The Real Lessons From Kodak’s Decline

Eastman Kodak is often mischaracterized as a company whose managers didn’t recognize soon enough that digital technology would decimate its traditional business. However, what really happened at Kodak is much more complicated — and instructive.

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Eastman Kodak Co. is often cited as an iconic example of a company that failed to grasp the significance of a technological transition that threatened its business. After decades of being an undisputed world leader in film photography, Kodak built the first digital camera back in 1975. But then, the story goes, the company couldn’t see the fundamental shift (in its particular case, from analog to digital technology) that was happening right under its nose.

The big problem with this version of events is that it’s wrong. Moreover, it obscures some important lessons that other companies can learn from. To begin with, senior leaders at Kodak were acutely aware of the approaching storm. I know because I arrived at Kodak from Silicon Valley in mid-1997, just as digital photography was taking off. Management was constantly tracking the rate at which digital media was replacing film. But several factors made it exceedingly difficult for Kodak to shift gears and emerge with a consumer franchise that would be sustainable over the long term. Not only was a major technological change upending our competitive landscape; challenges were also affecting the ecosystem we operated in and our organizational model. Ultimately, refocusing the business with so many forces in motion proved to be impossible.

A Difficult Technology Transition

Kodak’s first challenge had to do with technology. Over the course of more than a century, Kodak and a small number of its competitors had developed and refined manufacturing processes that enabled consumers to capture and preserve images for a lifetime. Color film was an extremely complex product to manufacture. The 60-inch “wide rolls” of plastic base material had to be coated with as many as 24 layers of sophisticated chemicals: photosensitizers, dyes, couplers, and other materials deposited at precise thicknesses while traveling at 300 feet per minute. Wide rolls had to be changed over and spliced continuously in real time; the coated film had to be cut to size and packaged — all in the dark. With film, the entry barriers were high. Only two competitors — Fujifilm and Agfa-Gevaert — had enough expertise and production scale to challenge Kodak seriously.

The transition from analog to digital imaging brought several challenges. First, digital imaging was based on a general-purpose semiconductor technology platform that had nothing to do with film manufacturing — it had its own scale and learning curves.


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Comments (18)
Craig McGowan
I was a product manager in Willy Shih's business unit during this time period.  I agree with his assessment of the situation and would add the following.

I did not see a lack of commitment to digital during my time there.  Kodak achieved a top three position in several of the digital categories it competed in, including online services and digital cameras.  These markets were far more competitive and lower in margin than film but Kodak was holding its own there, although the cost structure was clearly a problem looming on the horizon.

However, it was the second wave of disruption that came after Willy left that really caused the biggest problems.  We went from photography as a category to photography as a piece of other categories (i.e. cameras became a component of mobile devices, photo sharing became a part of social networks).

Given the current state of the market today, there is a real question in my mind if Kodak could have invented the iPhone and beat Apple at that game, or invented Social Networks and beaten Facebook.  While photography was in Kodak's DNA, these other more general offerings certainly were not.
Stephen Waybright
I was at Kodak from '83 - '97, most of that time in electronic/digital imaging R&D and product development.  With due respect to Dr Shih's perspective having joined in '97, it was the years leading up to that, when Kodak squandered what could have been a dominant position in digital imaging and possibly online social media, due to lack of vision of what was clear to the engineers. In 1990, I was Chief Engineer for what we called Image Magic, a digital imaging system making "fantasy" photographs, initially installed at Epcot center. This system included a remote print hub located at Airborne Express in Wilmington Ohio, where we could deliver the prints the next day anywhere in the continental US. By '93 it was pretty easy to project the relatively short timeline when the cost and quality of digital imaging along with ever increasing data transmission rates would allow such a service to thrive. It seemed an obvious and easy extension to have a couple of my SW guys develop a program to open up access to that print hub to the early adopters on Apple PCs, and to later build a digital image sharing and photo effects service around that, but the strategy was on growing digital only where it was not potentially parasitic to film. Kodak was the original social media company bringing photography and memory sharing to the masses. It could have lead the way into the new frontier of online social media.
Giovanbattista Testolin
Kodak before digital was quite a profitable and liquid company, if I remember well.
Additionally it was already well known that semiconductor design and manufacturing was an industry with a very strong cumulative volume learning effect, or learning curve.
So I wonder: why invest in developing an internal semiconductor capability instead of buying a company already in that business? or developing a strategic partnership or JV?
And why not buy a good optics/camera manufacturer together?
Using profits and liquidity to buy companies in the new digital technology and in the key optics systems would have been likely faster and more effective than trying to build semiconductor sensors internally from scratch.
And maybe Kodak would now still be a significant player in digital photography.
It remains true that most of the competencies and assets related to chemical photography were going to be lost, maybe they could have been converted to other chemical application.
The same holds true for the ecosystem of shops, due to the fact that at the same time the internet was starting to change distribution models too,
But maybe a "Kodak photo" platform with added value in pictures quality could have been the first one.
Karl Schubert
The former IBM senior executive (not the author) who was recruited by Kodak to try to lead Kodak to "digital" was leaving an Corporate IBM position where he led the Interactive, Broadcast and Online Video efforts -- unsuccessfully. He was an old-style IBM exec but in the middle wave following the mainframe crowd.  Seeing him move there suggested Kodak would not succeed.

Of course, analog photography is now seeing an artistic resurgence but neither soon enough nor volume enough to help Kodak.

I believe that they were caught in "The Innovator's Dilemma" and such a shame since they earned the credit for inventing the digital camera.
Arthur Weiss
I think the key reason for Kodak's failure - as alluded to but discounted in the article is that Kodak "could have tried to compete on capabilities rather than on the markets it was in"

You can change this to a question - do you ask "What do we do?" or "What do we do well?"
The first addresses markets - who are we? Who do we sell to? Kodak's answer was "We are in photography" - and that is our market. The question about capabilities allows you to change when the market changes as you keep to what you do well. It was the path followed by IBM.  Doing what you do well can help you survive if you can switch and use your skills in another market or area.

Supporting that Kodak missed this aspect can be seen in areas Kodak did move into. They started to produce printers and pushing high photo-quality paper for these printers. They must have thought their existing franchise or market would still want to print the photos taken using the new digital technologies. So they would continue to serve these markets with dedicated products. 

They failed to appreciate that when technology changes markets it can also change consumer behaviour - and in this case it did. People do not print more photos taken with digital cameras. They print a lot fewer - if any at all. 

 They answered the question "What do we do?" NOT "What do we do well?" That was left to Fuji who now produce a range of skin care products using the expertise gained from stabilising thin photographic film. As skin shares many similar characteristics to camera film: it becomes brittle as it ages, it's thin, it's covered in collagen / organic materials.... Fuji recognised that they had skills in stabilising and protecting such thin films - and could transfer these skills to produce anti-ageing products for human skin.
(Also blogged at
Julian Koor
I think the two key facts to bear in mind as a manager is that nothing lasts forever and to constantly challenge your own business. Otherwise someone will create a better product / service and you won't see it coming.
Willy Shih
Reply to Mr. Hardy:

Indeed, there were many people like that.  But I would say at the senior levels during the time I was there (a limited slice of history), top management understood.  That however was different from what they might say in public, or what many mid-level managers might say.  Interestingly, the workforce at large had a pretty good idea what was happening.
Willy Shih
Response to M. Aibaru:

Indeed, that means one has to think and not just follow conventional wisdom or the herd.  As Herbert Simon taught us, it's important what you put on the menu of choices.
Willy Shih
Reply to Mr. Yodiaken:

That was part of the bankruptcy restructuring.  If you get something at the right cost and can operate it as a niche business, you might be able to create some value.  Whether it will ever cover the value lost to pensioners is very doubtful of course.
Willy Shih
Reply to Mr. Krienke:

Yes indeed, Eastman Chemical is George Eastman's lasting legacy.  The difficult thing is walking away from a "great consumer franchise."  That turned out to be really hard.
Willy Shih
Response to Mr. Cunnings:

Actually the point was that the scaled up capacity was not suited to make material in smaller batches.  That would have required entirely new equipment.  Kodak went from pilot lines to 60" wide 300 fpm coaters, and synthetic chemistry operations also operated on large scale. If you wanted to gracefully step down the scale, it would not have been practical to run lines slower, or to use a narrower width on existing equipment.  And since the product was "dated," you couldn't just make a lot and store it.  That's why the motion picture film production was so important.
Willy Shih
In response to Mr. Green:

The traditional film side also tried to engage in digital printing, and they purchased an operation called PictureVision, giving that start-up the exclusive rights to online photo printing. This didn't turn out very well, as it ran to cross purposes with what the digital unit was trying to do.  Snapfish was a competitor in this area, and for a while was owned by District Photo, who was a traditional film photofinisher who was also trying to make the transition.  For quite some time, this was the presumed answer to the digital transition, print on silver halide-based photo paper, but as we can see, that turned out not to be the major use model for digital photos.
victor yodaiken
That part about the UK Pension plan is kind of cold blooded, no?
In the end, it seems that there are many reasons why Kodak fell. I will add what might be a possible way forward as regards MBA grads and their influence on business decisions; Every MBA program needs a compulsory course that teaches students how/when to go against all other courses taught previously.
John Krienke
The key point about Kodak missing its opportunity to focus on its chemical/layering capability is a strong one, as evidenced by Eastman Chemical's continued success. Thanks for the example. To this point, this is precisely what MBA grads, including me, learned from C.K. Prahalad who wrote widely about the importance of a firm's strategic distillation of its Core Competencies. But knowledge also needs courage to set counter-cultural action into motion. A good lesson in the need for both strategic clarity and courageous leadership while market forces overpower the managers in the profit trenches.
Jeffrey Hardy
My comment will be briefer than those above. In the early 1990's I was a consultant to the Motion Picture side of Kodak. Two key things, their market share was reported from field reps in each field around the world, and the market share never budged from year to year. Self-reporting? Two, I did a specific study for them that said the digital tidal wave was coming, and quite fast, and those around the VP I worked directly for rejected it, out of hand. They did not want to hear it. There is more, but that was enough to tell me they would be more subject to the whims of history, rather than making that history actively. I was on the phone with that VP 20 minutes after their returning from the company-wide bloodbath meeting. Sad, and true, but it takes personal and corporate gumption and will to overcome history, rather than be eaten by it...
Butch Cunnings
How could it possibly matter if the capital equipment were fully depreciated?  You are making the classic error of confusing accounting with economics.  Even worst, you are calculating unit costs by incorporating fixed costs.  (Once again, an amortization is NOT a REAL cost so that should not ever be included in unit costs.)  To top it off, if the equipment is not fully depreciated (on a tax basis), you get a tax break (assuming you are not in an NOL position), so this would actually be an ADVANTAGE for ongoing cash flows!

I stopped reading the article after seeing this blunder.
Charles H. Green
I am not fully persuaded.

I remember speaking in the late 90s at a Kellogg exec ed program with a newly hired Kodak manager brought in to handle some part of digital. I expressed relief that they were finally doing something proactive about digital, and he agreed. 

He then launched into a description of the problem. What I recall of it was that he blamed Snapfish for "destructive pricing practices." It was clear he still saw digital as a minor vehicle for selling photo processing and paper. He did not 'get' the disruption to photography that digital represented, and it was clear to me then that neither did Kodak. Sometime in the next few weeks I decided to long-term short Kodak stock (as I recall, at around 30 or so, down from 50 in the mid-90s, itself down from its original high of 100; clearly I wasn't the only one who could read the writing). 

My second thought is that the lack of a Kodak Moment described here sounds remarkably opposite from the mid-1985 moment at Intel so vividly described by Andy Grove and Gordon Moore. They too saw the existential threat posed by Japanese producers of memory (Intel was the market leader, and it was for a long time their dominant source of revenue).  

As Grove tells it, he and Moore decided that if they failed and the board were to bring in a new leader, the first thing the new CEO would do would be to sell off the memory business. "Well, then, why don't we walk out the door, walk back in, and do it ourselves?"  

Author Shih describes Kodak's response to their existential decision as:
"However, this would have meant walking away from a great consumer franchise. That’s not the logic that managers learn at business schools, and it would have been a hard pill for Kodak leaders to swallow."

Since Kodak's potential moment came 15 years later, and Grove described the Intel story in "Only the paranoid survive" in HBR about 1996, I submit that this was PRECISELY the logic that managers, at least some of them, were being taught. By the early 00s, "creative destruction" had caught on, and even I, a mere digital consumer, knew enough to short Kodak stock.  

Can you really say that the end result was pre-ordained, that nothing could have been done? Wasn't this the worst ending of all?  I agree there are lots of lessons to be learned – but I suspect there is still one to go, and it's the story of the last two decades. You can't outrun disruption – don't fight the wave, surf it.