Kodak’s Decline

Oxford Brookes University Thomas de Kerchove 12083686 P58502: Richard Mohun24th of April 2013| the management of innovation and change 😐 Case study : Kodak and the Digital revolution| Table of content 1) Introduction:3 2) Increased competition (1975- ):4 2. 1) Change challenge (Diagnosing)4 2. 2) Kodak’s reaction (Enacting)5 2. 3) Critical analysis (Explaining)6 3) Lack of communication and the cultural change:6 2. 1) Change challenge (Diagnosing)6 2. 2) Kodak’s reaction (Enacting)7 2. 3) Critical analysis (Explaining)9 ) Digital technology and its disruption of the film business9 2. 1) Change challenge (Diagnosing)9 2. 2) Kodak’s reaction (Enacting)10 2. 3) Critical analysis (Explaining)11 5) Conclusion:12 6) References:14 Books:14 Articles:14 Internet sites:14 Interviews:16 1) Introduction: To start this assignment about Kodak, a short introduction of the company is needed. I will then focus on the 3 most crucial challenges Kodak had to face during the 1975 – 2012 period. Every change goes through 3 phases that I am going to describe by using the enquiry-action framework (Beech et al. , 2012).

For every change challenge, I am going to delineate the problem and the change needed (Diagnosing), explain Kodak’s reaction (Enacting) and analyse it critically (Explaining). Finally, I am going to conclude by proposing some recommendations on how they could have avoided this disaster. Eastman Kodak was created in 1888 by George Eastman, who has set out the values of the company from the start. Kodak is an American multinational specialised in photographic equipment. George Eastman created the push-button photography and Kodak established its hallmark easy-to-use camera systems.

At first, it was only a film and camera retailer but it then diversified into the Chemical and the Pharmaceutical industry (Cavetti et al. , 2005). Kodak has been successful for decades by following the razorblade strategy which was characterized by low margins on the camera but high ones on the consumables such as the films and the paper to print out the photos. It was doubtless the bread and butter of the company. Kodak’s supremacy was as strong that in 1976 that they had a 90% market share in the USA (Neate, 2012).

Unfortunately, due to unexpected and unpredicted changes, things started to turn around slowly but steadily from 1975 until nowadays. Several reasons lead to the unstoppable collapse of Kodak. Indeed, Kodak struggled financially because of a decline in sales of the photographic films due to the high competition with the Japanese company FujiFilm. Another reason was the difficulty to transition to digital photography that went along with a cultural problem in the company related to a communication problem amongst the different levels of management of the company (Robertson 2012).

The aim of this assignment is to diagnose the key challenges faced by Kodak between 1975 and 2012 and to critically evaluate Kodak’s reaction to those specific changes. In other words, I will throughout this paper, try to find out why and how the dominating Kodak ended up filling for chapter 11 bankruptcy on Januray 19th 2012 and what they might have done in order to avoid it (Reuters, 2012). In the main part of the assignment I will discuss 3 main challenges Kodak had to face and analyse their actions by linking the theory with some critical thinking on some additional research.

To have a complete and distinctive picture of Kadak’s history and challenges, I thought the best option was to divide it by the three main change challenges they struggled the most with. The first one would be from the growing competition with FujiFilm. The second one is Fisher’s period (1993-2000) characterized by a cultural change at Kodak and the division of the film and the digital photo industry. The last one is the period of the emergence of the digital technology as a disruptive technology.

In some sections, some other different challenges will also be discussed. 2) Increased competition (1975- ): 2. 1) Change challenge (Diagnosing) At the beginning of this period, Kodak is literally at its golden age with around 90% of the market share in the USA in the film industry. They could not imagine something going wrong as strong as they were at the time. The brand was strong with nice values and great traditions. It also enjoyed great technologies, most of which had not even been utilised to the maximum of its capabilities (Fisher, 2006).

Its technological strength and speed to market and the high margins attracted logically several competitors such as Fuji and many others in the film business. As they have been the one and only dominant imaging company of the world, they have never been accustomed to competition and did not really know how to react. The rules had changed since they were not alone in the business anymore and their analysts did not see the competition coming and as soon as they noticed it, it was little too late to react (Mohun, 2013). This often happens with massive multinationals operating as a world leader for decades and decades.

Their over-confidence might have accelerated its decline with what they thought was and unstoppable leadership. Indeed, in the early 80’s, we observed Kodak loosing considerable market shares in the US due to price aggressiveness from its competitors and most specifically Fuji. Being the market leader, you cannot really play the price card, you should rather be product leadership. But even in that area Kodak was worse than Fuji. Indeed, in several market niches, Fuji came on top by proposing better and cheaper products (Fisher, 2006).

We have to bear in mind that Kodak was losing on the average 1 to 1,5% market share every year for 20 years at the time (Fisher, 2006). This makes us understand the state of mind in which Kodak was while seeing its principal competitor eating up its market share steadily. In the late 80s and early 90s, the once-proud monopoly in film sales saw its market share diminish by up to 30% dropping to about 60% (Grant, 1997). The company had even gone through several restructuring leaving behind a debt of 69% of the capital. A total of 40 000 employees have been fired and branches were closed.

In reaction to those awful results, exasperated directors choose to elect George Fisher as the new CEO (Cavetti et al. , 2005) 2. 2) Kodak’s reaction (Enacting) As Kodak was taken by surprise, the problem is that they did not really react or very slowly and too late. One of the main reason was Kodak’s Cornelian choice about what to do concerning the digital imaging world. That might be one of the reason why Kodak reacted way too aggressively to digital technology by investing 3 billion $ in digital imaging. But the money they were investing in the digital area was not invested in the film area.

Moreover, they invested that much in digital photography that it allowed the digital camera to compete head to head with film on the basis of the quality of the image and that meant that their two main products were addressed to the same customers. Hence it gave yet another advantage to Fuji. They should have invested more in product development which would have helped them to fight Fuji. Instead, they choose to invest massively in digital technologies without really knowing where they were heading to. Besides, to Kodak, digital technologies were actually seen as a threat rather than an opportunity.

This fear of entering a low margin business in addition to the fear of cannibalization of its core business made Kodak in some way a bit reluctant to digital technologies. Another point was the fear of being undermined in an area that they invented and that they thought might become important in the future. In 1993, they had to bring in a new CEO because there were lots of problems unanswered questions to be solved (Fisher, 2006). At that time, Kodak had still 60 to 70% market share in the US. 2. 3) Critical analysis (Explaining)

As they were alone in the market for so long and that they had invented the film technology, Porters barriers for new entrants were really strong. But little by little, this high margin sector attracted some competitors. The biggest one was for sure Fuji that showed up on the US market and started to cut the prices. They were able to do that thanks to the never-ending source of money the protected Japanese market was offering them. But Kodak did not really care, thinking that their customers would remain loyal, which they did not. As they were losing market shares in the US, Kodak choose to invest towards emerging countries.

But the Buffer affect made that 5 years after they were implanted in those country, Chinese people moved on to the digital cameras, so we cannot say it was successful (Jagger, 2008). 3) Lack of communication and the cultural change: 2. 1) Change challenge (Diagnosing) I decided to concentrate this part on Fisher’s period, not only because it was one of the most decisive period of Kodak but also because it was the period that was the most confronted with changes in the culture of the company and in the communication. The size of such a huge multinational has a negative effect on the speed of the internal changes (Euchner, 2011).

It is also way more difficult to find out were a problem comes from and the bureaucracy makes it difficult to solve. The existing infrastructure was so rigid that that it is sometimes difficult to conveniently do things you really need to do (Euchner, 2011). Besides, Kodak’s employees did not share a common language and that slowed down the commitment of resources to disruptive innovation programs. Kodak was actually never out of innovation, there was just this everlasting disharmony between the laboratories and the top management that stopped those innovation from seeing daylight (Wharton, 2012).

The middle management was not able to understand how a market with low margin opportunities could be profitable in the long run. The difficulty is always to know when to jump on the next S-Curve and in Kodak’s case, they did not know when the digital would take over the films (Dattee, 2007). They had troubles to look into two directions at the same time as they were not able to manage the new technologies while improving the regular activity (Mohun, 2013). 2. 2) Kodak’s reaction (Enacting) To fight this lack of communication, Kodak went through several restructuring phases and there were many different CEOs.

Walter Fallon from 1972 to 1982, Colby Chandler from 1983 to 1989 and Kay Whitmore from 1990 to 1993. Then came George Fisher with a different view on many aspects of how to rule this company. He was standing up to the middle management that did not always approve his decisions and sometimes did not pass his message onto lower levels. Fisher’s arrival at Kodak changed a lot of things. First of all he decided to distinguish the film and digital activities. He also wanted to change the mentalities towards the development of the digital because he sensed that it would be capital for the company’s future.

He also hired new staff because the actual was not doing right. A new finance organisation was appointed, with amongst others Harry Curvetis and Jessie Green from IBM. He felt like he had to bring some skill from the outside world since all of the top jobs at Kodak were held by long time company-build individuals. Besides he also hired some digital photography enthusiasts with digital expertise such as Karl Guston and Willy Shih just to name a few. Furthermore, he named Daniel carp his new COO (Grant, 1997). This could bring some fresh idea and an exterior’s point of view that is often vital to a company in order to evolve (Fisher, 2006).

By bringing people with different ways of thinking, Fisher tried to fight cognitive inertia deep-seated in Kodak’s mentality. Later on, Fisher admitted that one of his biggest mistake was not to recognise it early enough. He said he failed to see that from the start because of the polite culture, the lack of honesty and the fact that people were not being frank. Once he realised what was going on, he tried to get the middle management to believe in the opportunity that the digital camera could bring to the company.

If he was able to do that, they would have sold the story to the lower people and the company could have moved way faster and in a better direction. Another move by Fisher to oblige the management to go along with his ideas was to push them to take the bonus in stock options which motivated them to drive a continuous improvement. Furthermore focus group were organised as well as training hours to meet each employee’s specific development goals. To ensure that the employees meet their target objectives, managers document and review their acts.

It was an additional motivation for them because their bonus depended on the results of their employees. Last but not least, Fisher wanted his workforce to reflect the demographics of the marketplace, which did not please everyone in the company. Some being fired and some others leaving because they consider the sacrifice to maintain Kodak’s rate of change not worth it. (Fisher, 1996). Fisher managed to rebuild confidence among Kodak’s traumatized ranks while refocusing the company on its core business and at the same time pushing new techniques and ideas (Grant, 1997).

He also diminished the debt from 69% of the capital in 1993 to 19% in 1995 and the revenue of the sales were expected to be $ 1,5 billion compared to the $475 million in 1993 when he first arrived. Not to mention the course of the action that has increased by 70 % in 3 years time. Nonetheless, he was still criticized by people that thought he was moving too slowly. 2. 3) Critical analysis (Explaining) When there is such a level of change and rupture at the CEO level, it is really difficult to implement a long-term strategy.

Fisher that did pretty well over all also made some severe judgmental mistakes such as having jumped into Kodak assuming it was the same as Motorolla but every single enterprise is different and he should have taken his time to think upfront and to act when he is sure of what he wants to achieve (Cavetti et al. , 2005). One of Fisher’s other major “achievement” was to separate the film and the digital entities. But what about the communication between the two separate parts? And if you are cost oriented, is it really a good from him to structure it separately?

The question is still unanswered but the next CEO though otherwise and gathered the two entities back together (Colbey, 2002). Finally, what they might have done in order to compete with this non willingness of the middle management to move on to the digital business, is to have done the same thing that Clayton Christensen proposed to the other business. That might have improve the internal communication and mentality of the company (Euchner, 2011). 4) Digital technology and its disruption of the film business 2. 1) Change challenge (Diagnosing)

Well managed businesses fail to adapt to disruptive technologies because they do what rational analysis dictates. Indeed, they tend to invest too heavily on innovations and they focus too heavily on customer needs without really understand the in-depth needs (Euchner, 2011). We can call the digital venue as a disruptive technology, we can even call it a Big-Bang disruption because it is not only different in degree but also in kind. Besides it is better, cheaper and different. In other words, it was a technology that could be lethal for the incumbent market players (Downes ;amp; Nunes, 2013).

The question about how can you produce better and cheaper can be raised. The answer is pretty simple, it is due to the democratization of innovation. Indeed, information is easier to access and tools of innovation more available. All in all that makes innovation easier and cheaper. A disruptive innovation makes the use of a product so much easier and affordable that a whole new population of customers gets pulled into the particular market. That is why enterprises are looking for these disruptive changes but they are not easy to spot, predict and handle.

Initially, when the digital was invented in 1975, it did not disrupt the market because it was not ready but gradually, the new technology started to improve and was finally able to compete with the film and even rather quickly to surpass it on every level (quality and price). The big question was: When to cannibalize the film with the camera business or how could you do to carry on with the two businesses together? Kodak was never able to answer that question and that is why they collapsed. 2. 2) Kodak’s reaction (Enacting) They went to see Clayton Christensen and they learned that to push people towards disruption, you need a deep change.

You need to set up an educational process for the employees for them to reach an understanding of the concepts the high management is trying to set up. Even if it does not achieve the pursued goal it might at least bring a common language to your employees and a way to frame the problem (Andy Grove, 1997). They were working on patents but did not really commercialise many digital cameras until they saw it was profitable but then they were far behind Sony and Canon (Times, 2009). 2. 3) Critical analysis (Explaining) According to David Glocker, never assume that just because you are not ready to do something, someone else will not do for you.

Kodak had invented the digital camera but other company commercialised it first and when they launched Easyshare it was already too late for them to compete equally. To survive a big-bang disruption 2 advices are given. Firstly, when you are in business you have to try to predict the different outcomes of the future, what Kodak did completely wrong (Euchner, 2011). Being clear about your objectives and your position in the market often allows you to observe new perspectives and directions to follow. You might want to look out for failed innovation that often become big-bang disruptions in the future.

You could also try and find some people that intuitively understand the market in which you are operating because they might see things coming that you as a forever leader you might have missed out on. Secondly, if you are the first in the business to find a new technology, you have to protect your innovation by buying patents. What Kodak could have done is to try and pick up the signal by finding the real job to be done. According to Clayton Christensen, the only way to really understand your customer needs is to live their life and think about the way to solve their problems.

It is time consuming but it often brings deeper and better answers than just buying some data collected by some survey companies. By doing so, you find out which features are unused to delete them and you can improve the ones that are frequently used. But as we know we now live in a world where the tyranny of the urgent is master and they did not take the time to understand the real problem. In my mind, what they could have done is not to follow the conventional wisdom that specifies that you need to focus on one specific strategy.

They could have tried to compete on costs, product innovation and customer intimacy to higher their chances of success (Downes ;amp; Nunes, 2013). 5) Conclusion: Kodak’s objectives have always been a little were unclear. Did they want to be a manufacturer or a service company? Did they want to operate in business to consumer or in business to business? The absence of a clear strategy regarding their objectives and targets led to the current situation. In some way you can see that everything is linked. It all started with Fuji coming up to challenge Kodak’s supremacy and taking over some of its market shares.

The two main reasons for that were the aggressive pricing strategy applied by Fuji and the better product development due to the fact that all of Fuji’s resources were allocated to innovate in the film technology whereas Kodak was established in too many areas and innovating in a bad way divided between film and digital innovations. Furthermore, Kodak lost track in the race of camera films against by investing massively into digital technologies and neglecting its core business. The next step was Kodak’s difficulties to change mentality to transition to its new disruptive technologies.

They did not manage to change the mentalities of the middle management which was lethal to them. Finally, Kodak saw the evolution coming but did not know how to respond to them. Indeed, according to Glocker, the biggest mistake Kodak did was to be afraid to introduce technologies that would cannibalize the film industry (Wharton, 2012). This fear of commitment might have led to its collapse. One of the key point in the successful implementation of innovation is the transition in breaking the business model: how and when to move from a control model that is in decline but a very uncertain but promising model (Dattee, 2007)?

This is one fundamental question that needs to be asked. And Kodak did not manage to answer it. They tried too late by launching its EasyShare system when it was already too late and that some years later, phone cameras were taking over the digital cameras. The classic strategy course says it well: the dominant position on the market is the most fragile strategically over the long term (Blakely, 2012). To conclude I would say that it is because Kodak was not able to handle these change challenges that it did collapse. Will Kodak reborn from its ashes with the money from the patents (Fildes, 2012)?

We will know it soon enough… 6) References: Books: – Beech, N. and Macintosh, R. (2012) Managing Change: Enquiry and Action. Cambridge University Press. Articles: – Dattee, B. (2007) ‘Appropriability, proximity, routines and innovation: Challenging the s-curve: patterns of technological substitution’. Paper to be presented at the DRUID Summer Conference 2007. VLE-Moodle – Downes, L. ;amp; Nunes, P. (2013) ‘Big-Bang Disruption: Why classic Business rules don’t apply. Harvard business review Webinars. VLE-Moodle – Euchner, J. (2011) ‘MANAGING DISRUPTION: An interview with Clayton Christensen.

Managers at Work. Industrial Research Institute, Inc. VLE-Moodle – Gavetti, G. , Giori, S. and Henderson, R. (2005) ‘Kodak and the Digital revolution (A). Harvard business review. VLE-Moodle – Grant, L. (1997) ‘Can Fisher focus Kodak? Maybe, but CEO George Fisher face what one expert calls “a howingly, horrifically difficult challenge”. CNN Money – Interview in 2005 with Dr George Fisher Kodak C. E. O. (2006) Boston: Harvard Business School Publishing. VLE-Moodle Internet sites: – Blakely, R. (2012) ‘Kodak on the brink of bankruptcy’ [Online].

Retrieved from: http://www. thetimes. co. uk/tto/business/industries/consumer/article3277115. ece [Accessed on the 18th April 2013]. – Colbey, R. (2002) ‘Not such a Kodak moment’ [Online]. Retrieved from: http://www. guardian. co. uk/theguardian/2002/jan/26/features. jobsmoney? INTCMP=SRCH [Accessed on the 21th April 2013]. – Fildes, N. (2012) ‘Eastman Kodak ensures survival with cut-price patent sale’ [Online]. Retrieved from: http://www. thetimes. co. uk/tto/business/industries/consumer/article3636584. ece [Accessed on the 21th April 2013]. – Jagger, S. 2008) ‘Kodak faces break-up after fall in digital product sales’ [Online]. Retrieved from: http://www. thetimes. co. uk/tto/technology/article2191493. ece [Accessed on the 18th April 2013]. – Neate, R. (2012) ‘Kodak to stop making cameras’ [Online]. Retrieved from: http://www. guardian. co. uk/business/2012/feb/09/kodak-to-stop-making-cameras? INTCMP=SRCH [Accessed on the 22th April 2013]. – Reuters (2012) ‘Kodak files for bankruptcy’ [Online]. Retrieved from: http://www. guardian. co. uk/business/2012/jan/19/kodak-files-for-bankruptcy? INTCMP=SRCH [Accessed on the 21th April 2013]. Robertson, D. (2012) ‘In the digital age, Kodak finds itself out of the picture’ [Online]. Retrieved from: http://www. thetimes. co. uk/tto/business/industries/consumer/article3518524. ece [Accessed on the 21th April 2013]. – Wharton Knowledge (2012) ‘What’s Wrong with This Picture: Kodak’s 30-year Slide into Bankruptcy’ [Online]. Retrieved from: http://knowledge. wharton. upenn. edu/article. cfm? articleid=2935 [Accessed on the 18 th April 2013]. Interviews: – Interview in 2013 with Sir Richard Mohun, MOIC lecturer (2013) Oxford: Oxford Brookes University