Entrepreneurship · Startups

Why did Kodak fail and what can we all learn from it?

Sahedi Khan Internet Marketing Executive & Web Developer

November 23rd, 2016

Most are familiar with the fact that Kodak developed the first digital camera in the 70s, and then never followed up on it, eventually becoming bankrupt as film became obsolete.

My naive assumption is a bunch of 60+ executives with a 1950's mindset of "We're Kodak", and some junior execs proposed projects that were either ignored or ridiculed.

But I wonder, what really happened? What were they saying in the meetings while digital products were hitting the market? What can we as entrepreneurs learn from a story like Kodak's? Thanks for the participation.

Usarian Skiff CEO Ultra Notitia

November 23rd, 2016

Well, I'll tell you exactly why they failed.

My father worked there all through the 90's and I worked there for a few years in the early 2000's so I got the inside scoop for you right here.

First you have to understand WHAT Kodak is.

Eastman Kodak, in the 1990's, consisted of several plants around the country and some overseas. The biggest plant was located in Rochester NY and dubbed "Kodak Park". Kodak Park was shaped like an L, 7 miles lone one way, 3 miles long the other way. The oldest building in the palrk was built by founder George Eastman in 1888 and the rest of the park grew up around it.

Kodak Park was a chemical plant from the start. It's products were film (cellophane coated with a chemical emulsion) and paper. The Park was built to facilitate the efficient production of these products and featured over 600 buildings housing 100 year old well maintained steam driven machines, steam producing plants and steam handling systems, mostly located underground. As a chemical plant in the 1800's, before laws and popular opinion drew a moral line in the dirt against polluting, Kodak dumped massive amounts of waste for decades and is still to this day responsible for paying fines to teh state for this pollution - which is still leeching into the Genesee river and lake Ontario.

It's within this context that George Fisher came on the scene. He was Kodak's first ever CEO hired from outside the company. The day he started he made a speech in which he stated "digital will never surpass film".  The thinking at the time was that film has resolution based on molecules, digital based on mechanical sensors. Besides consumer cameras and film, Kodak was the main producer of many kinds of movie film and the government's proprietary (and secret) high speed and high resolution films. They had a lock on a market that was going nowhere. So while, yes, Fisher did make a feeble effort to lead in digital cameras and digital hosting and sharing as well as online digital photo processing-by-mail, he also amped up film to make sure it wasn't overtaken anytime soon by advances in digital imaging.

But the company's bread and butter was paper and film - consumables. There simply was no way for a company built on selling consumables to transition to selling quality irreplaceable products. They created digital cameras that were trash, making no effort whatsoever to compete with Canon or other camera manufacturers -- who still relied on Kodak to fill their pro quality cameras with pro quality film -- but rather to compete only with their own low quality film cameras by selling cheap gimmicky digital camera systems that broke easily.

It wasn't long before consumers started buying moderately priced quality digital cameras and then using their phones to capture images. There was no longer any kind of market at all for disposable film, paper, or cameras. Kodak, it turns out, was a flash in the pan, a relic of the 1900's having no other place in history.

Dane Madsen Organizational and Operational Strategy Consultant

November 23rd, 2016

It is pretty well laid out in The Innovators Dilemma. It was not arrogance or ignorance; it is how big companies operate in a bubble. We like to use 20/20 hindsight to cast them as victims of their own incompetence, but the structure of large organizations is not conducive to innovation because of the need to justify expense. It is why we all have opportunity.

Dane Madsen Dane@DaneMadsen.com [removed to protect privacy] Mobile Sent from my mobile device. Forgive typographical and grammatical errors.

John Turner Business Development Executive

November 23rd, 2016

I grew up in Rochester in the 70s and 80s...Kodak was a way of life there. Here is the simple, but true answer to your question... Kodak ALWAYS thought they were in the Film and Camera Making Business when actually, they were in the IMAGING Business. When the industry pivoted to digital imaging and cameras in everyone's hands for free (cell phones) they tried to compete with companies that knew they were in imaging, not hard good manufacturing. John W Turner Email :: turner.johnw@gmail.com Mobile :: 315.374.2770 LinkedIn :: tinyurl.com/turnerjohn

Gabor Nagy Founder / Chief architect at Skyline Robotics

November 23rd, 2016

Great posts. I agree that it's mostly the "Innovator's dilemma" effect.
As startup founders, we should be immensely grateful for this effect, as it is the primary reason that startups have any chance at all!
If it wasn't for the sluggish, 10-mile turn-radius nature of large corporations, small startups would never have a chance at beating these behemoths with their near infinite resources.

As another example: this is also why I'm skeptical about incumbent large carmakers ever successfully competing against Tesla.
They've been saying for a long time that "electric cars are just another 20 years off".
The have several decades invested in internal combustion engines. A lot of old-scool petrol-head execs are still parroting the old "gasoline cars will never go away" mantra.
Just like digital sensors will "never" have the resolution of film...
As if they were all following some script written by Kodak and all the other former behemoths.
Every EV they release screams "we don't really want to sell this thing, which is why we made it so ugly and slow. It's just a compliance car".
One car is more hideous than the other.
I'm part industrial designer, so I may be more "visually sensitive" than usual, but I literally can't look at some of these monstrosities, without getting a knot in my stomach.
And, they are surprised that Tesla sells more cars than Nissan sells the Leaf, even though it costs three times less.
There's no technical or business reason to do this.
As Elon Musk put it "it costs the same to stamp out the body panels for an ugly car, as for a good-looking one".

This Thanksgiving, we should give thanks to the behemoths, like Kodak, for sabotaging themselves into irrelevance, by stubbornly clinging to old technologies, and thus giving us, small startups a chance!
:)

Joanan Hernandez CEO & Founder at Mollejuo

November 25th, 2016

Great answer here!

@Shaed,

"Kodak developed the first digital camera in the 70s, and then never followed up on it"

The did follow up on it. The Apple QuickTake was one of the first mass consumption digital cameras. It was designed and made by Kodak (among others) to Apple. Apple was just a reseller. As it has been written here, is more a matter of leadership. Kodak did make high end digital cameras, they were good. In hindsight should they focused on making only camera sensors maybe they would have been still alive today. Maybe.

As it has been noted, Blackberry could be compared with a similar situation, I don't think so. Blackberry did try to turn the ship, however they were too slow compared to either Apple or Google. My theories about it, here.

Cheers!

Richard Gilbert Director, SME Partnerships & Business Development, North America at Payoneer

November 25th, 2016

This disruption and ultimate business failure is well documented.  I think it is instructive for you to think about how ecosystems evolve and the importance of building a platform to support the ecosystem.  

Blackberry is another example that is going the the way of Kodak (much more accelerated rise and fall) and see how both Apple and Android have developed a robust platform with a thriving ecosystem versus the Blackberry example.

The irony mentioned before in this post is that Kodak invented digital photography.  Had Kodak thought more about the evolving needs of "the contributors" - their customers / the creators - rather than thinking about their legacy platform and how many rolls of film they could sell and develop. They could have used their worldwide brand and distribution to enable some of the innovation we have seen in digital photography - marketplace enablement (Getty Images / Shutterstock) - social sharing (Instagram / Pinerest) ... seem more enduring business models. 

Each of those innovators are building an ecosystem to erect barriers and guard against further disruption.
  

Andre Sr. Managing Partner | Business Funding | Speaker | Mentor

November 25th, 2016

This is a very good question posed. The fact is, history is laden with these types of stories! I have a book that I require every mentee and business owner read that I or my firm engages with. "How The Mighty Fall" Jim Collins. Hubris is the number one reason. Altima specializes in helping our clients see trends to ensure they are not the last buggy whip company, because although the last was the best, they became obsolete because of this thing called cars. visit: www.altimabusinesssolutions.com to read our blogs on business and strategy. Particularly "5 Stages Of Business"

John OHanlon Owner of Banks Printers

November 27th, 2016

The same question could be asked " why did dinosaurs go extinct?" Sent from my Sony Z1

Irwin Stein Very experienced (40 years) corporate,securities and real estate attorney.

November 23rd, 2016

Kodak intelligently spun off its chemical company a while back and Eastman Chemical still trades on the NYSE and has a market cap of about $12 billion.  The photography company could not keep up with technology. Kodak was considered a great place to work and had a reputation for treating its employees well.  It was old school that way and resisted sending jobs out of the US. That was the 1950's mindset of the 60+ year old executives you would be happy to work for.  Also Kodak's patents (it has a lot of them) still have value.  It was a company that had a new technology at its start which it exploited well for 120 years.  That is the lesson that you should take away.

Jim Easter Supply Chain Design

November 25th, 2016

I worked as a financial analyst inside of Kodak during the 1980's and 1990's.  Many of the answers already provided are fairly accurate but I'd add that in hind sight it looks like a 'no-brainer' that was missed by "old men stuck in the 50's"-while in real time it wasn't so clear.

1)  The company enjoyed a huge market share of the photographic film and paper market around the world.  This was a source of most of the companies profits and cash flow.  The entire economic engine was based on customers having to buy 'consumables' to enjoy their images and videos.
2)  The biggest threat was believed to be Fuji - because they had as good if not better quality, and even more distressing to Kodak, at a lower cost.
3)  I was in a strategic planning meeting that I distinctly recall that we were reviewing our SWOT analysis.  During the "Threat" section discussion the threat from digital photography was addressed.  The "moment" that was burned into my memory was the "executive level" input that said "digital photography will grow the consumption of photographic paper".  This was seen as the most rational, lucid, and ironically, the most 'progressive' opinion inside of Kodak.
4)  In hindsight, HP was the real threat, not Fuji.  Once HP printers achieved a"good enough" resolution for photo prints, and at the same time digital cameras also became "good enough" at a low enough price point, the death of Kodak's cash machine was cast.  It was just a matter of time.
5)  What was the big miss?  One was that consumers demanded '(silver halide) photo grade' resolution--that the bar for "good enough" was way higher than it turned out to be.  As "good enough" became much 'lower' in terms of technical specs-so did the cost point.  The rest is history.

From my perspective, there was a great deal of inertia which kept the status quo as the only legitimate strategy.  As Kodak acquired non-silver halide businesses, especially high tech, digital businesses, there were numerous clashes of culture, decision making, speed of execution, and layers of management, etc.

However, I would be remiss if I didn't also say that Kodak was a great company, it had excellent processes (not just manufacturing, but human processes, software processes, management processes, etc.).  It attracted and retained great people who were among the most dedicated people I have ever had the pleasure of working with and not everything the company did was the result of "old men stuck in the 50's", it was progressive in many many ways.

Which is to say it would be a wonderful research project, not just on strategic failure, but also on how to build cultures, how to empower people, etc.

I cherish my time with Kodak, its unfortunate history causes me to pause even now and ask "what are we missing, right now, that in 5-10 years we will say was a "no brainer" that we failed to grasp"?