Kodak, as we know it today, was founded in the year 1888 by George Eastman as ‘The Eastman Kodak Company’. Kodak was the most famous name in the world of photography and videography in the 20th century. Kodak brought about a revolution in the photography and videography industries. And at the time when cameras were only available at big companies for the recording of movies, Kodak enabled the use of cameras in every household by producing cameras that were portable and affordable. Kodak was the most dominant company in these fields for almost the whole of the 20th century. But the success of the company gradually began to turn into failure due to their own mistakes. The downfall of the company started around the 90s and eventually, the company declared itself bankrupt in 2012. Why then, the company that was said to be the king of the field became bankrupt? What was the reason for Kodak's Bankruptcy? We try to answer these questions in this Case-Study.
Kodak’s Initial Mistake
Kodak, for many years, enjoyed great success in the whole of the world. Till 1968, they had already captured about 80% of the world’s market shares in their field.
Kodak adopted the business plan of ‘razor and blades’. The concept of the razor-blade business plan is to first sell the razors with a small margin of profit. And then after buying the razors once, the customers will have to buy the consumables (in this case the blades) again and again, so, sell the blades at very high-profit margins. The idea of Kodak was to sell cameras at very affordable prices with only a small margin for profit and then sell the consumables such as films, printing sheets, and other accessories with high-profit margins.
By the use of this technique, Kodak was able to generate huge amounts of revenues and was able to expand the business and the company to new heights.
But, as technology progressed, the use of films and printing sheets slowly came to a stop. This was due to the invention of digital cameras in 1975. Although the inventor of the digital camera, Steve Sasson was an electrical engineer at Kodak, yet they refused to adopt the new technology. This was due to fact that the business of films and paper was a very profitable business for them and if these items were no longer required for photography, then they would have to suffer huge losses and close down all the manufacturing factories for these items.
The response of the company’s management when he told them about his new product was’ “That’s cute, but don’t tell anyone about it”, informed Steve Sasson in an interview.
The idea was then implemented on a large scale by a Japanese company by the name of ‘Fuji Films’. And soon enough, many other companies started the production and sales of the digital camera, which left Kodak way behind the other companies.
This was the first mistake by Kodak. The ignorance of new technology and the need for the market that changes continuously laid down the first step for Kodak towards its downfall.
Kodak’s Second Mistake
Kodak spent almost 10 years after that only to fight with its biggest competitor Fuji Films by claiming that the process of viewing an image captured by the digital camera was a typical process and that people love the touch and feel of a printed image. Kodak believed that the citizens of the United States of America will always choose them over the foreign company Fuji Films. But in that period Fuji Films and many other companies established themselves in the digital market. And once again, instead of coping up with its competitors, Kodak still insisted on the use of film cameras. They ignored the feedback from the media and the market completely. They tried for 10 years to convince the people that film cameras were better than the new digital cameras. They also lost all the external funding during that time. But the people had already understood that digital photography was way ahead of traditional film photography. It was cheaper than film photography and the quality of the images was very much better.
Around that time, a magazine stated that Kodak was being left behind the other companies because they were turning a blind spot to the new technology. The marketing team of the company also explained to the managers about the change in core ideas that the company should go through in order to achieve success. But the company continued to stick to its old idea of success and claimed that the reporter who said that statement in the magazine did not have the right amount of knowledge to say something about that field.
Kodak failed to understand the simple thing that their success plan that once proved very effective was now taking them far away from success. The reason was the rapidly changing technology and the needs of the market. During all these years, Kodak invested its funds in acquiring many small companies.
When Kodak finally understood this and started the sales and production of digital cameras, it was too late. Many big companies had already established themselves in the market till then and therefore, sales of digital cameras by Kodak turned out to be a failure.
And hence, the company’s downfall began. In the year 2004, Kodak finally announced that they will stop the sales of the traditional film cameras which had just been started by them in 2001. This decision was responsible for the loss of job to around 15,000 people. That was about one-fifth of the company’s workforce at that time. Before the start of the year 2011, Kodak had lost its place on the S&P 500 index, which lists the 500 largest companies in the U.S. on the basis of stock performance. In September of that year, the stock prices of Kodak hit an all-time low of $0.54 per share. More than 50 % of its shares fell in that whole year.
By the month of January in 2012, Kodak had used up all of its resources and cash reserves. Finally, on the 19th of January in that year, Kodak filed for the Chapter 11 bankruptcy protection which resulted in the reorganization of the company and was provided with 950 million dollars revenue on an 18-month credit facility by the CITI Group. This enabled them to continue the company. To generate more revenue, some sections of the company were sold to other companies. Along with this, they decided to stop the production and sales of digital cameras and stepped out of the world of digital photography. They shifted their focus on camera accessories and printing of photos.
They had to sell many of their patents, such as their digital imaging patents which amounted to more than $500 million to come out of bankruptcy protection. Finally, in September of 2013, Kodak announced that it had emerged from Chapter 11 Bankruptcy Protection.