Kodak Destruction and Survival

Christian Sandström holds a PhD from Chalmers University of Technology, Sweden. He writes and speaks about disruptive innovation and technological change.

Building 65

Building 23

Building 9

Since paper and film had been manufactured and developed in

these buildings the shift to digital imaging rendered many of them

obsolete.

In the end, demolition turned out to be the right thing to do.

Some of these implosions were made into PR events for

the launch of Kodak’s new All-in-one printers.

Needless to say, these demolitions

evoked many emotions…

Thomas Hoehn, Director of Brand Communications and New Media at Kodak wrote about this here.

In the comments below the blog entry, many different views were expressed about Kodak and this PR event:

“Kodak was great for Rochester. And for many it still has a place in their heart for all the good times and great friends that it brought together. However, those days are long gone now - as symbolized by this implosion. The Old Kodak is long gone.”

“I was embarassed for the TV media and for the people who were watching the implosion as a way to remember all the great years that B9 served Kodak. His presentation was loud, classless, and direspectful!”

“If you want good publicity.. take care of your current workers, not just the digitial employees. Remember were you got all the money to invest in digital (FILM)....”

“More thoughts should have been on the employees that were negatively impacted by the closings of these buildings. The celebration was a total disrepect for the individuals that worked for Kodak for many years and were let go.”

“It is wonderful for those still with the company that someone has finally accepted the changes in the industry and Kodak is trying to catch up with those changes... but for those of us who were sacrificed along the way it can at times feel like salt thrown on a wound.”

“There's still a lot of great people at Kodak, just too few of them at the top. That to me is the greatest disrespect, when our CEO and upper management get great raises and we are offered fractions of a percent if anything - not even a cost of living increase.”

“No matter how they spin this, it's just way too symbolic of Kodak's implosion after the decline of film. The whole Ink promo was utterly distasteful.”

“I think the company missed the mark in not realizing the emotional impact the implosions would have on employees (current and former).“

“After 28 years with this company i have seen it all until this, people making a mockery out of revolution, they did it to save a buck. i work for the new digital imaging group, with a 32% paycut and a 17% cut in work hours, just to save a buck, i find this hole implosion thing a joke, there was a lot of history with in these buildings to say it’s a revolution into digital, next time hire bevis and buthead they’ll show a little more compassion.”

“13 years ago Kodak in Peru had 300 workers, today we are 10. Put that in a picture and you will know we understand how you guys up there feel about so many people having left the company when they thought they had a life time job. We are a family and we feel the same down here.“

“Not many industries have had to face these challenges simultaneously and Kodak is doing it head on. This is the fourth year of a tectonic four-year digital transformation. Amazing progress has been made but not without ups and downs, tears and smiles, and myriad of other emotions. I am happy that Kodak embraces acceptance of comments on this blog. Many corporate blogs do not. This speaks to the brand and the values that underlay this great institution.”

“Some would say this implosion symbolizes Kodak's actual future ...”

Life at Kodak has not been easy.

How and why could this happen?

Let’s go back in history and take a look at the rise of Kodak…

The Rise of Photography

Back in the late 19th century, the Eastman

Dry Plate Company

produced the first cameras that were not

aimed for professionals.

The first simple roll film cameras

that this company produced were

called Kodak. The cameras were so

successful that the Kodak word was incorporated into

the name.

The Eastman Kodak

Company was founded in

1892.

By targeting non-

photographers, Kodak created a huge market.

George Eastman, Kodak's

founder, coined the famous advertising

slogan: "You press the

button, we do the rest."

The slogan came to define

Kodak and was used

during most of the 20th

century.

The simple ’point and shoot’

Brownie camera allowed

consumers to take their own pictures. They could then mail the roll of film to

Kodak, which would develop it and return the

photos by mail.

Before Kodak, people could not afford or manage to take photos regularly and document their lives.

Kodak brought photography to the people, just like Ford brought cars to the people.

Kodak became a household name. Kodak moments, Kodak days, ’to Kodak’, the company defined consumer photography and the brand became very strong.

People loved to take photos, and as they became richer, they took more photos…

And thus, Kodak made more money

and kept growing, and

growing.

The company was so dominant that it became a verb, ’to Kodak’, just like Google has become a verb today.

Simple, cheap photography turned out to be a business idea that worked globally and thus, Kodak took on new markets and kept growing.

In the early days of globalization, Kodak established its first wholly owned subsidiary in 1897, in France.

An image of the Kodak Park in Rochester, 1938.

Needless to say, George Eastman made a great personal fortune from the success of Kodak.

Som photos from his house in Rochester (NY)…

The company helped set the standard of 35 mm film, and introduced the 16 mm format format for amateurs.

In 1935, the KODACHROME Film was introduced and became the first

amateur color film success.

Color film was the next big

thing.

Along with this, the consumer cameras were

further developed.

In 1962, sales exceeded 1

billion USD and John Glenn

became the first astronaut to

orbit the earth. Of course this Kodak moment was memorized with Kodak film.

In 1957, the Kodak Brownie Starmatic was launched. Over the coming five years more

than 10 million of them were sold!

But even greater

revenues were made by selling

film.

Just like Gilette made great money by selling razor blades, Kodak made great money by selling film. The main source of profit was not the razor or the camera, it was the continuous consumption of blades and film.

Film could be bought and finished everywhere.

With signs, Kodak also sought to encourage people to

take a lot of photos…

In the 1980s and 1990s Kodak launched even simpler cameras…

Targeting those people who only needed a few photos

and not a camera.

The number of employees increased steadily over time:

1927 20 000 1946 60 000 1955 73 000

1973 120 000

In 1981, the company had a

turnover of more than 10 billion USD.

In the 19th and 20th century Kodak became a true American classic.

It was founded by an

energetic and visionary

entrepreneur, and created

joy and memories for

millions of people.

Kodak was a true American dream.

George Eastman and the Kodakers did to photography what Henry Ford did to cars.

They made it available, usable and affordable for everyone.

So, this is the background, now let’s take a look at the dawn of digital

imaging and how Kodak handled this disruptive threat.

The dawn of digital imaging

During the 20th century, Kodak grew

up into large, profitable company.

People got richer and consumed more and more film.

Kodak built up a competence base in precise mechanics…

… chemistry…

… manufacturing…

… And consumer marketing.

A global infrastructure for

photography had emerged. A

roll of Kodak film could be

bought anywhere in the world and be put into the camera.

For every Kodak

moment, the

company made a profit.

… However, in the late 1970s, the rise of the Japanese camera industry

threatened Kodak…

The cameras and the film were cheaper and had high quality.

When Fuji sponsored the 1984 olympics in Los Angeles it became

clear that the threat was real.

Winning a price war against these guys was hard.

At the same time, Polaroid and instant photography was improved, thus

undermining Kodak’s amateur market.

Kodak responded by diversifying throughout the 1980s.

The company went into medical imaging, pharma, batteries for video cassettes…

And digital imaging…

The development can be traced back to Bell Labs in the 1960s and then to NASA

and the transmission of photos from unmanned space vehicles in the 1970s.

Through digital imaging, photos could be sent back to earth.

Kodak, Canon and RCA tried to convert light into digital images.

In 1979, Emory Kristof was the first to use an electronic camera while photographing life at the

bottom of the ocean.

Electronic cameras were also used when Kristof took photos of Titanic at the bottom of the sea.

"What does this development mean? That the working newspaper photographer in the not-too-distance future could be using an electronic camera." // Edward Dooks photographer, 1979

"It sounds like it (the digital camera) could give us more speed, more time to do the selection and cropping of photographs and less time just doing the technical production of it.“ // Ralph Langer, Dallas Morning News 1984

"Electronic photography is going to replace the silver image. We are going to have to have an understanding of how to edit pictures, how pictures are stored electronically and how to edit them electronically." // Charles Scott, Photojournalism educator

In 1981, the industry was shaken when SONY launched their Mavica, a

camera that used floppy discs instead of film.

Many companies feared that this technology would eventually

substitute analogue photography.

In Japan it was referred to as ’the Mavica shock’. They feared that something like

this would happen.

"When the electronic camera, and all that goes with it, is finally in our hands -- and it will be -- it will not be because we have sought it out, but because we are no longer left with a choice.“

Ed Breen, News Photographer in 1982

Kodak recognized the threat and invested extensively in digital

imaging during the 1970s and 1980s.

In 1986, Kodak scientists released the first megapixel sensor, with 1,4

Mpixel.

The JPEG standard for compression emerged in 1989 and further advancements were made

in digital imaging.

Later on Kodak developed the sensor into a digital

back, which was built in to a Nikon camera in 1991.

A sensor with 1,3 Megapixel, an internal

harddrive of 200 megabytes at a cost of 13 000 USD

(about 21 000 USD today!)

It was marketed to photo journalists, hoping they’d be willing to pay for being

able to view images instantly , take a lot of

photos and removing the long process of turning film into a digital format.

In 1994, Apple launched the QuickTake camera.

The QuickTake had been developed by Kodak.

It looked like a pair of binoculars, could store 32 photos and was the

first camera that could be connected to a PC.

The price? 800 dollars.

After a collaboration with Philips, Kodak announced its Photo CD system in

1990. Pictures could be digitized, stored on a compact disk, and then be viewed and

manipulated on a PC.

In the 1990s Kodak focused more on its core business. The new CEO George Fisher

divested many business units.

Fisher now had formulate and implement a digital strategy.

He thought that Kodak should be an imaging company: “We are not in the photographic

film business or in the electronics business, we are in

the picture business.”

A couple of different ideas came to define Kodak’s

strategy for how to handle the digital threat.

Greater coherence. Focus the digital efforts and

coordinate them in a better way.

Incrementality. The shift will be the

consequence of many small efforts.

Fisher said: “The future is not some harebrained scheme of the digital

Information Highway or something. It is a step-by-step

progression of enhancing photography using digital

technology”

During the 1990s, digital imaging emerged in those segments

where transmission and manipulation of photos was

important. At the same time, film was doing well.

Kodak thus developed a hybrid approach, developing digital

imaging while making money on its established business.

In 1994, Kodak launched a digital news camera,

it cost 15 000 USD and was co-developed with The

Associated Press.

Kodak also developed

digital backs which could be attached

to professional

cameras.

It looked like this.

Yes, big and bulky.

But the business utility was great. Many film photos were digitized

sooner or later anyway. With a digital back, one

step in the production of photos could be removed.

The first digital backs were expensive and had a moderate

performance. Kodak launched one with 6 Mpixels.

Press and Studio photographers loved it and NASA was very

interested in the Kodak sensor.

6 million pixel resolution is good enough for most applications. The perception of colour is more important than the perception of sharpness.

Kodak, 1996

In these years, Kodak also launched software which could be used for editing

and cropping digitized photos.

Kodak also developed a digital infrastructure that could be used by

photofinishers throughout their network.

In a press release from 1997, the following quote can be found:

Four years ago, when we talked about the possibilities of digital photography, people

laughed. Today, the high-tech world is stampeding to get a piece of the action,

calling digital imaging perhaps the greatest growth opportunity in the computer world.

And it may be. We surely see it as the greatest future enabler for people to truly “Take

Pictures. Further.”

Kodak did everything to enter digital imaging – consumer cameras, professional cameras, storage

systems, software, printing paper, you name it…

However, in the digital world, everything would be different.

Kodak used to be exceptionally integrated vertically, owning the entire

value chain, from basic research to photo finishing.

The digital value chain could not be dominated in the same way – Compaq, HP and others were leaders in the PC market,

Adobe dominated image software, in printers Canon and HP were leaders.

Kodak therefore launched many joint ventures with these firms, since the company did not

possess these resources on their own.

With the launch of the digital DC40 in 1995, Kodak teamed up with Microsoft,

HP, IBM and tried to create an infrastructure for digital imaging.

Kodak, Olympus and Sanyo all had thousands of patents in digital imaging, they cross-

licensed much of this in order to speed up the shift to digital imaging.

Thus, Kodak developed the digital business both in-house and through

collaborations and partnerships.

Kodak had a strong brand and a global presence, these resources were crucial

in the shift to digital imaging. The company offered digital services such as

digitizing film all over the world.

The company had a strong technology presence in digital imaging. The company had

more than 5000 engineers and scientists, more than 600 PhDs and had invested in

digital research since the 1980s.

Kodak had a leading position in image sensors for a long time and sold those to many other camera

companies such as Olympus.

At the same time, the price war with Fuji put Kodak into trouble. In 1997-98, Fisher had to fire 20 000 people, mainly because Fuji lowered their

prices and expanded.

Kodak also responded by entering emerging markets such as China.

During the late 1990s, Kodak kept launching smaller, cheaper and

better digital cameras.

At the same time, the company created various digital consumer

products and services.

Thus, Kodak did not only recognize the threat at an early point…

… The company pioneered digital imaging and pushed it further…

… Despite the fact that digital imaging would render film obsolete…

… Kodak embraced, developed and commercialized digital imaging…

Daniel Carp, Kodak’s new CEO said in 2000:

"Kodak is convinced that there has never been a better time to be in the

picture business…. Digital can change the way people take and use

pictures. Suddenly there are no boundaries to how often you can take pictures because cost and

availability are no longer issues."

With all these preparations, all R&D and successful digital business

development in the 1980s and 90s, what could possibly go wrong?

Demolition Times

In 2000, Daniel Carp became the new CEO of Kodak…

In a speech in 2000 he said:

"Kodak is convinced that there has never been a better time to

be in the picture business…. Digital can change the way people take and use pictures. Suddenly

there are no boundaries to how often you can take

pictures because cost and availability are no

longer issues."

A bit of optimism has

never hurt anyone, but

reality turned out to be

somewhat different for

Kodak.

Carp also said: ”… It will take more than

one company to change a century of consumer habits

and perception. With the participation of the entire industry, I am confident that we can lead the way

toward a more picture-rich era, and that, together, we

can break through the technical and marketing

challenges facing our industry.”

He was right…

Once the price and performance of digital

cameras was good enough…

0

5

10

15

20

25

30

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Number of film and digital cameras sold in the United States (guess which one is digital!)

… An avalanche of growth in digital imaging now occurred.

Once the shift occurred, it was faster than anyone could have imagined…

In 2007, several Kodak buildings were demolished.

The global distribution network for selling film was no longer a great asset.

Having pushed the frontiers of digital photography for decades, Kodakers must look at these pictures with mixed feelings.

For every year, less film was consumed, and thus revenues diminished rapidly.

A paper factory is destroyed, neighbours and former Kodakers record the event with their digital cameras and camcorders, and upload

the images to flickr…

… Can the shift to digital imaging be illustrated in a better way?

Building 9

In January 2004 Carp announced that Kodak would cut between 20 and 25 percent of its

worldwide employees.

Carp now said: ''We now know that digital adoption accounts for the great majority of

our sales decline in the United States''

Up until 2005, Kodak had closed 7 film processing labs in the United States.

In January 2009, another layoff of 3500-4500 workers was announced.

Another huge loss had been posted.

At its height Kodak employed more than 100 000 people. This figure has

shrunk to around 25 000.

The stock has reached new record low levels almost every year.

Shareholders were angry, employees were angry, and

management asked for more money…

Standard & Poor’s Equity Research Analyst Erik Kolb commented on the results:

“They were late to the game in their shift to digital and they have

been playing catch-up since.”

Wait a minute!

Kodak was not late!

Kodak embraced

digitial imaging!

Remember?

Kodak stopped marketing film cameras in 2004.

If Kodak wasn’t late, why did the company encounter such great trouble…?

One reason is of course the current recession.

“During the last three months of the year, we experienced dramatic declines in several of our key businesses due to

the slowdown in consumer spending and significantly reduced demand for

capital equipment” // CEO Antonio Perez

But the problems came long before the economic downturn…

If Kodak wasn’t late, why did the company encounter such huge problems…?

First of all, people stopped buying film.

It sounds like a simple explanation, and it is. But the implications for a company

like Kodak are tremendous.

Many of Kodak’s key resources and capabilities became virtually useless

with this change:

The global distribution network lost its value.

People used PCs instead of photo finishing labs.

The film revenues diminished.

Kodak used to make

money on every photo

you took using their

film.

Well, not anymore.

The value of being positioned as a vertically integrated company diminished.

With the death of film, the value of these signs disappeared quickly.

Kodak’s business model (making money on film like Gillette makes money on razors) was not compatible with digital photography.

The supplier network for producing film was also rendered obsolete.

Knowledge in chemistry and film manufacturing became an obsolete asset.

The value of film and paper manufacturing sites was literally demolished.

Thus, the shift to digital imaging implied that Kodak’s capital in terms of skills, processes,

market position etc was destroyed…

… And no strategy or management idea could have changed this fact.

The same kind of capital destruction occurred in the camera market.

The rules of the game had changed.

Though Kodak launched many digital cameras, this could not make up for the decline in film.

Moreover, once products become digital, prices decline rapidly while the performance increases.

Margins are lost at a furious pace.

And the competition got tougher every year.

New models were launched all the time - with more Megapixels, better zoom, lower battery

consumption and lower prices.

Consumer Electronics companies like Sony had a resource base that was suddenly better

for photography than Kodak’s resources.

Kodak could not really keep up with this competition in the long run.

To make things even worse, mobile cameras started to disrupt the

compact cameras.

Sales of compact cameras actually started to decline in 2005 and has

continued to do so ever since.

Making money in such a rapid industry is very difficult.

With the rise of digital imaging, the competence base shifted from

precise mechanics to electronics.

Though Kodak had developed knowledge in electronics, much of the old competence base became useless.

The attempts at various digital printing businesses had a

moderate success.

People were simply not printing that many photos, nor were they using film.

The company launched Kodak Gallery, but competition from Google Pictures,

Flickr and others was fierce.

Great new printers were not enough to compensate for the losses in film sales.

Needless to say, the change of logo did not prevent the losses either.

So, how can a company like Kodak get into so much trouble despite recognizing and pushing the shift to digital imaging?

I guess the answer is:

The value of Kodak’s resources, its position and its capabilities was

destroyed in the shift to digital imaging.

Over time, a fish develops skills and finds a good position in the ecosystem.

It may live and prosper in the ocean for millions of years.

But that does not matter once you put it on land.

That’s why Kodak encountered such problems despite their huge digital effort.

Kodak was a fish that had to learn how to breath on land. And so far, it has survived.

Is this a failure?

Survival = Success

With all these layoffs, losses and demolitions, can anyone claim that

Kodak’s transition to digital imaging is a success story?

Based upon other slideshows about the Kodak Destruction and a look

at other companies and industries I would say it is a success story.

The reason why those stories are regarded as failures is that people

underestimate the difficulties related to a digital shift.

First of all, digital technology has a fantastic track record of slaughtering established firms.

The following slides will illustrate how digital technology has destroyed established firms…

The typewriter companies were extinguished…

The tube radio manufacturers were put out of business by the transistor radio.

The mechanical calculator companies became history with the rise of electronics.

More than two thirds of the Swiss watch industry went out of business in 1970-85.

The music industry is collapsing right now…

These stories tell us that SURVIVAL must be regarded as a SUCCESS, since so many companies have died in those shifts.

Let’s take a look at Kodak’s competitors in the film and camera industry…

AgfaPhoto was demolished.

Konica left the industry after trying to survive through a

merger with Minolta.

Polaroid is also resting in peace.

Fuji has survived, but encountered massive problems.

Thus, when looking at other industries, as well as Kodak’s competitors, it becomes clear that survival is rare and should therefore be regarded as success.

So far, Kodak has survived.

If this is a success story, which were the differentiating factors that

made Kodak survive?

1. Kodak recognized the threat at an early point and developed knowledge

in-house about digital technology.

Doing it in-house is important for several reasons. One is to make the new

technology accepted inside the company. Another one is of course

to understand the nature of it.

2. Kodak has shown a willingness to cannibalize on its film business.

If Kodak hadn’t done it, someone else would have destroyed the film

business for them.

3. Kodak collaborated with other companies, and other firms were acquired.

This is also important, because the resource base has to be

renewed, and this is easier to do by drawing upon the competence

others have developed.

4. From the early 1990s and on, Kodak showed a willingness to change and to

embrace digital imaging.

If this hadn’t been the case, particularly in top management,

Kodak would gone down the tube in record time like Polaroid.

5. From an early point, Kodak not only explored the new technology, but also tried to commercialize it through various applications.

By doing so, the new technology would not to the same extent be regarded as a cost for the

company, but rather an investment.

Summing it up, these images come from what should be regarded as a successful

transition to digital technology…

If these images come from a success story…

… We can then understand how difficult it is to survive digital revolutions…

http://www.flickr.com/photos/scenesfromamemory/805480896/

Sources

The Digital Journalist Grant, R.M., Eastman

Kodak: Meeting the Digital Challenge, 2006

Investmoneyinindia.com

Image attributions

Find out more:

www.christiansandstrom.org