In Kodak Bankruptcy, Another Casualty of the Digital Revolution

  • Share
  • Read Later
George Rose / Getty Images

Kodak’s decision to file for bankruptcy protection is a sad, though not unexpected, milestone for an American corporate icon that pioneered consumer photography and dominated the film market for decades, but ultimately failed to adapt to the digital revolution.

Unlike fellow corporate titans IBM, Xerox, and Corning Glass, Kodak was unsuccessful in its quest to reinvent itself in the face of a rapidly changing economy. Rather, Kodak’s demise mirrored that of Blockbuster and Borders, two other giants that saw new, innovative digital upstarts crowd them out of the marketplace.

On Thursday, Kodak filed for Chapter 11 protection in U.S. Bankruptcy Court for the Southern District of New York. The company said it has received a $950 million line of credit from Citigroup while it reorganizes its business with a view toward emerging from bankruptcy in 2013.

Although many commentators attribute Kodak’s downfall to “complacency,” that explanation is “the easy answer,” one that doesn’t acknowledge the lengths to which the company went to reinvent itself, according to Rebecca Henderson, a professor at Harvard Business School who co-authored an influential case study about the company. Decades ago, Kodak anticipated that digital photography would overtake film — and in fact, Kodak invented the first digital camera in 1975 — but in a fateful decision, the company chose put its new discovery on the backburner to focus on its legacy film business.

It wasn’t that Kodak was oblivious to the future, Henderson said, but rather that it failed to execute on a strategy to confront it. By the time the company realized its mistake, it was too late.

“Kodak is an example of a firm that was very much aware that they had to adapt, and spent a lot of money trying to do so, but ultimately failed,” Henderson says. “Large companies have a difficult time transitioning into new markets because there is a temptation to put existing assets into the new businesses.”

(More: Getting Kodak To Focus)

Henderson contrasts Kodak’s experience with that of two other American corporate icons, IBM and Corning Glass, both of which recreated themselves to adapt to new market conditions. IBM’s decision to jettison its personal computer business and invest heavily in consulting and services laid the foundation for Big Blue’s recent renaissance. Corning, meanwhile, has become one of the largest manufacturers of glass for flat-screen televisions and cell-phones. It’s a far cry from that company’s start as a producer of railroad signals, Henderson points out.

Although Kodak anticipated the inevitable rise of digital photography, its corporate culture was too rooted in the successes of the past for it to make the clean break necessary to fully embrace the future, Robert Burley, an associate professor at Toronto’s Ryerson University, told Bloomberg. “They were a company stuck in time,” Burley said. “Their history was so important to them, this rich century-old history when they made a lot of amazing things and a lot of money along the way. Now their history has become a liability.”

Founded in 1880 by George Eastman, Kodak became closely identified with the city of Rochester, New York, where it was based. At its peak in the 1980s, Kodak employed 62,000 people there, according to a recent must-read New York Times story about the evolution of Rochester’s economy. Today, that figure has fallen to less than 7,000. Between 2004 and 2007 alone, Kodak closed 13 film plants and 130 photo labs, and slashed its workforce by 50,000, according to Reuters.

(More: Kodak’s Photo Op)

Kodak’s demise over the last several decades was dramatic. In 1976, the company commanded 90% of the market for photographic film and 85% of the market for cameras, according to the case study Henderson co-authored. But the 1980s brought new competition from Japanese film company Fuji Photo, which undercut Kodak by offering lower prices for film and photo supplies. Kodak’s decision not to pursue the role of official film for the 1984 Los Angeles Olympics was a major miscalculation, according to Los Angeles Times business columnist Michael Hiltzik. “The bid went instead to Fuji, which exploited its sponsorship to win a permanent foothold in the marketplace,” Hiltzik wrote in an excellent piece detailing Kodak’s struggles.

In 1991, Kodak introduced the photo CD, which allowed consumers to view digital photographs on their computers, but that launch was a modest, incremental step for a company that needed to move much more decisively. The company introduced several pocket-sized digital cameras in the late-1990s, culminating with the launch of its EasyShare device in 2001. But by then, the digital camera market had become highly competitive, with rival device manufacturers battling each other for increasingly slim profit margins.

And of course, over the last several years, the rise of the smartphone has further transformed the market, as consumers increasingly eschew low-cost digital cameras, preferring to use feature-rich iPhones and Google Android devices to take photos and videos. Kodak, once a blue-chip American company, had been left in the dust.