How a culture of complacency wiped out one of the world’s best loved brands
In 1975 Steven Sasson, an electrical engineer at Kodak, invented the digital camera. Four years later British New Wave band The Buggles released “Video killed the radio star”. The song was a nostalgic tome to the technological upheaval of the 60’s. The portent of the lyrics, from The Age of Plastic album, should have presented Kodak executives with an early warning. But nearly a century of business bliss (and near monopoly) created a culture of smug complacency at Kodak, and that would be its undoing.
In the mid 70’s Kodak was approaching its zenith. By 1976, 90% of all camera film sold in America (and 85% of all cameras sold) came from a brand ranked in the top 5 most valuable brands in the world. People loved Kodak then for its innovativeness. The Economist described Kodak recently as “the Google of its day…known for its pioneering technology and innovative marketing.” And certainly, that innovation started with its founder, George Eastman, in 1880. Eastman’s strategy was to sell cheap cameras, but make money off the consumables they needed (camera film, photo paper and chemicals). While historians theorise that Eastman conjured up his famous name by remixing the letters of his home state (North Dakota – NoDak), Eastman wanted the name of his company to be short, not easily mispronounced and unique. The name, and presumably the brand, Eastman felt, should not resemble anything or be easily associated with anything other than itself. Eastman also expressed partiality towards the letter ‘K’, which he described as a “strong, incisive sort of letter.”
The attention to detail in Kodak’s nomenclature, along with its simple yet brilliant strategy (analogous to cheap razors and expensive, disposable blades) and seemingly endless innovation soon propelled the company towards dizzy heights. As early as 1888 Kodak was trumpeting its sassy and convenient technology: “You press the button, we do the rest.”
For two generations or more, the Kodak brand shared headspace with the likes of Coca Cola, McDonald’s, Marlboro, Lego and Volkswagen. In 1969 Kodak, the world’s favourite film was taken aboard the Apollo 11 spacecraft to document the first moon landings.
Just a decade after photographing the moon, a Kodak executive called Larry Matteson wrote a report on the anticipated mass migration from film to digital. According to an article in the Economist, Matteson envisaged the process starting via government reconnaissance and professional photography before filtering into the mass market. Although Matteson was broadly correct, he saw these changes taking thirty years, fully manifesting by 2010. Even Matteson underestimated the pace of both innovation, and early adoption. Smartphones and Facebook, and the internet and social media in general, probably had a lot to do with this, none of which were around in 1979. The suddenness of this digital mutiny, however, also surprised Kodak’s main rival, Fujifilm.
The trick was to adapt to the shift in consumption, and perhaps manage that shift, but without accelerating it. According to Matteson “[I]t was best not to hurry the switch from making 70 cents on the dollar on film to maybe five cents at most in digital.”
Kodak had to adapt, the problem is, they did so far too slowly, which was compounded by copycat competitor, Fujifilm, who were both hungrier and more anxious than Kodak to seize every new business opportunity. The 1984 Olympics in Los Angeles provides a prime example – while Kodak dawdled, Fujifilm announced to the world’s largest film market that a cheaper competitor had arrived. Although Fujifilm was aware at the time that the film market’s final sell by date was fast approaching, they were keen to squeeze every drop out of it. This was a first instance that allowed Fujifilm to flourish at the expense, and in the home market, of their long time rival.
The core of Kodak’s demise was this: Kodak’s original business model, to build cheap cameras and sell expensive film didn’t apply to digital cameras. And while Kodak made a foray into pharmaceuticals (thinking their chemicals prowess could lead to new generic drug patents), Fujifilm outplayed Kodak in diversification as well. While Kodak’s pharmaceutical ambitions dissolved, Fujifilm’s nanotechnology expertise allowed them to make a more intuitive, more focused foray, via a line of successful anti-oxidant cosmetics called Astalift, directed towards Asian markets. Kodak eventually moved from a “chemicals” product psychology to one more focused on “imaging”, but by then the digital camera market had quickly became a jungle filled with wily opposition, with behemoths Canon and Nikon on one end, and a slew of smartphone makers on the other.
The Economist suggests that Kodak’s boss, George Fisher, who “offered customers the ability to post and share pictures online…might have [started] something like Facebook” during his tenure between 1993 and 1999. But failure to outsource production stymied creativity, and a company famous for its brilliant inventions, quickly found itself running short on stealth. Denial that Fujifilm posed any sort of threat suffocated the sort of energetic stimulus competition usually serves. Kodak’s Rochester bosses also suffered from “small town syndrome”, in that the community did not criticise the company. Meanwhile a fundamental shift was taking place under their feet: a legacy of traditional business, of hard won inventions and stand alone products that could be carefully and rigorously released, with all patents and marketing in place, was giving way to the rapid fire formula that is now a staple of the tech titans. Harvard Business School’s Rosabeth Moss Kanter, who gives Kodak strategy advice, believes the firm lacked the speedy “make it, launch it” mindset.
Complacency made Kodak a victim of a “wait-and-see” and “holding thumbs” mentality, based on riding on the coattails of earlier achievement. Kodak was looking to China’s new and emerging middle class for salvation, but the bulk of this market went from not owning a camera to digital, skipping film cameras completely.
And while Fisher spent the 90’s making Kodak synonymous with “picture sharing”, Antonio Perez (since 2005) reckons Kodak should be all about digital printing, which means foisting the Kodak brand into the same arena as Kyocera, Nashua and Konica Minolta. Perez has also attempted to earn money for Kodak through extensive patent litigation, including suits against Apple (a company currently worth 2400 times Kodak’s value) and HTC, amongst others. Kodak claims to be the proprietary owners of the technology patents that govern the transmission of photos from mobile gadgets. Kodak is also suing other companies to prevent them from selling “picture sharing” technology. But while Kodak is down, they’re by no means out. 1100 US digital imaging patents are about to be flogged, which ought to fetch $3 billion, according to some pundits. Not bad for a company that has insisted it had no intention of filing for bankruptcy protection (until doing so in January this year).
Meanwhile, profits have plummeted at Kodak, from $2.5 billion in 1999 to a third quarter loss of $222 million last year. Kodak stocks once in the $90 range in the late nineties, gravitated to $0.36 cents in early 2012. Amazingly, while Kodak’s bright yellow future slowly turns sepia, Fujifilm’s foliage has been bursting with the evergreen glow of financial prosperity. Since Kodak’s leadership has been inconsistent of late, Fujifilm has seen revolutionary change, particularly with Shigetaka Komori at the helm. Instead of competing through marketing as Kodak has, Komori has tried to get Fujifilm into new business, and developing new products, whilst developing in-house expertise.
In the end Fujifilm learned the trick that Apple has come to perfect: finding the balance between outsourcing and choreographing manufacturing processes on the one hand, and maintaining in-house expertise and factory floor innovation on the other, whilst “making and launching” innovative, leading edge, quality products. In a sense, the high tech industry is about products leading the market, not marketing. And in this sense, above all, Kodak failed. Kodak wanted to remain a marketing giant, outsourcing all of its production, so that it could focus on building its brand. But when it comes to technology, the brand is only as good as its last iteration. The Economist sums up the difference in the outrageous fortunes of the two photo film companies’ best: "Kodak acted like a stereotypical change-resistant Japanese firm, while Fujifilm acted like a flexible American one."
In hindsight it is a pity Kodak didn’t take that Buggles song of 1979 more seriously: “They took the credit for your second symphony, Rewritten by machine and new technology, And now I understand the problems you can see…” In the end, the “Google of its day” started off as a hard working company, and then with its success, grew lazy and lost its way.
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