When Digital Imaging displaced Kodak Film

Before digital imaging, Eastman Kodak had been a rising star for a century.

Kodak had popularized photography and made it accessible, user-friendly and affordable.

Digital imaging was the next revolution.

In the early 1990s, Kodak tried to make predictions regarding the diffusion of the new technology.

Back in 1985, Kodak founded the ’Technical Intelligence Group’ which primarily dealt with such issues as the substitution of film by digital imaging.

Digital imaging had been hyped back in the 1980s but no major commercial breakthrough had been accomplished yet.

In 1994, the group had come up with a technology substitution forecast.

Under the direction of Terry Faulkner, Tone Kelly had made a forecast which was based upon the logic of an S-curve.

History has shown that new technologies and products tend to be diffused at an initially low pace…

As the technology becomes more widely known and the performance reaches sufficient levels the pace increases…

… And eventually the growth slows down as the market starts to mature.

Based upon this logic and a careful analysis, Faulkner and Kelly concluded in 1994 that 50 percent of the market would be digital in 2004.

This forecast turned out to be remarkably accurate (it actually happened in 2003).

For a company that made virtually all its profits on film, this wasn’t good news.

When the forecast was presented to top management it wasn’t well received by everyone.

Some of them referred to the large installed base of cameras and others pointed at the growth opportunities related to emerging markets.

One can understand people who did not want to believe in these estimates…

The implications were huge for a company like Kodak who made virtually all profits on film.

The value of being vertically integrated would be lost.

The competence base related to film would be rendered obsolete.

The figures basically suggested that Kodak would be burning in ten years, unless the entire company was changed.

Frightening.

While far from everyone was convinced, both the CFO Harry Kavetas (though not publicly) and the CEO George Fisher believed in the forecast.

With this information in your hands, what would you do on Monday?

Fisher and Kavetas thought that Kodak had always been about film and that transforming the entire company in less than a decade would be very difficult.

They therefore tried to sell the company.

Having started at Kodak in 1961, Faulkner now became director of Strategic Initiatives in 1995 reporting to George Fisher.

His main job was to find potential buyers or companies that could merge with Kodak and to provide Fisher and Kavetas with talking points.

Some of the companies that were approached declined after the first meeting…

… Canon…

… and Motorola.

A potential merger with Xerox was discussed in January 1996, but did not lead anywhere.

The discussions were renewed in 1997, but nothing happened.

Faulkner thought that a merger with HP would have been the ideal solution.

In May 1997, Fisher met with Lew Platt of HP.

The discussions resulted in a joint venture…

… but not more than that.

After having lost this opportunity it became increasingly difficult to find a potential partner.

Kodak became increasingly desperate and even Gillette was approached with a proposal…

Proctor & Gamble did not want to marry Kodak either.

Persuading these companies to merge with Kodak must have been quite a rhetorical challenge…

… Faulkner became increasingly frustrated and the last two efforts had seemed very far fetched…

Having had virtually no vacation for two years and worked very hard he eventually opted for early retirement in late 1998.

Digital revolutions tend to put companies as well as people in troublesome situations.

Eventually, Kodak never merged with anyone and had to go through the revolution on its own.

It wasn’t a pleasant journey.

Image attributions

Thanks to: Terry Faulkner

Christian Sandström is a PhD student at Chalmers University of Technology in Gothenburg, Sweden. He writes and speaks about disruptive innovation and technological change. www.christiansandstrom.org christian.sandstrom@chalmers.se

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When Digital Imaging displaced Kodak Film

by Chris Sandström on Jul 16, 2009

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When Digital Imaging displaced Kodak Film — Presentation Transcript