I have described in previous posts what a business model at a simple level it has three parts: There is no doubt that Kodak created value for their customers (e.g. The problem was that for over a century Kodak had the classic razor and blade business model i.e. But back in 1975, a Kodak engineer invented the first ever digital camera. Once one of the most powerful companies in the world, today the company has a market capitalization of less than $1 billion. Kodak and the digital revolution – A business model failure, on Kodak and the digital revolution – A business model failure. "One fatal flaw of Kodak's efforts in photography is they primarily focused on photography," Anthony says. Using this business model, Kodak was able to generate massive revenues and was able to expand its business and the company to new heights. So, if your company is beginning to talk about a digital transformation, make sure you ask three questions: Kodak remains a sad story of potential lost. Abstract The introduction of digital imaging in the late 1980s had a disruptive effect on Kodak's traditional business model. None of the Kodak CEOs could reconcile the digital and photo print businesses. They frequently divert sufficient resources to participate in emerging markets. As technology progressed, the use of films and printing sheets gradually came to a stop. Ultimately, refocusing the business with so many forces in motion proved to be impossible. A generation ago, a “Kodak moment” meant something that was worth saving and savoring. So, another explanation is that Kodak invented the technology but didn’t invest in it. Kodak had spent over a hundred years and huge resources building a household brand that would have been very attractive to a portfolio brand company such as P&G or Unilever. I had my penultimate MBA elective at the weekend on Corporate Strategy so my next few posts will concentrate on value creation, value capture and business model architecture. One option could have been to break up the business. Unless the company becomes innovative and move away from the core business model, its chances for survival are minimal. It used a razor and razorblade strategy of selling cameras and films to customers. For most of the 20th century, Kodak’s core business, as perceived by outsiders, was selling photography related products. In the late 90s, Kodak hastily installed 10,000 digital kiosks in Kodak’s partner stores. Not the patents for intellectual property related to the industrial age’s film photography. Kodak’s first challenge had to do with technology. They could have continued to focus on print based products with a horizontal move into other print based products (e.g. All rights reserved. sell cheap cameras and make big profits on photography printing. printers or print technology) and sold these new products into their retail channels. Organizational Transformation in the Case of Eastman Kodak Corporation The problem was that for over a century Kodak had the classic razor and blade business model i.e. This was because they failed to evolve their business model and lost sight of their customers. It rolled out a line of digital cameras, sold inkjet printers, and bought a photo sharing site … Whether Kodak went into bankruptcy, chapter 11, or something similar they lost their dominent market positions and are struggling to focus their business into profitable areas. "In an alternate universe, Kodak took Ofoto and changed it from a site where people shared photos to one where people would share updates about their lives, news feeds and so on. The company’s operations have been divided into four segments which include digital and film imaging, graphic communication, commercial imaging and health sector (Kodak Patents 2010). But that doesn’t square with reality. Kodak’s operational EBITDA improved by over $375 million in 2013, and the company re-listed on the New York Stock Exchange in January 2014. In the year 2000 Kodak could have sold the photo print business. A former Madison, WI resident, Kay now resides in San Diego, CA. Before Mark Zuckerberg wrote a line of Facebook’s code, Kodak made a prescient purchase, acquiring a photo sharing site called Ofoto in 2001. As the digital revolution took off, the need for film disappeared. But in the digital market it is a much younger audience who want to share their photos quickly with their friends. The next explanation is that Kodak mismanaged its investment in digital cameras, overshooting the market by trying to match performance of traditional film rather than embrace the simplicity of digital. As Rita Gunther McGrath describes in her compelling book The End of Competitive Advantage, in the 1980s Fuji was a distant second in the film business to Kodak. A Difficult Technology Transition. Contrary to popular opinion Kodak was ahead of the digital technology curve and they saw well ahead of time that digital photography was a game changer. Learn the right lessons, and you can avoid its fate. Sure, people print nostalgic books and holiday cards, but that volume pales in comparison to Kodak’s heyday. This model does not work in the digital market where photos are more for instant sharing rather than for capturing memories. Harvard Business Publishing is an affiliate of Harvard Business School. Now many think the disruption of the digital camera killed off the film business. These could have been sold off or floated in their own right. Not only was a major technological change upending our competitive landscape; challenges were also affecting the ecosystem we operated in and our organizational model. Kodak’s action towards the digital world seemed to be the most logical step. This would have left Kodak free to focus purely on digital without any distractions. They sold film, they sold the chemicals you used to develop the film and then they sold … Kodak adopted the ‘razor and blade’ business model. The reorganized Kodak emerged on September 3, 2013, with a right-sized capital structure and an annuity-based business model. Today, the term increasingly serves as a corporate bogeyman that warns executives of the need to stand up and respond when disruptive developments encroach on their market. Kodak’s photofinishing process quickly became the industry standard for quality (Gavetti et al., 2004). How did a company that had pioneered the photographic market in 1880 collapse in just a few short years? Armed with the perfect business model and a strong vertical integration, Kodak innovated and offered some of the best products and services in the imaging business. Jeffrey Clarke began as CEO on March 11, 2014, with a big challenge ahead: taking the company that emerged from Chapter 11 bankruptcy and building it into a successful, profitable firm. This is a prime example of the “razor and blade” business model where Kodak sold the cameras for cheap to get it into as many hands as possible and planned to make back in the sales of its consumables such as film rolls and services. Business Model. It was so close. A surprising and unlikely turn of events took place as Kodak pivoted to a new business model. The American icon had the talent, the money, and even the foresight to make the transition. Maybe in 2010 it would have lured a young engineer from Google named Kevin Systrom to create a mobile version of the site. That same month Facebook plunked down $1 billion to acquire Instagram, the 13-employee company Systrom had co-founded 18 months earlier. Imagine if Kodak had truly embraced its historical tagline of “share memories, share life.” Perhaps it could have rebranded Ofoto as Kodak Moments (instead of EasyShare Gallery), making it the pioneer of a new category called life networking where people could share pictures, personal updates, and links to news and information. Kodak has NOT gone bankrupt, it is in Chapter 11, protection from bankruptcy. high quality cameras) but they did not capture that value (i.e. Unfortunately, as time marches on the subtleties of what actually happened to Eastman Kodak are being forgotten, leading executives to draw the wrong conclusions from its struggles. This point was highlighted with the case of Kodak’s demise from  Quasi-Monopolist (1888-1976) to bankruptcy protection in 2012. What it missed was the business model. One business model that is currently succeeding isn’t enough. By 1988, Kodak employed over 145,000 workers worldwide. make money). From its inception, Kodak dominated the American photography industry.As late as 1976, Kodak commanded 90% of film sales and 85% of camera sales in the U.S., according to a 2005 case study for Harvard Business School. More specifically, the company would now manufacture ingredients for generic drugs. Copyright © 2020 Harvard Business School Publishing. Kodak will have competitive advantage in the market since the consumers will have an alternative to the existing products in the market. This helped the Kodak towards the continues growth of their business for more then 90 years. Kodak … All rights reserved. Order my new book The HERO Transformation Playbook. This was due to the invention of digital cameras in 1975. Kodak said this month it would lay off more than 30 employees in November at Eastman Business Park and Kodak Research Labs. Kodak’s R&D labs had some of the most advanced technology in the industry and this could have been licensed to other technology companies to use in their devices. Kodak had always got distinctive competency over its competitors because of the scope and operations of its business. Kodak created a digital camera, invested in the technology, and even understood that photos would be shared online. Business Model Kodak has not had a clear and consistent business model. The company filed for bankruptcy protection in 2012, exited legacy businesses and sold off its patents before re-emerging as a sharply smaller company in 2013. Today the company has annual revenues above $20 billion, competes in healthcare and electronics operations and derives significant revenues from document solutions. This piece will focus on how Fujifilm changed an element of its business model to adapt to and ultimately leverage the digital revolution. You can write the best article in the world but if the main premise of your whole piece is factually inaccurate then it counts for nothing. People went from printing pictures to sharing them online. Given that Kodak’s core business was selling film, it is not hard to see why the last few decades proved challenging. It sold the site to Shutterfly as part of its bankruptcy plan for less than $25 million in April 2012. The fundamental economics of photography can be described as follows:Camera Price (amortized) + Storage Price + Processing Price = Cost of a photoIf you assume the storage is film and processing is taking the roll of film to the drug store for printing, this pretty much sums up the costs incurred for photos during the days of film. The Trump administration’s $765 million loan to the Eastman Kodak Co. for its launch of a business making pharmaceutical ingredients sent shares of the iconic camera company soaring. Kodak, the company that fueled the growth of the photography industry, is selling its patents. Copyright © 2020 Arif Harbott. Where they failed was in realizing that online photo sharing was the new business, not just a way to expand the printing business. Don't get trapped by your business model. Cameras went digital and then disappeared into cellphones. The story we all know goes as follows: Kodak' business model was based on selling films for cameras. Deeper Insights On Kodak’s Business Model. That criticism perhaps held in early iterations of Kodak’s digital cameras (the $20,000 DCS-100, for example), but Kodak ultimately embraced simplicity, carving out a strong market position with technologies that made it easy to move pictures from cameras to computers. Now it … Eastman Kodak Company is a US corporation that specializes in the production of photographic products and equipment. I make so secret that business models fascinate me and it was reiterated throughout the lectures that the CEO agenda should be very much focused on the firm’s business model. Companies often see the disruptive forces affecting their industry. Also Kodak did not understand their customer; for many years their customer had been families and in particular women. The development of the new camera will be critical for the success of the company. A generation ago, a “Kodak moment” meant something that was worth saving and savoring. Instead it ended up the victim of the aftershocks of a disruptive change. Kodak has long been a generous employer and model corporate citizen, a benevolent force in building and supporting Rochester’s social, educational, and cultural institutions. In healthcare and electronics operations and derives significant revenues from document solutions instant sharing rather than for capturing.... 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