The Kodak saga continues. Bankruptcy after 120 years in business. A rather sad outcome for a storied company. Kodak had seven restructurings between 1983 and 1993. It had a new CEO every five or six years. It's hard to maintain continuity of strategy in that kind of environment. The interesting thing here is that, that Kodak invested heavily in digital photography but it never managed to leverage that investment. And it's not clear, from what I've read about the company, exactly what went wrong. There were times when the digital edition became separate, which is what Christian recom, Christensen recommends, in the Innovator's Dilemma. There were times when it was pulled back into the main organization. I think the reason for separation is simply to get a, a different mindset, to get people away from. Those who are used to doing things in the way the company's been doing them for decades and, and somebody who, who is maybe new blood brought into the organization, who thinks digitally. But even at Kodak that didn't work and I, I have to think that it was the heavy resistance to change in the rest of the organization. Kodak also badly misread the market because it, it believed at first that digital cameras would only appeal to the professional photographer. It was not unreasonable because the first cameras, as with everything else, were pretty expensive. Now that's not exactly the innovator's dilemma solution which says that the innovation tends to be less expensive and less capable Digital cameras for the professional were quite good. But what Kodak I think failed to see was that those qualities would be moved in to cheaper cameras that would appeal to the consumer. I think you have to remember that, that in the technology world, things become cheaper, smaller and faster, if you look at the history of computers. Okay? The first PC I had was gigantic; it sat on a desktop and had two floppy disk drives and not much memory, and it couldn't do very much. Okay? But that was just the beginning. That machine, in the 1981, cost $5,000. In order to prepare Coursera courses, I, I need a more powerful computer, I got a new processor with four core processor and eight gigabytes of memory for about a thousand dollars. In, 2013 dollars, not 1981 dollars. At peak in the late 1990s, Kodak was selling about a billion rolls of film in the US. By 2011 that had dropped from 1 billion to 20 million, a 98% drop in its core business in ten years. Almost no business can sustain that. Here are Kodak's net sales. they just continued to drop after 2010. Monthly share price plummeted up until the time of bankruptcy. This to me is, is one of the biggest tragedies of Kodak. At one time it had over a 130,000 employees here and it dropped down to under 30,000. So, a 100,000 people plus either had to retire or lost their jobs at Kodak. What devastation that is for those people. And if you think a 100,000 employees might represent family units of 3 to 4 people in the family. This tragedy affected well over 300,000 people. Kodak employees saw themselves as analog and resisted senior management's to go digital. That's something we've talked about several times. Middle managers didn't fulfill their role linking the strategic goals of the company to the operations of the company. This is really key. It's something that Fisher observed. We've seen in our previous discussion, when we know the big bureaucracies don't move very fast. Kodak also was highly profitable, it had a lot of money in the bank, and again that makes it hard to see a destructive technology coming along. And there were disruptions and distractions. There was a competition with Fuji and a World Trade Organization complaint. Polaroid lawsuit. Fisher, even though he was dedicated to digital. Saw China as a huge film market. And put a lot of effort into selling film in China. I'm not sure why one would expect a company like, country like China to move into film when digital photography was available, and particularly when China was making so many digital products. And then there were the diversions into the chemicals and the pharmaceuticals businesses again that distracted management. So management missed the biggest threat of all, digital photography. And it wasn't just digital photography, it was the internet. Plus digital cameras because Kodak wasn't just in the film business, Kodak was in the imaging business, okay. So film is one way to capture and to share an image. When digital photography came along, there was a new way to do that, and that was to take a digital picture, upload it to a computer and share it with friends via the internet. That meant that instead of having 100 copies of a, of a picture made to send to 100 friends, you simply typed in the distribution list, pressed a button, and all 100 friends got the, got the picture. Or you could post it on Facebook, or post it on another site and let friends come see it. There were photo sharing sites, like oPhoto, that, that, that Kodak bought but maybe they didn't understand what was going on here. It's not at all clear, but the internet and digital cameras together produced something that threatened the film business and in fact probably are what's responsible for the demise of the film business. Now various observers commented on Kodak, because this was such a, a big event. it was so hierarchically oriented that everybody looked to the guy above him for what needed to be done. arrogance fueled a nightmarish bureaucracy, so entrenched that it could have passed for a government agency. Do everything by company rule books. Here's, again, this comments about having meetings prior to the meetings, to avoid confrontations. No matter what they said, they were a film company. Executives abhorred anything that looked too risky or too innovative, because a mistake could cost thousands of dollars. The company built itself up around procedures and policies intended to maintain the status quo. If all you want to do is maintain the status quo you will never respond to a disruptive technology. This is an interview with Carly Fiorina, former CEO of Hewlett-Packard. Kodak sat on a mountain of cash and profitability in their traditional photography business, and their thinking was that digital photography would eat into their traditional most profitable businesses. And they didn't want that to happen. What Kodak miscalculated was, that they weren't in charge of whether that would happen. Consumers were in charge. And this is a lesson for us. For a lot of companies as well. Individuals were in charge. An individual will always choose what gives them greater control, flexibility, and freedom of choice. So suddenly consumers had a new way of taking pictures that gave them more control. The consumer became in charge of how fast Kodak's traditional business would be eaten away. Kodak, unfortunately, didn't see that in time. So if you remember, we talked about a box score, of the factors that inhibit a response to a disruptive technology. And so, you know, what, what kind of numbers would you put here? You know, how, how much did Kodak deny what was happening in the world? On a one to ten scale, you know, I'd tend to give this maybe a ten. History prevented them, I'd give them a ten on that. Resistance to change, mindset. So maybe a 9, maybe an 8, maybe a 9, and maybe a 10. So these are all factors that came in that, that kept, that prevented Kodak from responding to this threat of digital photography. Now, what did I score this as when I prepared the slides? Let's see. Well, pretty close. So, Kodak has the closest I've seen to a perfect score. I guess we'd give them a grade of an A on resisting a disruptive, and this is not a place where you want a grade of an A. So what's next? Well does Kodak have a future? Let's see in the next video where Kodak is now.
