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Razor blade strategy- cameras sold at a low price to drive film sales
Leader in photo-finishing process Color film Silver halide technology
Preferred incremental improvements over risky technological changes
Business model Vertical vs Horizontal Different technologies From film, paper, and chemicals to image capture, services, and image output Behavior of customer Can pick and choose which photos to print Can print from home Value chain Razor blade strategy failed Digital cameras bought in more technologically centered companies (Best Buy, Costco) vs drug stores with film (Rite Aid , Sav-on)
“Film-based digital imaging” Developed the first digital camera in 1975 Felt that it went against the razor-blade strategy Developed the Photo CD in 1991 Not initially compatible with CD-ROM
Not every innovation idea has to be a blockbuster
(e.g., by 1993, Kodak had spent $5 billion on digital imaging research, but the funds were being diverted to 23 separate digital scanner projects.)
(e.g., photo CDs are not compatible with CD-ROMs
One good way to understand why Kodak failed is to see the difference between Kodak and its competitor, Fuji Film.
this charts shows the net sales of Kodak and Fuji film for past 30 years,
As you know from the case, Fuji gradually increased the market share and finally overtook Kodak with cost leadership strategy. Whereas Kodak became bankrupt, Fuji was able to transform its business into a solid profitable business.
Both firms faced the same problem of digital transformation and had similarities in some ways.
For example, Both firms enjoyed lucrative monopolies of their home markets Kodak in US, Fuji in Japan Saw their traditional photography business became obsolete Realized Digital photography itself would not be profitable comparing with traditional film business
Even Kodak tried to transform to digital company with certain amount of investment, it finally stuck with photo, film based business like digital camera, digital printing, digital mini-labs. Also, it quit very quickly as its strategy changed
Fuji, on the other hand, tried to rethink its core technology, change its business model as much as they can and diversify its business more broadly like LCD, cosmetic, and drugs and it continued to seek new business areas and was patient to see the growth of its businesses.
In terms of innovation, Fujifilm gave up to stick with the current business and seeded innovation for its future, whereas Kodak obsessed with profitable business model and could not focus on innovation.
One reason of Kodak failure is the inconsistency of strategy. Since CEO changed 4 times in 80s and 90s, miscommunication and misalignment within the organization made company confusing.
Another reason we think is the difference of corporate culture. Kodak is an American company and focused on profitability and ROI but could be myopic, worrying so much about shareholders. On the other hand, Fuji, a traditional Japanese company, had not so much pressure from market as Kodak had and valued long term perspective more than short term profitability. This difference would encourage the different attitudes towards diversification and innovation of their business.
Kodak case analysis
• Better organization and communication
• Invest in corporate culture and consistency
• Commitment to R&D projects and forward
Kodak’s Business Model
• “You press the button, we do the rest”
• Razor blade strategy
• Leader in photo-finishing process
• Incremental improvements
• Vertically integrated
The Disruptive Technology
• Business model
• Customer behavior
• Value chain
• Marketing strategy
Kodak’s Attempt at Digital
• “Film-based digital imaging”
• Developed the first digital camera in 1975
• Developed the Photo CD in 1991
• Rejecting opportunities that at first glance
appear too small
- Kodak was attached to the same profitability of
the traditional photography business model
- Spreading its digital investments too broadly
• Strangling innovation with the same tight
planning, budgeting, and reviews applied to
- Razor-blade business model, insisting film- based
digital imaging (1990-1993)
- Complacency in its Rochester, New York base
blinded the company from technological leaps
• Isolating fledgling and established enterprises
in separate silos
- Digital imaging operations with silver-halide
photographic division separated across
- Inconsistency and confusion of communication
between top and middle managers
• Allowing innovators to rotate out of teams
– Changing CEO frequently, thus changing its
strategy about digital transformation
Overall, Kodak avoided risky or innovative
procedures and policies, and suffered from a
mentality of perfect products, rather than the
high-tech mindset of make it, launch it, fix it
• Inconsistency of Management
• Top Management
• Strategy for transformation of the firm
• Communication within the organization
• Corporate culture
• Sticking with current business model
• Too much focus on profitability, ROI, and