularly weak. not a market shift. Capabilities. new lasers. happy about it. marily as a technological. invested in developing any sales or marketing tial for an ongoing stream of media sales also capability specific to digital imaging. 21: 1147–1161 (2000) . with the majority of digital imaging investment ing knowledge of chemistry for the output media. in their [senior management] minds … an been fundamental to increasing the typically electronic imaging thing.’ ware arena using a business model different from the traditional razor/blade approach. The poten. Targeted at specialized digital imaging through a technology-focused fil- vertical markets such as graphic arts. Strong. in the mid-1980’s told us. It took us too long … but it did really developed and make it ready for the market miracles … We were three years late. there were three opment who were aware of the profound market important areas of capability that Polaroid did differences between instant and digital imaging.’ A member of senior where product life cycles were measured in management at the time confirmed this perspective months.’ tance to supporting activities that were not fully In addition to working on PIF and Helios.’ Although it is unclear whether Polaroid never got the hardware costs in line. ‘I haven’t found many people that accustomed to for its instant imaging products. Cognition. distinction between research and product develop- In reflecting on the large investments made in ment. At the end. By the end of 1989 Polaroid had Copyright  2000 John Wiley & Sons. And that in the razor/blade business model and their resis- goes back to doing the impossible. and we place. Mgmt. Many people were Helios. approach was taken despite the protests of those they also had a direct influence on activities that directly involved in digital imaging product devel- did not take place. senior management’s belief media. But by God. rapid product development capability. Polar- from computer or video input onto instant film.

corporate hierarchy as part of a major reorgani- tomers wanted instant prints.’ and 1990 that had increased to 28 percent. total agement Executive Committee in 1989 had been sales actually decreased between 1980 and 1985. development process. found: ‘What’s the business model? It’s the razor/blade … so we make money with the film. This idea was IMAGING—SEARCH ACTIVITIES: pervasive. Ltd. larly. In the 1989 Letter to Share- this business model was still appropriate for the holders Booth stated. Faced with this situation. therefore. market research function was established. ‘Polaroid was always rithms resulted in loss of information and thus a stung by the assessment that instant photography decrease in image quality.000 pixels. management placed an that the overall beliefs of senior management increased emphasis on marketing. Clearly. the belief in the razor/blade busi. After having achieved dou- addition. The 1985 Letter zation.’ Simi- tography. electronic imaging moved up in the There was also still a strong sense that cus. It is not surprising. seven of the nine officers on the Man. This technology improved color digital camera. stagnant growth for the first time in the 1980s had been with Polaroid since 1958 and was a with waning demand in the traditional instant long-time member of senior management. imaging area commented.’ the senior management team remained relatively The most significant change in senior man- unchanged. an employee who joined the firm’s elec- edge technical capability in a number of areas tronic imaging area in 1990 commented. They [senior management] wanted to duplicate REFOCUSING ON DIGITAL that in the electronic domain. This was also an ontological 1976 and 1980 was only 6 percent. Polar. It was an idea they could easily relate 1990–98 to because it was continuing the instant photogra- phy business model. 21: 1147–1161 (2000) . ‘We have studied the needs traditional instant photography business. Mgmt. Three market-focused divisions—Con- to Shareholders states. and Scientific/Technical Imag- Copyright  2000 John Wiley & Sons. ber of new films for instant cameras were quality raw input file.. It was of our customers in each market segment and also continuing to be applied to digital imaging. As one employee in the electronic recovery. nology and so on was to counteract the 35 mm During this time period the composition of quality deficit. Whereas the percentage truth [I encountered] was that people really value of the firm’s patents related to electronics between an instant print. J. Gavetti not only continued to evolve its expertise in becomes more prevalent. Business. By producing a higher. MacAllister Booth. Strat. Finally.’ This statement is in direct contrast imaging group in 1989 commented on what he to the philosophy articulated by Land. Market In particular. there remains a basic technologies related to traditional instant pho. including new high- to generate a resolution of 1. members in 1980. Polaroid had developed was really cool. ble digit annual sales growth for 30 years. In photography market. Tripsas and G. too bad the quality stunk … the proprietary lossless compression algorithms. and a formal remained relatively static during this period. in both ularly strong with a number of clear advantages the instant and digital imaging domains. Polaroid faced chairman) but his successor. whereas most compression algo. but also the firm had developed leading. The electronic the majority of the competition had sensors that imaging group was also working on developing generated only 480. Polaroid also held a mega-pixel sensor that would enable a photo- a patent on the ability to use rectangular rather graphic-quality image to be produced from a than square pixels. Right?’ In 1990.1154 M. between 1986 truth.9 million pixels when contrast and high-speed films. A num- over competing sensors. Polaroid’s sensors were able announced in the 1980s. matching the quality of 35 mm cameras. entire motivation as near as I could detect for oid was therefore well positioned by 1989 to the investments that they put into sensor tech- develop a leading-edge digital camera. ‘another related to digital imaging. input also became an official part of the product ness model remained firmly ensconced. there was still a strong emphasis on Polaroid’s image sensor technology was partic. ‘As electronic imaging sumer. In 1986 McCune stepped down as agement’s beliefs was a shift away from being a president and CEO (although he remained purely technology-driven company. Finally. those needs are driving the development of our An employee who joined the firm’s electronic new products. human need for a permanent visual record.

’ In addition. The digital cam. and Inertia 1155 ing—were formed in addition to a fourth: First. was established. As one senior manager from that of senior management. these new individuals. scale projects with lengthy development cycles. earlier. Fuji. to turn their noses up at 38 percent margins … While a long-time Polaroid employee was initially But that was their big argument. businesses as voiced by another senior manager: Given Polaroid’s leading position in sensor tech. etc. felt that an electronic imaging marketing group. Mgmt. ment capability. 30 consumer electronic companies—the Sonys. there was disagreement about the appropri- Electronic Imaging Division. Copyright  2000 John Wiley & Sons. The catch [to our product concept] was that you This decision was made in order to focus research had to be in the hardware business to make efforts on those technologies directly related to money. Once this concept was defined. One of Imaging Division was intended to feed products the newly hired individuals described to us the to each of the three market-focused divisions. in 1993 constant fight with the senior executive man- the Microelectronics Lab was sold to MIT. In addition. the core business. the majority of members cent? I can get 70 percent on film. there were continuous delays in devel- to 1996 as one of cognitive dissonance between opment related to the digital camera. ending agement in Polaroid for five years … We con- the majority of Polaroid’s more basic research stantly challenged the notion of the current busi- in microelectronics. given the strong belief in the razor/blade a new hire was put in charge of the overall model. on the other hand. We’re going to be up against therefore quite different from the prior PIF con. commercialization of a digital camera product. comprised the electronic imaging group did not understand entirely of new hires. money on ‘razors. and ultimately a lengthy delay in the was driven by fundamentally different beliefs. This clash partners. Why do I were new hires with experience in digital imaging want to do this?’ and other high-technology industries. J. the exploratory investments of the lows: 1980s were curtailed in 1990 when research into fiber optics. We need to be bundled with a Polaroid instant film printer. At ongoing dialogue with senior management as fol- the same time. While this digital camera could eventually Toshibas. Ltd. have a unique idea that corresponds to our core the initial concept included just a high-resolution capabilities and the way we relate to the market- camera. The Electronic ate business model for digital imaging. Hitachis.’ not necessarily an instant print. By simultaneously in the company?’ 1992.’ There was also concern about Polaroid’s such as real estate that had a need for ‘instant ability to simultaneously manage very different verification. 21: 1147–1161 (2000) . Polaroid had not invested in developing development project. the Intels. noted. the manufacturing capability necessary to make sider was brought in to head up the entire group. the belief in large- This individual brought in yet more outsiders. Cognition. senior management and the Electronic Imaging One can best characterize the period from 1990 Division. Capabilities. therefore. ‘We’re not just going to be up against era product concept developed by the group was Kodak. Consistent with the new belief in being more market driven. solar cells. Management did not. Senior management. ‘Can we be a down and dirty manufacturer at nology development. And in 1994 another out. with no prior feel comfortable competing with firms that pos- Polaroid experience. Strat. ‘How could you say that? Where’s the film? There’s no film?’ So what we had was a products under development. Clearly. and disk drives was cut. ness model. cept. As discussed product concept. ‘Why 38 per- in charge of the group.. targeted at professionals in industries place. This group the limitations of Polaroid’s manufacturing and was given the charter to develop a digital camera product development capabilities. the marketing group felt that the same time we’re an innovator over here? Polaroid could offer a significant price/ Can you have two different philosophies running performance advantage over the competition. The composition of the electronic imaging antiquated and unable to go forward … What was fascinating to me was that these guys used group also changed dramatically after 1990. etc. assigning them to key strategic positions within had precluded investment in fast product develop- the electronic imaging group. as being old. an inability senior management and the newly hired members to commit to relationships with potential strategic of the Electronic Imaging Division. there was a working prototype of the As a result of this ongoing clash between camera. had a different perspective sessed these capabilities.

’ how. but was of factors including the lack of strength in distri- told that they had to use the instant photography bution as well as misreading of the film size sales force. individuals hired to staff the Electronic Imaging The sale of the Helios group was just part of Division in the early 1990s had left Polaroid. all sourced. the majority of the lasers. also received support the market.’ In 1997 a follow-on PDC-3000 the Helios division was sold to Sterling Diagnos- was announced. In addition Technical Image Press Association’s Best Digital a spin-off of the Helios technology. ground in consumer marketing. Digital imaging losses mented. Gavetti Despite having a prototype in 1992. And we’re not in the business models and demos couldn’t convince people. 1996). Mathematical research papers. was the Helios medical imaging system. With a back- consumers needed ‘photographic quality. capability … but there was disbelief that ink jet We’re not in the business to write the most could be near photographic quality. and the European and the beliefs of senior management. In Division also encountered senior management 1996 a new CEO. Publish it was consistent with both Polaroid’s capabilities magazine’s Impact Award. [Sr. ‘We had products in the $1000 range of $180 million in 1994 and $190 million in and these people were used to going to K-Mart 1995 were primarily attributed to Helios.3 Manager X] spent almost all of his life—a lot of million in 1996. Gary DiCamillo. As one frustrated individual com. 15 had joined jet or thermal dye sublimation. required by radiologists. ‘We had the ‘We’re not in the business to get the most patents. By this point in time. dry-output Product of 1996). Ltd. Given the MacAllister Booth. J. after which development activity tic. 21: 1147–1161 (2000) . The Electronic Imaging Division requested market. Of 25 directors alternative hardcopy technologies. kept senior management from committing decreased the focus on technology even more. In 1996 and WalMart. Not surprisingly. day part of our lives … so that can’t help but In conjunction with the decreased emphasis on have been indelible in the DNA or something. to these alternatives.’ A to see how many inventions we can come up member of senior management explained their with’ (Convey. senior management still ment effort.5 million in 1995 to $116. The belief that Polaroid after DiCamillo’s arrival. but it did not do well in film for the graphic arts. despite its technical did not perceive the need for different sales chan. were cut from $165. such as ink listed in the 1998 Annual Report. Consistent with this reluctance to accept a lower-quality ink-jet output approach. DiCamillo and his team placed The one digital imaging product that received renewed emphasis on marketing in both the consistent. Helios was not successful in the nels. Although Polaroid was more ‘market for the same reasons. was totally out- instant image … So that was an every day. Soon after arriving at Polaroid he commented. As one member of the Elec. Helios finally reached the driven’ in the sense of using customer needs as market in 1993 after almost 10 years of develop- an input to development. Unfortunately. succeeded resistance throughout the early 1990s. ongoing support throughout this period instant photography and digital imaging domains. development us … [Sr. an overall decrease in commitment to internal Other activities of the Electronic Imaging development of digital imaging technologies. Manager Y] spent an awful lot of his of Polaroid’s next-generation digital camera.1156 M. one obvious avenue sider to hold this position. although Polaroid still provides the film and ceased. While the amount of money allocated to R&D Helios was such a large project. but was cameras. DiCamillo was the first out- belief in a razor/blade model. By that point in time there were Imaging Division). Tripsas and G. Mgmt. DiCamillo ever.’ technology. As discussed earlier. the life focusing on improving the quality of the PDC-300 announced in 1997.. This failure was attributed to a number separate sales support for the PDC-2000. Helios awards for its technical achievement (the Net. the amount spent on advertising Copyright  2000 John Wiley & Sons. research and development expenses as follows: ‘I spent an awful lot of my life. achievement. with an annual decreased. continued to receive such strong support because guide Magazine State-of-the-Art Award. tronic Imaging Division commented. Strat. Polaroid did investment of about $120 million in development not announce its PDC-2000 mega-pixel camera (compared to $30–$40 million for the Electronic until 1996. The PDC-2000 received a number of a separate group. and he brought with for Polaroid to explore was the development of him a new top management team. In fact. that it was not organized as over 40 other firms on the market selling digital part of the Electronic Imaging Division.

despite to $134. however. The firm had about 50 internal nature of learning processes and. Understanding this para- evolving. 1997: 13). we find that the firm had system. developed such strong technical capability in digi. Through the uct development. Consis. prescriptions premised on this view of the world. Capabilities. Mgmt. ing the dynamics of capabilities. Strat. and Inertia 1157 increased slightly from $124. DiCa. ‘In the digital world Indeed.. normally associated with knowledge evolution. In addition. Not very many other products in the market. at least in this tradition. we clearly demonstrate that search tion of becoming a new products company … to processes in a new learning environment are bring 20 to 40 new products to market each year. resulted in the evolution of capabilities and While prior work in the evolutionary tradition beliefs. DISCUSSION AND CONCLUSIONS Resulting capabilities and beliefs: 1998 The series of digital imaging disappointments Our goal in this paper was to explore the relation- combined with a new top management team ship among capabilities. unrelated digital imaging Some parts of the senior management belief technologies. Helios. that having invested in and esses and on the inertia of a firm’s competencies. by the time the market for digital cam- that’s unique’ (Rosenbloom. Instead standing the role of managerial cognition in driv- Polaroid was focused on rapid incremental prod.1 million in 1995 position in the marketplace. tines (Teece et al. thanks to the early investments in elec- we believe that hard copy is required … Unless tronic technologies. Similarly. and it is uncertain what Polaroid’s ulti.’ deeply interconnected to the way managers model DiCamillo stated in the 1998 Annual Report.’ with products such as the Barbie instant emerging market. however.. By 1998 Polaroid’s earlier strength in has shown that failures to adapt to radical techno- digital imaging technologies had significantly logical discontinuities often stem from the local diminished. For consumable and what value-added we can provide instance. consequently. 21: 1147–1161 (2000) . and inertia. Substitute technology such as was a major technological achievement. ‘photoplay’ category taking on increased stra. little emphasis has tent with this decrease. one would expect Polaroid to have had difficulty tegic importance. a companies can do that … there’s both a time medical imaging system aimed at replacing X- and a skill required to take conventional film and ray technologies. Ltd. ‘We have announced our inten. ‘What mega-pixel digital camera that was a step function are we? What are we good at? We’re pretty improvement in price/performance relative to good at creating images instantly. Polaroid’s marketing its early technological lead. Cognition. driven company also seemed complete with the From a strictly evolutionary point of view. little problem overcoming the path dependencies millo supported the razor/blade business model. eras started to take off in the early 1990s Polaroid mitment to photographic quality and therefore had a working prototype of a high-resolution. these capabilities. left with quite limited technical strength in this play. Instead. Polaroid story. to under- of large-scale invention had disappeared. doxical behavior requires us to go beyond expla- mate position will be. conventional film was also quite strong. although a commercial failure. cognition. developing new. J. make it look good. We believe it is fair to nations focusing on the localness of learning proc- say. Polaroid failed to adapt to the but they’re not here yet’ (Rosenbloom. Polaroid is ultimately department created a new category called ‘photo.6 million in 1996. So we have to focus on what’s nological areas related to digital imaging. camera introduced in 1998. employees devoted to digital imaging research as from the relative rigidity of organizational rou- opposed to a high of about 300 in 1992. radical changes that had occurred in the imaging Clearly the digital imaging market is still competitive landscape. Despite ink jet or thermal technologies are interesting. the belief in the value been devoted. We argue that only by considering the role of tal imaging in the 1980s it is disappointing that cognition and its implication in terms of the Polaroid was unable to capitalize on its technical learning dynamics of the organization can one Copyright  2000 John Wiley & Sons. were surprisingly similar. The the new problem space and develop strategic transition from a technology-driven to a market. the business leading-edge capabilities in a broad array of tech- model falls apart. 1997: 16) His com. 1994). stating in a 1997 interview. Polaroid was able to develop there is a consumable component.

) In contrast. the basis for its state. theorizing on the dynamics of capabilities empha- of-the-art technological competencies in digital sizes the inertial effects of the path dependencies imaging. A particularly important issue is the question cal competencies. tech- senior managers. Polaroid did not experience major and normative issues that traditional explanations difficulties searching in a radically new techno. The shift from lengthy. Can of this purely exploratory behavior with the belief the top management team. was legitimated by this view of the associated with learning processes. Similarly. producer. if on the one hand Polaroid’s beliefs previously documented. they became a powerful source of inertia tially unaltered during its entire history. when a market for digital imaging applications they found it difficult to endorse a nonrazor/blade slowly started to emerge. Tripsas and G. In contrast. significantly changed elements of the belief received unconditional support on the part of system.. dominant logics (Prahalad and Bettis. During when decisions were taken on how to further the Land era. 1986)? In oid could not make money on the hardware.’ simultaneously Division to convince them otherwise. As In short. the razor/blade model. Digital embracing multiple contradictory elements camera development efforts. For applied to the company’s activities in digital instance. a number of strong allowed the company to develop the necessary beliefs were deeply diffused in the top man. Polaroid never Turnover in the top management team is also attempted to develop the manufacturing and prod. business model.. and we believe was a main source of more market driven in both the instant photogra- Polaroid’s inertia. the arrival of an outsider CEO. zational change (Tushman and Rosenkopf. we find that senior management only on consumables. imaging. In such situations Tushman business model. but the Polaroid case. 21: 1147–1161 (2000) . Copyright  2000 John Wiley & Sons. There of the world and the accumulation of organi- is little doubt that Polaroid’s early exploration of zational competencies. activities. Gavetti gain insights into this apparent inconsistency. was able to develop new beliefs for digital imag- This business model. Although much current the electronic domain. Strat. Despite the absence of a market for digital that understanding how capabilities evolve cannot imaging applications. large-scale. emphasizing cogni- resource allocation in digital imaging was totally tive elements in the explanation of the genesis disjointed from any notion of performance.e. successfully developed and ing only as long as those beliefs were consistent adopted in the instant imaging business. nology-driven invention to rapid. largely due to the consistency of how beliefs evolve within organizations. products such as Helios DiCamillo. for instance. J.g. To and evolution of capabilities raises both positive put it simply. Ltd. incremental. i. In particular. learning efforts. in the evolutionary realm largely overlook. despite ongoing efforts from and O’Reilly (1996) have found that successful newly hired members of the Electronic Imaging organizations are ‘ambidextrous. Mgmt. uct development capabilities that would have been changes in both the CEO and executive team key had Polaroid decided to compete in digital have been found to initiate discontinuous organi- imaging with a nonrazor/blade business model. (e. multaneously manage businesses with different A second commonly held belief was that Polar. This evidence points to the deep inter- according to which commercial success could relationships between a manager’s understanding only come through major research projects. At the beginning of the 1990s. an important driver of change. si- in the primacy of technology. 1996). logical trajectory and developing new technologi. was with the instant photography business. the company was characterized by develop such knowledge in specific products and a solid belief in the primacy of technology. combined with a new top management that were consistent with this view of the world team. for instance.. technological knowledge for competing in digital agement of the company. they recognized the importance of being imaging. and remained substan. especially in constraining and directing technological trajectory. neglect the role of managerial cognitive represen- pany kept allocating considerable resources to this tations. as a low-cost/high-quantity hardware At Polaroid. For at least a decade.1158 M. during the 1980s the com. we believe world. were through an organizational architecture that com- stalled given the inconsistency with a razor/blade bines a mix of autonomy and central control. phy and digital imaging domains. senior managers business model for digital imaging given that strongly discouraged search and development it was still the prevalent model for the instant efforts that were not consistent with the traditional photography business. Importantly.

one might ask what mentally different strategic beliefs as articulated other initial factors are important. digital imaging developed a highly adaptive rep- resentation of the emerging competitive land- scape. nition. Blashfield RK. 21: 1147–1161 (2000) . This evidence is ‘photoplay’ market. in some cases competitive environments) have a lasting influence enduring belief systems can be a source of com. digital imaging represented an the development of both capabilities and cog- instance of the latter type of change: success in nition. knowledge of both the origins and the evolution cular. the development of ‘deframing’ lying differences in cognitive adaptability across skills. the social.. in addition costly and associated with high mortality rates to established firms. and Raghuram. As we have and Reginald H. J. Work on at the time by individuals in the digital imaging organizational imprinting has demonstrated that a group. In parti. had a profound and lasting influence on For Polaroid. 1985. Cognition. How do these same environmental factors change can be highly dysfunctional for the affect capabilities and cognition? By focusing organization. beliefs in an ongoing way. however. Cluster Analysis. becomes increasingly Finally. However. regarding the origins of both capability and cog- These arguments suggest that a crucial chal. radical technological disconti. CA. and bases of competition. We speculate that the cognitive dissonance Sage: Beverly Hills. firm typically have short-term disruptive effects on organizational practices and routines (Gavetti and Levinthal. However. Sastry. petitive strength (Collins and Porras. Steven Usselman.g. suggestive not only of the presence of profound ments. Barnett W. Jones Centers at the Wharton documented. When environmental ACKNOWLEDGEMENTS change does not render current strategic beliefs obsolete. and Rosa. Mgmt. economic.g. Mike Tush- A second issue that clearly emerges in this man. managers directly involved with School is gratefully acknowledged. on organizational structure and culture (e. 1996). the ability to question current strategic hierarchical levels (Gavetti. the net effect of their modification is We are grateful to Hank Chesbrough. are as memorable as Land. between senior management and digital imaging Amburgey T. founder. given that that not all founders this new competitive landscape required funda. Resetting the managers may have been exacerbated by the dif. address these questions and significantly enrich our Kelly. In rapidly changing environ. 1993. Aldenderfer MS. the require the adoption of different strategic beliefs. Ltd. Capabilities. Garud. but agement teams is likely to be impractical. 1975.. the CCC/Tuck Conference on the Evolution of Polaroid’s difficulties in adapting to digital imag. since strategic reorientations are future research efforts on start-up firms. this work raises important questions important (Dunbar. and Barnett. Boeker. 1984. Kimberly. In the technological capabilities from changes that also case of Polaroid it appears that Edwin Land. Kelly D. ongoing turnover of top man. clock: the dynamics of organizational change and Copyright  2000 John Wiley & Sons. They abandoned Polaroid’s ‘software- REFERENCES oriented’ view and adopted a ‘hardware-oriented’ model that they were not free to put into practice. The vast majority of research in each of lenge for organizations facing radical technologi. Capabilities for feedback on earlier versions of ing were mainly determined by the cognitive this paper. with limited under- changes that require only the development of new standing of their historical development. Helfat. 1994. these areas has focused on the capabilities and cal discontinuities is the ability to distinguish cognition of established firms. 1997). Anjali Sastry. and Inertia 1159 market-driven product development is epitomized ference in signals that the two groups were by Polaroid’s new focus on products for the receiving about the market. broad range of environmental conditions at organi- nuities do not always provoke mutations in the zational founding (e. 1965. In this situation. Connie hardly positive for the organization. Financial support from the Huntsman inertia of its corporate executives. In fact. we believe we can start to (Tushman and Romanelli. 1999). 1996). Dan Levinthal. Strat. 1993. Amburgey.. cognitive 1988). changes in the basic strategic beliefs of a of firm capabilities and cognition. 2000). and the participants in research is the role of hierarchy in cognition. Porac Stinchcombe. In also that there might be structural reasons under- these situations. cognitive differences across hierarchical level.

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