Kodak: the decline and fall of a market leader

Please answer the following questions based on illustration 6.4:

1. Which strategic issue did the Kodak illustration highlight? Give a detailed explanation of this issue and the reasons it came about in Kodak's case.
2. Drawing on the frameworks and concepts in Part I (Strategic Positioning) of Exploring Strategy Framework, what steps could Kodak have taken to avoid the strategic issue in (i) above?

IILLUSTRaTION 6.4

Knowledge of technological and market changes may not be enough to avoid strategic drift.

In the twentieth century, Kodak, the manufacturer of

photographic film and cameras, was one of the world's

most valuable brands. Based in Rochester in New York

State, by 1976 Kodak had 90 per cent of film and

85 per cent share of camera sales in the USA, and

by 1996 turnover was $16bn (9.6bn, 12bn) and

in 1999 profits nearly $2.5bn. Initially known for its

innovative technology and marketing, it had developed

digital camera technology by 1975, but did not launch

digital cameras until the late 1990s by when it was

too late.

By 2011, its traditional photography business had

been almost entirely eroded, first by digital cameras

and then by smartphones. Turnover was only $6bn, it

was loss making, the share price had plummeted and

in 2012 it filed for bankruptcy protection. How did

Kodak miss such a fundamental shift in the market?

According to Steve Sasson, the engineer who

invented the first digital camera, the response to his

invention in Kodak was dismissive because it was

filmless photography. There were similar responses to

early internal intelligence reports on digital technology:

'Larry Matteson, a former Kodak executive . . . recalls

writing a report in 1979, detailing fairly accurately how

different parts of the market would switch from film to

digital, starting with government reconnaissance, then

professional photography and finally the mass market,

all by 2010.' 1 Another internal report in the early

1980s concluded that digital technology would take

over the camera industry in about ten years; ten years

in which Kodak could work out its response.

The Kodak response was to use digital to enhance

the film business. For example, in 1996 Kodak

launched a film system using digital technology to provide

users with a preview of shots taken and indicate

the number of prints required. It flopped.

It was executives in the film division who carried

most weight and they were over-confident about Kodak's

brand strength. They also misjudged the speed

of the change in customer buying preferences. For

example, they believed that people in fast-developing

markets such as China would buy lots of film, but

many moved from no camera at all to digital. The

profit margin on digital was also tiny compared with

film and there was a real fear of product cannibalisation.

Rosabeth Moss Kanter of Harvard Business

School also pointed to the Kodak culture: 'Working in

a one company town did not help ... Kodak's bosses

in Rochester seldom heard much criticism ... '. Moreover,

'executives suffered from a mentality of perfect

products, rather than the hi-tech mindset of make it,

launch it, fix it.' 1 They also moved slowly: 'Even when

Kodak decided to diversify, it took years to make its

first acquisition.' 1 Kodak's attempts to diversify by

developing the thousands of chemicals its researchers

had created for use in film for the drug market

also failed.

In 1989, the Kodak board needed to choose a new

CEO. The choice was between Kay R. Whitmore, a

long-serving executive in the traditional film business,

and Phil Samper, who was more associated

with digital technology. The board chose Whitmore,

who insisted that he would make sure Kodak stayed

closer to its core businesses in film and photographic

chemicals. 2

As late as 2007, a Kodak marketing video announced

that 'Kodak is back' and 'wasn't going to play grab ass

anymore' with digital