Kodak invented digital imaging and invested heavily in the businessGet the missing picture of why this global company really failed
Did Kodak, the former industry leader in traditional chemical-based photography, really miss or ignore the digital imaging revolution? What was the company’s true challenge? Is Kodak’s failure story really as simple as we are constantly told?
According to popular opinion, Kodak failed because it focused too closely on their most powerful customers and thus directed strategic investments exclusively to their traditional photography business—a view that basically follows the seminal theory of disruptive innovation developed by the Harvard Professor Clayton M. Christensen. Other observers attribute Kodak’s failure to the company’s strong resistance to undergo a strategic shift towards the digital imaging it invented in the 1970s.
The big problem with all of these interpretations of Kodak’s downfall is that they do not adequately describe what actually happened and therefore prevent us to draw lessons other companies can learn from. There is the need to go deeper into the possible causes of the failure, rather than to treat them superficially.
The result of reviewing several thousand internal Kodak documents and external sources, triangulated with the data collected in hundreds of personal interviews, and the reconstruction of the financial flows between 1972 and 2012 led to one story—a story that suggests that Kodak wrestled with a completely different problem.
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This longitudinal study revealed that it was not digital imaging that led to Kodak’s downfall. The company failed because key decisions made in the late 1980s and early 1990s limited the company’s ability to become successful in businesses beyond imaging. Neglecting other lines of business became disastrous for Kodak in the early 2000s when Kodak’s extremely profitable consumer film business dropped off at a rapid rate.
Although Kodak was a leader in consumer digital photography at the time, the business was far from realizing any payback. Even if Kodak had made a stronger effort to succeed in digital imaging, it is not likely that it could have ever saved the company. Digital imaging had become a commodity and required no special skills for manufacturing.
Hence, observers who tried to explain Kodak’s failure on the fact that it missed or ignored the digital revolution are wrong. In fact, Kodak even introduced the first digital SLR cameras and the first megapixel consumer cameras. It invented many key technologies that allow today’s smart phones and digital cameras to take pictures, including color image sensors. Kodak saw digital imaging coming before everyone else did, and shaped the digital revolution.
Kodak was fully aware of the upcoming disruption and therefore made strong efforts to transition into other domains in the 1980s. In fact, it made big bets, in the billions of dollars, to leverage its expertise in chemical engineering; however, it failed.
Current research suggests: Disrupt or be disrupted! That is to say, one is asked to enter the disruption game and to respond in the following two ways: Firms should either ignore disruption (by sticking to core strategy and moving up-market) or embrace disruption (by fighting back and adopting disruptive innovation). The study on Kodak shows, however, that there are circumstances where no matter what direction is taken, winning the ‘battle’ may turn into a Pyrrhic victory—taking such a devastating toll on the victor that it is tantamount to demise. In such cases, companies are better advised to re-orient their operational objectives altogether and leverage their existing competences in more related domains instead of attempting to reconfigure or extend existing capabilities at all costs to achieve a tight fit to the new and disrupting environment.
“Michael Shamiyeh addressed a group from the Kodak R&D community on his insights on Kodak’s response to technology disruption and the lessons learned. His talk drew near record attendance and was very well received. Participants appreciated the volume of research that Michael did in support of his conclusions. He provided unique insights that dispelled most of the conventional wisdom about Kodak’s inability to manage the transition to digital technologies. His conclusions were well supported by the data and clearly illustrated.”
Gary Einhaus (former CTO Kodak)