By any standards the demise of Eastman Kodak from its once mighty position to the day where it filed for bankruptcy constitutes a huge fall from grace. There have been many explanations proposed for this and it is unrealistic and overly simplistic to blame it on a single cause. From the viewpoint of this chapter, however, this brief case study will examine the role of organizational culture in this dramatic and sad story.

Founded in 1880, Eastman Kodak became one of the most successful and best-known brands in the world. Its founder, George Eastman, had spotted the potential in the commercial manufacture of dry plates for photographic imaging and with investment from local businessman Henry A Strong began to build up the business and ultimately change photography forever. It was the development of film on rolls that was able to fit the majority of plate cameras that revolutionized the industry and with it Kodak (a name invented by Eastman) became the founding father and dominant player in the industry for the next 100 years. Eastman founded his business on four principles:

● Mass production at low cost;

● International distribution;

● Extensive advertising;

● A focus on the customer.

He allied these principles to a strong commitment to research and development (with an emphasis on reinvestment), and on fair staff relations. It was this emphasis on low-cost mass production that really led to the development of amateur photography and as the market developed so Kodak began to spread its wings and establish an international presence, initially in London and then further afield to mainland Europe and eventually to South America and Asia.

Kodak’s domination

Once Kodak had in effect democratized photography and created the amateur photography industry it quickly established pre-eminence and was able to enjoy huge profitability through its classic ‘razor blade’ strategy. Simply put, Kodak would manufacture and sell cameras at a relatively low profit and sell film at a very high margin in the same way that the likes of Gillette sell razors at low margin and the replaceable blades at high profit. This strategy proved to be superbly successful and it was one that Kodak repeated across many product ranges such as copiers and printers and video cameras. During this period it created many classic brands in the industry such as the Brownie and the Instamatic as well as producing quality film. Kodak pursued its strategy of aiming at the lower end of the market to great effect, leaving the specialist end to others.

Decline

Kodak’s decline began in the 1980s when competitors began to eat away at its advantage in the film market. In particular, Fuji made significant inroads by offering film at either a cheaper price and in one particularly bold move gaining the rights to become one of the main sponsors of the Olympics in 1984, seizing an opportunity over which Kodak had dithered.

Ultimately, however, it was the shift from the classic rolls of film to digital technology that was the cause of Kodak’s downfall. It was described by one of the people close to the company as ‘the monster hurricane’ that hit Kodak. The huge margins that Kodak made from its ‘razor blade’ strategy cannot be made with digital cameras and as in all industries there was a host of eager competitors ready and willing to take advantage of the change in the market. Even further down the line, the low end of the market that was always such a happy hunting ground for Kodak was now dominated by cameras that were integrated into Smartphones and so ultimately Kodak had nowhere to run.

Blaming Kodak’s demise on competitors’ pricing and a shifting business environment seems rather simplistic. Although the digitalization of film was a huge shift, Kodak was well placed to take advantage of this as it had invented the first digital camera as long ago as 1975 and Kodak executives such as Larry Mattesson had predicted in a report to the board that digital would infiltrate various parts of the market and eventually dominate (including the mass market) by 2010. Clearly, he was some years out but the report was written in 1979 and gave due warning (Economist, 2012).

Culture’s role in Kodak’s decline

There were a great many reasons for Kodak’s decline and many were complex and intertwined but some of the blame must lie at the feet of the culture in the organization. George Eastman founded the business with a philosophy of continuous innovation and was focused on making the company a ‘moving target’ for competitors. This is a classic entrepreneurial approach and it would seem that Kodak moved away from this. Despite the initial development of a digital camera and early warnings about the change to a digital market the response of Kodak’s managers seems to have been sluggish to say the least. The inventor of Kodak’s digital camera, quoted in an article published in the New York Times on 5 February 2008, cites the management attitude as: ‘But it was filmless photography, so management’s reaction was, ‘that’s cute – but don’t tell anyone about it.’

Kodak seems to have gone through the classic responses of the successful company when faced with threats and changes, at first denying that Fuji could possibly be a serious competitor in the US market, and then recognizing the threat of the external change but not its urgency. Kodak then fell in to the trap of what Donald Sull referred to as ‘active inertia’ in an article entitled ‘Why good companies go bad’ published in The Financial Times on 3 October 2005. Active inertia is where a company recognizes the need to act but the actions tend towards being ‘more and more of the same’. Thus Kodak diversified into chemicals; produced hundreds of products and entered the Chinese markets. The problem with all this action is that it is based on the original successful business. In other words, Kodak was pouring most of its effort and finance into maintaining the company’s hold on the traditional camera and film business (even the chemical business was directed at this) or at least a digitalized version of this whereby people would print off digital copies of their pictures.

In short, it was probably the failure of Kodak to ‘cannibalize’ its core business (and with the margins being made, Wall Street would not have been an encouraging voice), that was the key ingredient in Kodak’s demise. It is ironic that it failed to follow its founder’s determination to make itself a moving target and became stuck in the mindset that had made it so successful but was now redundant.

Discussion questions

● To what extent does Gagliardi’s concept of ‘reference criteria for success’ explain Kodak Eastman’s failure?

● Apply the concept of strategic drift (with an emphasis on culture) to this case.

● From the perspective of organizational culture what actions would you take to turn the company’s fortunes around?