Introduction
Kodak is a multinational company founded by George Eastman in 1889 in New York. The company was a well-known market leader in film and photographic devices and components. By the 1970s, Kodak had acquired approximately 90% of the film market in the U.S (Roychowdhury, 2019). In 1975, the company invented the first digital camera globally, marking the beginning of the industry’s disruption. The biggest challenge for Kodak, however, was adapting to the new market changes. This paper discusses the strategic decisions that led to Kodak’s failure and the possible reasons for its decline. It also provides recommendations on how the identified strategic problems could be addressed.
Overview of the Company’s Strategy
Disruptive innovation is a theoretical concept referring to startups that change the existing market in the industry. A market gets disrupted when newly introduced products or services change customers’ preferences and demands (Kumaraswamy et al., 2018). The invention of the digital camera disrupted the consumer market for graphic arts and imaging technology. Consumers changed their preferences from printing pictures to online sharing, deeming analog photographic equipment and components obsolete.
Companies can opt for two alternatives to implement change in the face of such market changes: make a radical change or take a subtle approach by implementing the changes incrementally. The first signal of market disruption came in 1981 when Sony launched a filmless camera to display pictures on TV screens (Kumaraswamy et al., 2018). However, Sony’s digital technology was very different from Kodak’s existing cameras; thus, the company was unwilling to take the risk of making such radical changes. However, since the digital camera was still in its early stages, Kodak could have opted for an incremental change, but it ignored this strategic alternative as well. Kodak did not adjust to the revolutionary changes; instead, it retained its existing model and continued developing the analog photographic equipment, which led to its failure.
Defining Kodak’s Failure or Decline
Several metrics can be used to describe the failure or decline of an organization. Typically, a company can measure success or failure by using performance indicators such as sales volume, net income ratio, return on investment, employee/customer satisfaction scores, etc. (Turpen et al., 2016). Companies can collect data on their financial performance, resource management, institutional impact, customer base, satisfaction scores, etc., to determine whether they are successful or not.
Kodak’s failure is best described by its financial performance and loss of its market position in the film and imagery market. By 1963, Kodak was a market leader, accounting for approximately 90% of the United States’ film market (Roychowdhury, 2019, p. 2). The company sales revenue amounted to $10 billion by 1981: however, five years after the digital camera entered the market, Kodak’s sales reduced from $10 billion to $6 billion (Prenatt et al., 2015, p. 3). The company kept losing money for developing products such as camera hardware until it filed for bankruptcy in 2012. During the pre-digital era (1997-2005), the net sales were approximately $28800.39 million, but after the post-digital period (2006-2012), Kodak’s sales reduced to $12368.65 million (Roychowdhury, 2019, p. 4).
According to the company’s recently published financial results, Kodak had total revenue of $1 billion and a cash balance of $196 million by the end of the 2020 fiscal year (“Kodak reports,” 2021, para. 2). The above pecuniary analysis provides a clear delineation of the organization’s decline throughout the years.
The second metric signaling Kodak’s failure was losing its market position characterized by the loss of customers. The company operated three primary customer groups: the digital consumer group (DCG), the film and photofinishing systems group (FPG), and the health group (KHG). The enterprise lost most of its clients to rival companies that offered digital technology. For example, the health group abandoned Kodak’s traditional radiographic and laser systems for digital tools such as X-rays. Furthermore, the corporation lost 6% of its net sales between 2005 and 2006 in the KHG customer group only (Roychowdhury, 2019, p. 4). Kodak further lost its market position as more of its clientele embraced digital technology instead of its analog imaging equipment.
Analyzing the Possible Reasons for Failure or Decline
Marketing Myopia
Many scholars have postulated that Kodak failed because it missed the digital revolution. However, according to Roychowdhury (2019), Kodak couldn’t have missed the digital revolution because it was the first company to develop the digital camera. Researchers also hypothesize that Kodak retained its existing model due to marketing myopia (Mendes, no date). Marketing myopia is a concept that postulates that companies can achieve long-term success when they focus on meeting a product/service’s utility rather than sales (Gallo, 2016).
The concept is supported by the Market Based View (MBV), which posits that companies should always consider their environment or market as the starting point of their competitive strategy. According to the MBV perspective, when companies focus on their external environment or market, they become customer-centric and market-driven, ultimately giving them a competitive advantage.
In contrast, businesses with marketing myopia are not customer-centric/market-driven: they ignore customers’ needs and only focus on selling their products to generate profits. Kodak could not break from its photo-retailing tradition, demonstrating that it was not market-driven. Kodak failed to see customer’s needs by continuing to developed outdated products such as camera hardware that their customers no longer needed. It refused to accept that its consumers did not need to print pictures anymore. The enterprise incurred significant losses from developing the camera hardware. As its net revenues declined, so did its financial strength.
Competition
Kodak’s failure was also caused by its inability to compete with new market entrants like Fuji Photo Film Company. Fuji came into the market with a 400-speed color film significantly cheaper than Kodak (Mendes, no date). According to Prenatt et al. (2015), more than twenty-five enterprises entered the market after the invention of the digital camera. Typically, companies respond to competition with offensive/defensive strategies such as price cuts, adopting next-generation technologies to appeal to customers, creating new markets through disruptive innovation, and securing products/services to prevent duplication.
However, Kodak disregarded or underrated its rivals and underestimated the threat posed by the new competition. It was too confident and certain of its market representation, leading to erratic decisions. Organizations with overconfidence bias will continue to make biased decisions despite evidence pointing in a different direction. According to Prenatt et al. (2015), Kodak did not think that Fuji would outperform it because it believed the American market would not buy other films. The company overvalued its brand, preventing it from effectively responding to its competition.
This disregard of new market entrants increased competition on multiple fronts, weakening the company’s competitiveness. In contrast, Kodak’s rivals responded efficiently to the digital photography threat, acquired new customer populations, and finally outcompeted Kodak. Soon afterward, the company started losing its market share to Fuji, and in 1981, Fuji officially became a formidable market player in the U.S. film market.
Organizational Culture and Leadership
The resource-based view (RBV) posits that companies use resources to compete rather than their market position. Internal resources refer to human and financial capital and business strategies. Human capital includes innovative employees and the tacit knowledge, abilities, and habits of managers/leaders. George Eastman, Kodak’s founder, managed his company on four principles: low cost, customer focus, international distribution, and extensive advertising (Prenatt et al., 2015). His leadership philosophy was to foster growth through constant research and respecting employees, and treating them fairly (Prenatt et al., 2015).
This leadership philosophy has been embraced in vision statements of modern-day companies, including Microsoft and Intel. George Eastman was charismatic, willing to take risks, and always focused on the needs of his employees and customers. According to Prenatt et al. (2015), these qualities contributed significantly to Kodak’s success. However, after he died in 1932, the company’s leadership and management changed.
The leadership that was in place during the digital revolution was inefficient. They were complacent and poor decision-makers. Until the digital camera, Kodak was specialized in photographic film and chemical photographic and chemical imaging. The incumbent leaders were comfortable making decisions in their areas of expertise. When Steven Sasson, a Kodak employee, invented the first digital camera, he challenged the leader’s decision-making skills. Kodak leaders lagged in decision-making and ignored the digital camera because it was beyond its legacy and area of expertise. Roychowdhury (2019) indicates that Kodak failed because it held back, fearing that changing its business would hurt its profit margins. This type of decision-making can be distinguished as intuitive thinking, referring to automatic, effortless, and emotive decisions.
From the above analysis, it is clear that the decisions of Kodak leaders were emotive. They assumed that the American market would not buy any other films from theirs, ignoring the mounting competition in the market. It also failed to adapt to the market because it feared taking risks and losing its profits. By the time the digital evolution became active, Kodak leaders had established a culture of risk aversion. A study conducted by Prenatt et al. (2015) showed that the company’s strategic decisions were examined in terms of risk.
An innovative idea was weighted based on its potential losses and gains. Middle-line managers felt the digital camera threatened their jobs, while the senior management considered its research and development expensive and unprofitable (Prenatt et al., 2015). Thirdly, Kodak assumed that consumers would continue accessing digital photos through traditional means. These decisions were based on unfounded assumptions because they contradicted market predictions.
Five years after the digital camera’s invention, a Kodak executive called Lawrence Matteson wrote a report to the company predicting that the market would transition to digital technology by 2010 (Prenatt et al., 2015). He stated in his report that customers had “found entirely different ways of doing things that obsoleted the competitiveness of Kodak” (Prenatt et al., 2015, p. 5). However, the company’s leadership did not consider Matteson’s recommendation and ignored his predictions. This complacency allowed competitors to enter and alter market segments that gave Kodak its competitive edge. The primary goal of an organizational leader is to identify situations that would affect the business and steer the company in the right direction. Because Kodak’s leaders were complacent, they failed to achieve this objective.
For example, in 2001, Kodak acquired a photo-sharing platform called Ofoto. Ofoto was a digital platform with features that could allow consumers to store, share, and view digital pictures on a mobile phone. Kodak would have leveraged this platform to create a network where people could share photos and personal updates. However, it used the platform to try and lure people into printing digital images. Almost a decade later, Instagram, a photo-sharing app with similar features as Ofoto, was created and is still one of the digital market leaders. Due to its rigidity, the company’s leaders missed the opportunity to become market leaders.
Being a Slow Mover
Timing is a crucial source of competitive advantage for a company. There are three main timing strategies: first mover, fast-follower, and late-mover. First movers are companies that develop a competitive advantage by introducing or adopting new technologies, products, and services in their market. Kodak acquired its historical innovation and market leadership by being a first mover. It was the first company to make a film with motion pictures and soundtracks in the United States and to develop the digital camera, among other photographic components.
However, Kodak changed its strategy from a first mover to a late mover. Although Kodak had a history of digital technology, it implemented the changes long after its competitors. It entered the digital market almost twenty years after inventing the digital cameras (Prenatt et al., 2015).
In contrast, its competitors adjusted quickly (fast-followers), allowing them to attain a competitive advantage. For example, Hewlett Packard (HP) promptly followed the market changes by inventing the mobile camera phone, offering its customers the ability to print pictures instantly. Other market players such as Sony, Nikon, Canon, etc., realigned their businesses with the digital revolution by developing a red-eye fix, face, and smile detection features.
After the invention of the mobile camera, Kodak lost its core value proposition, which, in turn, weakened its competitive strength. According to Thompson (2020), fast-followers and late movers can acquire a competitive advantage if they adopt the changes within a relatively short period. Unfortunately, as mentioned earlier, Kodak took too long to respond to the market changes, allowing rivals to position themselves in its core market segment.
Conclusion
Kodak is an illustration of strategic failure- it failed to respond/adapt to the digital revolution quickly, and when it did, the implementation was too slow. Ultimately, the company declined due to incoherence and market misalignment. The company’s leaders had ineffective decision-making skills, and they created a culture of risk aversion, preventing the company from being innovative. The leaders failed to see market opportunities and were unresponsive to customers’ needs and demands. The company also had weak competitive strategies, mainly due to the overconfidence bias.
Recommendations
The issues identified earlier could be resolved through embracing cooperation or competitive strategies. How a company chooses to respond to market disruption depends entirely on its competitive business strategies. A company with significant capabilities (financial and human capital) can assume several competitive defensive approaches to protect its market position from rival companies. These strategies include pursuing continuous innovation and being a first adopter of next-generation technology to leap-frog rivals. However, to establish a culture of innovation, the company needs to appoint leaders with risk-taking competencies (GarcĂa-Granero et al., 2015).
Organizations, especially those that desire to minimize risk, can deal with market disruption through cooperative strategies such as strategic alliances, joint ventures, and partnerships. (Thompson, 2020). Regarding ineffective decision-making, the enterprise’s leaders should adopt both system-one and system-two thinking. This approach involves combining logical and objective thinking with intuitive thinking to make rational decisions.
Reference List
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