How Kodak Failed Chunka Mui LEADERSHIP STRATEGY Jan 18, 2012,09:56am EST There are few corporate blunders as staggering as Kodak's missed opportunities in digital photography, a technology that it invented. This strategic failure was the direct cause of Kodak's decades-long decline as digital photography destroyed its film-based business model. Kodak was committed to film picture industry. A new book by my Devil's Advocate Group colleague, Vince Barabba, a former Kodak executive, offers insight on the choices that set Kodak on the path to bankruptcy. Barabba's book, "The Decision Loom: A Design for Interactive Decision-Making in Organizations," also offers sage advice for how other organizations grappling with disruptive technologies might avoid their own Kodak moments. Steve Sasson, the Kodak engineer who invented the first digital camera in 1975, characterized the initial corporate response to his invention this way: But it was filmless photography, so management's reaction was, 'that's cutebut don't tell anyone about it.' Kodak management's inability to see digital photography as a disruptive technology, even as its researchers extended the boundaries of the technology, would continue for decades. As late as 2007, a Kodak marketing video felt the need to trumpet that "Kodak is back "and that Kodak "wasn't going to play grab ass anymore" with digital. To understand how Kodak could stay in denial for so long, let me go back to a story that Vince Barabba recounts from 1981, when he was Kodak's head of market intelligence. Around the time that Sony introduced the first electronic camera, one of Kodak's largest retailer photo finishers asked him whether they should be concerned about digital photography. With the support of Kodak's CEO, Barabba conducted a very extensive research effort that looked at the core technologies and likely adoption curves around silver halide film versus digital photography. The results of the study produced both "bad" and "good" news. The "bad" news was that digital photography had the potential capability to replace Kodak's established film based business. The "good" news was that it would take some time for that to occur and that Kodak had roughly ten years to prepare for the transition. The study's projections were based on numerous factors, including: the cost of digital photography equipment; the quality of images and prints; and the interoperability of pg. 2 various components, such as cameras, displays, and printers. All pointed to the conclusion that adoption of digital photography would be minimal and non-threatening for a time. History proved the study's conclusions to be remarkably accurate, both in the short and long term. The problem is that, during its 10-year window of opportunity, Kodak did little to prepare for the later disruption. In fact, Kodak made exactly the mistake that George Eastman, its founder, avoided twice before, when he gave up a profitable dry-plate business to move to film and when he invested in color film even though it was demonstrably inferior to black and white film (which Kodak dominated). Barabba left Kodak in 1985 but remained close to its senior management. Thus he got a close look at the fact that, rather than prepare for the time when digital photography would replace film, as Eastman had with prior disruptive technologies, Kodak choose to use digital to improve the quality of film. This strategy continued even though, in 1986, Kodak's research labs developed the first mega-pixel camera, one of the milestones that Barabba's study had forecasted as a tipping point in terms of the viability of standalone digital photography. The choice to use digital as a prop for the film business culminated in the 1996 introduction of the Advantix Preview film and camera system, which Kodak spent more than $500M to develop and launch. One of the key features of the Advantix system was that it allowed users to preview their shots and indicate how many prints they wanted. The Advantix Preview could do that because it was a digital camera. Yet it still used film and emphasized print because Kodak was in the photo film, chemical and paper business. Advantix flopped. Why buy a digital camera and still pay for film and prints? Kodak wrote off almost the entire cost of development. As Paul Carroll and I describe in "Billion-Dollar Lessons: What You Can Learn From The Most Inexcusable Business Failures of the Last 25 Years," Kodak also suffered several other significant, self-inflicted wounds in those pivotal years: In 1988, Kodak bought Sterling Drug for $5.1B, deciding that it was really a chemical business, with a part of that business being a photography company. Kodak soon learned that chemically treated photo paper isn't really all that similar to hormonal agents and cardiovascular drugs, and it sold Sterling in pieces, for about half of the original purchase price. In 1989, the Kodak board of directors had a chance to take make a course change when Colby Chandler, the CEO, retired. The choices came down to Phil Samper and Kay R. Whitmore. Whitmore represented the traditional film business, where he had moved up the rank for three decades. Samper had a deep appreciation for digital technology. The board chose Whitmore. As the New York Times reported at the time, pg. 3 Samper resigned and would demonstrate his grasp of the digital world in later roles as president of Sun Microsystems and then CEO of Cray Research. Whitmore lasted a little more than three years, before the board fired him in 1993. For more than another decade, a series of new Kodak CEOs would bemoan his predecessor's failure to transform the organization to digital, declare his own intention to do so, and proceed to fail at the transition, as well. George Fisher, who was lured from his position as CEO of Motorola to succeed Whitmore in 1993, captured the core issue when he told the New York Times that Kodak Fisher oversaw the flop of Advantix and was gone by 1999. As the 2007 Kodak video acknowledges, the story did not change for another decade. Kodak now has a market value of $140m and teeters on bankruptcy. Its prospects seem reduced to suing Apple and others for infringing on patents that it was never able to turn into winning products. Addressing strategic decision-making quandaries such as those faced by Kodak is one of the prime questions addressed in Vince Barabba's book, "The Decision Loom." Kodak management not only presided over the creation technological breakthroughs but was also presented with an accurate market assessment about the risks and opportunities of such capabilities. Yet Kodak failed in making the right strategic choices. This isn't an academic question for Vince Barabba but rather the culmination of his life's work. He has spent much of his career delivering market intelligence to senior management. In addition to his experiences at Kodak, his career includes being director of the U.S. Census Bureau (twice), head of market research at Xerox , head of strategy at General Motors (during some of its best recent years), and inclusion in the market research hall of fame. pg. 4 "The Decision Loom" explores how to ensure that management uses market intelligence properly. The book encapsulates Barabba's prescription of how senior management might turn all the data, information and knowledge that market researchers deliver to them into the wisdom to make the right decisions. It is a prescription well worth considering. Barabba argues that four interrelated capabilities are necessary to enable effective enterprise-wide decision-makingnone of which were particularly well-represented during pivotal decisions at Kodak: 1. Having an enterprise mindset that is open to change. Unless those at the top are sufficiently open and willing to consider all options, the decision-making process soon gets distorted. Unlike its founder, George Eastman, who twice adopted disruptive photographic technology, Kodak's management in the 80's and 90's was unwilling to consider digital as a replacement for film. This limited them to a fundamentally flawed path. 2. Thinking and acting holistically. Separating out and then optimizing different functions usually reduces the effectiveness of the whole. In Kodak's case, management did a reasonable job of understanding how the parts of the enterprise (including its photo finishing partners) interacted within the framework of the existing technology. There was, however, little appreciation for the effort being conducted in the Kodak Research Labs with digital technology. 3. Being able to adapt the business design to changing conditions. Barabba offers three different business designs along a mechanistic to organismic continuummake-and-sell, sense-and-respond and anticipate-and-lead. The right design depends on the predictability of the market. Kodak's unwillingness to change its large and highly efficient ability to make-and-sell film in the face of developing digital technologies lost it the chance to adopt an anticipate-and-lead design that could have secured the it a leading position in digital image processing. 4. Making decisions interactively using a variety of methods. This refers to the ability to incorporate a range of sophisticated decision support tools when tackling complex business problems. Kodak had a very effect decision support process in place but failed to use that information effectively. While "The Decision Loom" goes a long way to explaining Kodak's slow reaction to digital photography, its real value is as a guidepost for today's managers dealing with ever-more disruptive changes. Given that there are few industries not grappling with disruptive change, it is a valuable book for any senior (or aspiring) manager to read. Try to answer the following questions:

TEMPLATE

COURSE and SECTION ID:

STUDENT NAME:

STUDENT ID:

1. A common disappointment among managers in regards to measuring performance is that in practice, in many cases, the key performance indicators (KPIs) do not seem relevant to the strategy.Below (left column) are some of the most common cases that point out that KPIs are not linked to strategy or that the alignment is not proper and/or effective. Give a proper solution advice for managers (column to the right) so the KPIs can be re-worked to align effectively with strategy, goals and objectives.

KPI Issues	Solution
The strategy is not translated into clear KPIs; KPIs seem vague and not concise.
KPIs are not chosen to reflect the achievement of strategic objectives
KPIs are not relevant, because we measure what is easy to measure
KPIs are not relevant, because we measure what is popular in the industry
KPIs are not reviewed after every strategic planning cycle

2. Goals are really important to set a destination for where you're trying to go. "If you don't know where you're going, you're going to end up somewhere else," right? That's a really famous and funny quote from Yogi Berra. The reality is it's true and we need to make sure that we're setting the right goals. That's where smart goals come into play. SMART goals are specific, measurable, attainable, realistic, and they're also time-bound. SMART goals help plan better strategies for the business.

Write down a SMART goal (and it components) that support your strategy (which is: "I want to get physically fit").

Your SMART Goal:

Components	Show how the components of SMART goal you have chosen are included in your SMART goal
Specific
Measurable
Achievable
Relevant
Time-bound

3. There are few corporate blunders as staggering as Kodak's missing opportunities in digital photography. Kodak management not only presided over the creation technological breakthroughs but was also presented with an accurate market assessment about the risks and opportunities of such capabilities. Kodak had the opportunity to enter digital camera business. Yet Kodak failed in making the right strategic choices.

Read the associated article ("How Kodak Failed") and respond to the insightful questions posted at the end.

Discussing Question
Q1) Why did Kodak fail to change strategy?	Response (at least two)	Facts or sentences from the article that support your answer (for example: pg. 2, paragraph 5)
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Q2) Why change of strategy in favor of digital camera was doable for Kodak?	Response (at least two)	Facts or sentences from the article that support your answer (for example: pg. 2, paragraph 5)
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