The common narrative is that Kodak, once a titan in the camera and film industry, was disrupted by the advent of digital cameras and went bankrupt due to its inability to adapt. This narrative, often used as a cautionary tale about technological disruption, is misleading.
Kodak did not go bankrupt
Contrary to popular belief, Kodak did not go bankrupt. In 2012, it filed for Chapter 11, a U.S. regulation that allows financially distressed companies to restructure their business. By 2013, Kodak emerged as a viable company again, posting $1.8 billion in revenues in 2015 and achieving profitability, a feat that some highly admired companies like Twitter, Spotify, or Uber have yet to accomplish.
Kodak was not caught off guard
Kodak was not caught off guard by the digital revolution. In fact, it developed the first digital camera in 1975. However, the technology was not mature enough at the time to disrupt the market. Recognizing the potential of digital cameras, Kodak invested $2 billion in R&D, and by 2001, its digital cameras were the top sellers in the U.S. By 2005, Kodak was the market leader.
The decision to continue profiting from the film-based business model was not due to stubbornness, but rather sound management. The digital camera market was highly competitive, with razor-thin or non-existent margins. The situation worsened when smartphones started integrating decent cameras.
As a result of its strategy, Kodak was able to accumulate almost $2 billion in net earnings for its shareholders between 2000-2007, while other digital camera manufacturers incurred huge losses.
However, Kodak did face challenges. The film market and its profits vanished in just 8 years, putting immense pressure on the management. Additionally, the management was slow to recognize the new sales and profit situation and began downsizing legacy operations too late.
The main issue with Kodak was a lack of strategic focus. The management, aware of shareholders’ expectations for high revenues and profits, attempted to enter numerous industries with a variety of products. This included everything from imaging software to printers, medical devices, and self-service printing kiosks. However, most of these ventures were eventually abandoned or sold, leading to resource exhaustion and debt accumulation. Today, Kodak is a smaller, yet still diversified company, with a different and more patient shareholder base. They continue to produce both digital cameras and film.
In the face of disruption, Kodak’s response was not to recklessly adopt the disruptive technology, as is often suggested. CEOs should remember that disruptive technologies are typically inexpensive and readily available, often leading to lower margins initially.
Kodak’s management made the right decision in seeking new opportunities to diversify away from the camera business. However, their downfall was their inability to find these opportunities.
This is a short version of the original article “The Fabricated Myths about Kodak that every innovator and CEO should know” written by Salvador Baille and posted on his blog.
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