Innovate or Die
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Watching the drop in Eastman Kodak’s stock value is like witnessing death by water torture. The stock has lost 80 percent of its value in 2011 and is hanging on at less than a dollar a share. It’s sad. Kodak was the leader in photographic technology. Thirty years ago, it had an unmatched presence and brand as far away as Africa, Asia and the Middle East.
So why is the Kodak brand dying? Instead of using its resources to evolve and innovate, Kodak denied and stagnated. With devices now acting as cameras, zero-cost e-photos trumping all other forms, and the cloud making our images available anytime and anywhere, the only reason anybody prints photos anymore is for a wedding album. Yet Kodak management insisted that digital was not real and that people would still be taking their photographs to be printed at the local drugstore. As a result, the company not only missed the digital revolution but the smartphone revolution. What happened?
Was everyone asleep in Rochester? Kodak could have been in the center of the digital image revolution. It could have defined the space and owned the platform for photo sharing and apps. It had the talent and technology to innovate, but instead an iconic American brand is on the way to bankruptcy or buyout. The Kodak engineers must have been tearing their hair out at the futility of it all.
Here’s what kills me: I’ll wager that during this slow-motion collapse, the pay of the CEO, Antonio M. Perez, has been unaffected. Now he wants to sell the company’s IP portfolio as part of a turnaround plan in which Kodak says it will turn itself into a player in digital imaging. Seriously? That is the best you can do? Guys, you’re already way behind the real players in digital imaging: Fuji, Canon, Sony and Olympus. And no surprise he announced that when Google picked up Motorola’s IP portfolio. Even in this desperate move, the CEO was not imaginative and adopted the futile ‘me-too’ strategy. I wonder, did he think, Google would pick their’s up too?
Today, Kodak is not even worth its hard assets. It’s soon to be a penny stock. We should study Kodak as one of the iconic failures of our century: A company that did everything right at the start, built a massive brand and reinvigorated an entire city, only to close its eyes, deny reality, and fall.
In the Culture of Disruption, everyone has to participate. If Kodak employees had raised hell over management’s inaction five years ago, there was time to innovate. Now it’s too late. Yet again, I am in awe of exactly ‘what’ the Kodak board has been doing over the last decade. Seriously: Does Kodak even have board meeting? Yikes: I wonder is the CEO also Chairman of the board. Honestly with this one folks I don’t even know where to begin, and I am very sad to see a great brand and icon disappear because of extremely poor leadership…
There’s a lesson here: If you don’t disrupt and can’t innovate, you won’t survive.
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- Eastman Kodak Shares Lowest Since Depression (blogs.wsj.com)
Kodak didn’t fail to innovate. Kodak engineers built the first digital camera in 1975. Kodak invented the first megapixel digital sensor in 1986. In 1987 Kodak produced “seven products for recording, storing, manipulating, transmitting, and printing” electronic still video images” — they had thought through, engineered, and released a whole ecosystem!
In 1990, Kodak introduced the PhotoCD, the practical necessity that opened the door from a film front-end to a digital back-end, a necessary step before the front end could go digital as well. In 1991, Kodak introduced the first professional digital SLR system, a Nikon F-3 fitted by Kodak with a digital sensor that allowed photojournalists to get the fast turnaround of digital with professional quality using their existing Nikon lenses. That’s a game changer.
It appears that Kodak innovated so hard that it led the industry to exactly the right position from which to kill Kodak.
The problem clearly was not lack of innovation, but failure of strategy. Perhaps Kodak invested too much too soon and then had to withdraw before the market was ready to take off. Perhaps they shelved too many of their own best inventions. Maybe they couldn’t see the future. Or maybe they simply didn’t stand a chance in the first place because consumer electronics specialists had extraordinary resources and value chains more suited to digital cameras than a photography company did.
Now Kodak is refocusing on film — and why shouldn’t it? Film is a niche with real value, it is no longer declining very fast, and it is where Kodak has extraordinary resources to offer more value than anyone else. Can Kodak really out-compete Samsung and Sony in small handy and cheap consumer gadgets, the exact expertise of Samsung and Sony? Can they out-compete Canon and Nikon in sophisticated camera/lens systems that require specialized, exacting manufacturing, the long-time home turf of Canon and Nikon?
It appears to me that Kodak is ironically making the very move it should have made earlier: going where the extraordinary resources of the company and its value chain allow it to sustain an advantage over anybody else. Unfortunately that same sentence now means contraction where once it could have meant expansion and dominance.
Kodak undeniably missed the bus on digital photography in spite of having invented the digital camera in-house. This is a clear example that innovation – if not translated into viable products or services which can be brought to market – can serve little purpose. (Unless the business model itself is technology licensing, which is a whole other discussion.)
The question now is – now that the tidal wave of change has swept away the foundations on which the business was built – how does Kodak reinvent itself to become relevant once again? For a management team largely from HP, the answer was cheap consumer printers with low-cost ink as the differentiator, and they went all-in with this product strategy. In a cut-throat low margin business dominated by the likes of Lexmark, HP and Canon, that just didn’t work out. Witness Kodak’s recent Chapter 11 filing and NYSE delisting. It’s sad that today IP litigation and a potential sale of Kodak’s patent portfolio are the survival plan for this American icon.
Kodak must focus aggressively on a few core businesses to survive. Film, as a previous commenter noted, is now a small but a niche market. Photographers who shoot film are now small in number but fanatical about their films. (As a photographer who grew up with the familiar yellow boxes of film, I know that there is nothing which could ever replace the look of a photograph shot on Kodak Tri-X – it’s unique.) Kodak has an outstanding range of commercial printing presses, which are highly respected in the industry.
Clearly Kodak will never again have 100,000 employees in Rochester and more than 100 buildings, but they can survive if they can reinvent themselves and focus. Whether they will, remains to be seen.
I tend to agree with Sam. Kodak did not fail to innovate. The strategy and the business model was missing from the picture. It seems like they did aquire one of the early phone sharing website (ofoto) and they did release wi-fi cameras. It seems like there was a lack of vision and there was a lack of business model. In addition, the film business continued to grow even in 1999. The speed at which the decline happened is similar to what happened to RIM. The speed at which Android and iPhone took the market could not be anticipated by RIM. RIM has got tremendous innovation and talent. In my opinion, its the lack of vision that caused the decline of these two great companies. Can they come back? I’m hopeful. Ford and GM and now Chrysler surely showed that there’s always ways to get up – if you want to.
In an interesting update to Kodaks’ demise, Apple has asked a US Bankruptcy Court for permission to sue Kodak on two legal fronts: with a patent infringement lawsuit in a Manhattan district court, and a corollary complaint.
Apple’s patent suit focuses on technologies that Kodak uses in its line of digital cameras, printers and digital picture frames. Kodak, printers and picture frames are the two product areas it decided to focus on, as confirmed in last week’s restructuring announcement.
Samy’s point is valid; Kodak fell into the trap of inventing too hard too soon. We’re having the computer on the fridge conversation again. I do think though that Kodak could make itself the leader in the niche film market if it already isn’t.
What irks me is the rebound strategy is selling some of its IP portfolio. I don’t know enough about their IP portfolio so I may be wrong but this to me is a strong signal that Kodak is getting out of the digital photography market. How can you grow in the same industry if you’re selling your IP to your competitors? Sure, Shorbo makes a good point that everyone and their mother have too much of a start on them. But as a Kodak digital camera owner, it peeves me!
Yes, for the most part companies need to be innovative or they will die. But not all. Large government sanctioned Monopolies (like MLB) really don’t have to innovate. Why should they, they don’t have any real competition. Sure, you can watch other sports or do other activites, but there are plenty of people who love baseball and will always pay to see a game. The only real reason MLB does anything different is because player salaries keep rising, almost exponentially. If they would control labor costs better, then they would never have to do a new thing again.
Sorry, forgot to write my whole name on my previous post.