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