What went wrong at Kodak?

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Antonio Perez, center, was named CEO of Kodak in 2005, following Daniel Carp’s retirement.

At its zenith, Kodak combined technical excellence in chemistry with scale economies in manufacturing to create a firm with a near-monopoly position in photographic film, a product that appealed to every human. 

Yet Kodak’s eventual peril was hardly a surprise: Film’s obsolescence in the mass market was widely anticipated, even if the timing and extent of digital’s takeover was uncertain. Much of the “post-game” commentary, both amateur and professional, suggests that the firm’s dramatic shrinkage—certainly the bankruptcy—could have been averted. The “what went wrong at Kodak” literature is nearly its own genre of business reporting.

The company’s CEOs were alternately praised and vilified. 

■ A 1997 headline from Forbes, referring to CEO George Fisher, declared: “How an outsider’s vision saved Kodak.”

■ After Fisher’s departure, Time asserted that “Fisher’s strategy seemed to be coming a cropper—to say nothing of being in need of cropping.”

■ A New York Times story lauded Fisher’s successor, Daniel Carp, in 1999: “Mr. Fisher has given Mr. Carp an easy act to follow. … ‘Carp is well respected and experienced, so no one really has any concerns,’ said Jack L. Kelly, who follows Kodak for Goldman, Sachs.”

■ By 2002, a headline from Forbes read: “Kodak’s Carp Out of Focus.

■ Antonio Perez followed Carp, earning his own share of criticism. A 2012 Motley Fool assessment was titled: “Eastman Kodak: How a CEO Destroys an Icon.” The article concluded: “Some days, CEOs would be better off staying in bed. … Without question Mr. Perez drove Kodak into the ground.”

Nuanced and thoughtful commentary from The Atlantic in 2012 and the Harvard Business Review in 2016 are worth reviewing, however. I touch on the highlights of these assessments below.

Just protecting film?

It’s naïve to assert that Kodak was simply protecting film and chose to slow or block the shift to digital. Invented in 1975 by a 25-year-old Kodak engineer, Steve Sasson, the digital prototype was hardly ready for market. As the HBR article notes: “The camera was as big as a toaster, took 20 seconds to take an image, had low quality, and required complicated connections to a television to view.” 

Many complementary technologies had to mature—both microprocessors and memory, for example, required improvements in speed and cost—before digital cameras could enter the consumer market. Kodak’s first digital cameras were aimed at the professional market and cost tens of thousands of dollars. News organizations, for example, were willing to pay a high price for the camera in exchange for the ability to transmit the image around the world in a matter of seconds. Four-hour processing still felt miraculous to the rest of us.

Nor did the company quit researching digital. Kodak devoted an estimated $2 billion to bring digital to market, as its many patents in the digital space confirm. By the mid-1990s, the board committed to digital by selecting Motorola’s highly-regarded George Fisher as the firm’s first outside CEO. Fisher unloaded businesses unrelated to its intended digital future, devoting much of the cash to the transition and with some success. By 2005, Kodak digital cameras were the top-selling brand. Unlike the film business, however, there were far fewer barriers to market entry, leading to a vigorous competitive climate. 

As the first article in this series documented, many firms related to Kodak have survived or thrived outside the company. While put in motion by Kay Whitmore, Fisher’s predecessor, Eastman Chemical was spun out just after Fisher took over and is regarded by many Kodak’s biggest mistake. Perhaps, like Corning’s decision to unload its iconic consumer products division, splitting from Eastman Chemical was an act of “burning the lifeboats,” giving the company only one path to success.

The choice of Perez to replace Carp reinforced a focus on digital printing, another product line with few barriers to entry and many capable competitors. The Atlantic’s 2012 piece concluded: “(Kodak) isn’t in trouble because it stood still while the world turned. Rather, Kodak has spent the past decade attempting to adapt to the changing times, often creating innovative new products, but failing to turn them into a sustainable business.” 

Kodak’s decline wasn’t inevitable. Fujifilm, the company’s great rival in the film business, survived the near-extinction of film. It pursued strategies similar to those attempted at Kodak, but either managed them more effectively or was blessed with better luck. Fujifilm weathered the transition and even grew. Total sales at Kodak fell nearly by half during the critical 2000-2010 period. Fujifilm’s diversification strategy enabled the firm to more than double its sales revenue over the same period. 

Perez’s 2006 crack that digital cameras were “a crappy business” was prescient. Today, the majority of images are captured by smartphones, not single-purpose cameras. Every phone is expected to include a camera and the cameras in the best phones take remarkably good pictures. Most of us need no dedicated device for our daily picture-taking needs. The imaging business has gone from being fabulously profitable to being a ubiquitous freebie thrown in with another product.

Cloning George?

Many Finger Lakes economic development strategies are aimed at finding “the next George Eastman.” It is worth asking why Kodak was successful, and thus gauging the odds of finding the next. Moreover, we should ask: What are the odds of the next George Eastman leading a company with the scale and impact of Kodak?

It is tempting to assume there was something about Rochester that enabled Eastman’s discovery and Kodak’s runaway success. Certainly, Eastman took advantage of the resources Rochester offered, critically the financial support of Henry Strong and the optics expertise at Bausch & Lomb.

Yet the key ingredient was George himself. He was in Rochester because his father had a business here. Had his father’s business been in Cincinnati or Philadelphia, Rochester’s history would have been quite different. 

Eastman’s big idea grew to transform Rochester for two reasons: First, film manufacturing was a scale-driven business. The largest producers enjoyed cost advantages that upstarts couldn’t achieve without absorbing years of losses. This conferred a “first mover” advantage on Kodak, one that Eastman and his managers skillfully exploited. The outsized influence of Kodak on Rochester is partly due to its remarkable profitability. That profitability allowed the company to offer generous benefits and powered Eastman’s bountiful philanthropy.

Second, the size of the market was nearly limitless. A big idea harnessed to an enormous market required a large workforce. And let’s not forget that Kodak remained loyal to Rochester. Gannett and Xerox, for example, each chose to move their corporate headquarters to cities with a more prestigious corporate address.

George Eastman’s imprint on our city is deep and indelible. Yet his decision to found Kodak in Rochester was the equivalent of catching lightning in a bottle.

Kent Gardner is Rochester Beacon opinion editor.

13 thoughts on “What went wrong at Kodak?

  1. While there is historical value in this I believe it should not be the focus of the Beacon as it reflects a history that has come and gone and, when brought up, reinforces stereotypes about Rochester today as a rust bely city that got clobbered by Kodak. I know Kent refutes that idea, but constant reference to Kodak is not a useful part of our economic and development dialog today, except as a historical footnote, IMO.
    We have forward-looking business stories that are not being explored, in part because many government data sources are not tracking non-manufacturing data, which effectively leaves out major growth areas like enterprise software companies. This growth is far more desirable than manufacturing because so much automation is inevitably skewing manufacturing job value. Seat of the pants math finds companies like Datto, Jorsek, Catertrax, CloudCheckr, Medisked, and others creating thousands of jobs that are under the radar. Very desirable jobs.

    • I worked a few months under contract at one of the companies you mention. High pay, yes, but high turnover and continually changing requirements. But you are correct that manufacturing jobs don’t have the value they used to have.

  2. Thanks, Ken, for a realistic look at Kodak. I worked there for 29 years and took advantage of great opportunities.

    I do believe George Eastman was a great business man. He believed that to sell product, you needed healthy and happy employees and consumers. Thus, the Eastman Dental Center, Eastman Theater, and his support of the community health insurance concept. When I started at Kodak, I was told that the company kept facilities in shape and updated because that meant a greater number of construction people with jobs.

    There were some quirks. I worked in Motion Picture marketing and remember that in the years Kodak won an Oscar for a product, there would be no Kodak commercials shown during the Oscar ceremony–that would be too ostentatious.

    When I started, Dr. Louis Eilers was president, a president who was always seen walking through departments, visiting people to talk, and calling his management. I remember once a friend of mine answered the phone while her manager was in a meeting. When she asked who was calling, the answer was Lou Eilers. She was totally scared that when she told her boss what happened, she’d be fired. He just laughed and called Dr. Eilers back. There was no elitism.

    That brings me to my last point. Presidents come in to a position thinking they know how to solve problems without knowing the company or what the problem is. And they have no ability to plan for the future. They care about themselves at the moment. In the 1990s there was a belief that bringing in “new blood” at all levels would solve the problem. That made everything worse. The “new blood” had no clue but got ahead because they were new to the company.

  3. As always, Kent, you are thoughtful and incisive in your analysis.

    This is a question that indeed continues to be debated and that I often get when I tell people that I worked for Kodak for more than 40 years. As you note, so many people and pundits think they already know the answer: Kodak just didn’t see digital coming and didn’t respond. As you note, the numbers don’t lie and Kodak did make considerable investments in digital imaging technology that today lie at the heart of many successful digital products like Apple’s iPhones.

    It’s also true that there were many mistakes with poor investment choices or missed opportunities with the investments that were made in new digital businesses. But ultimately as you also point out, the virtual loss of such a profitable business as film was going to hurt. Not only because it made so much money, but also because Kodak had billions of dollars invested in the complex facilities that were very good at making that one product, film. Tens of thousands of skilled employees were also required to run those complex operations, but would no longer be needed with closing of those facilities.

    And of course largely go away film did. Many inside and outside Kodak knew that day was coming. But few could have predicted the speed of its demise … in only about four years of high double digit declines in the early part of the new century. To successfully emerge from such a rapid transformation would have required threading a needle while running at a sprinter’s pace. Yes, a competitor did it, but largely because of a successful play with one product line in the electronic industry that was based in their home region. It pretty much became their profitable replacement for film, even using much of the same technology, facilities and people.

    What other technology transformation has moved at a faster pace? Newspapers have had far more time to deal with their own digital transformation, but continue to struggle for answers. As your article concludes, what we must be alert for and open to is finding and nurturing the innovators who will drive our community’s success in years to come.

  4. A thoughtful article. Maybe I can add some perspective. Producing film was a complex procedure. Color film in particular. At RIT, I learned that coating lines had to be shut down in the postwar period during nuclear testing. A tiny bit of fallout in Kodak Park’s water source could impact the photosensitive product, damaging it beyond saving. Chemical film was susceptible to such seemingly minor disruptions, far trickier than digital. It could take years for a film-coating line to be brought fully into control. Even then, minor environmental glitches could halt production.

    Kodak’s grand final success was mostly due to WWII, obvious to many of us only in retrospect. Eastman was the industry leader, but had several competitors. Every one was crushed by the war. Ilford in England, Ferrania in Italy, Fuji in Japan, Agfa-Gevaert in Germany all shared the market. Every one of them was literally reduced to rubble at the war’s end. Only Kodak was left standing and became a virtual monopoly. Agfa’s US operations were rechristened Ansco and became a minor competitor. Same at 3M, where I once worked on Mount Read Blvd, with their Dynachrome product line. For years Kodak’s monopoly was great for Rochester. Everyone (at least if they were white) did well and shared in the bounty. And the leaders mentioned here mostly replicated George Eastman’s enthusiasm for his city and its people, even after that began to harm the company. I don’t think we should judge those leaders. Should they have supported the company but not its people? Or the other way around?

    I have a special perspective of the 1980s. As a museum photographer in Atlanta, GA, I depended on Kodak (to which I was loyal) to make a quality product. Perfect color was critical to my work. Sometimes Kodak let me down. When something wasn’t working for me, however, they let me know it was my problem, not theirs. Even before digital became a factor, there was an arrogance that comes from being a monopoly. I noticed. My peers noticed as well. When I opened my studio, any professional photo store had piles of yellow boxes. By the time I shut down and left Atlanta, there were growing stacks of green boxes and not so many yellow ones. That decline was not instigated by digital, which it preceded, but by arrogance. Then the rise of digital administered the coup de grace. When I returned here in 1992, the bloodletting was in full force and this was a depressed city. I had changed career by then and Rochester was no longer a good place to find work. The vast number of people needing to begin their lives over again was mind boggling. Rochester had a century’s worth of photo infrastructure and it was all about manufacturing film. That was over. Asia was already invested in digital technology, so camera-making came easily for them. Here it was over.

    • I experienced the arrogance you mention. I had a roll of film developed and printed at Kodak and was horrified to get prints back that were so badly trimmed that everyone was a different size. As a Kodak employee, I was horrified and voiced my concern.

      Thanks for going into all that is involved with chemical film. I wonder how easily a large volume of film could be manufactured and processed with all of the regulations in effect to protect water, air, etc today.

  5. IT”S THE LEADERSHIP & CULTURE BABY!

    There was a brief mention in one of the comments about Lou Eilers that mentioned “there was no elitism.” My contention was that a terrible culture was at the root of Kodak’s demise. I say that in part because of the story of “Team Zebra”, an internal movement and eventual book by a colleague and friend Steve Frangos. He was brought in to lead Black & White film in the early 90’s. It was bleeding money, had the lowest employee satisfaction survey numbers in the company and Kodak was actually thinking about selling it.
    I two short years, Steve created the “Team Zebra” culture which turned B&W into one of the most profitable divisions and went from worst to first in employee satisfaction. Unfortunately for Kodak, they offered the last, biggest retirement package that Steve reluctantly took. He then wrote the book, Team Zebra, and toured the country speaking and consulting. By the way, never within Kodak.
    In talking to Steve, there was little interest around Kodak to learn about this beacon of success. Soon after he left the leaders on his team were reassigned to other area of Kodak and Team Zebra died.
    Around that same time, I began my leadership and culture development practice. I was fortunate enough NEVER to be hired @ Kodak, as many of my colleagues were, to work on leadership and culture. These efforts never went high enough thus never being embraced by the CEO and Sr. Leadership. This is always a waste of money and unfair to the employees who have to live through another flavor of the month.
    Peter Drucker’s words were never heeded – “culture eats strategy for breakfast” (lunch and dinner and midnight snacks included). It must be a BUSINESS priority of the CEO first and cascade down as s/he transforms their leadership and the leadership of the organization. Now we have a term and movement called Conscious Capitalism that is truly the foundation in the EVOLution of Business.

    • I totally agree with you that at the time you are referencing the culture had changed. Dr. Eilers was president when I started in 1968 and the company had a very different culture than what you are describing. Starting in the 1970s, there was more competition and new business and management theories to deal with the competition. I remember in the 80s taking a high level finance course and being taught that every company needed to leverage to the hilt. Well, that blew up. Management at all companies did less and less effective leading. And when you think about it, since the early 90s, Kodak management has come more and more from outside the company and they brought nothing better and listened no better to outside experts.

      So, baby, I’m looking to you to teach management the leadership techniques that will make companies succeed. We all need successful businesses.

  6. Hi Kent,
    The same wave that swept over Kodak killed a swathe of high performers from Boston to Chicago. Check out Anna Lee Saxenian’s book contrasting Route 128 and Silicon Valley’s response to the Japanese tech titans. Regional Advantage: Culture and Competition in Silicon Valley and Route 128. The problem is not that a single company could not dominate forever. It is that times change and communities that rely upon one or two companies will fall upon hard times as the pace of innovation grows exponentially and can no longer be confined to a single organization. Kodak would have failed to build great digital cameras for the same reasons that Data General, Wang and Digital Equipment failed to build the best computer. Their corporate models could not keep abreast of and integrate innovations occurring outside the company walls.

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