AndersonJan 20, 2012 21:20:37 IST
Long before American photo giant Kodak declared bankruptcy, it had already become a case study in what not to do when technology kills your cash cow.
It's important to remember that Kodak isn't dead and the corporate obituaries are a bit premature. It has an almost billion dollar credit line and and some breathing room to re-invent itself, although it has been trying to remake itself for much of the past decade.
The real question is what can it do that it hasn't already tried, and can it execute an about-turn in the 18 months when the credit line from Citigroup comes due. It might sell its iconic photography business and focus on making money from its portfolio of 11,000 patents while trying to build its printer and digital businesses.
Kodak's future may be uncertain, but one thing isn't: The downfall of this once great company will be taught in business schools for decades to come.
A pioneer fails to pivot:
Kodak has an incredible brand and did have a stunningly successful, vertically integrated business model. They sold the cameras, the film, the processing chemicals and the paper on which were printed the snapshots of most Americans.
For decades, however,it was clear that digital would replace film. The problem wasn't that the company didn't shift to digital: Kodak scientist Steven Sasson developed a digital camera prototype in 1975. It took nearly 23 seconds to take a photo and weighed nearly 4kg so wasn't the pocketable point-and-shoot digital snappers we know now, but at one point, Kodak had the future in its labs.
The problem for Kodak was a lack of business strategy and focus. Instead of investigating how to move from the lucrative film business to digital, Kodak left it to others. It was mostly Japanese camera and customer electronics companies like Sony, Canon and Fuji who took the risk on early electronic analogue and digital cameras.
Kodak got serious about digital in the 1990s, building mega-pixel digital conversion units for Nikon film cameras and digital cameras for Apple. By the middle of the last decade, it had a successful digital camera business with itsline of simple digital cameras boasting its EasyShare technology. The company also moved into printers and had small units in many shops in the US where you could quickly create prints from your digital photos.More recently, Kodak also developed a line of well regarded, hand-held digital video cameras.
But they had difficulty weaning themselves off of the their film, chemical and paper business.As we've seen in a lot of other industries disrupted by technology, digital businesses often have lower returns than those they replace. Moving to digital often means that the company still has to cope with massive change whilst also becoming smaller and leaner. Kodak tried and shed some 47,000 jobs over the last 10 years.
Digital disruption: Lightning strikes more than once
Why did it all go so wrong? It's a little too simplistic to say that Kodak missed the digital revolution.US newspaper digital strategist Steve Yelvington pointed out that in digital, pioneers don't always end up winners. Thinking beyond Kodak, just look at how web pioneers Yahoo and AOL are faring now.
More than that, Yelvington makes the point that disruption doesn't happen just once:
"On the digital side, Kodak initially pivoted quite well, creating the 'Easyshare' concept and reconquering digital photography from the Japanese tech companies. By the middle of the last decade, Kodak was the market leader. But suddenly smartphone cameras have autofocus lenses, 8-megapixel sensors and HDTV video capability. Result: the low-end market is toast, and Kodak isn't taken seriously in the high end, where Canon and Nikon reign."
Yelvington wasn't the only person in the newspaper industry who looked at Kodak for lessons on how to deal with technological change, and for good reason. In a lot of ways, newspapers in Europe and the US are in a very similar position to Kodak. They have growing digital businesses that make money but often don't make enough to be profitable or enough to offset the losses from their traditional businesses.
Just like Kodak's film business, newspapers still make the bulk of their money on the old business, print. But, unlike in Africa and Asia where literacy is rising and readership increasing, print readership is on the decline. Most newspapers are stillfocused on print because that's where they get the majority of their revenue, even though it is in decline.
It is a difficult corporate dance, especially for large organisations to successful transition from a once hugely successful business model to a new emerging one. The lure of clinging to fading success is more powerful than the uncertainty of competing for future success. One path seems to offer security, albeit security under threat, while the other path seems to only offer risk and, initially, few returns.
For both newspapers and Kodak, the Economist best summed up this problem:
"The morale of Kodak's fate is that technology trends are often clearly visible, but changing a successful company is exceedingly hard."
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