Question

What were the main reasons (3/4) for Kodak's downfall and what recommendations would you give to them in order to fix it, and how?

Answer 1

Given that Kodak’s core business was selling film, it is not hard to see why the last few decades proved challenging. Cameras went digital and then disappeared into cellphones. People went from printing pictures to sharing them online. Sure, people print nostalgic books and holiday cards, but that volume pales in comparison to Kodak’s heyday. The company filed for bankruptcy protection in 2012, exited legacy businesses, and sold off its patents before re-emerging as a sharply smaller company in 2013. Once one of the most powerful companies in the world, today the company has a market capitalization of less than $1 billion.

Reasons for downfall:-

An easy explanation is a myopia. Kodak was so blinded by its success that it completely missed the rise of digital technologies. But that doesn’t square with reality. The camera was as big as a toaster, took 20 seconds to take an image, had low quality, and required complicated connections to a television to view, but it clearly had massive disruptive potential.

Spotting something and doing something about it are very different things. So, another explanation is that Kodak invented the technology but didn’t invest in it.

Doing something and doing the right thing are also different things. The next explanation is that Kodak mismanaged its investment in digital cameras, overshooting the market by trying to match the performance of traditional film rather than embrace the simplicity of digital. That criticism perhaps held in early iterations of Kodak’s digital cameras (the $20,000 DCS-100, for example), but Kodak ultimately embraced simplicity, carving out a strong market position with technologies that made it easy to move pictures from cameras to computers.

All of that is moot, the next argument goes because the real disruption occurred when cameras merged with phones, and people shifted from printing pictures to posting them on social media and mobile phone apps. And Kodak totally missed that.

But it didn’t, entirely.

Before Mark Zuckerberg wrote a line of Facebook’s code, Kodak made a prescient purchase, acquiring a photo-sharing site called Ofoto in 2001. It was so close. Imagine if Kodak had truly embraced its historical tagline of “share memories, share life.” Perhaps it could have rebranded Ofoto as Kodak Moments (instead of EasyShare Gallery), making it the pioneer of a new category called life networking where people could share pictures, personal updates, and links to news and information. Maybe in 2010, it would have lured a young engineer from Google named Kevin Systrom to create a mobile version of the site.

In real life, unfortunately, Kodak used Ofoto to try to get more people to print digital images. It sold the site to Shutterfly as part of its bankruptcy plan for less than $25 million in April 2012. That same month Facebook plunked down $1 billion to acquire Instagram, the 13-employee company Systrom had co-founded 18 months earlier.

There were other ways in which Kodak could have emerged from the digital disruption of its core business. Consider Fuji Photo Film. As Rita Gunther McGrath describes in her compelling book The End of Competitive Advantage, in the 1980s Fuji was a distant second in the film business to Kodak. While Kodak stagnated and ultimately stumbled, Fuji aggressively explored new opportunities, creating products adjacent to its film business, such as magnetic tape optics and videotape, and branching into copiers and office automation, notably through a joint venture with Xerox. Today the company has annual revenues above $20 billion, competes in healthcare and electronics operations, and derives significant revenues from document solutions.

The right lessons from Kodak are subtle. Companies often see the disruptive forces affecting their industry. They frequently divert sufficient resources to participate in emerging markets. Their failure is usually an inability to truly embrace the new business models the disruptive change opens up. Kodak created a digital camera, invested in the technology, and even understood that photos would be shared online. Where they failed was in realizing that online photo sharing was the new business, not just a way to expand the printing business.

Recommendations in order to fix it:-

1. Invest in R&D

All firms must try to spend 5-20% on RnD. R&D is the window to future opportunities. And ensure that they try to incorporate relevant outcomes RnD into their business, or partner with other firms who may benefit from it.

2. Encourage entrepreneurial spirit in the team

To have an entrepreneurial spirit, you need people who think anything is possible and have the tenacity to accomplish it. Nurture ideas, as a leader become a soft board for people to bounce their ideas on. Encourage out of the box thinking, ideas are the currency of success.

3. Embrace failures. But do not fail to try

Organizations need new and better ways to go beyond lessons that are superficial (“Procedures weren’t followed”) or self-serving (“The market just wasn’t ready for our great new product”). That means discarding old cultural beliefs and stereotypical notions of success and embracing failure’s lessons. Take out the lesson and learn positively from failure, you're just one step closer to getting things right.

4. Younger, Dynamic Leadership

Fresh talent and young leaders are crucial to be successful in the ever-evolving climate of an industry.