Depth Analysis of Kodak Corporation That Failed

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Introduction

The case of Kodak Corporation shows that change and market analysis are the main parts of successful business operations and performance. Kodak Corporation failed to change during 1980s with the emergence of digital technology and new types of cameras. The case of Kodak shows that it is always tempting to think of the high-end technology when considering the information revolution, but industries are being transformed just as much — if not more so — by low-end technologies. The competitive threats facing your business will not come just from competitors using more sophisticated analytical techniques or from better methods of communicating with customers, or even from their exploitation of the latest, most expensive technologies. Business is just as much under threat from organizations that steal a march by introducing cheap low-end technology that shifts a process or product from the physical domain to the virtual domain.

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History: Achievements and Beginnings

Kodak Corporation was founded in 1899. In 1888, George Eastman introduced his first Kodak roll film camera, choosing a trade name that could be spelled and pronounced simply in any language and that began and ended with his letter, K. Having introduced a still camera for home and non-professional use, it is not surprising that Eastman Kodak should have worked on the development of a movie camera for the same market (Collins 1991). The result was the Cine Kodak 16mm camera, introduced in January 1923 and formally presented and discussed at the May 1923 meeting of the Society of Motion Picture Engineers in Atlantic City. Eastman Kodak pioneered further developments in the 16mm field in the 1920s, including negative film (the original film was reversal only), color, and sound. Experiments in 8mm film began in 1928 at the Kodak Research Laboratories, and the first cameras and projectors for that gauge were marketed by Eastman Kodak in August 1932. Aside from marketing its own 16mm film equipment, Eastman Kodak agreed to process not only all film shot in its cameras but also film shot on rival equipment. It was an important decision not only in the promotion of 16mm but also as evidence of the company’s willingness to work with everyone in the field. Eastman Kodak rejected 17.5mm in part because of that fact (Collins 1991). If it were nothing more than 35mm halved, the film available to non-theatrical and home users might well be nitrate-based, highly inflammable and dangerous. To avoid such a problem, the company adopted 16mm; and after discussions with representatives from Victor and Bell & Howell determined that 16mm films should be made only on acetate, or safety base, stock. Through 1950, 35mm nitrate films continued in use in the United States, but since the introduction of 16mm in 1923, there has never been a 16mm nitrate film (Collins 1991).

Critics admit that history is currently repeating itself with the introduction of digital cameras. They are not currently of such high quality as conventional cameras, and they still cost two to three times as much, but prices halved in 1997 alone and, already, companies are bringing out printers to produce prints of a high quality direct from these cameras. Fortunately for the established companies, companies with dinosaur tendencies can learn to behave more entrepreneurially and thus increase their chances of survival. To be successful, these companies must “mimic” or simulate the behavior of the new breed of entrepreneurships: They must learn to create new businesses within their existing structures (Collins 1991). This is not often an easy process since those who promote entrepreneurship in established companies are often met with resistance. Further, even if the new venture is established and achieves success, there appears to be a tendency for the parent to try to destroy or “devour” the thriving offspring. The key to survival for today’s established organizations appears to be recreating the entrepreneurial spirit that may have been lost as the organization grew. In other words, the corporate dinosaur must transform itself into a faster-moving, sleeker animal. Management must learn how to promote new business development within the confines of the existing organization. This process has been termed “intrapreneurship” to distinguish it from the classic process of entrepreneurship (Carroll and Chunka 2008).

Causes of Failure

The main causes of Kodak failure were inability to innovate and a strong belief in its products and services. The beginning 0f 1980s marked new trends in digital technologies but Kodak rejected the idea of market failure and decline. The company tried to position itself as a unique brand in contrasts to digital business. Herrington et al (2005) call this strategy myopic as it does not reflect market needs and customers’ demands. “For too long, Kodak thought of itself as primarily in the photography business rather than the imaging business” (Herrington et al 2005, p. 453). To become more intrapreneurial, a large organization like Kodak must overcome a number of problems related to the tendency to continue operating as if the environment was stable and as if the demand for existing products or services will continue indefinitely. It needs to examine the degree to which it promotes intrapreneurship throughout the entire company as well as within its various divisions. There are some common symptoms of an organization’s inability to become intrapreneurial. One symptom relates to the emphasis in the strategic planning process on form rather than substance. In an effort to satisfy bottom line requirements, operating units tend to create strategic plans that focus on numbers rather than key issues (Kerzner, 2004). Even today, Kodak is an outside in its industry unable to compete with market leaders. Kodak, “once a purveyor of film, chemicals and photographic media, now sells digital cameras and printing paper as key product items. But Kodak remains behind industry leaders such as Sony and Canon in digital cameras and to HP and Epson in photo printing paper” (Herrington et al 2005, p. 453).

The case Kodak shows that desire to keep its unique brand image led to failure. Every company has to accept that the goal of the strategic planning process is to create a document that makes the unit “look good” on paper, rather than focusing attention on areas that will increase the long-term viability of the operating unit. The focus is short-term, rather than on creating a vision for the operating unit’s future. Further, since the plan emphasizes numbers, it may not provide the direction that employees need in working toward achieving goals consistent with maintaining the firm’s success. This limits the ability of the operating unit to become intrapreneurial because the operating unit focuses on what it is rather than what it can become (Kerzner, 2004). It tends to view itself only in terms of how it contributes to the functioning of the existing company rather than how it can develop into a “business” that emphasizes creativity and innovation. A third symptom is that employees perceive that the operating unit lacks direction. Members of the operating unit do not understand where the operating unit is headed or how it fits in with the overall plan of the organization. Employees may complain that they “feel they have no purpose” or that “there is no unifying purpose for the operating unit.” They may believe that even senior management does not know what the future of the unit should be. This results, in part, from the tendency for senior management of established firms to make the majority of decisions regarding the unit’s goals (Kerzner, 2004). It also results from inadequate communication between senior management and the operating unit’s management as well as between the operating unit’s management and lower level employees. The result is a tendency to focus on the day-to-day operations of the unit, rather than how the decisions made and jobs performed today will affect the long-term viability and success of the unit (Carroll and Chunka 2008).

Another major symptom of failure in Kodak was a lack of intrapreneurship and resistance to new ideas. “In 1989, Sony chairman Akio Morita called a press conference to unveil a new product: a new camera. The remarkable thing about this camera was that it reproduced an image using electronic digital technology … without any need for processing or developing” (Utterback 1995, p. 139). There will always be some resistance to change, particularly in situations in which people have been operating a certain way for a long time. Intrapreneurship, however, depends on the ability of people to learn to think creatively in order to develop new products or new ways of employing old products. In many large organizations, the culture emphasizes doing things in the “traditional” fashion. In order to become intrapreneurial, the culture has to be changed so that the development of new ideas is valued, not devalued. In large organizations, partly because of how profit is viewed, there is an inability or unwillingness on the part of employees to be risk takers (Kerzner, 2004). The “game” is played to minimize risks, rather than to take risks in the hope of getting a “big hit.” This leads employees to cling to the “standard ways of operating” that have proven successful in the past and that are, therefore, “safe.” The problem is that unless individuals and operating units are encouraged to take risks, there will be little change in the organization and it will stagnate. Intrapreneurship cannot occur unless the culture of the organization encourages risk taking (Collins, 1991).

Another symptom of an inability to be intrapreneurial is that Kodak, recognizing market opportunities, is unable to move quickly enough to take advantage of them. This results, in part, from the political games that units in large companies must play to acquire the resources they need for new product development and from the red tape that they must contend with. It also results from the emphasis on short-term goals to achieve the bottom line emphasized by the accounting system (Collins, 1991). The unit tends to focus on the “way it’s been done” and so is slow to move when a new opportunity presents itself. Another symptom that signals an inability to be intrapreneurial is that managers think of themselves as technical or functional specialists, rather than as managers. In other words, they devote a great deal of attention to their technical specialties, such as marketing, engineering, or manufacturing, rather than to the overall management of operations. These “hands-on” managers spend a great deal of time actually doing a specific task, rather than supervising others. Their behavior becomes symbolic; there is only one way to do a task, and the “boss” knows what it is. A spirit of innovation can hardly be fostered in such an environment. Instead, the operating unit tends to carry on much as it always has, with the manager serving as technical leader. In brief, many people with the title of manager tend to behave as technical specialists rather than as true managers. If a number of the above symptoms are present, one final symptom may emerge. In some instances, the unit’s sales (whether to customers or in the form of transactions to other units) will continue to increase while profits remain flat or actually decline. It is a difficult process to promote innovation in a large, relatively stable organization (Kerzner, 2004). The first step is understanding how entrepreneurships (where creativity and new business development are the norm) differ from many large, publicly held organizations (where a great deal of inertia may exist). The next step is to find a way to incorporate the positive aspects of an entrepreneurship into strategies and practices of the larger organization. In entrepreneurial companies, we have been trying to identify the distinctive aspects of what entrepreneurial companies do well. In established companies, we have tried to identify the barriers to entrepreneurship. We have also looked for examples of established organizations that have been successful with intrapreneurial efforts to learn what they do well, and determine whether it can be adapted to other organizations (Carroll and Chunka 2008).

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Lessons and Recommendations

To become more intrapreneurial, Kodak must change how they behave with respect to five key variables: profit, compensation, motivation, politics, and accounting systems. In brief, Kodak must learn to mimic or simulate what successful entrepreneurships do with respect to these five key variables if they are to become more entrepreneurial themselves. In established companies, and especially in large, publicly held companies, current profit is everything (Kerzner, 2004). This type of company must answer to its shareholders and they expect a profit. The best strategy for a company to use in managing its stockholders is to avoid getting a big hit because a big hit will result in greater profits for one year and create the expectation that the following years will have similar outcomes. It is better to have a stable profit picture than one that varies from year to year. In brief, this is very different from the orientation of an entrepreneurship. Employees of large, publicly held firms do not share the commitment that those who work for entrepreneurships do. Few individuals share the burden of corporate ownership or have much to lose. Individuals are compensated for performing a specified task, often in a specified fashion, during a specified time. Individuals are not rewarded for stepping outside these boundaries so employees in large firms perform their jobs in eight hours and then go home. Further, creativity is often not valued because it violates the prescribed norms of the organization (Carroll and Chunka 2008). Managers who operate in a divisional structure that promotes intrapreneurship must be general managers. They do not need to be specialists in any one area, but instead must find ways of motivating people who work in a wide variety of areas to achieve their own goals and to work together. These managers must act like coaches: They do not actually play the game, but coordinate the efforts of their personnel who occupy a variety of specialist positions so that together, they can “win the game” (achieve the operating unit’s goals). In this regard, these managers must also help the group develop a game plan, a strategic plan that outlines the unit’s future goals and how they will be accomplished. Since senior management is responsible for planning and control throughout the company in non-intrapreneurial firms, it follows that they must adopt a leadership style that is fairly directive. In most of these firms, managers adopt either a benevolent autocratic, consultative, or participative style. The benevolent autocratic style, the most directive of the three, involves managers telling their subordinates what to do, but emphasizing that it is what is best for them.

References

Carroll, P.B. and Mui, Chunka, (2008). Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years. Penguin Group, New York, New York

Collins, D. (1991) The Story of Kodak. Harry N Abrams.

Herrington, J., Reeves, C., Oliver, R. (2005). Online Learning as Information Delivery: Digital Myopia. Journal of Interactive Learning Research 16 (4), 453,

Kerzner, Harold, (2004). Advanced Project Management: Best Practices on Implementation, 2nd Edition, John Wiley & Sons

Utterback, H. M. (1995). Developing Technologies: The Eastman Kodak Story. The McKinsey Quarterly 1 (1), 130.

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