Learning This Week: The Fall of Kodak
Every week I learn something interesting about a topic.
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The common narrative of Kodak's downfall is that they failed to recognise the shift to digital technology. However, the truth is more complex and offers valuable lessons for businesses facing technological disruption.
Kodak's leadership was aware of the rise of digital photography, but the company faced multiple challenges that made it difficult to adapt.
Challenges Faced by Kodak
Technology Transition:
Kodak excelled in manufacturing complex film, which involved layering chemicals onto plastic at high speeds, a process with high barriers to entry.
Digital imaging was based on semiconductor technology, a field outside of Kodak's core expertise. This technology was also broadly available, modular, and had low barriers to entry.
Although Kodak invested in research and development of solid-state image sensors, they could not compete as a high-volume supplier of these components.
The modularity of digital technology meant that companies could easily create products without deep experience or specialised skills, leading to increased competition.
The rise of digital technology commoditised consumer electronics, diminishing the competitive advantage of leading brands.
Scaling Down:
Kodak struggled to manage declining film sales while maintaining profitability.
Scaling down production was difficult due to the fixed costs associated with production and the challenge of reducing production batch sizes.
Discontinuing film products pushed consumers towards digital alternatives, further accelerating the decline of film sales.
The shift to digital projection in cinemas further reduced Kodak's overhead absorption.
Retail distribution became a challenge as the volume of film sales declined, with retailers no longer needing to be loyal to Kodak.
Ecosystem Problems:
The decline of analogue photography meant that retailers were no longer loyal to Kodak, with many using chemicals and paper from other brands like Fuji.
Organisational Inertia:
Kodak created a separate division to handle digital opportunities in the mid-90s.
This division achieved a leading market share in digital cameras before smartphones overtook the market.
There were difficulties integrating the new digital division and legacy businesses.
Many employees in the legacy businesses did not have the right skills for the new businesses and were focused on maximizing profits from the declining businesses.
Senior managers in the legacy businesses wanted to be reassigned to the new businesses, causing internal conflicts, which led to the merging of all the divisions in 2003.
Kodak tried to compete in the inkjet printing business but failed.
Conclusion
Kodak's story illustrates that navigating technological change is complex, and requires more than just recognizing the emergence of new technologies.
Companies must understand the nuances of how technology shifts, and what the effect is on core capabilities, scale, and the overall business ecosystem.
src: MIT Sloan
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