CASE 12
Eastman Kodak’s Quest for a Digital Future
TEACHING NOTE
■ SYNOPSIS ■
Eastman Kodak’s entry into Chapter 11 bankruptcy may not have been the end of the road for the former
giant of photography, but it certainly marked the end of its quest for world leadership in the field of
digital imaging.
Since the beginning of the 1990s, Kodak had committed itself to adjusting to the technological
transformation of the photographic imaging industry. Under its two previous CEOs, George Fisher and
■ TEACHING OBJECTIVES ■
The primary purpose of this case is to explore the challenges that an established firm faces in addressing
the introduction of a disruptive technology into its industry. In doing so, the case illustrates the challenges
of strategic change outlined in Chapter 8 of Contemporary Strategy Analysis—especially the difficulty of
creating new organizational capabilities. These challenges are especially striking for Kodak. Digital
technologies threaten to almost completely destroy the market for conventional imaging products. The
difficulties of developing the capabilities required in the new world of digital imaging are especially great
for Kodak given that:
Kodak has been so dominant in its industry for such a long period. It is inevitable that its core
capabilities (in chemical-based imaging) have become “core rigidities” that inhibit the firm’s
Students should come away with:
Recognition of the difficulties that established firms face in developing new capabilities when
Understanding of how the development of new capabilities can be managed including the role of
hiring new personnel, cultural change initiatives, strategic alliances, and acquisitions.
■ POSITION IN THE COURSE ■
I use this case in the part of my course that addresses strategic change (drawing on Chapter 8 of the
textbook). The case is also suitable for exploring strategic issues in technology-based industries and the
management of innovation (Chapter 9 of the textbook).
■ ASSIGNMENT QUESTIONS ■
• What was Kodak’s digital imaging strategy during 1992-2012?
• Why did the strategy fail?
■ READING ■
R. M. Grant, Contemporary Strategy Analysis (8th edn.), Wiley, 2013, Chapter 8 on “Industry Evolution
and Strategic Change.” In addition, Chapter 9, “Technology-based Industries and the Management of
Wiley website).
■ CASE DISCUSSION AND ANALYSIS ■
This case has less of a decision focus than my most of my other cases: Kodak is now bankrupt and its
strategic options are greatly constrained. My primary emphasis in this case is more on encouraging
students to learn from the Kodak’s tragic history over the past two decades. In particular, recognizing the
Kodak’s Digital Imaging Strategy, 1992-2012
Kodak as a digital pioneer
It is useful to gain some historical perspective on the evolution of Kodak’s digital strategy. I typically ask
the class, “When did Kodak begin in electronic imaging?” It is worth noting that Kodak’s imaging
interests began developing beyond chemical imaging during the early 1980s. Kodak has been involved in
The importance of recognizing Kodak’s early start to in acknowledging that it avoided the failure of many
established firms faced by disruptive innovations. For a firm that was a leader in conventional technology,
Kodak pioneered many of the key innovations in digital imaging.
Kodak’s dual strategies
The key feature of the post 1993 period was much greater consistency and focus to Kodak’s digital
strategy. Several themes stand out:
Separate strategies for the professional/commercial and consumer segments. The professional
segment was the technological leader, where Kodak introduced leading-edge products (e.g., its
advanced digital cameras) at high prices. In the consumer segment, Kodak aimed to provide
The rationale for this dual approach is that in the professional market Kodak has pioneered its
new technologies relying on tech-savvy, price insensitive users to experiment with new
technologies while recouping some of its development costs. In the consumer market, Kodak’s
commitment to a hybrid approach – offering selective digitization of particular functions –
reflects two factors:
(a) Its desire to utilize its existing strengths in the retail market, notably its brand and its global
retail distribution. Kodak’s ability to build a major presence in the consumer market depends
(b) Kodak’s traditional positioning in the retail market as a mass-market supplier of moderately
Matching selectivity with integration
Kodak’s digital strategy combined its traditional emphasis on offering complete customer solutions with
the recognition that it had to be selective as to which stages of the digital value chain it should build a
presence.
Full service provider. Linked to Kodak’s desire to produce both simplicity and offer a transition
path from conventional to digital imaging, Kodak seeks to offer comprehensive customer
solutions. This is most clearly represented by its “EasyShare” range of products and services.
Under its EasyShare brand Kodak offers cameras which connect directly to dedicated
Selectivity. Kodak recognized that it must be selective in the products and activities where it
allocates its investment. Many stages of the digital imaging value chain are already dominated by
powerful incumbents (e.g., Microsoft in operating systems, HP in inkjet printers, AOL in internet
service, Adobe in page formatting). Hence, Kodak could not hope to be a leader across the digital
imaging value chain from image capture through to image transmission and printing. Therefore,
obliged to own and manage all parts of the system.
Shifting product focus
Despite the consistency of several aspects of strategy between 1992 and 2012, different CEOs have been
Why did Kodak’s Digital Strategy Fail?
Kodak’s performance
In terms of performance, Kodak presents a clear contrast between its market and financial performance.
In terms of market share and product launches, Kodak chalked up numerous successes. After decades of
decline in camera, Kodak was able to establish itself as #3 worldwide and #1 in the US in digital camera.
Was Kodak’s digital strategy misguided?
To assess Kodak’s digital strategy, we can examine its fit, first, with the emerging market environment of
digital imaging and, second, with Kodak’s resources and capabilities.
Kodak’s failures of perception and foresight are apparent in three main areas:
Faith in emerging markets for continued sales of conventional film. Kodak was right that
emerging markets (especially China) would be growth markets for consumer photography. Where
Kodak was wrong was in expecting that these markets would adopt traditional photography
before they went digital.
access, data compression algorithms, etc.)
[B]Fit with Kodak’s resources and capabilities
Did Kodak possess the resources and capabilities necessary to become a successful digital imaging
company. In 1992, it did not; but—as a result of massive and continuing investment in acquisitions, R&D
programs, and hiring senior executives from Silicon Valley—Kodak was able to acquire most of the
technical capabilities it needed to be a strong competitor in digital imaging hardware.
If we review Kodak’s resources and capabilities during the first decade of the 21st century, we can point
to several strengths:
Brand and distribution. Kodak’s key resources were its brand name and its global distribution
system, involving close links with retail stores, photo finishers, and professional photographers.
The issue of Kodak’s brand strength in digital imaging is worthy of some discussion. Kodak’s
name was closely associated with its little yellow cartons of film. How strong is Kodak’s brand in
Technology. Kodak was an early mover in investing in digital imaging technologies, and had
strong capabilities at the interface between chemical and digital technologies—especially in color
management and printing. At the same time, Kodak faces rivals with awesome technological
New product development. A major worry is whether Kodak has the capabilities for fast-cycle
product development. In the past, Kodak’s technological strengths and market dominance
allowed it to dictate the pace of technological change. Clearly it has struggled to adapt to the short
Given these resources and capabilities, did Kodak have the potential to be a market leader in digital
imaging? To a great extent, this question has been answered by Kodak’s performance. In several areas of
the market, notably in digital cameras, in online photo services, retail processing services, dental imaging,
and high-end color commercial printing, Kodak was among the market leaders. However, as already
mentioned, was that intensity of competition made it difficult to convert market success into revenues and
profits. Especially when such heavy investments in R&D, personnel, and acquisitions were necessary.
Did Kodak have Other Strategic Options?
Building on Kodak’s chemical capabilities
To explore alternative strategy options for Kodak, it is useful to go back to the commitment that Fisher
made to digital imaging on his appointment as CEO in 1992.
A key aspect of this commitment was his decision that Kodak should divest Eastman Chemical and
Kodak’s pharmaceutical business. Did Kodak had the option of developing in two broad strategic
Consumer vs. commercial markets
Within Kodak’s digital strategy, could Kodak’s emphasis on market segments, products, and technologies
have been better judged?
A feature of Kodak’s digital strategy has been its emphasis on consumer markets—probably a reflection
of Kodak’s past traditions. Yet, in terms of both market attractiveness and the applicability of Kodak’s
`Lessons for Other Companies
Kodak’s situation may be extreme, but the challenge of a new technology to an established firm in
common. E.g.:
Nokia and smartphones
Microsoft and, first, the internet and, second, the transition to mobile devices.
Netflix and streaming.
Some companies have been able to make the transition to these new technologies. IBM’s history of
Among the lessons that such established firms might draw are:
1. The difficulties of developing the new capabilities required by the technology. In many cases
2. Established firms can create new capabilities and the Kodak approach offers sound guidance on
how to build capability in a radically different area of technology:
3. Difficulties of timing. Typically established companies are not early movers in the adoption of
disruptive technologies—Kodak was an exception, it was a pioneer of digital imaging. But getting
the timing right is as difficult for established firms as it is for new ones. The advantages of
established forms ids that they have the resources to have multiple attempts
4. Assessing the implications of an emerging technology for the structure of an industry and the
profit opportunities within it. The disruption that new technologies bring includes the structure of
5. The value of keeping options: Kodak committed very heavily to digital imaging and divested its
chemical and pharmaceutical businesses. Contrast that with Fuji Film that made heavy
■ KEY TAKE-AWAYS FROM THE CASE DISCUSSION ■
1. Core capabilities are core rigidities. Kodak’s 25-year effort to turn itself into a digital imaging
company provides a vivid illustration of Leonard Barton’s argument that a firm’s capabilities are
barriers to change. Kodak’s successful development over almost a century had created an
integrated set of technical and commercial capabilities that were embedded within Kodak’s
employees, its structure, its systems, and its corporate culture. The transition from being a
2. The challenge of developing cross-functional, architectural capabilities. I argue in Contemporary
Strategy Analysis (see section on “Identifying Organizational Capabilities” in Chapter 5) that a
firm’s capabilities may be considered as a hierarchy (see Figure 5.6 in particular). The more
3. What does the Kodak case teach us about how to develop new capabilities? Despite Kodak’s
ultimate financial failure, its efforts to recreate itself as a digital imaging company were
successful in terms of products, market presence, and the development of digital imaging
capabilities. Most other photographic companies (most notably, Polaroid) have failed to make the
digital transition. While implementation may be criticized, the main elements of the strategy—a