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What’s gone wrong for Kodak?

Thursday, January 19, 2012
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Ever heard of Coca-Cola?  How about Google, Microsoft or IBM?  What about McDonald’s?  They sound familiar, and the amazing thing (to me) is that even in the 1990s, you would have heard Kodak mentioned in a list of the world’s five most valuable brands.  Kodak was the Google of its day and by 1976 it accounted for 90% of film and 85% of camera sales in America. How the mighty have fallen, with the announcement that Kodak files for bankruptcy protection.

I was reading about Kodak’s decline and here are some of the key points that made an impression:

According to The Economist, one key irony is that Kodak built one of the first digital cameras in 1975. That technology, followed by the development of smartphones that double as cameras is largely responsible for what has unfolded.  Kodak’s revenues peaked at nearly $16 billion in 1996 and its profits at $2.5 billion in 1999. In 1988, Kodak employed over 145,000 workers worldwide; at the last count, barely one-tenth as many.

This isn’t a surprise to anyone really.  One former Kodak executive recalls writing a report in 1979 detailing, fairly accurately, how different parts of the market would switch from film to digital, starting with government reconnaissance, then professional photography and finally the mass market, all by 2010. He was only a few years out.

Kodak had even reasoned that digital photography itself would not be very profitable, and that change would be essential.  Kodak just couldn’t get it right.  The firm’s business culture gets a lot of flak: too slow to respond, too stuck in its old ways, too complacent from having it so good for so long.  Kodak had a virtual monopoly in the US and operated out of a ‘company town’ where it was somewhat insulated from criticism.  Even when Kodak decided to diversify, it took years to make its first acquisition. It created a widely admired venture-capital arm, but never made big enough bets to create breakthroughs, says one analyst.

Bad luck played a role, too. Kodak thought that the thousands of chemicals its researchers had created for use in film might instead be turned into drugs. But its pharmaceutical operations fizzled, and were sold in the 1990s.  They understood that digital sharing of photographs was going to be important, but failed to come up with a business model that would do this effectively (ever heard of Facebook?!)

Kodak also failed to read emerging markets correctly. It hoped that the new Chinese middle class would buy lots of film. They did for a short while, but then decided that digital cameras were cooler.  Kodak made good profits out of digital cameras, before they too were swept aside by camera phones.

Too many changes were made at the top for a consistent strategy to emerge.  Perhaps the challenge was simply too great. “It is a very hard problem. I’ve not seen any other firm that had such a massive gulf to get across,” says Clay Christensen, author of “The Innovator’s Dilemma”, an influential business book. “It was such a fundamentally different technology that came in, so there was no way to use the old technology to meet the challenge.”

I recommend A2 strategy students reading the whole article, which I have heavily edited down.  What’s particularly interesting is that the Japanese film giant Fujifilm was in almost exactly the same situation, but has survived – and thrived.  What did they get right?

There’s a nice gallery of photos in The Guardian, too.

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