Eastman Kodak Co.'s fortunes continue to decline. Last month Kodak reached another unfortunate milestone when it filed for Chapter 11 bankruptcy. How could an iconic company known as technology-rich and innovative be on the brink of failure?
Kodak's reputation for innovation is based on its strength in research. According to BusinessInsider.com, Kodak holds 22,506 patents, making it the 11th most innovative company in history.
In 1975, Kodak invented the first digital camera. In 1986, researchers developed the first megapixel CCD image sensor-a key element of all digital cameras today. In 1987, they invented organic light-emitting diode technology. Many think this will become the dominant technology used in TV screens and smartphones in the next few years.
As Kodak's bankruptcy filing made the news, many business gurus offered theories for the downturn. One explanation was that Kodak became too wedded to the film business and made little effort to switch to digital. But let's further examine Kodak in the 1990s.
George Fisher came to Kodak from Motorola Inc. in 1993. As Kodak CEO, Fisher introduced the digital print station, new digital cameras and thermal printers. He brought in new management from Digital Equipment, Apple and IBM. And he tried to build alliances with computer companies. By 2000, when Dan Carp became CEO, Kodak was No. 2 with a 27 percent market share in digital cameras and a network of 19,000 kiosks in retail stores. At the time, business pundits groused that Kodak was putting too much effort into digital and not enough into its core business of film.
Rich Karlgaard, publisher of Forbes, wrote an opinion piece for the Wall Street Journal less than a week before Kodak's Chapter 11 filing, arguing that Rochester killed Kodak because it is not Silicon Valley and is a small town. His viewpoint was roundly rebutted in several letters to the editor, one by Mark Zupan, dean of the Simon Graduate School of Business at the University of Rochester, and another by John Ward, a former Kodak employee and lecturer in the E. Philip Saunders College of Business at Rochester Institute of Technology. Other iconic companies have survived in small towns. Think of IBM in Poughkeepsie, Caterpillar in Peoria and Corning Inc. in Corning.
The Economist had a more thoughtful article comparing Kodak and Fujifilm. Its theory is that Fujifilm made better strategic choices. For example, both companies had deep expertise in chemicals. Kodak tried to leverage that expertise into a position in pharmaceuticals. That failed. Fujifilm took the antioxidants used for film to create a line of cosmetics. That succeeded. Fujifilm also built on its expertise with chemicals to create, among other products, optical film for LCD screens. Kodak decided its expertise lay in imaging.
Still, with 20/20 hindsight, this could have led to a successful strategy if Kodak had identified a latent market need. It could have enhanced the Ofoto online services to create something like Facebook. This missed opportunity with Facebook suggests a possible way forward for Kodak. Universities attract tens of thousands of talented students to Rochester. Many are eager to be entrepreneurs. The three fastest-growing industries in the area are health services, education and financial services. Kodak can use its influence to reach practitioners in these fields and identify their imaging needs. Then it can form an open-source community of students, faculty and Kodak scientists to create products.
While Fujifilm identified new markets for its technology, Kodak continued to pursue its traditional mass market for imaging. Based on the number of patents it holds, Kodak can rightfully claim to be one of the most successful inventors of all time. But truly innovative companies such as Apple have a deep understanding of their market.
In Kodak's early days, George Eastman understood the needs of the market and created products to meet those needs. Today, Kodak needs to build deep understanding for new markets. A fresh approach to innovation can lead to a successful emergence from Chapter 11.
Ashok Rao is dean of Rochester Institute of Technology's E. Philip Saunders College of Business.2/10/12 (c) 2012 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email firstname.lastname@example.org.