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Will business owners look at Kodak and get the picture

Wednesday, March 28, 2012   By Mike Reddy


Eastman Kodak Company, or simply Kodak as it's known around the world, has filed for bankruptcy protection under US law. At first blush, it seems crazy - the company whose name is synonymous with photography going bankrupt at a time when people are taking exponentially more pictures than ever before.

Needless to say, business school professors will be talking about Kodak for years to come, and with their advantage of hindsight, the lessons they teach will seem obvious.

However, without hindsight are strategic decisions always that obvious?

The seeds of Kodak's failure go back many years to the heyday of the Cold War between the US and USSR. In the 1950s, the US government approached Kodak with a request to develop a long range, high-altitude camera, capable of capturing clear ground images from a U-2 reconnaissance aircraft more than 70,000 feet above sea level.

Kodak was successful. The images achieved far exceeded expectations.

Soon, U-2s were in the air over strategic areas - until May 1, 1960, when a plane piloted by Gary Francis Powers was shot down over the Soviet Union.
Still, the camera technology was a winner, and the US continued to fund Kodak's research. Kodak invented digital photography in the 1970s to solve a logistical and financial problem.

After the U-2 downing the US chose space as a safer frontier. But carrying over 100km of film required a costly 17 tonne spaceship. And the whole mission was of little use until the film was returned safely to Earth and developed.

The company introduced its first commercial digital camera, a 0.01 megapixel model, in 1975. The satellite images you see on Google Earth today are direct descendants of Kodak's early digital innovations.

Prior to digital photography, Kodak had relied on the proven "razor/razor blade" business model - give away the razor so that the customer will buy your razor blades.

Most of Kodak's profits came not from selling low-margin cameras, but from selling film. After the launch of its Kodachrome technology in the 1930's, Kodak film products dominated the shelf space in almost every camera shop and photo developer. At the height of its dominant era, Paul Simon even wrote a hit song about Kodachrome film.

It would have taken a brave CEO to cannibalise that income in order to chase a new technology that was far from proven.

Such a drastic re-invention is best suited for a new and innovative company.

While every company, brand, and product has a life cycle, and it is possible for new strategies to extend that life expectancy, reincarnation as a completely different business is a very different challenge.

Mike Reddy is a Chartered Accountant, business coach and advisor helping businesses in Sydney, Melbourne, Brisbane and Gold Coast to easily increase their profits and cash flow. He is currently President of the North Sydney Chamber of Commerce, a Regional Councillor for Sydney North East and a member of the Institute of Chartered Accountants Sydney leadership team. As well as advising businesses, Mike presents business development seminars and webinars and is regularly contacted by the media to comment on small business matters. You can connect with him on Facebook, Twitter and Google+.