How Kodak Failed
There are few corporate blunders as staggering as Kodak’s missed opportunities in digital photography, a technology that it invented. This strategic failure was the direct cause of Kodak’s decades-long decline into bankruptcy as digital photography destroyed its film-based business model.
Kodak’s failure offers stark lessons for how other organizations grappling with disruptive technologies might avoid their own Kodak moments.
Steve Sasson, the Kodak engineer who invented the first digital camera in 1975, characterized the initial corporate response to his invention this way:
But it was filmless photography, so management’s reaction was, ‘that’s cute — but don’t tell anyone about it.’
Kodak management’s inability to see digital photography as a disruptive technology, even as its researchers extended the boundaries of the technology, would continue for decades. As late as 2007, as illustrated by the following Kodak marketing video, Kodak management felt the need to trumpet that “Kodak is back “ and that Kodak “wasn’t going to play grab ass anymore” with digital.
To understand how Kodak could stay in denial for so long, let me offer a story that Vince Barabba recounts in his book The Decision Loom: A Design for Interactive Decision-Making in Organizations.
It was 1981 and Sony had just introduced the first electronic camera. One of Kodak’s largest retailer photo finishers asked Barabba, who was Kodak’s head of market intelligence at that time, whether they should be concerned about digital photography. With the support of Kodak’s CEO, Barabba conducted a very extensive research effort that looked at the core technologies and likely adoption curves of traditional, silver halide film versus digital photography.
The results of the study produced both “bad” and “good” news. The “bad” news was that digital photography had the potential capability to replace Kodak’s established film based business. The “good” news was that Kodak had roughly ten years to prepare for the transition.
The study’s projections were based on numerous factors, including: the cost of digital photography equipment; the quality of images and prints; and the interoperability of various components, such as cameras, displays, and printers. All pointed to the conclusion that adoption of digital photography would be minimal and non-threatening — for a time.
History proved the study’s conclusions to be remarkably accurate, both in the short and long term.
The problem is that, during its 10-year window of opportunity, Kodak did little to prepare for the later disruption. In fact, Kodak made exactly the mistake that George Eastman, its founder, avoided twice before, when he gave up a profitable dry-plate business to move to film and when he invested in color film even though it was demonstrably inferior to black and white film (which Kodak dominated).
Barabba left Kodak in 1985 but remained close to its senior management. He got a close look at the fact that, rather than prepare for the time when digital photography would replace film, as Eastman had with prior disruptive technologies, Kodak choose to use digital technology to prop up its film, chemical and paper businesses.
This strategy continued even though, in 1986, Kodak’s research labs developed the first mega-pixel camera. This was one of the milestones that Barabba’s study had forecasted as a tipping point in terms of the viability of standalone digital photography.
The choice to use digital technology to support, rather than replace, the film business culminated in the 1996 introduction of the Advantix Preview film and camera system. Kodak spent more than $500M to develop and launch Advantix. One of its key features was that it allowed users to preview their shots and indicate how many prints they wanted. The Advantix Preview could do that because it was a digital camera. Yet Advantix still required film and emphasized printing because Kodak was in the photo film, chemical and paper business. Advantix flopped. Why buy a digital camera and still pay for film and prints? Kodak wrote off almost the entire cost of development.
As Paul Carroll and I describe in Billion-Dollar Lessons: What You Can Learn From The Most Inexcusable Business Failures of the Last 25 Years, Kodak also suffered several other significant, self-inflicted wounds in those pivotal years.
In 1988, Kodak bought Sterling Drug for $5.1B, deciding that it was really a chemical business, with a part of that business being a photography company. Kodak soon learned that chemically treated photo paper isn’t really all that similar to hormonal agents and cardiovascular drugs, and it sold Sterling in pieces, for about half of the original purchase price.
In 1989, the Kodak board of directors had a chance to take make a course change when Colby Chandler, the CEO, retired. The choices came down to Phil Samper and Kay R. Whitmore. Whitmore represented the traditional film business, where he had moved up the rank for three decades. Samper had a deep appreciation for digital technology. The board chose Whitmore. As the New York Times reported at the time:
Mr. Whitmore said he would make sure Kodak stayed closer to its core businesses in film and photographic chemicals.
Samper resigned and would demonstrate his grasp of the digital world in later roles as president of Sun Microsystems and then CEO of Cray Research. Whitmore lasted a little more than three years, before the board fired him in 1993.
For more than another decade, a series of new Kodak CEOs would bemoan his predecessor’s failure to transform the organization to digital, declare his own intention to do so, and proceed to fail at the transition, as well.
George Fisher, who was lured from his position as CEO of Motorola to succeed Whitmore in 1993, captured the core issue when he told the New York Times that Kodak “regarded digital photography as the enemy, an evil juggernaut that would kill the chemical-based film and paper business that fueled Kodak’s sales and profits for decades.” Fisher oversaw the flop of Advantix and was gone by 1999.
Almost to the bitter end, Kodak management would not come to grips with the disruptive danger of digital photography. In the early 2000s, Kodak’s CEO described the company’s worst-case scenario as mere single-digit growth in revenue and profit. As history proved, however, the worst-case scenario was much worse.
If Kodak acknowledged such a possibility, it would have been able to act faster and might have remained a success. Fuji Film, for instance, decided to milk the traditional business for cash, rather than, like Kodak, keep investing. Fuji then invested the cash in a wide array of other businesses, a couple of which have really paid off.
Instead, as the 2007 Kodak video acknowledges, Kodak’s approach did not change. By 2007, Kodak’s prospects seem reduced to suing Apple and others for infringing on patents that it was never able to turn into winning products.
After struggling for years — it reported only one full year of profit after 2004 — Kodak filed for bankruptcy in 2012.
Chunka Mui is a business advisor and author of four books and numerous articles on strategy and innovation, including The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups. This article is adapted from one originally published at Forbes.