Tuesday, August 3, 2010 at 7:31AM Poor Kodak, a real-world example of how things change, but not necessarily for the better.
It's a hard lesson for almost any student of business.
A basic tenet of Marketing 101 is the notion of the product life-cycle, which is this: that all products--and by extension the brands and the companies that sponsor the brands--will someday go into decline and then, eventually, fade away. Particularly for new students of business it seems unthinkable that the dominant corporate giants of today will not longer, someday, be so.
I can remember when I sat in my first marketing course as a young--and I might also add, naive--MBA student at Boston University, it was simply impossible to consider that IBM would ever be the undisputed computer king of the world, or that General Motors would ever be surpassed as the largest and most formidable company in the U.S., to say nothing of being the largest auto manufacture in the world! Who in their right mind would think either of these firms could ever be successfully challenged by rivals?
It's a sad story in the news.
Well, IBM no longer dominates in the computer market anything like it used to; as for GM, well, it would be gone if it wasn't in receivership! Which brings us around to the sad story of Kodak, a firm once the undisputed king of photography, manufacturer of cameras and photographic equipment and supplies, and especially mountains of paper and film.
Last Friday, it was reported that on Thursday, Kodak's stock closed down 15% after some bad news on its performance in--of all things--the movie film business, a product line that it has carved out for itself; apparently Hollywood has seen fit to make fewer releases than before, so sales by Kodak for this basic medium is down as well.
Running hard but fading fast.
On top of a slow-down in movie production is the increasing preference by the movie business [fueled by interest in 3-D] to distribute it's end-product digitally, obviating the need for movie film altogether! This all comes on top of the decline in sales of digital cameras--that Kodak struggled to get into after the demise of it's from-a-previous-age film-based cameras. I wrote about this market phenomenon not that long ago [see When new products make what you sell obsolete].
It seems that we no longer need separate digital point-and-shoot cameras as much any more, all for the improvements in picture-taking found in our cell phones! And before all of this, the personal film business dried up immensely on account of the digital age--as did print paper products as well!
Pook Kodak.
The story of the once formidable American company, a venerable institution based first on invention, then mass-distribution, leading to market-dominance in the imaging business is being challenged to survive as we have known it. In many ways it's not Kodak's fault, for the markets it created and served for so long have changed, most because of other firms committed to doing things differently; now--and it really couldn't be much different--Kodak is no longer the first, prime mover; instead, it is trying to play catch-up.
Which leads back to the point that most students of business have trouble wrapping their minds around-- that the world of commerce is constantly shifting and the reality of the product-life-cycle is be taken seriously, mostly because it is true. Can you image Wal-Mart not being the king of retailing? Disney no longer leading in the category of children's entertainment? In similar ways, ditto for Bank of America? GE?
I now can--and you should too. Reflect on Kodak's plight if you have doubts about any of this.
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Reader Comments (3)
Hi Keith,
Having spent 8 years at EK in the '90's trying to drive digital strategy and new business development, I have to take some exception to: "In many ways it's not Kodak's fault". In many ways it is totally their fault. It is true that there were many external forces that conspired to break Kodak's hold on consumer photography: SONY with the Mavica digital camera and HP with photo inkjet printing at home - but Kodak had ample opportunity to control their own destiny. They failed to execute the necessary course corrections based on the crystal clear map they had (believe me - I helped draw the map). They knew what was coming way before it actually arrived. There is an arrogance bred by market leadership/domination that lulls even the smartest executives to be fooled into thinking that their position in the mind of the consumer is unassailable. "Who would ever trust their memories to anyone else?".
IBM under Lou Grestner (Chairman 1993-2002) was able to make some tough strategic choices about their business and I would argue that IBM is now an even stronger company than it once was. Kodak, well - as you noted - they are barely staying afloat. $1 invested in IBM in 1980 is worth $6+ today where $1 invested in EK in 1980 is worth $.20 cents today.
There is a very difficult point in a company's life cycle where you need bold leadership willing to make the "eat your young" decision - and set up new initiatives in such a way that they actually have a chance to succeed. SONY introduced the first Mavica digital camera in 1981 and HP introduced the color DeskJet printer in 1991 so this transformation was no surprise! The guys selling the film to Hollywood for distribution to theaters have also known digital distribution was on the horizon for decades. Change is something you can try to hold off but it is inexorable and often when it comes, it comes way faster than you could have ever anticipated. Polaroid faced a similar fate where the demand for instant photography fell off a cliff - not the gradual 15% per year decline they had in the worst-case forecast! The lesson - stay nimble and embrace change before it flattens you!
Poor Kodak? More like poor Rochester, and poor shareholders and poor employees!
Myron
What great observations you make! I knew at the time I wrote "it's not Kodaks fault" that I was short-circuiting a longer, nuanced discussion--but now you've done exactly that. What I was alluding to was this: Kodak came into being geared up to solve one set of problems or, in other words, offer one set of benefits, technologies, etc. While a firm CAN be faulted for not dealing with natural evolutions in the marketplace with respect to needs addressed, markets served, technologies employed, etc., when discontinuous changes occur in any one or more of these categories, it is understandable that management's inclinations are not poised to abandon all that's made it's success what it is, or was.
Thus, what I meant--and should have written to stay within a reasonable word-count limit--was this: Kodak's failure to date is understandable but misguided, in effect, too little too late. By this I mean that they were understandably committed to the old products, processes, distribution channels, markets that they now with objective hindsight should have not continued on with for near as long.
You make the point well, IBM is now strong again--but the turn around was not easy nor were it's early "moves" in that direction obvious and without apparent risk. You see, I'd say say that IBM is not just strong again--it is a new and different company than the one I--we--knew in the mid-seventies. And so same for Kodak: It will need to be, certainly at this point, an entirely new company if it is to flourish again. You make the insider's point that this might logically have been done a long time ago!
That Kodak's management is not prepared to see that radical change is called for or take steps in that direction IS regrettable for stockholders, employees, vendors, etc. However, its failure to see this clearly or with trepidation to take decisive steps--that are themselves would be very risky for them to carry out and which would not be foreordained to succeed--to obviate all that's made Kodak what it once was is, at a minimum, understandable. Unquestionably misguided, but understandable nonetheless.
Thanks for helping to make the more detailed point I might have detailed but didn't.
No easy answer here. The reality is when you have a cash cow (or profit engine) - you want to try to time your moves to maximize the milk so to speak - the real trick if you do have something that is as highly profitable as the film business was (once you have paid for the chemistry and the factory and have the distribution channels established it is like printing money.........) - is to try to keep it relevant for as long as possible while you try to come up with something to replace it. I think the challenge in big organizations with highly profitable businesses is that the search for the replacement has the "it needs to be a billion dollar new business" that sucks huge resources and most often does not hit the mark (PhotoCD would be one such EK example).
Others have attempted to tackle this issue from Clayton Christensen and the Innovator's Dilemma to Rosabeth Moss Kanter's When Giants Learn To Dance. Seems like organic change is harder than importing innovation through acquisition. Cisco comes to mind as a more mature player that seems to be succeeding in being nimble. Thanks for bringing up the topic!
Myron