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Hasselblad and the Shift to Digital Imaging

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  • Chalmers University of Technology and the Ratio Institute

Abstract and Figures

Throughout the 1980s and 1990s, the high-end Swedish camera manufacturer Hasselblad struggled to integrate its product lines with emerging digital imaging technology. Hasselblad's history illustrates how digital technology emerges in various high-end niche applications and later enters the mainstream markets and displaces incumbents. The Hasselblad case exemplifies how incumbent firms encounter difficulties when such technologies render their skills and products obsolete.
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Hasselblad and the Shift
to Digital Imaging
Christian Sandstro
¨m
Chalmers University of Technology
Throughout the 1980s and 1990s, the high-end Swedish camera
manufacturer Hasselblad struggled to integrate its product lines
with emerging digital imaging technology. Hasselblad’s history
illustrates how digital technology emerges in various high-end niche
applications and later enters the mainstream markets and displaces
incumbents. The Hasselblad case exemplifies how incumbent firms
encounter difficulties when such technologies render their skills and
products obsolete.
In 1977, Intel’s cofounder Robert C. Noyce
called attention to the rapidly increasing
use of digital technology in many industries.
Although he argued that this trend would
create a lot of entrepreneurial opportunities,
Noyce also suggested that established firms
would encounter major difficulties once
their products were replaced by the new
technology:
Time and time again the rapid growth of the
market has found existing companies too
busy expanding markets or product lines to
which they were already committed to ex-
plore some of the more speculative new mar-
kets or technologies.
1
Pointing to how mechanical calculators
and watches were forced out of the market
in the 1970s, Noyce argued that more such
displacements would happen in the future
because digital technology would provide
better performance at lower costs over time.
In retrospect, it is striking how accurate
Noyce’s prediction turned out to be. In indus-
try after industry, digital technology has dis-
rupted the former technology and created
countless problems for established and
highly profitable firms. Since Noyce’s article
was written, products such as telephones,
music players, television screens, movie cam-
eras, and gaming machines have become dig-
ital. With few exceptions, these shifts have
implied major difficulties for incumbent
firms.
2
Over the last decade, the camera in-
dustry has been subject to precisely this
kind of turmoil because of the shift from
silver-halide photography to digital imag-
ing. Several established firms have either
encountered severe problems or gone out
of business completely.
3
This article describes how Hasselblad, a
small Swedish manufacturer of high-end
cameras, tried to nurture and develop digital
photography from the early 1980s onward. It
provides a good illustration of how digital
technology emerges in various high-end
niche applications and how it later enters
the mainstream markets and displaces
incumbents. In doing so, this work contrib-
utes to the literature on disruptive innova-
tion and to our understanding of how
industries are digitized.
Technological Discontinuities
and Digital Technology
It is well documented today that established,
successful firms often get into trouble under
conditions of discontinuous technological
change.
4
Several scholars have sought to
explain what is sometimes referred to as
‘‘the incumbent’s curse’’ by looking at the
supply-side and firm capabilities.
5
For in-
stance, Michael Tushman and Philip Ander-
son wrote about competence-enhancing and
competence-destroying technologies. They
argued that the technologies that render the
technological skills of established firms obso-
lete tend to create major difficulties.
6
Draw-
ing upon a case study of how Polaroid
sought to handle the shift to digital imaging,
Mary Tripsas and Giovanni Gavetti pointed
out that cognitive barriers among managers
prevented the firm from commercializing
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2IEEE Annals of the History of Computing 1058-6180/11/$26.00
c2011 IEEEPublished by the IEEE Computer Society
the new technology.
3
In another article, Trip-
sas studied the typesetter industry and
argued that only a firm’s technological com-
petences matter. The impact on firm-specific
complementary assets—assets that were
not directly related to the technology but
helped the firm sustain its competitive
advantage—also played a key role in a tech-
nological shift.
In a series of articles from the mid-1990s,
Clayton Christensen shifted the focus away
from supply-side-related factors to look at
the impact a new technology has on the mar-
ket. Drawing on evidence from the disk-drive
industry, he argued that the technologies
that were not initially demanded by a firm’s
existing customers were particularly difficult
to handle.
7
Each new generation of smaller
disk drives offered lower performance in
terms of storage capacity and therefore
started to prosper in lower segments or in
new markets. The incumbents struggled to
find a financial logic in entering an inferior
technology that grew in a small, low-end
niche of the market. As the performance
improved, it eventually displaced the former
disk drives and the established firms who
were misled by existing customers. Christen-
sen labeled those technologies that were
cheaper, with initially lower traditional per-
formance and some new attributes, as disrup-
tive. The technologies that kept satisfying a
firm’s existing customers were referred to as
sustaining. His book The Innovator’s Dilemma
showed that incumbents tend to win sustain-
ing battles whereas entrant firms are better at
introducing disruptive technologies because
they are not held captive by an established
customer base.
7
Digital technology has often exhibited dis-
ruptive characteristics. Although frequently
starting off with inferior traditional perfor-
mance while bringing new attributes to the
market, the rapid paceofdevelopmentin
digital technology makes it attractive for
mainstream customers. It then displaces the
former technology. For instance, Christensen
and Michael Raynor used the transistor radio
as an illustrative example of this pattern.
8
Compared to analog radios, it had a poorer
sound quality, but it brought some new
attributes to the market, such as a lower
price and portability. Therefore, it prospered
among teenagers who previously could not
afford a radio. This customer segment appre-
ciated the portability and did not bother
about the lower sound quality. In the
1950s, entrant firms such as Sony created a
mass market for transistor radios, and as the
sound quality improved over time, this tech-
nology eventually displaced analog radios
and established firms like RCA.
Clearly, Christensen’s notions of sustain-
ing and disruptive technologies have shed
new light on how discontinuities happen.
However, it is still a bit unclear how this
framework fits with the nature of digital tech-
nology. The dynamics of digitization have
often been described in terms of a rapid in-
crease in performance along with declining
prices. For instance, Intel’s other cofounder
Gordon Moore predicted in 1965 that the
amount of transistors that could be crammed
onto an integrated circuit would double
every 18-month period.
9
Often referred to
as Moore’s law, this prediction can be thought
of as a description of the rapid development
of digital technology.
Although digital technology has often
brought some ancillary attributes to the mar-
ket, it has usually, as Moore’s law would sug-
gest, started off with poor performance and a
high price. Consequently, in many cases it
has initially prospered in advanced segments
that are not sensitive to prices, such as in mil-
itary or scientific applications.
10
Therefore, it
is unclear in what way Christensen’s frame-
work, which focused on low-end applica-
tions, is compatible with the economics
of digital technology. Christensen showed
how the disk-drive manufacturers were dis-
placed when entrants introduced smaller
drives, targeted low-end segments, moved
up in the market, and removed incumbents.
Thus, it is unapparent whether this pattern
is compatible with digital technology’s
growth. By studying how and why digital
imaging emerged in Hasselblad’s segment,
I argue that digital technology is substan-
tially consistent with the notion of disruptive
technology, albeit in a way that differs from
what has been previously suggested.
Hasselblad and Early Digital Cameras
Hasselblad became a dominant player in the
medium-format segment of the camera in-
dustry after WWII. This small segment of
the camera market used larger film than the
normal 24 36-mm format and was aimed
at professional photographers with high
demands on image quality. One reason for
Hasselblad’s dominance was that its cameras
were compatible with a range of lenses man-
ufactured by Carl Zeiss, film magazines, and
other accessories used by photographers.
Hence, a photographer who used a Hasselblad
[3B2-9] man2011030011.3d 21/7/011 16:41 Page 3
July–September 2011 3
camera had great flexibility. But Hasselblad
did not develop these products.
The company became world famous in
1969 when Neil Armstrong took the first
photos on the moon with a Hasselblad cam-
era. During the 1980s, the firm had about
500 employees and an annual turnover of
approximately 600 million Swedish Krona
(MSEK). The company showed relatively
high profitability in these years, delivering
annualprofitsof50to60MSEK.However,
the medium-format segment decreased
by approximately 40 percent from 1981
to 1985, mainly as small-format cameras
improved.
11
Despite this reduction, Hassel-
blad managed to sustain its revenues and
profits in these years, mainly thanks to its
strong brand.
The camera industry had reached a ma-
ture phase toward the late 1970s. By that
point, Japanese firms such as Canon, Nikon,
Olympus, and Fujifilm had entered the
scene and captured market shares primarily
from European companies like Leica and
Rollei. Technologically speaking, the indus-
try had reached a point of saturation. Rolls
of silver-halide film in various formats were
used in cameras that were essentially based
on precise mechanics. Although Kodak had
exhibited the first digital camera that used a
charge-coupled device (CCD) in 1975, it
had not caused any panic among the estab-
lished firms.
In 1981, however, the entire camera in-
dustry was shaken when Sony introduced
its Mavica, the first fully electronic, non-
film-based camera. The camera stored images
on floppy disks instead of film. It was pre-
sented as a still-video camera. Images were
captured by a CCD chip, transformed into
electric signals that were handled by process-
ors inside the camera, and stored on a floppy
disk. Fifty photos could be taken and viewed
on a TV screen later.
Many Japanese companies became con-
cerned that this new technology would even-
tually replace their current products. A few
years later, Canon, Fuji, and several other
firms had developed their own versions of
the Mavica that they exhibited at the annual
Photokina fair. Photo journalists argued by
that time that the camera industry would be-
come computerized at the same pace as the
calculator and watch industries had during
the preceding decade.
At Hasselblad, the company’s CEO Jerry
O
¨ster tried to figure out how to handle this
potential threat: ‘‘I met with Sony’s CEO
and the person behind the Mavica project.
It soon became clear to me that the technol-
ogy had so many drawbacks and limitations
that it would not become a commercial
success.’’
After consulting Hasselblad’s R&D man-
ager, Lennart Sta
˚lfors, O
¨ster concluded that
several technological breakthroughs were
needed before the Mavica concept could
threaten analog photography. O
¨ster and
Sta
˚lfors also agreed that digital imaging had
a future and that the company ought to
learnmoreaboutthenewtechnology.
12
Hasselblad’s attitude toward digital imaging
in the early 1980s is well captured by this
comment from O
¨ster:
Even though I did not believe in the Mavica
concept, I was convinced that the photo
chemical film would in the future be subject
to serious competition from electronic pho-
tography and would eventually be replaced
by this technology.
13
Hasselblad Electronic Imaging
Instead of trying to develop a digital camera,
Hasselblad explored the new technology
through various applications. Sta
˚lfors had a
background in electrical engineering and
had previously been working on adding elec-
tronic features to the Hasselblad system.
Among other things, he had been involved
in a development project together with
Saab and a professor at the Royal Institute
of Technology in Stockholm that included
an image analysis machine. The final prod-
uct, named Osiris, was primarily intended
for digital analysis of images taken by aircraft
and satellites. In the end, the project became
a commercial failure—the price was too high
and the image quality too low. Hasselblad
therefore left the project in 1982 after two
years.
The insights Sta
˚lfors gained from this
project made him realize that the technology
for telephoto transmission—the sending of
images over the phone line—was underdevel-
oped. Images lost considerable amounts of
quality when being transferred. Conse-
quently, photographers had to bring dark-
rooms with them to finish photos and send
the photos. The equipment weighed 10 to
12 kilos, which in combination with the
darkroom became a heavy burden for pho-
tographers. The analog technology also
implied that small amounts of noise over
the phone line would significantly distort
the images. Hasselblad looked into using
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Hasselblad and the Shift to Digital Imaging
4IEEE Annals of the History of Computing
technology to create a telephoto sender that
was faster and offered superior image quality.
Such a product would clearly make photogra-
phers’ everyday lives much easier.
14
Hasselblad wanted a potential partner to
begin using their upcoming product to create
attention around it, so they contacted Lars
Fale
´natExpressen, one of Sweden’s dominant
newspapers at the time. Fale
´n thought that
such a telephoto transmitter would be inter-
esting to use during the 1984 Olympic
Games in Los Angeles. He explained that
the newspaper only had 30 minutes until
press stop after the last finals, and he needed
a product that would enable the most recent
photos to be included in print.
The development work started toward the
end of 1982, and about five people were
involved at Hasselblad. With these scarce
resources and a sharp deadline 18 months
away, the team worked hard and eventually
produced two functioning prototypes of the
Digiscan to send with Expressen to Los Ange-
les in July 1984. Digiscan was an abbreviation
of the digital scanner that could digitize film
and offer 1-megapixel (MP) resolution of the
scanned film. The images were sent via
modem, directly from the Olympic stadium
to Stockholm, Sweden. By doing so, the pho-
tographer gained about 40 minutes and
obtained much better image quality.
15
The Digiscan became a great success for
Expressen because the newspaper was able
to get pictures in print faster than its com-
petitors. The news agency Agence France
Presse (AFP) became interested in the prod-
uct and offered Hasselblad a visit to Paris
to discuss a potential collaboration. The
two parties agreed that Hasselblad would
further develop Digiscan, provided that
AFP bought 40 of them for 120,000 SEK
each.AFPsignedandpaidonethirdofthe
sum up front, and this led to the develop-
ment of the Dixel (see Figure 1).
Hasselblad’s work had initially started off
as an effort to learn more about digital tech-
nology and quickly turned into a business
opportunity. The company now had to de-
cide how the digital development should be
organized. Digiscan had been developed
by Hasselblad’s R&D department. It had
included some of the company’s key staff
and had been fundamentally different from
the daily development work at Hasselblad.
O
¨sterthoughtthatdigitaldevelopment
should be put outside the parent company
and therefore started the subsidiary Hassel-
blad Electronic Imaging AB (HEIAB) in 1985.
The former R&D manager, Lennart Sta
˚lfors,
became the CEO of the new company.
O
¨ster and Hasselblad’s CFO Bengt Ahlgren
were also members of the board. In the
1985 annual report, O
¨ster wrote, ‘‘The
Dixel 2000 is a natural link for Hasselblad
between the traditional chemical photog-
raphy and tomorrow’s electronic image
technology.’’
11
Initially, three employees worked at
HEIAB. The company’s ambitions were not
high in the beginning, and the subsidiary
was often regarded as an attempt to create
knowledge rather than profits. The subsidiary
had only six employees in 1986, but it grew
rapidly over the coming years. The Dixel
was launched on a much bigger scale than
the Digiscan and the demand for it grew
quickly. During 1987, it was used at many
large sports events, including the global ath-
letics championships in Rome. As sales grew,
HEIAB became increasingly profitable. The
subsidiary had only cost 3.5 MSEK before it
broke even in 1988.
Over time, several other products related
to digitally transmitting and handling
images were developed. By the early 1990s,
HEIAB’s revenues had grown to approxi-
mately 50 MSEK and showed good profitabil-
ity. Between 1990 and 1991, 20 to 25 percent
of the company’s total profits came from an
organization that had only existed for a cou-
ple of years.
16
Table 1 shows HEIAB’s finan-
cial data for 1985 to 1992.
17
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Figure 1. The Hasselblad telephoto transmitter. Hasselblad developed
the Dixel 2000 as the Digiscan’s successor in response to a large order
from the news agency Agence France Presse. (Courtesy of Lennart
Sta
˚lfors.)
July–September 2011 5
The work at HEIAB generated valuable
knowledge and created a new source of profit
for the company.
18
In the 1980s, the camera
industry’s medium-format segment became
increasingly saturated and was even subject
to negative growth. Hence, the profits that
came from HEIAB were needed in the mother
company because it was hard to find new
sources of growth within the core business.
By the late 1980s, the uncertainty regard-
ing digital imaging was still high. Both
Canon and Fujifilm had tried to launch
their own versions of digital cameras without
any success. Many electronic still-video cam-
eras had been shown on camera exhibitions
during those years, but they all had poor
image quality and a high price. Since the
early 1980s, photo journalists had claimed
that analog photography would become his-
tory within the coming two to three years,
but this had obviously not happened in the
camera industry by the end of the 1980s.
The most notable difference between
watches and calculators and the camera in-
dustry is that the digital technology in a cal-
culator or a watch does not have to be light
sensitive. In watches and calculators, elec-
tronics displaced discrete mechanical parts
inside the products, but cameras were differ-
ent. Both analog and digital cameras contain
large amounts of optics, chemistry, precise
mechanics, and electronics. Moreover, an
image sensor must be light sensitive, so the
demands on digital technology were signifi-
cantly higher within the camera industry.
For instance, by the late 1980s, Nikon
launched a still-video camera with 0.6 MPs.
In comparison, a photo taken with an analog
Hasselblad camera would correspond to ap-
proximately 36 MPs, whereas a photo taken
with small-format film would be similar to
10 MPs.
‘‘We should not become a new Facit!’’
Hasselblad’s long-term survival may depend
upon how much resources we invest in the
development of a new digital camera.
—CEO Jerry O
¨ster, 10 February 1994
19
At its peak, HEIAB had 43 employees in 1992,
but the times were about to change. Much of
the subsidiary’s success could be attributed to
the Dixel. However, in 1992, Nikon launched
a telephoto scanner that revolutionized the
industry. It was better than the Dixel in all
respects, and consequently, Hasselblad sales
diminished rapidly. Responding to such for-
midable competition was not an option for
a small niche player such as Hasselblad, and
therefore HEIAB instead focused on software
over the coming years.Nikonshardware
and HEIAB’s software came to dominate the
market for a few years, but nevertheless,
HEIAB had reached a dead end by around
1993–1994.
20
Another important change was also taking
place in these years. After 16 years as CEO,
Jerry O
¨ster left Hasselblad. Before leaving,
he pointed out that the firm’s long-term sur-
vival would to a large extent depend upon
how many resources the company dedicated
to digital imaging.
Hasselblad’s owner, Incentive, listened to
this advice and began looking for a CEO
who could take Hasselblad into the digital
era.
21
Eventually, Incentive recruited Staffan
Junel. He had a background as a computer
science engineer, with many years of experi-
ence at the telecommunications company
Ericsson, and had experience working with
digital technology. One of the first things
he did as CEO was to gather the top manage-
ment and all expert engineers to discuss the
long-term prospects for the company. Junel
recalled:
We tried to look into the future and under-
stand where the company would be in
2010. This question inevitably drew us to
the issue of the substitution of film by digital
imaging. We agreed that 50 percent of our
market would be digital somewhere around
2005.
22
While some of the electronic engineers
thought that this would happen even earlier,
others argued that it would take more time.
Nevertheless, they all agreed that in the
long run digital technology posed a serious
threat to the established camera industry.
Junel thought that it was important for
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Hasselblad and the Shift to Digital Imaging
Table 1. Financial data for Hasselblad Electronic Imaging
AB (HEIAB), 1985–1992.
17
Year
Revenues
(MSEK)
Profit
(MSEK)
Profit
margin (%)
1985 0 0 0
1986 4 0 0
1987 11 0 0
1988 20 2.5 12.5
1989 30 5.6 18.7
1990 48.6 11.6 23.9
1991 60 11 18.3
1992 48 3.5 7.3
6IEEE Annals of the History of Computing
Hasselblad to develop its own digital prod-
ucts in order to obtain knowledge that it
would need in the future. The board agreed
that it was time to invest more in digital
imaging. Therefore, a new division called dig-
ital photography was started inside the par-
ent company in autumn 1993.
23
The initial
purpose was not to develop a digital camera,
but rather to learn more and follow the de-
velopment, especially in the area of image
sensors.
Junel recalled how top management kept
repeating that ‘‘Hasselblad will not become
a new Facit.’’ Facit was a Swedish manufac-
turer of mechanical calculators that collapsed
in 1971–1972 because of the rapid shift
to electronics. Ever since, Facit had been
regarded as an infamous example in Sweden
of what happens to firms when they miss
technological shifts.
The new division was headed by the for-
mer HEIAB CEO, Sta
˚lfors. Because HEIAB
was now in sharp decline, many engineers
from the subsidiary moved to the digital pho-
tography division. After spending some time
on knowledge development, Sta
˚lfors argued
that the improvements in the image sensor
area had been so rapid that it was time for
the company to start developing a new cam-
era system. Junel explained this to the owner
and asked for more resources. Incentive won-
dered whether Junel was willing to terminate
analog development activities at this point.
Junel argued that development of the analog
system was still needed, but that it did not
have to take place with the same intensity
as before.
The conflict between analog and digital
development would become much stronger
over the next few years. However, Incentive
agreed with Junel at this point and provided
more resources. Even though the company
spent about twice as much on analog devel-
opment, this should still be regarded as a
major step into digital imaging for a small
company such as Hasselblad. After all, digital
imaging would in many ways render the
existing skills in precise mechanics obsolete.
The company therefore sought to renew its
competence base early on.
‘‘Crystal Ball’’—Development
of a Digital Camera
It was soon clear that digital imaging had
properties that made it significantly different
from analog photography. For instance,
at this point, it was virtually impossible
to photograph moving objects with a
digital camera. Even though the image qual-
ity was surprisingly good at this early point,
it did not correspond with what Hasselblad’s
film-based images could offer. For decades,
Hasselblad had relied on superior image
quality in their marketing activities. Addi-
tionally, image sensors were expensive.
However, digital imaging had other char-
acteristics that made it attractive. For exam-
ple, images could be viewed instantly and
more conveniently copied, sent, and manip-
ulated. Moreover, an infinite number of
images could be captured at virtually no
cost. In photography segments such as
photo journalism, many images were digi-
tized sooner or later, so digital imaging
helped remove one step in this process.
These properties meant that Hasselblad
had to look for niche applications where
digitalimagingcouldcreatemorevalue
than analog technology, despite its lower
image quality and higher price. After having
performed some market research, Sta
˚lfors
and his colleagues thought that studio pho-
tography would be such a niche.
24
In this
segment, customers could be willing to
trade off some image quality in order to cap-
ture, duplicate, manipulate, and send images
at a much lower cost. The fact that such a
camera had to be big and stand on a tripod
would not be a problem for this customer
segment. The idea was to start off with
small volumes, charge a lot of money
(about US$50,000 for a camera), and then
make incremental system developments and
lower the price over time. It would initially
be targeted to large studio, catalog, and prod-
uct photography and later would enter Has-
selblad’s mainstream segment of wedding
and portrait photography.
25
This project was pursued under the name
Crystal Ball, for two reasons. First, the prod-
uct would in the end look like a crystal, and
second, management hoped that it would
guide the company into the future just like
a crystal ball.
The engineers made sure to create a mod-
ular system to enable future improvements of
each component. Although the goal was to
create a commercial product, the main pur-
pose was not to dominate the market with
it. Rather, it was an attempt to establish Has-
selblad as a digital actor and have a system
for further development of different cameras.
At its peak in 1996, the project involved
more than 20 people at the company.
As I mentioned earlier, the image quality
was relatively poor for a long time. However,
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July–September 2011 7
in 1993–1994, users could obtain up to
16 MPs by using several sensors or letting a
sensor slide over the object. To launch a com-
mercially viable product, however, it was
necessary to develop a correctly sized sensor
at the right price. Therefore, Hasselblad initi-
ated a collaboration with Philips that resulted
in a 6-MP sensor at a reasonable price.
By that time, most image sensors were
square and 2000 2000 pixels big. A 2000
3000 sensor would thus give 50 percent
better image quality, but because most
images are cropped into a rectangular
shape, the difference was in reality approx-
imately 100 percent or more.
26
For several years, Hasselblad was the only
company that had access to this sensor,
which of course gave them a competitive ad-
vantage around 1995–1997. Several firms
were interested in using the sensor—for in-
stance, Agfa began negotiations to buy the
rights to use it.
27
Moreover, this sensor
offered perhaps the best price–performance
ratio on the market in those days.
28
Philips
was keen to collaborate with Hasselblad be-
cause of its strong brand, and in total, Hassel-
blad only had to spend about 2 MSEK on this
project. This figure is about 60 percent lower
than what Philips would have demanded
from other actors. From this work, it would
also have been possible to develop a 3,000
4,000 pixel sensor later on. Hence, although
both parties contributed to the technical de-
velopment, the project was quite favorable
for Hasselblad.
In parallel with the development of a dig-
ital studio camera, some minor changes were
made to the analog system. Hasselblad devel-
oped a couple of new models and sought to
diversify its system. By offering a few models
at a lower price, more photographers could
use the Hasselblad system, but no major
changesweremadetothecamerasystem
during these years.
At this point, Hasselblad had essentially
sustained the same system for more than
40 years. Consequently, it had become
rather complex because of all the small
improvements over time. Competitors
such as Mamiya, Pentax, and Contax were
now introducing autofocus in their cam-
eras, something that Hasselblad lacked and
could not integrate into its current system.
Hence, as the need for a new camera system
became more important, the analog devel-
opment team grew increasingly frustrated.
The development of a completely new cam-
era system was considered in the late 1980s
and early 1990s, but management hesitated
andeventuallydecidedagainstitbecause
they believed it would be too expensive.
Consequently, the company became more
polarized in the mid-1990s. Digital technol-
ogy had been controversial when HEIAB
was founded in the 1980s, but it became
even more sensitive when it came to develop-
ing cameras. Hasselblad had been split into
two camps—analog and digital—that com-
peted for the same pool of resources and
had fundamentally different ideas about
what the company was and what it was
going to be.
29
Under these circumstances,
the company became a place of conflicts
and fierce arguments. The project manager
for Crystal Ball, Lennart Sta
˚lfors, remembered
spending ‘‘a disproportional amount of time
defending the project instead of working
with development activities.’’
30
But this was
just the beginning.
Big Berta and Private Equity
By the year 2000 digital cameras may replace
film photography for most uses.
MacWEEK, 13 May 1994
31
Toward the end of 1995, Incentive changed
its scope of ownership and decided that it
was time to sell Hasselblad. During the
years that the company had owned Hassel-
blad, large amounts of resources had been
spent on digital technology. In that respect,
Incentive had maintained a long-term scope
of ownership. However, once it decided that
Hasselblad should be sold, the owner made
sure to withdraw as much of the capital as
possible that had been accumulated in the
company over the last decades. The firm
had been well capitalized, partly to be able
to pursue both the analog and digital devel-
opment projects in parallel. This situation
changed when Incentive recouped this
money through extra dividends before sell-
ing the firm.
32
Incentive sold its shares in Hasselblad to
UBS Capital (the private equity branch of
the Union Bank of Switzerland), the British
private equity firm Cinven, and Hasselblad’s
management. Because UBS controlled 55 per-
cent of the shares, Hasselblad’s fate was now
in the hands of the Swiss bank. At Hasselblad
and in the local media, people were con-
cerned that the new owner lacked a long-
term scope of ownership. UBS had declared
from the beginning that they did not intend
to own the company for more than three to
[3B2-9] man2011030011.3d 21/7/011 16:41 Page 8
Hasselblad and the Shift to Digital Imaging
8IEEE Annals of the History of Computing
seven years. Moreover, UBS intended to do a
leveraged buyout—to buy an asset with bor-
rowed money, increase its value, sell it, and
thereby obtain a high return on equity. Has-
selblad was therefore acquired partly using
borrowed money, which was brought into
Hasselblad that now had to pay off those in-
terest rates. Hence, within only a few years,
the company went from being well capital-
ized to being severely under-capitalized, dras-
tically impacting its ability to handle the
shift from analog to digital photography.
The new owner now had to make up its
mind regarding the Crystal Ball project. To-
ward the end of 1995, a prototype was almost
ready and the board was keen to see what
progress had been made. As mentioned ear-
lier, the camera had been developed to suit
studio photographers. It was an odd product
and did not look like anything Hasselblad
had offered previously. The camera could
not be carried to the boardroom, so the
board had to go see it. The product looked
more like a computer than a camera, stood
on a tripod, and was connected with wires
to a computer where the images could be
displayed. Afterward, people at Hasselblad
called the camera Big Berta because it was
clumsy and had the same shape as the golf
club with that name.
33
The new board became skeptical when
they saw the prototype. One person who
attended the meeting recalled that the prod-
uct ‘‘was gigantic and did not even look like
a camera.’’
34
Other people had a different
point of view: ‘‘Those who understood the
niche for digital technology saw its advan-
tages and realized that the camera had a
potential. But the board related it to the ana-
log technology and therefore dismissed the
camera.’’
35
Allinall,itwasnoteasytoconvincea
financially oriented investor that this camera
was the right product for a successful lever-
aged buyout. The digital development team
tried to explain that this was just a prototype
and that it would only require an additional
13 MSEK or so before it could reach the mar-
ket. Moreover, they tried to explain that a
camera aimed for studio photography and
catalog production did not have to be light
and portable or offer stunning image quality.
It was enough that plenty of images could be
captured rapidly at a low cost and then be
handled more conveniently. Furthermore,
the image quality was relatively high and
pictures could be enlarged up to 0.5 square
meters without any problems. Hence, the
customer utility was in fact large, yet differ-
ent from what Hasselblad had offered their
customers previously. Even so, the studio
photographers at IKEA who saw the first pro-
totypethoughtthatitwastoobigand
clumsy for them. Even within this segment,
it was still important to move the camera, if
only slightly.
Despite the aforementioned advantages,
the board remained concerned. The new
owner thought that such a product could
harm Hasselblad’s brand and its high-end
image. Another issue raised was that digital
technology had started to prosper in Hassel-
blad’s market segment in the shape of digital
backs. Those backs were primarily manufac-
tured by entrant firms such as Leaf Systems,
Imacon, and Phase One, but Kodak had also
developed some products in this area. UBS
appointed Andersen Consulting to perform
an investigation into these issues during the
end of 1996. They concluded that the indus-
try would be subject to fierce competition
once it became digital and recommended
Hasselblad to develop a solution based on
digital backs.
36
After receiving generous resources for
many years, Sta
˚lfors and the digital devel-
opment team were now suddenly in a lot
of trouble. Questions were raised regarding
why so much money was spent on things
that were outside the company’s core com-
petence. Moreover, the board had become
increasingly frustrated over all the missed
deadlines. Staffan Junel was a firm believer
in digital imaging and kept trying to per-
suade the new owner that it was worth pur-
suing the initiated project. He failed, and he
eventually left the company because he
couldnotenactastrategyhedidnotbe-
lieve in.
The digital photography division made
one last attempt. Because the board had con-
cluded that the digital-back solution was
preferable to Big Bert, the electronic engi-
neers sought to develop a digital back in a
short period of time. The 6-MP image sensor
was now built into a digital back. It had cir-
cuits pointing out on both sides and was
nicknamed Mickey Mouse because it looked
like the Disney character’s head.
The team demonstrated the digital back at
a board meeting. Sta
˚lfors and his colleague
Carl Henrikson attached Mickey Mouse to
a Hasselblad camera, took photos of the
board, and showed them to the board mem-
bers on a computer screen during the meet-
ing. The board members did not appreciate
[3B2-9] man2011030011.3d 21/7/011 16:41 Page 9
July–September 2011 9
this little prank and remained firm in their
decision to stop all internal development of
a digital camera. The new board explained
their decision by saying that Hasselblad’s cus-
tomers did not demand a digital camera.
37
These turbulent events were briefly summar-
ized in Hasselblad’s annual report from 1996:
‘‘The board also decided that the digital activ-
ities should be changed towards a focus on
marketing and sales.’’
38
After this decision, almost the entire digi-
tal development team were forced to leave
the company. Only three people were invited
to stay in order to keep the company updated
and pursue collaborations instead of develop-
ing products and technologies.
Needless to say, the electronic engineers
were extremely disappointed. In one inter-
nal discussion, the following statement
was made on an overhead slide: ‘‘If the
chemical waste from film processing could
be turned into beer—film would have a
bright future!’’
39
Hasselblad basically laid off all its digital
capabilities, an asset that had been developed
for almost 15 years. The company also lost its
exclusive access to the image sensor it had
codeveloped with Philips. Contax tried to
use the same sensor when developing a digi-
tal single-reflex camera in the early 2000s,
but eventually failed to launch a viable prod-
uct. The decision to stop all digital develop-
ment was made public in early 1997. A
press release to Dagens Industri (a Swedish fi-
nancial newspaper) contained the following
text:
The costly development of a new digital cam-
era has been sold ...the optimal digital
camera will thereby have to be developed by
someone else. By doing so, the company
saves 15–18 MSEK ...that can be invested
in development of conventional cameras as
well as adapting them to digital technology.
40
Go
¨ran Diedrichs, UBS’ representative,
defended the decision: ‘‘Digital technology
is still in its infancy. When it has been devel-
oped further we will of course enter and then
we need to have a strong financial position.’’
In the same article, Diedrichs stated, ‘‘We
have been a technology driven company up
untilnow.Wehavetodevelopproducts
that are interesting for the market.’
41
This description of the company’s history
suggests that Hasselblad had been a market-
oriented company. Over decades, the firm
had succeeded in charging premium prices
by relying on clever marketing and
sustaining its legendary brand. With the
exceptions of HEIAB and the digital photog-
raphy division, Hasselblad had not really pur-
sued any development activities for many
decades. Its analog camera system was essen-
tially the same as it had been in the late
1950s. The problems that Hasselblad would
encounter over the coming years were largely
related to the fact that the company had
been too ‘‘market-oriented’’ over a long
period of time.
The Shift to Digital Imaging
Essentially, Hasselblad had postponed all an-
alog development activities and not created a
new camera system in the early 1990s. Al-
though the brand helped the company to
keep its market in the short term, inferior
products eventually resulted in lower vol-
ume. Hasselblad therefore lost market share
to its competitors between 1997 and 1999.
Consequently, it became increasingly ur-
gent to develop a new camera system. The
H1 project was initiated in 1998 with the pur-
pose of generating a completely new system.
The idea was to create a hybrid camera, one
that would be compatible with both film
and digital backs. Moreover, the system
would incorporate many new features such
as autofocus. The company had not done
anything of this magnitude since the 1950s.
As a result, the project was severely delayed
andintheendcost320MSEK.However,
50 percent of it was in fact funded by Fuji-
film, which among other things, developed
the lenses that were specified by Hasselblad
and in return got the opportunity to launch
the same camera in Japan under its own
brand.
42
The new system was not launched at full
scale until late 2002. Between 2000 and
2003, Hasselblad suffered severely from a
sharp decline in their analog sales. Profes-
sional photographers were rapidly changing
to digital camera systems, primarily from
Canon and Nikon. For decades, Hasselblad
had dominated the wedding and portrait
photography industry. This market segment
was lost within only a few years to companies
that had not previously been Hasselblad’s
competitors.
When the H1 finally arrived, it was not re-
ally a digital camera. Although compatible
with digital backs, it was delivered with a
film magazine and therefore was never really
perceived as a digital system. The freedom
to shoot either analog or digital turned out
to be of little use for photographers, who
[3B2-9] man2011030011.3d 21/7/011 16:41 Page 10
Hasselblad and the Shift to Digital Imaging
10 IEEE Annals of the History of Computing
were instead frustrated by the fact that they
had to buy digital backs separately. Moreover,
such a system cost approximately 100,000
SEK more than Canon’s or Nikon’s high-end
cameras, and in the end, many photogra-
phers were not willing to pay that much for
a Hasselblad system. Advanced digital single-
reflex cameras were smaller and cheaper,
offered sufficient performance, and thus
started to displace Hasselblad’s high-end prod-
ucts. Therefore, the H1 did not become the
expected success and it could not compensate
for the rapidly declining analog revenues.
43
In November 2004, Hasselblad laid off
50 percent of its workforce and balanced at
the brink of bankruptcy. The company went
from having approximately 500 employees
to about 75 in less than 10 years. After having
invested in digital imaging more than two
decades earlier, Hasselblad was now about
to repeat the infamous Facit story, even
though its former managers had sworn that
this would not happen.
The company eventually survived through
yet another ownership change and a merger
with Imacon, a Danish manufacturer of digi-
tal backs. For the first time in 2005, Hasselblad
delivered a complete digital camera system on
its own and became an even more high-end
company than before. The H system was ex-
pensive and offered performance that most
customer segments did not need. In the
following years, the company made some
upgrades to its new system and delivered prof-
its until the 2008 recession. Since then, a few
more layoffs have taken place.
Discussion and Conclusion
The story of Hasselblad’s long and troubled
journey from analog photography to digital
imaging provides an interesting case study
in how industries are digitized and what chal-
lenges companies face in such shifts. One
main challenge seems to have been that Has-
selblad’s skills related to precise mechanics
were to some extent rendered obsolete. In
this sense, the shift to digital imaging was
competence-destroying.
Digital imaging also possessed some dis-
ruptive characteristics. It initially offered
worse image quality, in addition to some
new performance attributes such as the abil-
ity to take an infinite amount of photos at
a low cost. However, it did not prosper in a
low-end segment or in a new market as Chris-
tensen’s disruptive innovation framework
would suggest. Instead, it grew in Hassel-
blad’s high-end segment in the shape of
digital backs from the early 1990s onward.
The main reason for this seems to be that dig-
ital technology simplified the daily work for
studio photographers. This description is
partly inconsistent with the disruptive inno-
vation framework, which posits that technol-
ogies with the aforementioned attributes
prosper in low-end segments or in a com-
pletely new market. Hasselblad’s customers
didinfactdemandthenewtechnology,
and thus the main managerial challenge
was not related to a lack of financial logic
as stated by Christensen.
The description of how digital imaging
initially prospered in Hasselblad’s high-end
segment in the early 1990s can be regarded
as an illustration of how digital technology
grows in high-end segments by bringing
new performance attributes to the market.
As image sensors became smaller, cheaper,
and better, the dominant design for profes-
sional digital cameras shifted from medium-
format cameras with digital backs to high-
end digital single-reflex cameras. Hasselblad
chose to stay in the medium-format segment
and consequently experienced declining
sales in recent years. Few photographers are
willing to pay more for a bigger, heavier cam-
era that offered great image quality.
This pattern can be regarded as an effect of
Moore’s law. Digital technology starts off as
big, expensive, and with poor traditional per-
formance such as image quality. However, it
often brings a new value proposition to the
market that makes it attractive for high-end
segments. As the performance of digital tech-
nology improves, it can eventually be minia-
turized and enter lower segments, where the
smaller versions eventually displace the big-
ger digital calculators, radios, cameras, and
disk drives. The process of low-end disruption
as described by Christensen can therefore be
thought of as a consequence of Moore’s law
and the continuing decline in prices and im-
provement in performance. While the tech-
nology initially prospers in sophisticated
segments, as was illustrated in the Hasselblad
case, the low-end disruption happens later.
Robert C. Noyce unintentionally managed
to describe Hasselblad’s fate almost 25 years
before the company balanced at the brink
of bankruptcy. In 2004, the Hasselblad CEO
Lars Pappila stated that ‘‘the shift to digital
technology was much more dramatic than
we had expected.’’
44
Hasselblad was not the
first, nor the last, company to end up this
way, despite all its efforts over several
decades.
[3B2-9] man2011030011.3d 21/7/011 16:41 Page 11
July–September 2011 11
References and Notes
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Strategic Management J., vol. 21, nos. 10–11,
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4. J. Schumpeter, The Theory of Economic Develop-
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Summit Books, 1986.
6. M.L. Tushma and P. Anderson, ‘‘Technological
Discontinuities and Organizational Environ-
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no. 3, 1986, pp. 439–465.
7. C.M. Christensen, The Innovator’s Dilemma,
Harvard Business School Press, 1997.
8. C.M. Christensen and M.E. Raynor, The Innova-
tor’s Solution: Creating and Sustaining Successful
Growth, Harvard Business School Press, 2003.
9. G. Moore, ‘‘Cramming More Components onto
Integrated Circuits,’’ Electronics, 19 Apr. 1965,
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10. C. Le
´cuyer, Making Silicon Valley, Innovation and
the Growth of High Tech, 1930–1970, MIT Press,
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11. Hasselblad Ann. Reports, 1984–1990.
12. J. O
¨ster, interview by C. Sandstro¨m and J. Jo¨rnmark,
24 Apr. 2007.
13. J. O
¨ster, ‘‘Va
˚r fortlevnad och va
˚ra tekniska sats-
ningar’’ [Our Survival and our Technical Efforts],
Sa
˚leder vi [So We Lead], O. Granstrand and
H. Bohlin, eds., Liber Ekonomi, 1992.
14. L. Sta
˚lfors, interview by C. Sandstro¨ m, 28 June
2007.
15. F. Bergquist, interview by C. Sandstro¨m, 9 Apr.
2008.
16. Hasselblad Electronic Imaging Ann. Report,
1991.
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1990.
19. Hasselblad, board meeting minutes, 10 Feb.
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20. Hasselblad Electronic Imaging, tech. report,
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21. Hasselblad, board meeting minutes, 1989–
1994.
22. S. Junel, interview by C. Sandstro¨m, 6 Nov.
2007.
23. L. Sta
˚lfors, internal memo, Hasselblad, June
1997.
24. R. Cederberg, interview by C. Sandstro¨m,
3 Mar. 2008.
25. Memorandum by R. Cederberg, internal memo,
Hasselblad, 14 Aug. 1995.
26. R. Cederberg to C. Declerk, 10 Feb. 1997.
27. L. Sta
˚lfors to H. Wellius, 30 Aug. 1996.
28. L. Sta
˚lfors, internal company presentation,
Hasselblad, 1997.
29. L. Sta
˚lfors to C. Sandstro¨ m, 17 Oct. 2007.
30. L. Sta
˚lfors to S. Junel, 8 Oct. 1995.
31. MacWEEK 13 May 1994.
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C. Sandstro¨ m, 26 Jun. 2007.
34. S. Arvidsson, interview by C. Sandstro¨ m and
J. Jo¨ rnmark, 14 May 2007.
35. P. Mark, interview by C. Sandstro¨m, 8 Jan.
2008.
36. B. Ahlgren, interviews by C. Sandstro¨m, 9 Nov.
2007 and 9 Jan. 2008.
37. L. Sta
˚lfors, interview by C. Sandstro¨ m, 25 Feb.
2008.
38. Hasselblad Ann. Report, 1997.
39. Internal company PowerPoint presentation,
Hasselblad, 1997.
40. G. Larsson, ‘‘Ha
˚rda tag med bo¨ rsen I fokus,’’
Dagens Industri, Jan. 1998.
41. E. Parkrud, ’’Fra
˚n glaskonst till kameror Go¨ ran
Bernhoff ny VD pa
˚Hasselblad,’’ [From Glass to
the Cameras: Goran Bernhoff new CEO of Has-
selblad], Go¨teborgs-Posten, 10 Apr. 1997.
42. G. Bernhoff, interview by C. Sandstro¨m, 4 Jan.
2008.
43. P. Mark, interview by C. Sandstro¨m, 24 Sept.
2007.
44. C. Froste, ‘‘Fra
˚nma
˚nlandning till stja¨rnfall’’
[From the Moon Landing to the Shooting Stars]
Affa¨rsva¨rlden, 8 June 2004.
Christian Sandstro
¨mis
a postdoctoral researcher at
Chalmers University of Tech-
nology, Sweden. His research
interests concern the digitiza-
tion of industries and the chal-
lenges that this presents for
established firms, including
how electronics have emerged in cameras, calcula-
tors, and video surveillance. Sandstro
¨mhasa
PhD in industrial engineering from Chalmers Uni-
versity of Technology. Contact him at christian.
sandstrom@chalmers.se.
[3B2-9] man2011030011.3d 21/7/011 16:41 Page 12
Hasselblad and the Shift to Digital Imaging
12 IEEE Annals of the History of Computing
... In the literature on disruption, that is, when new solutions replace existing ones (Adner, 2002;Christensen, 1997;Christensen et al., 2018), two perspectives prevail: that of how an incumbent firm is outperformed by new players entering the sector, and the technological shift causing sector-level disorder (Kilkki et al., 2018;Sandström, 2011). However, these perspectives overlook how incumbent firms may try to remain in business and fail to recognize the role of ecosystems in such attempts. ...
... Digital disruption (Bughin and van Zeebroeck, 2017;Hanelt et al., 2021) expands the scope of what may be disrupted while keeping to the notion that incumbent firms risk being replaced by new entrants to their industry (Christensen, 1997) and denoting how customers need to accept and adapt to new solutions (Adner, 2002;Christensen and Bower, 1996). It implies that analogous solutions are replaced by computerized ones, such as newspapers being abandoned for digital media, streaming replacing records, and camera film being substituted by digital technology (Karimi and Walter, 2016;Kask and Ö berg, 2019;Sandström, 2011). With a focus on business models, digital disruption has highlighted how businesses are coordinated differently, including new ways of operating within the firm and with stakeholders; how the firm as the central unit may be replaced by platform operations, communities, or crowds; and how values are redistributed among parties (Karimi and Walter, 2016;Skog et al., 2018). ...
... To summarize the gap in the literature that this paper addresses, studies on disruption have, with a few exceptions, taken the perspectives of how incumbent firms are outperformed by new players or have described the technological shift causing a sector-level disorder (Adner, 2002;Christensen, 1997;Kilkki et al., 2018;Sandström, 2011). Some researchers (Chesbrough, 2003;Danneels, 2004;King and Tucci, 2002) have approached the survival of incumbent firms using different definitions of disruption or by focusing on the firms' resources and adaptability strategies. ...
... Technological transitions can sometimes overthrow entire industries, including the dominant firms (e.g. Sandstrom, 2011). Former photographic film giant Eastman Kodak's bankruptcy can be regarded as one recent illustration of this pattern. ...
... A technological discontinuity can be defined as a punctuated equilibrium and the introduction of an entirely new trajectory. At times, the introduction of a new dominant design related to a technological discontinuity results in the downfall of established firms (Sandstrom, 2011). ...
... Hasselblad is another Swedish example of a company that almost collapsed due to a board decision 1996 to not pursue the investments in their almost 15 years of development in digital technologies. Thus, due to the use of the digital technology new value propositions are created on the market and as the performance of this technology improves, it makes it attractive for high-end segments (Sandstrom 2011). ...
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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.
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It is pointed out that most of the technological achievements of the past decade have depended on microelectronics. Small sensing and control devices are essential elements in complex systems used in lunar landings and in the intercontinental weapons which dominate world politics. The history of microelectronics is reviewed, taking into account the transistor, its use in digital computers, attempts to miniaturize conventional components, 'molecular engineering', photolithography, solid-state diffusion, the planar transistor, and the introduction of the integrated circuit in the early 1960s. Attention is given to the growth of the microelectronics industry, the advantages of integrated circuits, production yield as a technical barrier to the introduction of more complex circuits, the improvement of manufacturing methods, the economic rewards for technological advances, and expected future developments.
Article
Schumpeter first reviews the basic economic concepts that describe the recurring economic processes of a commercially organized state in which private property, division of labor, and free competition prevail. These constitute what Schumpeter calls "the circular flow of economic life," such as consumption, factors and means of production, labor, value, prices, cost, exchange, money as a circulating medium, and exchange value of money. The principal focus of the book is advancing the idea that change (economic development) is the key to explaining the features of a modern economy. Schumpeter emphasizes that his work deals with economic dynamics or economic development, not with theories of equilibrium or "circular flow" of a static economy, which have formed the basis of traditional economics. Interest, profit, productive interest, and business fluctuations, capital, credit, and entrepreneurs can better be explained by reference to processes of development. A static economy would know no productive interest, which has its source in the profits that arise from the process of development (successful execution of new combinations). The principal changes in a dynamic economy are due to technical innovations in the production process. Schumpeter elaborates on the role of credit in economic development; credit expansion affects the distribution of income and capital formation. Bank credit detaches productive resources from their place in circular flow to new productive combinations and innovations. Capitalism inherently depends upon economic progress, development, innovation, and expansive activity, which would be suppressed by inflexible monetary policy. The essence of development consists in the introduction of innovations into the system of production. This period of incorporation or adsorption is a period of readjustment, which is the essence of depression. Both profits of booms and losses from depression are part of the process of development. There is a distinction between the processes of creating a new productive apparatus and the process of merely operating it once it is created. Development is effected by the entrepreneur, who guides the diversion of the factors of production into new combinations for better use; by recasting the productive process, including the introduction of new machinery, and producing products at less expense, the entrepreneur creates a surplus, which he claims as profit. The entrepreneur requires capital, which is found in the money market, and for which the entrepreneur pays interest. The entrepreneur creates a model for others to follow, and the appearance of numerous new entrepreneurs causes depressions as the system struggles to achieve a new equilibrium. The entrepreneurial profit then vanishes in the vortex of competition; the stage is set for new combinations. Risk is not part of the entrepreneurial function; risk falls on the provider of capital. (TNM)
Book
Analyzes how successful firms fail when confronted with technological and market changes, prescribing a list of rules for firms to follow as a solution. Precisely because of their adherence to good management principles, innovative, well-managed firms fail at the emergence of disruptive technologies - that is, innovations that disrupt the existing dominant technologies in the market. Unfortunately, it usually does not make sense to invest in disruptive technologies until after they have taken over the market. Thus, instead of exercising what are typically good managerial decisions, at the introduction of technical or market change it is very often the case that managers must make counterintuitive decisions not to listen to customers, to invest in lower-performance products that produce lower margins, and to pursue small markets. From analysis of the disk drive industry, a set of rules is devised - the principles of disruptive innovation - for managers to measure when traditional good management principles should be followed or rejected. According to the principles of disruptive innovation, a manager should plan to fail early, often, and inexpensively, developing disruptive technologies in small organizations operating within a niche market and with a relevant customer base. A case study in the electric-powered vehicles market illustrates how a manager can overcome the challenges of disruptive technologies using these principles of disruptive innovation. The mechanical excavator industry in the mid-twentieth century is also described, as an example in which most companies failed because they were unwilling to forego cable excavator technology for hydraulics machines. While there is no "right answer" or formula to use when reacting to unpredictable technological change, managers will be able to adapt as long as they realize that "good" managerial practices are only situationally appropriate. Though disruptive technologies are inherently high-risk, the more a firm invests in them, the more it learns about the emerging market and the changing needs of consumers, so that incremental advances may lead to industry-changing leaps. (CJC)