Faced with Disruptive Technology, Kodak Had to Adapt or Die
Key Observations
1. Disruptive
technologies
opportunities
and
create
threats.
both
strategic
Kodak’s
business
strategy failed because management viewed digital
technology as a threat to its lucrative film business.
2. When
competition
or
the
economy
change,
companies must reinvent and transform their
strategies and business models—or they put their
future growth at risk. A company experiencing
disruptive technologies cannot survive by relying
only on product innovation.
3. Business success requires being customer-centric.
Kodak’s outdated product-centric strategy was fatal
to the former worldwide market leader in film and
film cameras.
●
●
●
Digital
technologies
include
electronic products and services
such as digital cameras, photo
editing software, photo sharing
apps, and photo printers.
Disruptive technology is an
innovative new technology (e.g.,
digital camera) that unexpectedly
displaces an established technology
(e.g., film-based camera).
Product
innovation
is
the
development of an entirely new,
significantly
redesigned,
or
improvement upon an existing
product or service.
Business transformation is a
dramatic change in the company’s
business model and how it attains
important business goals.
Customer-centric strategy is a
strategy that creates demand for its
products by satisfying customers’
needs,
wants,
and
value
expectations
better
than
competitors.
●
●
●
Figure 2-1. This Kodak billboard was in
Times Square in New York City on January
19, 2012, the day Eastman Kodak Co. filed
for Chapter 11 bankruptcy protection.
Kodak—the Market Leader in Film and Film Cameras
Eastman Kodak Company in Rochester, New York was an
innovative, pioneering, and market leading camera, film, and
photo
printing
company.
In
1888,
George
Eastman
revolutionized photography with the first Kodak film-camera, as
shown in Figure 2-2. This invention put the first portable
camera into the hands of consumers—and launched Kodak’s
dominance in the industry. Kodak’s business model practically
guaranteed a high level of customers’ loyalty. Here’s how:
1. After shooting the roll of film, the customer sent both
the film and camera to Rochester for processing in preaddressed envelopes.
2. Kodak sent the developed prints and camera loaded
George Eastman changed
the user experience
George Eastman founded
the Eastman Kodak
company and invented roll
film. With the slogan “you
press the button, we do the
rest,” he put the first simple
camera into customers’
hands in 1888. He changed
a cumbersome and
complicated process into a
great user experience--easy
to use photography that was
accessible to everyone.
with a new roll of film back to the customer—and a preaddressed envelope.
In its peak, Kodak had a 95 percent market share of the film market and 85 percent of the filmcamera market—and both markets had high profit margins.
Figure 2-2. Kodak's first camera.
Kodak’s Early Business Strategy
Eastman based Kodak’s business strategy five basic principles shown in Figure 2-3. Eastman
believed that fulfilling customers’ needs and desires was the key to Kodak’s success. Their
slogan "You push the button, we do the rest" reflected that principle. The company continued
doing research and improving imaging technology. They introduced the 35mm cartridge
Instamatic camera in the 1960s, the "point and shoot" camera, and the Funsaver single-use film
camera in the 1990s. The "point and shoot" camera was one of the most successful film
cameras with worldwide sales exceeding 70 million units.
Figure 2-3. Five principles of Kodak’s early business strategy
Satisfy customers’
needs and desires
Low cost mass
production
Massive
advertising
Worldwide
distribution
Focused scientific
research
Kodak’s Management Ignores its Opportunity and Threats
By the 1960s, Kodak was facing intense competition in film and cameras from Fuji, Olympus,
Nikon, and Canon. In 1975, Kodak invented the digital camera, but did not market it. Managers
viewed the digital camera as a threat to their highly profitable film-based businesses. They
feared the new digital technology would cannibalize sales of its film cameras, film, and film
developing. It was Sony who first introduced a digital camera to the people in the form of the
Sony Mavica in 1981.
By 1997, sales of digital cameras were increasing 75 percent annually, sales of film cameras
were increasing only 3 percent. In 2000, the sales of digital cameras surpassed that of film
cameras.
Figure 2-4. Kodak's digital camera and
Kodachrome film.
Kodak Responds with a Flawed Strategy
Kodak ranked No. 1 in the U.S. with digital camera sales of $5.7 billion in 2005. But net profit
suffered because digital cameras had lower profit margins compared to high margin film-based
business.
In 2005, Antonio M. Perez became CEO and started to transform the company. He brought
inkjet printer expertise to Kodak, following a 25-year career with Hewlett-Packard (HP). To bring
back profitability to Kodak, Mr. Perez presented eleven digital businesses to the board of
directors, all of which were approved. That “do it all” desperate response was going to fail. Two
misjudgments were:
1. Printers were one of the new businesses. Kodak had the capability to produce pigmentbased ink that did not clog the nozzles of printing heads. These printer heads did not
need to be replaced at each refill, which cut the cost of replacement printer cartridges.
2. Kodak began selling printers to consumers in 2007, with the novel strategy of selling
more expensive printers at near-cost prices and cheaper replacement ink. The industry
standard was the opposite—cheaper printers and more expensive replacement ink.
Kodak’s strategy was to sell printers near cost to build a customer base and generate
profits from sales of replacement ink cartridges. Kodak forecasted a breakeven point in
2010, which was they did not reach. Managers underestimated the fierce competition in
the printer market from HP, Canon, and Seiko Epson Corp. These competitive forces
pushed printer prices down so low that Kodak’s strategy failed.
The Danger of Success—Resistance to Change
Wildly successful companies can become so product-centric that they ignore or deny
changes in consumers’ needs and wants. Kodak’s failure stemmed from its success that
made it resistant to change. Management retained a product-centric business strategy and
belief that its strength was its brand and aggressive marketing tactics instead of reinventing
itself to respond to the opportunities and threats of digital technology.
Kodak Files for Bankruptcy Protection
Kodak filed for Chapter 11 business reorganization, seeking bankruptcy protection, in
January 2012.
To educate the public about the bankruptcy protection filing, Kodak
launched its KodakTransforms.com website. A posted statement explains, “The business
reorganization will enable Kodak to bolster liquidity in the U.S. and abroad, monetize non-
strategic intellectual property, fairly resolve legacy liabilities, and enable the Company to
focus on its most valuable business lines." After years of declining sales, as shown in
Figure 2-5, Kodak announced the end of its digital camera as well as camcorder and digital
photo frame business lines.
Since filing for bankruptcy protection, Kodak has significantly cut costs and sold assets. It
owned some valuable technology patents. But the recession finally pushed Kodak over the
edge. Analysts, though, wonder why Kodak failed where its main Japanese rival Fuji has
thrived. What they failed to recognize is that, if they didn't cannibalize their own business
with better digital cameras, someone would, and then they'd be left with nothing.
Figure 2-5. Digital decline at Kodak, which discontinued its digital camera line in 2012.
Table 2-1. Top Camera Makers in 2006 by U.S. Market Share
Leading
competitors
Shipments
in 2005
Market share
in 2005
Shipments
in 2006
Market share
in 2006
Percent change
in shipments,
2005-2006
Canon
5,000,000
18%
6,068,500
20%
21%
Sony
4,780,000
17%
4,940,800
17%
3%
Kodak
7,050,000
25%
4,867,000
16%
-31%
Nikon
2,326,400
8%
3,045,700
10%
31%
Recap and Lessons Learned
Kodak did not fail because it neglected the digital age. Kodak actually invented the first
digital camera in 1975. But instead of marketing its new technology and reinventing itself
again as a market leader, management ignored the threat. They held back for fear of
hurting their high-margin film business, even after digital products were reshaping the
market. Their market share was falling as competitors captured greater shares, as shown in
Table 2-1.
Blind faith in marketing’s ability to overcome the threat from the new technology proved
fatal. Kodak failed to adapt to a new marketplace and new consumer attitudes. Kodak is
classic case of a disruptive technology coming in right under the market leader’s nose.
Compiled by Janice C. Sipior from Kodak.com, KodakTransforms.com, Mattioli (2012), Mattioli
et al. (2011), and Strange (2012).
Discussion Issues
1. What strategy mistakes did Kodak make?
2. Digital technologies can disrupt companies or entire industries. Identify five innovative
digital technologies that were disruptive. Describe what each disrupted and explain why.
3. Kodak, the inventor of the digital camera in 1975, delayed introduction of the Kodak
Professional Digital Camera System (DCS) until 1991. Explain why Kodak waited so
long. What strategy was the company following?
4. How can impressive success and profitability lead to future failure?
5. Identify examples of combinations of disruptive technologies that together have reignited
their disruptive force?