Frozen in a KODAK moment Kodak's downfall highlights gaps and opportunities

While the photographic community (somewhat guiltily) mourns the end of an era at the news of Eastman Kodak’s Chapter 11 bankruptcy protection filing last January, the media and Kodak’s critics have been quick to denounce the company’s decisions, slow progress and lack of innovation since the debut of the digital camera. This is misleading as Kodak has continually poured billions of dollars into their research and development over the last couple of decades: being the first to invent the digital camera; patent several digital optic technologies still found in most smartphones and digital cameras; as well as formulate the basic social media DNA structure in their Easyshare Gallery platform. George Mendes of The Strategy Tank recognized Kodak’s faults as a “continual failure of strategy” and other articles like Mashable’s would suggest, “an overall reluctance to innovate”.

I still have a warm nostalgic relationship with Kodak as a brand. I remember as a child, my mother (a casual hobby photographer) opened a golden Kodak color film box to reveal the Kodak exposure guide diagram (a later version is below). It explained the optimal lighting conditions photograph under and to this day remains one of my friendliest and useful product experiences.

It wasn’t necessarily a lack of foresight or innovation by Kodak that it failed to deliver, rather an inability by the company’s leaders to understand the greater purpose of their business. Eastman Kodak was never in the business of film or even photography, it’s always been an innovator of image production and consumption. This fundamental, yet disruptive shift in the philosophical perception of their core business would have helped Kodak’s leadership to commit to their innovations and gamble on their consumer’s newly digitized taste buds.

Now, understanding where they failed, Kodak have the opportunity to redevelop their core business strategy and approach; with that comes a significant cultural change from their people to their operations, new product-service development and rebranding – perhaps through Porter & Kramer’s latest business concept of “Creating Shared Value”.

I wanted to share my thoughts and recommendations on how one of the world’s favorite brands might save itself going forward. The following is a summarized version of a report I wrote for my Globalization class. Kodak still have a great brand and customer loyalty that could emerge if only Kodak would step up too. The fact is, we want to see Eastman Kodak succeed.

The High Point: Film Photography

Kodak was established as a fruitful byproduct of the industrial revolution for entrepreneur and founder George Eastman, in 1888. The US-based photographic film and camera company was a beacon of progress in the 20th century, to quote The Economist:

“Kodak was the Google of its day… pioneering technology and innovative marketing.”

For multiple generations, Kodak was also the trusted antiquarian of consumer’s personal memories, when their popular “Kodak moment” advertising slogan became a ubiquitous term to describe their film and  camera product-service range, as well as the very act of photography itself.

Fuelled by their core business strategy to leverage the razor-blade business model of mass-producing simple user-friendly low-cost cameras and continually benefit from the complimentary sales of their camera’s film. Sales were enough to reinvest in the continual production and globalization of photographic film and cameras, paper, medical imaging, and their expansive research and development department.

Kodak captured the imagination and memories of amateur and professional photographers around the world for over 120 years. It afforded them the resources, experience and opportunity to globalize in their continued quest for growth, innovation, and profit.

The Low Point: Bankruptcy 

Despite the many positive years of global growth they enjoyed, Kodak has been unable to sustain and adapt their successes to the changing global environment; including the emergence of new competitors and the revolutionary digital market.

  • The company has secured a $950 million loan from Citigroup to finance their $6.75 billion debt to over 100,000 creditors, including Wal-Mart and Sony Pictures Entertainment Inc.
  • Shares have even fallen from a height of almost $93 per share in February 1997 to just $0.36 per share on January 26th, 2012.
  • The company employed 120,000 people in 1973; 86,000 at the peak of its share prices in 1997-1998; and a mere 18,800 today.
  • To translate these figures into brand value, Kodak was ranked fourth by Interbrand’s annualBest Global Brand list in 1996, just behind McDonald’s, Disney and Coca-Cola. In 2011, not only were the aforementioned brands still in the top 10, but Kodak was not even in the top 100.
  • At the time of Kodak’s bankruptcy filing, the company held just 7% of the global digital camera market share – proving “a well-known brand is not always an advantage”

 

Kodak’s Philosophy & Mission

While Kodak, for the most part, has upheld both their ideals of brand and quality, in the post-digital age it has been at the detriment of their flexibility and ability to listen for key changes in their core business, let alone adapt to market trends. Kodak invested much of their time and money in marketing, as well as short-lived digital research and development projects its leadership did not understand the potential of. Meanwhile, their primary competitor, Japan’s FujiFilm enjoyed a “renaissance period of innovation”.

Today, Eastman Kodak’s brand value is arguably worth more than their actual core business offerings, particularly in specific markets such as the baby boomer generation who may be one of the last to feel a lifetime of connection to the brand should the company fault again.

Though credible, Kodak’s current values of dignity, integrity, trust, credibility, continual improvement and achievement are so broad and all-encompassing they start to sound generic to the average consumer, particularly in a competitive business environment where corporate social responsibility and creating social value are becoming the norm.

 

Kodak’s post-digital value chain

After the digital boom, Kodak struggled to react to changes in technology and consumer tastes as it determined a change in the fundamental philosophy of image production and consumption.

When they did eventually develop a post-digital strategy, it was still a linear value chain, which in itself is counter to the spirit of digital. Indeed, all Kodak did to their value chain was add more pre-existing digital products and services that fulfilled the same functions, adding only the digitization of physical images and storage of digital images as a necessary step to image dispersal methods – of which they specialized in printing. Instead of this continued linear value chain model, Kodak should have foreseen an overlapping model, where factors of image production and consumption would overlap and have continuously varying clout with consumers behaviors.

 

Options & Opportunities through created shared value and decentralizing “Business as usual”

Whilst easily perceived as a business “trend”, Kodak needs to show it can be a flexible corporation that can adapt to people trends. Seth Godin embraces this shift in value as a post-industrial revolution environment where, due to the immediacy, transparency and connectivity of the internet, businesses now need to heed the word of consumers. Furthermore, Godin believes “we live in a world where consumers actively resist marketing. So it’s imperative to stop marketing at people. The idea is to create an environment where consumers will market to each other”.

The power shift in the relationship between consumers and businesses is further complimented by Michael Porter and Mark Kramer’s latest business concept, Creating Shared Value (CSV). In it, they recognize a shift in societal values that affects the perception of business negatively thus affecting margins; “the solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges”. However, CSV is not to be confused with social responsibility, philanthropy or sustainability; it is a re-evaluation of the core of business and the practices that go with it.

Realizing these new theories to approaching business strategy, Kodak should re-evaluate three areas of change:

  • leadership attitude and business culture;
  • its core business;
  • and its brand value

 

Culture and governance change

The primary change that needs to occur at Kodak is a change in leadership attitude and business culture. Contrary to popular belief (and perhaps even Kodak’s), Eastman Kodak has long been a leading innovator. Aside from inventing the first digital camera, the company also developed several optical technologies still used in most digital cameras and smartphones, and even an end-to-end digital photo sharing social network called “Easyshare” prior to the likes of Facebook. Development in these areas of innovation and potential core businesses were never properly realized primarily due to a lack of vision and commitment from the company’s leadership.

The company had also become a complacent introvert at their geographic headquarters of Rochester, New York. Here they relied on the local community to feed the majority of the human capital needs of the business. In their downsizing, the company has also retracted its presence in other global markets, which has only served to close the business off once more. That said, simply outsourcing manufacturing operations to areas of the world where skilled labor is cheaper is not a sustainable model. It needs a better-integrated training program that hires a diverse range of employees from all over the world, offering them a developing range of suitable benefits including solid opportunities for the advancement and the geographic maneuverability of key talent to better understand the business and global consumer market.

 

Core business change

Secondly, Kodak needs to address the question of their core business. This is currently too ambiguous as the company spreads itself in many areas of technical innovation, not just in image capture, print or other outputs. They have the experience, patents and resources to bridge many specializations, services, and products, and all at once – but this does not mean they should. Rather, they should cease playing “catch-up” to their competition through physical products and look at the higher value their company has always offered – quality and personal experience.

Eastman Kodak recently announced that as part of their business restructuring, they would exit the digital camera market, saving the company approximately $100 million a year. This is a risky, yet positive move for Kodak having earned $27 million in just patent-licensing fees in the first half of 2011, and could continue extending this revenue stream by exploring quality innovations in their pre-existing optical technology research and development.

In addition, Kodak should maintain and its traditional core business of film. However, it needs to specialize and streamline this business, appealing to professionals and hobbyists by highlighting the qualities only unique to film, and the act / art of traditional photography as process – not means to image capture. In recent history, “Kodak failed to read emerging markets correctly. It hoped that the new Chinese middle class would buy lots of film”, which it did, but “many leap-frogged from no camera straight to digital” (The Economist). This particular missed opportunity shows a dual failure in leadership vision and core business understanding.

Brand value change

Finally, Eastman Kodak needs to review their brand. By itself, nostalgia cannot sell, a rebranding effort of a particular line of products – possibly all remaining physical products such as printers and inks – needs to be considered to appeal to a younger more technologically savvy generation who have little or no personal affiliation to the nostalgic characteristics of the brand.

Simultaneously, the deep memory and pockets of baby-boomers should not be discounted. One of the most differential intangible assets of the company is the emotion the company’s brand conjures in baby-boomers, who like the company itself, are continuously adapting to the technological world. Kodak could step in with the much valued physical presence of a “store” or “center” modeled after Apple’s Apple Retail stores, where film digitization could be offered as an after sales service to Kodak film customers (and possibly others). A physical space could also offer complimentary human service ecosystem to their products and digital services. “Centers” could create shared value by offering educational photography classes to all generations emphasizing the art, history and technique of photography for professionals and hobbyists.

Furthermore, this space could offer additional services such as camera, film, scanner aftercare / repairs and professional advisors, all the while selling Kodak printers and inks. By reintroducing a physical dimension to the digital personal experience of their brand, Eastman Kodak could find itself a market that lacks and craves physicality to the visual digital documentation of their lives.

Last Words

Kodak is due to complete its strategic change by 2013. While the particular recommendations in this article may not be realized, whatever strategies Eastman Kodak introduce will need to be measured in terms of monetary value, debt recovery and brand perception after 2014.

The height of Eastman Kodak’s success was always due to their winning combination of innovative user-friendly products with emotionally engaging marketing that offered consumers a holistic product experience that felt more like a welcome service. The arrival of digital photography not only replaced film but with the internet as an accelerator, smartphones are now further replacing cameras altogether. As a result, Eastman Kodak will need to be flexible and commit to drastic changes in their leadership and culture, their core business offering, and their brand value. They must be continually aware of market and technology changes through consumer experience and engagement.

Kodak can still sustain itself as the world leader in imaging by being self-aware and creating shared value. Eastman Kodak can leverage their resources, experience and opportunities to reassert themselves in a new global market made up of the continually evolving consumer and emerging digital market; all the while, staying true to their mission of delivering quality differentiated, cost-effective solutions. While it may have seemed like film photography was their core business for a hundred years, perhaps it has always been image consumption through emotion? The philosophical perception of their core business offers Kodak room to move, adapt and continually grow for another 100 years.