Kodak and the Digital Destruction of Value Chains

Kodak and the Digital Destruction of V l Ch i D t ti f Value Chains

Few technologies have been as disruptive as digital technology. It has turn industry after g gy y industry upside down.

One reason for this is of course that it as destroyed the competence base of y p established companies.

Mechanical calculators used to be based upon cogwheels and with the shift to electronics, the value of all this competence was lost.

When the interior of a product instead looked like this, many mechanical companies lost , y p their competitive advantage.

The same thing happened with cameras.

Another reason for the turmoil is that digital technology has destroyed established value chains.

Large and complex value chains have been removed since the technology is much simpler and cheaper.

Let me give a few examples…

Once upon a time there used to be radio stores in society society…

Calculator stores…

… Plenty of camera stores…

… Music stores.

In these cases, digital technology has removed downstream activities in the value chain…

… and therefore lost much of their competitive advantage.

Kodak used to be vertically integrated…

… and had many sites like this one around the world (photos from Stockholm).

Needless to say, this implied high entry barriers and a better relationship to customers.

It took many decades before Fujifilm became a threat to Kodak…

But when the digital revolution came into motion, these sites became useless.

Cameras were instead sold in consumer electronics stores and film declined rapidly.

Several camera stores h t have also gone g out of business. b i

The continuous consumption of film generated continuous revenues and visits to the local camera store.

And they repaired your camera.

Consumer electronics isn’t repaired, because new, better products enter the market all the time.

Thousands of camera stores around the world have died.

The same thing thi happened to pp Radio stores.

The special radio stores made money on reparation, and therefore, transistor radios did not fit into this value chain.

They were instead sold via discount stores.

How many radio stores do we have i the world today? h in th ld t d ?

With the shift from mechanical calculators, the sales channel shifted to bookstores.

No more reparation, and moreover, the price was in the end so low that no money could be made on repairing these products.

Have you ever repaired an electronic calculator?

The music industry is experiencing precisely the same kind of value chain destruction.

Bookstores have also lost their competitive advantage with the rise of the i t ith th i f th internet. t

How many special TV stores do we have nowadays?

And how often do you repair these products?

When it is broke, you’ll have a good reason to buy a new, better and cheaper one instead.

Digital technology has created value chains which are much shorter and simpler. p

It has created value…

… by removing activities…

… and made products so cheap that it makes no sense to repair them anymore.

All these digital products have are nowadays mainly sold via huge consumer electronics stores or over the internet.

This is of course much cheaper and it makes sense economically…

But there’s been quite some creative destruction associated to this revolution.

Christian Sandström is a PhD student at Chalmers University of Technology in Gothenburg, Sweden. He writes and speaks about disruptive innovation and technological change.

Christian Sandström is a PhD student at Chalmers University of Technology in Gothenburg, Sweden. He writes and speaks about disruptive innovation and technological change. But h t happened to Kodak? B t what h d t K d k?

Christian Sandström is a PhD student at Chalmers University of Technology in Gothenburg, Sweden. He writes and speaks about disruptive innovation and technological change. But h t happened to Kodak? B t what h d t K d k? Find out more: www.christiansandstrom.org

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Kodak and the Digital Destruction of Value Chains

by Chris Sandström on Nov 01, 2009

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Kodak and the Digital Destruction of Value Chains — Presentation Transcript