It sold the site to Shutterfly as part of its bankruptcy plan for less than $25 million in April 2012. The problem was that for over a century Kodak had the classic razor and blade business model i.e. Now many think the disruption of the digital camera killed off the film business. Sure, people print nostalgic books and holiday cards, but that volume pales in comparison to Kodak’s heyday. You can write the best article in the world but if the main premise of your whole piece is factually inaccurate then it counts for nothing. The reorganized Kodak emerged on September 3, 2013, with a right-sized capital structure and an annuity-based business model. There were other ways in which Kodak could have emerged from the digital disruption of its core business. With the widespread adoption of digital smartphone cameras, Kodak's core photo and film processing business model has largely become redundant. As the digital revolution took off, the need for film disappeared. Now Kodak is in far better shape, with a thriving brand licensing business worth $3m and a consumer division which generated $48m in revenue during the third quarter of 2018. This piece will focus on how Fujifilm changed an element of its business model to adapt to and ultimately leverage the digital revolution. This was due to the invention of digital cameras in 1975. Kodak's success was based on a business model of genius. Business Model. However I think you are missing the point of the article. Unfortunately, as time marches on the subtleties of what actually happened to Eastman Kodak are being forgotten, leading executives to draw the wrong conclusions from its struggles. I had my penultimate MBA elective at the weekend on Corporate Strategy so my next few posts will concentrate on value creation, value capture and business model architecture. 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. This strategic failure was the direct cause of Kodak’s decades-long decline as digital photography destroyed its film-based business model. Maybe in 2010 it would have lured a young engineer from Google named Kevin Systrom to create a mobile version of the site. The next explanation is that Kodak mismanaged its investment in digital cameras, overshooting the market by trying to match performance of traditional film rather than embrace the simplicity of digital. The most important priority for a turnaround business is to focus on one thing! In the year 2000 Kodak could have sold the photo print business. ... Business model innovation, strategic leadership and smart economic policies are her professional passions. Simply put, Kodak tried to replicate the silver halide business model in the digital world. Business Model Kodak has not had a clear and consistent business model. Kodak had a huge asset in their extensive distribution network with reach into many countries and retailers. For most of the 20th century, Kodak’s core business, as perceived by outsiders, was selling photography related products. This point was highlighted with the case of Kodak’s demise from  Quasi-Monopolist (1888-1976) to bankruptcy protection in 2012. high quality cameras) but they did not capture that value (i.e. Why innovation matters and the steps you can take to make a meaningful impact on your current company.DOWNLOAD NOW Companies often see the disruptive forces affecting their industry. Kodak had always got distinctive competency over its competitors because of the scope and operations of its business. That same month Facebook plunked down $1 billion to acquire Instagram, the 13-employee company Systrom had co-founded 18 months earlier. Kodak could have licensed their brand to P&G or licenced their technology to other companies, or a combination of both. Thanks for the message Craig. "In an alternate universe, Kodak took Ofoto and changed it from a site where people shared photos to one where people would share updates about their lives, news feeds and so on. Kodak … How did a company that had pioneered the photographic market in 1880 collapse in just a few short years? A generation ago, a “Kodak moment” meant something that was worth saving and savoring. One business model that is currently succeeding isn’t enough. A surprising and unlikely turn of events took place as Kodak pivoted to a new business model. The American icon had the talent, the money, and even the foresight to make the transition. In real life, unfortunately, Kodak used Ofoto to try to get more people to print digital images. printers or print technology) and sold these new products into their retail channels. Unless the company becomes innovative and move away from the core business model, its chances for survival are minimal. Kodak’s photofinishing process quickly became the industry standard for quality (Gavetti et al., 2004). One option could have been to break up the business. This would have left Kodak free to focus purely on digital without any distractions. The right lessons from Kodak are subtle. Eastman Kodak Company is a US corporation that specializes in the production of photographic products and equipment. Their failure is usually an inability to truly embrace the new business models the disruptive change opens up. Kodak was once the 800-pound gorilla in the world of photography. Kodak was a great company that dominated its industry for more than 80 years, making billions in revenues and employing more than a hundred and fifty thousand employees worldwide. Kodak adopted the ‘razor and blade’ business model. Instead it ended up the victim of the aftershocks of a disruptive change. Organizational Transformation in the Case of Eastman Kodak Corporation Harvard Business Publishing is an affiliate of Harvard Business School. In the late 90s, Kodak hastily installed 10,000 digital kiosks in Kodak’s partner stores. A former Madison, WI resident, Kay now resides in San Diego, CA. Vision Statement "The vision of Eastman Kodak is to be a world class company and a leading imaging company in protecting the quality of environment and the health and safety of customers, employees and communities in which company operates its business" (Kodak, 2011). By 1988, Kodak employed over 145,000 workers worldwide. Consider Fuji Photo Film. 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. But back in 1975, a Kodak engineer invented the first ever digital camera. In fact, Kodak invested billions to develop a range of digital cameras. Don't get trapped by your business model. Doing something and doing the right thing are also different things. So, if your company is beginning to talk about a digital transformation, make sure you ask three questions: Kodak remains a sad story of potential lost. Using this business model, Kodak was able to generate massive revenues and was able to expand its business and the company to new heights. It used a razor and razorblade strategy of selling cameras and films to customers. None of the Kodak CEOs could reconcile the digital and photo print businesses. I have described in previous posts what a business model at a simple level it has three parts: There is no doubt that Kodak created value for their customers (e.g. 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. But in the digital market it is a much younger audience who want to share their photos quickly with their friends. Kodak was so blinded by its success that it completely missed the rise of digital technologies. [1] [4] While Kodak has become a classic example of failed innovation in the digital age, the keys to Fujifilm’s survival are lesser known. Learn the right lessons, and you can avoid its fate. Kodak could have been split in a manufacturing division, chemical division and a very profitable research division. make money). The problem was that for over a century Kodak had the classic razor and blade business model i.e. How could a behemoth like Kodak, with abundant resources and some of the biggest talent in the country, fail to take advantage of a technology that was invented inside its own laboratories ? Whether Kodak went into bankruptcy, chapter 11, or something similar they lost their dominent market positions and are struggling to focus their business into profitable areas. Now it … This was because they failed to evolve their business model and lost sight of their customers. 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. Kodak has NOT gone bankrupt, it is in Chapter 11, protection from bankruptcy. You failed. Today, the term increasingly serves as a corporate bogeyman that warns executives of the need to stand up and respond when disruptive developments encroach on their market. These could have been sold off or floated in their own right. Subsequent Kodak CEOs were trapped in cognitive inertia: they kept developing new digital technologies without envisioning a new business model for the digital market. Today the company has annual revenues above $20 billion, competes in healthcare and electronics operations and derives significant revenues from document solutions. A sad “Kodak moment” business model failure. It was so close. 1996 was the peak year for Kodak. Spotting something and doing something about it are very different things. The fundamental economics of photography can be described as follows:Camera Price (amortized) + Storage Price + Processing Price = Cost of a photoIf you assume the storage is film and processing is taking the roll of film to the drug store for printing, this pretty much sums up the costs incurred for photos during the days of film. Deeper Insights On Kodak’s Business Model. Ultimately, refocusing the business with so many forces in motion proved to be impossible. Kodak and the digital revolution – A business model failure, on Kodak and the digital revolution – A business model failure. Not only was a major technological change upending our competitive landscape; challenges were also affecting the ecosystem we operated in and our organizational model. This is a prime example of the “razor and blade” business model where Kodak sold the cameras for cheap to get it into as many hands as possible and planned to make back in the sales of its consumables such as film rolls and services. Order my new book The HERO Transformation Playbook. Copyright © 2020 Arif Harbott. This could have been valued in the same way as a 10-year bond and would appeal to institutional investors. The Trump administration’s $765 million loan to the Eastman Kodak Co. for its launch of a business making pharmaceutical ingredients sent shares of the iconic camera company soaring. Armed with the perfect business model and a strong vertical integration, Kodak innovated and offered some of the best products and services in the imaging business. More specifically, the company would now manufacture ingredients for generic drugs. From the company's founding by George Eastman in 1888, Kodak followed the razor and blades business model of selling inexpensive cameras and making large margins from consumables – … They sold film, they sold the chemicals you used to develop the film and then they sold … I make so secret that business models fascinate me and it was reiterated throughout the lectures that the CEO agenda should be very much focused on the firm’s business model. Before Mark Zuckerberg wrote a line of Facebook’s code, Kodak made a prescient purchase, acquiring a photo sharing site called Ofoto in 2001. Where they failed was in realizing that online photo sharing was the new business, not just a way to expand the printing business. An easy explanation is myopia. A Difficult Technology Transition. And Kodak totally missed that. So, another explanation is that Kodak invented the technology but didn’t invest in it. Kodak’s first challenge had to do with technology. sell cheap cameras and make big profits on photography printing. The company’s operations have been divided into four segments which include digital and film imaging, graphic communication, commercial imaging and health sector (Kodak Patents 2010). As technology progressed, the use of films and printing sheets gradually came to a stop. KODAK: Rise and Fall of a Legend. From its inception, Kodak dominated the American photography industry.As late as 1976, Kodak commanded 90% of film sales and 85% of camera sales in the U.S., according to a 2005 case study for Harvard Business School. sell cheap cameras and make big profits on photography printing. Keynote speaker Kay Plantes sparks deeper strategic thinking about the future of your business. 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. 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. They could have continued to focus on print based products with a horizontal move into other print based products (e.g. This helped the Kodak towards the continues growth of their business for more then 90 years. Contrary to popular opinion Kodak was ahead of the digital technology curve and they saw well ahead of time that digital photography was a game changer. Examines Kodak's strategic efforts and … Cameras went digital and then disappeared into cellphones. Once one of the most powerful companies in the world, today the company has a market capitalization of less than $1 billion. Kodak’s action towards the digital world seemed to be the most logical step. Kodak said this month it would lay off more than 30 employees in November at Eastman Business Park and Kodak Research Labs. This model does not work in the digital market where photos are more for instant sharing rather than for capturing memories. Kodak’s operational EBITDA improved by over $375 million in 2013, and the company re-listed on the New York Stock Exchange in January 2014. All rights reserved. Kodak made a lot of changes to its core business model in the 1990s and 2000s. Kodak’s R&D labs had some of the most advanced technology in the industry and this could have been licensed to other technology companies to use in their devices. The development of the new camera will be critical for the success of the company. Not the patents for intellectual property related to the industrial age’s film photography. I am sure there are many other potential options but the point is that Kodak needed a fundamental change in their business model. Even though most people could see photography printing had a 10-12 year life, the business had very stable, predictable cashflows. It rolled out a line of digital cameras, sold inkjet printers, and bought a photo sharing site … They frequently divert sufficient resources to participate in emerging markets. Sasson himself told The New York Times that management’s response to his digital camera was “that’s cute – but don’t tell anyone about it.” A good line, but not completely accurate. Kodak created a digital camera, invested in the technology, and even understood that photos would be shared online. Kodak has long been a generous employer and model corporate citizen, a benevolent force in building and supporting Rochester’s social, educational, and cultural institutions. Given that Kodak’s core business was selling film, it is not hard to see why the last few decades proved challenging. Also Kodak did not understand their customer; for many years their customer had been families and in particular women. The story we all know goes as follows: Kodak' business model was based on selling films for cameras. People went from printing pictures to sharing them online. Although retrospectively everything is easy, what could Kodak have done? Kodak will have competitive advantage in the market since the consumers will have an alternative to the existing products in the market. Kodak had spent over a hundred years and huge resources building a household brand that would have been very attractive to a portfolio brand company such as P&G or Unilever. Jeffrey Clarke began as CEO on March 11, 2014, with a big challenge ahead: taking the company that emerged from Chapter 11 bankruptcy and building it into a successful, profitable firm. What it missed was the business model. Kodak, the company that fueled the growth of the photography industry, is selling its patents. Back in … A generation ago, a “Kodak moment” meant something that was worth saving and savoring. Copyright © 2020 Harvard Business School Publishing. Abstract The introduction of digital imaging in the late 1980s had a disruptive effect on Kodak's traditional business model. But that doesn’t square with reality. "One fatal flaw of Kodak's efforts in photography is they primarily focused on photography," Anthony says. This model does not work in the digital market where photos are more for instant sharing rather than for capturing memories. A Kodak engineer, Steve Sasson by name, invented the 1st ever digital camera, in 1975! 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. Business models are at the heart of corporate strategy and that is why they interest me so much. After all, the first prototype of a digital camera was created in 1975 by Steve Sasson, an engineer working for … Kodak. 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