Kodak Business Fall – Case Study

By

Bhanwar Lal Bishnoi

BSE –IIM L - AMP 2018 1
 Kodak failure Case Study
Why did Kodak Suppress Digital Camera
What Kodak did with Digital camera
What they should have done

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 Key concern areas inside Kodak were

 Conservatism
 Operational Efficiency
 Digital Focus
 Suppress , Avoid , Canibalism
 Processing Time ( Technical).

 The world's biggest film company filed for bankruptcy in 2009, beaten
by the digital revolution. The only problem is, the enemy started within

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Kodak & Digital Revolution

 One common explanation about Kodak’s demise is

that it missed the digital revolution – or simply that
the ubiquity of digital cameras made photographic
film redundant while Kodak bosses buried their heads
in the sand. While that explanation has some merits,
it is far from the full picture. In fact Kodak was a
pioneer in the development of digital cameras,
producing the first prototype megapixel digital
camera in 1975.

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 Kodak’s First Digital Camera
Innovation – Suppressed / Ignored

 So who invented the digital camera? Ironically, Kodak did – or,

rather, a company engineer called Steve Sasson, who put
together a toaster-sized contraption that could save images
using electronic circuits. The images were transferred onto a
tape cassette and were viewable by attaching the camera to a
TV screen, a process that took 23 seconds.

 It was an astonishing achievement. And it happened in 1975,

long before the digital age. Mr Sasson and his colleagues were
met with blank faces when they unveiled their device to Kodak's
bosses. Even he didn't full see its potential. "It is funny now to
look back on this project and realise that we were not really
thinking of this as the world's first digital camera," Mr Sasson
was later to write on a company blog.
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For Kodak's leaders, going
digital meant killing film
 For Kodak's leaders, going digital meant killing film, smashing
the company's golden egg to make way for the new. Mr Sasson
saw in hindsight that he had not exactly won them over when
he unveiled his toy: "In what has got to be one of the most
insensitive choices of demonstration titles ever, we called it
'Film-less Photography'. Talk about warming up your audience!“

 The trouble began 20 years ago, with the decline of film

photography. In the 1990s, Kodak poured billions into
developing technology for taking pictures using mobile phones
and other digital devices. But it held back from developing
digital cameras for the mass market for fear of killing its all-
important film business. Others, such as the Japanese firm
Canon, rushed in.
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Leadership blunders

 The failure of its leaders to recognise the huge potential of Mr

Sasson's invention.

 Don Strickland, a former vice-president, who left the company in 1993

because even then he couldn't persuade it to manufacture and market
a digital camera, put it this way: "We developed the world's first
consumer digital camera but we could not get approval to launch or
sell it because of fear of the effects on the film market.“

 Kodak failed to manage to successfully adopt new electronic

technology, to it also became a dominant leader but missed it.

 Kodak went through a number of CEOs – it is on its fourth CEO since

1990.
 The short tenure of each CEO made working towards a distant goal of
industry leadership in the fast evolving technology of digital imaging
rather difficult.
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Kodak sequence of events from successful to
Bankruptcy
 1975 Kodak becomes the first company to make a digital camera. It took 23
seconds to expose each image.
 1976 More than 90 per cent of photographic film and more than 85 per cent of
cameras sold in the US are made by Kodak.
 1994 One of the first consumer digital cameras, the QuickTake, is launched by
Apple. It is made by Kodak.
 2004 As the popularity of digital cameras grows, Kodak finally abandons the film
camera.
 2005 Kodak is the largest digital camera retailer in the US, raking in up to $5.7bn
in sales.
 2007 Kodak falls to fourth biggest digital camera retailer. By 2010, it is the
seventh biggest.
 2009 After 74 years of production, Kodak stops selling 35mm colour film.
 2011 Kodak shares fall by more than 80 per cent, partly because the company
struggles to meet pension costs for its employees.
 2012 Kodak files for chapter 11 bankruptcy.

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 Kodak lacked backup plans

 When digital photography totally wiped out

film as the way to take photos, Kodak was
left with absolutely nothing to work with.
The company had been hailed as a leader in
the photography industry for years.
However, they simply didn't have the
innovation practices in place that would
make it possible to keep up with the
changing digital market.
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Legacy become hurdle to
adapt change ahead of curve
 When new technologies change the
world, some companies are caught off-
guard. Others see change coming and
are able to adapt in time. And then there
are companies like Kodak — which saw the
future and simply couldn’t figure out what to
do. Kodak’s Chapter 11 bankruptcy filing on
January 19 culminates the company’s 30-year
slide from innovation giant to aging
behemoth crippled by its own legacy.
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Adoption of Own Innovation ahead of
competition for advantage
 Adapting to technological change can be especially
challenging for established companies like Kodak,
Wharton experts say, because entrenched leadership
often finds it difficult to break old patterns that once
spelled success. Kodak’s history shows that
innovation alone isn’t enough; companies must also
have a clear business strategy that can adapt to
changing times. Without one, disruptive innovations
can sink a company’s fortunes — even when the
innovations are its own.

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 Kodak vs FujiFilm strategy
 Another pitfall: knowing where to focus innovation. Innovation is “the
match between a solution and a need, connected in a novel way,”
Terwiesch says. Kodak had a choice in how it pursued innovation: If it
focused on the need, it would have to find new ways to take and store
photos. If it focused on the solution, it would have to find new
markets for its chemical coating technologies. Kodak’s competitor,
Tokyo-based Fujifilm, focused on the solution, applying its film-making
expertise to LCD flat-panel screens, drugs and cosmetics. “You have to
make a decision: What are you as a company? Is it understanding the
need or understanding the solution?”, “These are simply two very
different strategies that require very different capabilities.”

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Kodak’s business model
 When disruptive technologies appear, there is a lot of
uncertainty in the transition from old to new. “The challenge is
not so much in developing new technology, but rather shifting
the business model in terms of the way firms create and capture
value.” For years, Kodak operated under the classic razor blade
model: Like blades to razors, Kodak made most of its money off
film, not cameras. When the company began to shift to digital,
it “thought of digital as a plug-and-play into Kodak’s existing
model,”. The company didn’t envision making money off
cameras themselves, but rather the images it assumed people
would store and print. “If you look at R&D, they were superfast.
In terms of the business model, they were quite the opposite.”

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Kodak failed to build a strategy based on
customer needs
 Kodak failed to build a strategy based on customer needs
because it was afraid to cannibalize its existing business.
Technological Innovation and Strategy from the Outside In. “It
succumbed to inside-out thinking,”— that is, trying to push
forward with the existing business model instead of focusing on
changing consumer needs. Accustomed to the very high film
margins, the company tried to protect its existing cash flow
rather than look at what the market wanted. “Long-run
strategies work better if you stand in the shoes of your
customers and think how you are going to solve their
problems,” . “Kodak never really embraced that.”

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Kodak Internal voice for
change unheard
 Kodak even had people within the
organization who were pushing for change,
but those people were ignored. Leadership
assumed, since the company was growing
steadily, that it would continue to do so—that
nothing could derail that progress. Before
anyone could make any meaningful changes
at the company, Kodak had declared
bankruptcy.

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Leadership Lesson Learnt
 Leadership lesson learned: Avoid
complacency! Kodak executives
assumed that the organization was and
would continue to be in great shape if
they just kept doing what they were
doing—right up until the moment when
the digital market took over. At that
point, there was nothing they could do.

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Leadership Lesson Learnt
 It is key to keep up with the changing
times and pay attention to new trends
that may affect your industry. And
always heed the warning voices within
your own organization—your employees
are on the front lines and probably have
great insight into where your industry is
heading.

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Leadership failure at Kodak
 That maybe the case for a few but for
most the end results from some failure,
or failures, of leadership that manage to
turn what should be a small problem
into a major disaster. Often it is really
simple basic leadership principles that
somehow get lost in the system and
then lead on, over time, to an eventual
demise.
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 Poor on Market Intelligence
 After years of leading the world of
photography Kodak failed in 2012 primarily
due to its inability to listen to its customers,
to recognise changes in the market and to
adopt new technology to meet those needs.
These basic mistakes present a clear set of
critical messages to all organisations no
matter what they do or where they are :

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 Leadership Lesson Learnt
 1. Listen to your customers and be flexible to
their needs
2. Look out as well as in to ensure you see
changes in markets and technology in good
time
3. Always be prepared to ask if your current
approach is still optimal even if it was leading
edge just a few years ago.
4. Listen to your staff and empower at all
levels to help you stay ahead 20
What Kodak should have done
 They should had remained at the top in
the area of digital photography .They
have been overcome many obstacles
and as long as they can compete with
the constant competition from previous
designers and with companies that are
entering the same market daily, they
would have survived.

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Kodak – Key Employee
performance evaluation ignored
 During the late 1980's into the early 1990's
Kodak did a mistake by not giving managers
equity stake in new ventures that they were
entering. This was one reason for the failure
of Kodak managing new ventures and
acquisitions. They began to change the way
that employees were paid. Instead of the
employees being compensated by time, they
would be paid on level of performance they
have completed.
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 What Kodak might have done
differently to survive?
 Throughout the history of Kodak, they have had a lot of success with marketing and selling
their products. There are things it might done to continued their success in market at that
time.
 The competitors of Kodak continue to design cameras with sleek looks and easy to use
buttons and software. Many consumers see Kodak's cameras as being "cheaply" made.
Some of the materials that they use in the design process could possibly be changed to
have more appeal to the potential customers. They should have advertise more on
television, and other types of media.. Even though they have a very long history of
promoting their products, they should have continued advertising their products to remain
in consumer's minds when they go to purchase a product.
 They should have spend more money on the research and development areas of the
company. If they design products that appeal to the consumers that the competition has
not yet thought of, that would have given them an edge that can make them extremely
profitable. Kodak could also start selling their cameras in bundle packages
 They should had remained at the top in the area of digital photography .They have been
overcome many obstacles and as long as they can compete with the constant competition
from previous designers and with companies that are entering the same market daily, they
would have survived.
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 A failure of focus: Lessons
from Kodak
 Kodak had several gaps in its expertise to design
a complete business model but lacked the clarity
of vision or the continuity of leadership to acquire
the resources in a systematic fashion, let alone
integrate them with its considerable internal
knowledge of digital imaging.
 The critical role of integration of internal and
external knowledge to achieve innovation, which
would, in turn, improve their chances of
successful adaptation.
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 Poor Management Decisions
 While Kodak did make efforts to outsource its camera
manufacturing (and thus fill some gaps in expertise), the
outsourcing arrangement did not achieve the integration of
external knowledge with Kodak’s own internal knowledge that
was so critical to continued innovation. As a result, Kodak
remained stuck in the lower end of the digital camera
spectrum and could never compete in the high end of the
spectrum, which is where the bulk of the profits are.

 The key stumbling block was its inability to convert its

technical expertise into tangible products that could
be sold profitably
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Kodak mistakes led to failure

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Kodak issues probable
solutions

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Kodak issues probable solutions

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Kodak’s failure lay in its
strongly inward focus.
Why did Kodak fail to achieve the integration of external
and internal knowledge?

 Leadership is a big responsibility.

While successes are praised, leaders
also get blamed for every mistake.
---- Phil McKinney

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