Case 10 Eastman Kodak’s
Quest for a
Digital Future
On January 19, 2012, the Eastman Kodak Company declared bankruptcy—it entered
“voluntary Chapter 11 business reorganization.” Its two-decade journey of transition
from traditional photography into digital imaging was effectively over. In 1990, Kodak
had launched its Photo CD system for storing photographic images; in 1991, it had introduced
its ?rst digital camera and, in 1994, its new CEO, George Fisher, had declared:
“We are not in the photographic business . . . we are in the picture business.”
With senior executives recruited from Motorola, Apple, General Electric, Silicon
Graphics, and Hewlett-Packard, Kodak’s digital imaging efforts had established some
notable successes. In digital cameras, Kodak was US market leader for most of 2004–10;
globally, it ranked third after Canon and Sony. It was a technological leader in megapixel
image sensors. It was global leader in retail printing kiosks and digital minilabs.
Financial performance was a different story. In 1991, Eastman Kodak was America’s
18th-biggest company by revenues; by 2011, it had fallen to 334th: over the same period
its employment had shrunk from 133,200 to 17,100. During 2000–11, its operating
losses totaled $5.2 billion.
As Antonio Perez prepared for his new role under the supervision of Kodak’s chief
restructuring of?cer, James Mesterharm, he re?ected on Kodak’s two decades of decline.
How could a company that had been a pioneer of digital imaging and had invested so
heavily in building digital capabilities and launching new digital imaging products have
failed so miserably to pro?t from its efforts? And what could he have done differently
to have avoided this fate?
These same questions haunted the CEOs of other companies: if one of America’s
most successful companies could be destroyed by new technology, what did the future
hold for their own businesses?
Kodak’s History, 1901–93
George Eastman transformed photography from a professional, studio-based activity
into an everyday consumer hobby. His key innovations were silver halide roll ?lm and
the ?rst fully portable camera. The Eastman Kodak Company established in Rochester,
New York, in 1901 offered a full range of products and services for the amateur
photographer: “You push the button, we do the rest” was its ?rst advertising slogan.
By the time George Eastman died in 1932, Eastman Kodak was one of the world’s
leading multinational corporations with production, distribution, and processing facilities
throughout the world and with one of the world’s most recognizable brand names.
This case was prepared by Robert M. Grant. ©2019 Robert M. Grant.
476 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
After the Second World War, Kodak entered a new growth phase with an expanding
core business and diversi?cation into chemicals (its subsidiary, Eastman Chemical,
exploited its polymer technology) and healthcare (Eastman Pharmaceutical was
established in 1986). Kodak also faced major competitive challenges. In cameras,
Japanese companies came to dominate the world market; in ?lm, Fuji Photo Film
Company embarked on an aggressive international expansion. In addition, new
imaging technologies were emerging: Polaroid pioneered instant photography; Xerox
led the new ?eld of electrostatic plain-paper copying; while the advent of the personal
computer ushered in new image management and printing technologies.
Kodak was alert to the emergence of digital technology and introduced several
products that embodied new imaging technologies:
● The world’s ?rst megapixel electronic image sensor (1986), followed by a
number of new products for scanning and electronic image capture.
● Computer-assisted image storage and retrieval systems for storing, retrieving,
and editing graphical and micro?lm images.
● Data storage products included ?oppy disks (Verbatim was acquired in 1985)
and 14-inch optical disks (1986).
● Plain-paper of?ce copiers (Kodak acquired IBM’s copier business in 1988).
● The Photo CD system (1990) allowed digitized photographic images to be
stored on a compact disk, which could then be viewed and manipulated on a
personal computer.
● Kodak’s ?rst digital camera, the 1.3 megapixel DCS-100, priced at $13,000
launched in 1991.
Committing to a Digital Future
Kodak’s commitment to a digital imaging strategy was sealed with the appointment
of George Fisher as CEO. Fisher had a doctorate in applied mathematics, 10 years of
R & D experience at Bell Labs, and had led strategic transformation at Motorola. To
focus Kodak’s efforts on the digital challenge, Fisher’s ?rst moves were to divest Eastman
Chemical Company and most of Kodak’s healthcare businesses (other than medical
imaging) and to create a single digital imaging division headed by newly hired Carl
Gustin (previously with Apple and Digital Equipment).
Kodak’s Digital Strategy
Under three successive CEOs—George Fisher (1993–99), Dan Carp (2000–05), and
Antonio Perez (2005–12)—Kodak developed a digital strategy intended to transform
Kodak from a traditional photographic company to a leader in the emerging ?eld of
digital imaging. The scale and scope of this transformation was outlined by Antonio
Perez in terms of the “fundamental challenges” that Kodak was engaged in (Figure 1).
During 1993–2011, Kodak’s strategy embodied four major themes:
● an incremental approach to managing the transition to digital imaging;
● different strategies for the consumer market and for the professional and
commercial markets;
CASE 10 EASTMAN KODAK’S QUEST FOR A DIGITAL FUTURE 477
● external sourcing of knowledge through hiring, alliances, and acquisitions;
● an emphasis on printed images;
● harvesting the traditional photography business.
An Incremental Approach
“The future is not some harebrained scheme of the digital information highway or
something. It is a step-by-step progression of enhancing photography using digital
technology,” declared Fisher in 1995.2 This recognition that digital imaging was an evolutionary
rather than a revolutionary change would be the key to Kodak’s ability to
build a strong position in digital technology. If photography was to switch rapidly from
the traditional chemical-based technology to a wholly digital technology where customers
took digital pictures, downloaded them onto their computers, edited them, and
transmitted them through the Internet to be viewed electronically, Kodak would face an
extremely dif?cult time. Not only would the new digital value chain make redundant
most of Kodak’s core competitive advantages (its silver halide technology and its global
network of retail outlets and processing facilities): most of this digital value chain was
already in the hands of computer hardware and software companies.
Fortunately for Kodak, during the 1990s, digital technology made only selective
incursions into traditional photographic imaging. As late as 2000, digital cameras had
achieved limited market penetration; the vast majority of photographic images were
still captured on traditional ?lm.
Hence, central to Kodak’s strategy, was a hybrid approach where Kodak introduced
those aspects of digital imaging that could offer truly enhanced functionality for users.
Thus, in the consumer market, Kodak recognized that image capture would continue
to be dominated by traditional ?lm for some time (digital cameras offered inferior resolution
compared with conventional photography). However, digital imaging offered
immediate potential for image manipulation and transmission.
If consumers continued to use conventional ?lm while seeking the advantages of
digitization for editing and emailing their pictures, this offered a valuable opportunity
The Scope of Transformation
FROM
Analogue technology
Long design cycle
Industrial manufacturing processes
Value based on physical products
Mass-produced, large inventories
High margins, heavy infrastructure
Rapid prototyping
Flexible manufacturing processes
Value based on solutions (product +
consumables + services)
Just-in-time, just-in-place, customized
Lower margins, lean organization
Digital technology
TO
FIGURE 1 Eastman Kodak’s “fundamental challenges”
Source: Based upon Bob Brust, “Completing the Kodak Transformation,” Presentation, Eastman Kodak Company,
September 2005. © Kodak. Used with permission.
478 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
for Kodak’s vast retail network. Kodak had installed its ?rst self-service facility for
digitizing, editing, and printing images from conventional photographs in 1988. In
1994, Kodak launched its Picture Maker, a self-service kiosk located in retail stores
where customers could edit and print digital images from a variety of digital inputs,
or from digital scans of conventional photo prints. Picture Maker allowed customers
to edit their images (zoom, crop, eliminate red-eye, and add text) and print them in a
variety of formats. George Fisher emphasized the central role of retail kiosks in Kodak’s
digital strategy:
Four years ago, when we talked about the possibilities of digital photography, people
laughed. Today, the high-tech world is stampeding to get a piece of the action, calling
digital imaging perhaps the greatest growth opportunity in the computer world. And
it may be. We surely see it as the greatest future enabler for people to truly “Take
Pictures. Further.” We start at retail, our distribution stronghold … We believe the
widespread photo-retailing infrastructure will continue to be the principal avenue by
which people obtain their pictures. Our strategy is to build on and extend this existing
market strength which is available to us, and at the same time be prepared to serve
the rapidly growing, but relatively small, pure digital market that is developing. Kodak
will network its rapidly expanding installed base of Image Magic stations and kiosks,
essentially turning these into nodes on a massive, global network. The company will
allow retailers to use these workstations to bring digital capability to the average snapshooter,
extending the value of these images for the consumers and retailers alike,
while creating a lucrative consumable business for Kodak.3
Despite growing ownership of inkjet printers, a very large proportion of consumers
continued to use photo-print facilities in retail stores. By the beginning of 2004, Kodak
was the clear leader in self-service digital printing kiosks, with 24,000 installed Kodak
Picture Makers in the United States and over 55,000 worldwide.
Kodak also used digital technology to enhance the services offered by photo?nishers.
Thus, the Kodak I.Lab system offered a digital infrastructure to photo?nishers
that digitized every ?lm negative and offered better pictures by ?xing common problems
in consumer photographs.
Despite the inferior resolution of digital cameras, Fisher recognized their potential
and pushed Kodak to establish itself in this highly competitive market. In addition to
high-priced digital single re?ex lens cameras for professional use, Kodak developed
the QuickTake camera for Apple: at $75 it was the cheapest digital camera available in
1994. In March 1995, Kodak introduced the ?rst full-featured digital camera priced at
under $1000.
The Consumer Market: Emphasizing Simplicity and
Ease of Use
Kodak pursued different approaches to consumer and professional/commercial
markets. While the commercial and professional market offered the test-bed for Kodak’s
advanced digital technologies, the emphasis in the consumer segment was to maintain
Kodak’s position as mass-market leader by providing simplicity, quality, and value.
Kodak’s incremental strategy was most evident in the consumer market, providing
an easy pathway for customers to transition to digital photography while exploiting
Kodak’s core brand and distribution strengths. This transition path was guided by
Kodak’s original vision of “You push the button, we do the rest.” Kodak envisaged itself
CASE 10 EASTMAN KODAK’S QUEST FOR A DIGITAL FUTURE 479
as the mass-market leader in digital imaging, providing security, reliability, and simplicity
for customers bewildered by the pace of technological change.
Simplicity and mass-market leadership implied that Kodak provided the fully
integrated set of products and services needed for digital photography. “For Kodak,
digital photography is all about ease of use and helping people get prints—in other
words, getting the same experience they’re used to from their ?lm cameras,” noted
Martin Coyne, head of Kodak’s Photographic Group.4 A systems approach recognized
that most consumers had neither the time nor the patience to read instructions and to
integrate different devices and software. Kodak believed that its integrated system
approach would have particular appeal to women, who made up the major part of the
consumer market.
The result was Kodak’s EasyShare system, launched in 2001. According to Willy Shih,
head of digital and applied imaging, EasyShare’s intention was to:
provide consumers with the ?rst easy-to-use digital photography experience … Digital
photography is just the ?rst step … People need to get their pictures to their PCs and
then want to share by printing or e-mail. So we developed a system that made the full
experience as easy as possible.5
Figure 2 shows Kodak’s conceptualization of its EasyShare system.
By 2005, most of the main elements of the EasyShare system were in place:
● Kodak’s range of EasyShare digital cameras had carved out a strong position in
a crowded market.
● EasyShare software allowed the downloading, organization, editing, and emailing
of images and the ordering of online prints. EasyShare software was bundled
with Kodak’s cameras as well as being available for downloading for free
from Kodak’s website.
● The EasyShare printer dock introduced in 2003 was the ?rst printer that incorporated
a camera dock allowing the “one touch simple” thermal-dye printing
direct from a camera. Antonio Perez’s arrival in 2003 reinforced Kodak’s push
FIGURE 2 Kodak’s easyShare network: “Your pictures—anytime, anywhere”
Source: Based upon Bob Brust, “Completing the Kodak Transformation,” Presentation, Eastman Kodak Company,
September 2005. © Kodak. Used with permission.
Phone cam
Digital still camera Consumer media
Mobile services
PC-based, online
services
Retail kiosk printing Home printing
Professional
printing
Kodak
EasyShare
Gallery
480 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
into printers: “If a company wants to be a leader in digital imaging, it necessarily
has to participate in digital output.”6
● Online digital imaging services: Kodak had been quick to recognize the potential
of the Internet for allowing consumers to transmit and store their photographs
and order prints. Kodak’s Picture Network, launched in 1997, allowed
consumers to have their conventional photographs digitized by a retail photo
store, then uploaded to a personal Internet account on Kodak’s Picture Network.
In 1998, Kodak launched its online printing service, PhotoNet, enabling
consumers to upload their digital images and order prints. Kodak also partnered
with AOL to offer You’ve Got Pictures. By acquiring Ofoto in 2001,
Kodak became the leader in online photo?nishing and online image storage. In
January 2005, Kodak renamed Ofoto “Kodak EasyShare Gallery.”
By 2005, therefore, Kodak was present across the entire digital value chain—this
integrated presence was underpinned by proprietary technology at each of these stages
(Figure 3).
Professional, Commercial, and Healthcare Markets
The commercial and professional markets were important to Kodak for two reasons.
First, they were lead customers for many of Kodak’s cutting-edge digital technologies:
news photographers were early adopters of digital cameras; the US Department of
Defense pioneered digital imaging for satellite imaging, weather forecasting, and surveillance
activities; NASA used Kodak cameras and imaging equipment for its space
missions and satellites. For commercial applications ranging from real estate brokerage
to security systems, digital imaging offered image transmission and linkage with IT
management systems for image storage and retrieval. The huge price premium of
commercial consumer products made it attractive to focus R & D on these leading-edge
users in the anticipation of trickle-down to the consumer market.
FIGURE 3 Kodak’s technological position within the digital imaging chain
Image capture
Image storage
Image
manipulation
Image
transmission
Image
printing
Document
and image
management
In commercial sector, Kodak o?ered systems to store, retrieve, edit, and print text and
graphics. In consumer sector, Kodak had built a strong online presence through
Ofoto/Kodak Gallery allowing users to archive and organize digital images.
• Technological strengths in thermal and ink-jet printing and color science.
• Kodak had algorithms for compressing image ?les while minimizing image loss.
They were used in proprietary systems but had not become industry standards.
• Kodak had developed algorithms for processing and manipulating digital images that
were used by its proprietary software for both commercial and consumer markets.
• Established presence through ?oppy disks, 14-inch optical disks, compact disks
(Photo-CD), and most recently ?ash memories.
• Pioneer in both CCD and CMOS image sensors for digital cameras.
• Technical and market leadership in OLED (organic light emitting diode) screens
which were displacing liquid crystal displays (LCDs).
• World leadership in photographic paper and other print media.
CASE 10 EASTMAN KODAK’S QUEST FOR A DIGITAL FUTURE 481
In commercial printing and publishing (which became the Graphic Communications
Group in 2005), Kodak assembled a strong position in commercial scanning,
formatting, and printing systems for the publishing, packaging, and data processing
industries. Kodak’s opportunity was to exploit the transition from traditional offset
printing to digital, full-color, variable printing. This opportunity built on two key
strengths: ?rst, Kodak’s proprietary inkjet technology (including its technically superior
inks) and, second, its leadership in variable-data printing—printing that permitted
individually customized output (as in personalized sales catalogues or bills). Kodak
built its commercial printing business on both internally developed technologies and
acquisitions—notably Heidelberg’s Nexpress and Digimaster businesses, and Scitex,
supplier of Versamark high-speed inkjet printers. Kodak also built a presence in prepress
and work?ow systems used by commercial printers.
In medical imaging, Kodak also faced the decline of its sales of X-ray ?lm and in
related chemicals and accessories. Through a series of acquisitions and internal developments,
Kodak established a portfolio of products for digital X-rays, laser imaging,
picture archiving and communications systems—including systems for digitizing and
storing conventional X-rays. Kodak also built up a strong position in dental imaging
systems comprising hardware, software, and consumables. Kodak sold its Health Group
to Onex Healthcare Holdings in 2007 for $2.55 billion.
Kodak’s capability in creating integrated imaging and information solutions was of
particular value in certain public sector projects. Kodak’s digital scanning and document
management systems were used in national censuses in the United States, the
United Kingdom, France, Australia, and Brazil. At the German post of?ce, a Kodak team
achieved a world record, creating digitized copies of 1.7 million documents in 24 hours.
Hiring, Alliances, and Acquisitions
Kodak’s business system had been based upon vertical integration and self-suf?ciency:
at its Rochester base, Kodak developed its own technology, produced its own products,
and supplied them worldwide through its vast global network. In digital imaging,
not only did Kodak lack much of the expertise needed to build a digital imaging
business but also the pace of technological change was too rapid to rely on in-house
development. Hence, as Kodak transformed its capability base from chemical to digital
imaging, it looked outside for the knowledge it required.
Kodak recruited executives and technical specialists it needed for its new digital
strategy. Key executives who relocated from a variety of technology-intensive companies
including Silicon Graphics, IBM, Xerox, Hewlett-Packard, Lexmark, Apple, GE
Medical Electronics, Olympus Optical, and Lockheed Martin. Table 1 shows the backgrounds
of Kodak’s top management team.
Kodak acknowledged that the digital imaging chain already included companies
that were well established, sometimes dominant, in particular activities. For example,
Adobe Systems dominated image-formatting software; Hewlett-Packard, Epson, and
Canon were leaders in inkjet printers; and Microsoft dominated PC operating systems.
Willy Shih, head of Kodak’s digital imaging products from 1997 to 2003, observed: “We
have to pick where we add value and commoditize where we can’t.”7
In many cases, this meant partnering with companies that were already leaders in
digital technologies. Kodak forged alliances with Canon, AOL, Intel, Hewlett-Packard,
Olympus, and IBM.
Kodak made acquisitions where it believed that a strong proprietary position was
essential to its strategy and in technologies where it needed to complement its own
expertise. Its major acquisitions over the period are shown in Table 2.
482 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
Emphasis on Printed Images
A consistent feature of Kodak’s digital strategy from 1993 to 2012 was the belief that
digital technology would not eliminate printed images. Kodak’s emphasis on printed
images was reinforced by its own capabilities: the printing of photographic and other
images onto paper and other media lay at the heart of Kodak’s traditional chemical
and chromatic know-how. Under Perez, the impetus behind photographic printers for
the consumer market intensi?ed, re?ecting Perez’s own background as former head of
Hewlett-Packard’s printer division.
This effort to build Kodak’s presence in the market for consumer inkjet printers
has been the most widely criticized of all Kodak’s digital imaging initiatives. Even
with Kodak’s “treasure trove” of inkjet technologies and its tweaking of the traditional
“razors-and-blades” model by charging low prices for ink and higher prices for printers,
establishing Kodak in such a mature, intensely competitive market would be a struggle.
By 2011, Kodak held just 6% of the US market, compared to 60% for Hewlett-Packard.
TABLE 1 Eastman Kodak’s senior management team, April 2012
Name Position Joined Kodak Prior company experience
Robert L. Berman Senior Vice President 1982 Kodak veteran
Philip J. Faraci President and COO 2004 Phogenix Imaging, Gemplus
Stephen Green Director, Business
Development, Asia-Paci?c
2005 Creo Inc.
Pradeep Jotwani President, Consumer Business 2010 Hewlett-Packard
Brad W. Kruchten President Film and Photo-
?nishing Systems Group
1982 Kodak veteran
Antoinette
McCorvey
CFO and Senior Vice President 1999 Monsanto/Solutia
Gustavo Oviedo Chief Customer O?cer 2006 Schneider Electric
Antonio M. Perez Chairman and CEO 2003 Hewlett-Packard
Laura G. Quatela General Counsel and Chief
Intellectual Property O?cer
1999 Clover Capital Management,
Inc., SASIB Railway GRS, and
Bausch & Lomb Inc.
Isidre Rosello General Manager, Digital
Printing Solutions
2005 Hewlett-Packard
Eric H. Samuels Chief Accounting O?cer and
Corporate Controller
2004 KPMG, Ernst & Young
Patrick M. Sheller Chief Administrative
O?cer, General Counsel
and Secretary
1993 McKenna, Long & Aldridge,
Federal Trade Commission
Terry R. Taber Vice President 1980 Kodak veteran
Note:
Includes corporate o?cers, senior vice presidents, and division heads.
Source: www.kodak.com. © Kodak. Used with permission.
CASE 10 EASTMAN KODAK’S QUEST FOR A DIGITAL FUTURE 483
TABLE 2 Kodak’s major acquisitions, 1994–2011
Date Company Description
1994 Qualex, Inc. Provider of photo-?nishing services; acquired to
complement Kodak’s online photo?nishing service
1997 Wang Laboratories Acquisition of Wang’s software unit
1997 Chinon Industries Japanese camera producer; majority stake acquired; outstanding
shares purchased in 2004
1998 PictureVision, Inc. Provider of PhotoNet online digital imaging services and
retail solutions; complement to Kodak’s Picture Network
business
1998 Shantou Era Photo Material,
Xiamen Fuda Photographic
Materials
Strengthened Kodak’s position in photographic ?lm in China
1999 Imation Supplier of medical imaging products and services
2000 Lumisys, Inc. Provider of desktop computed radiography systems and
X-ray ?lm digitizers
2001 Bell & Howell Imaging businesses only acquired
2001 Ofoto, Inc. Leading US online photo?nisher
2001 Encad, Inc. Wide-format commercial inkjet printers
2003 PracticeWorks Digital dental imaging and dental practice
management software
2003 Algotec Systems Ltd. Developer of picture archiving systems
2003 Lucky Film Co., Ltd. Acquisition of 20% of China’s leading photographic
?lm supplier
2003 LaserPaci?c Media
Corporation
Provider of postproduction services for ?lmmakers
2004 NexPress Acquired Heidelberg’s 50% of this joint venture, which supplied
high-end, on-demand color printing systems and
black-and-white variable-data printing systems
2004 Scitex Digital Printing A leader in high-speed variable data inkjet printing (renamed
Kodak Versamark, Inc.)
2004 National Semiconductor Acquisition of National’s imaging sensor business
2005 Kodak Polychrome
Graphics LLC
Kodak acquires Sun Chemical’s 50% stake in the joint
venture, which is a leader in graphic communication
2005 Creo Inc. Leading supplier of prepress and work?ow systems used by
commercial printers
2008 Design2Launch Developer of collaborative end-to-end digital work?ow solutions
for transactional printing
2008 Intermate A/S Danish supplier of Intelligent Print Data Stream software for
managing high speed printers
2009 Böwe Bell & Howell Acquisition of document scanner division
2011 Tokyo Ohka Kogyo Co., Ltd. Acquisition of TOK’s relief printing plates business
Source: Eastman Kodak 10-K reports, various years.
484 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
Harvesting the Traditional Photography Business
On the basis that the transition to digital photography would be gradual, Kodak
believed that the transition period would give it the opportunity to generate cash ?ows
from its legacy ?lm business while investing in digital imaging technologies and products.
Kodak’s prediction was initally correct. Through the 1990s, ?lm sales continued
to grow in the United States, reaching a peak of 800 million rolls in 1999. However, by
2004, sales had halved to under 400 million and by 2011 were below 100,000.
Kodak’s forecasts proved wrong in relation to emerging market demand. Kodak’s
acquisitions of Chinese photographic ?lm producers were based on the assumption
that sales of roll ?lm would continue to increase into the 21st century. In reality, the
transition to digital imaging occurred at much the same pace in emerging markets as in
the mature industrialized countries.
During 2011 and 2012, Kodak withdrew several ?lm products, including ?lm for
slides. It also withdrew from other unpro?table markets (including cameras) and sold
other businesses, including its Kodak EasyShare Gallery to rival Shutter?y.
Eastman Kodak in 2012
Eastman Kodak’s business was organized around three business segments. Exhibit 1
describes each of these segments.
EXHIBIT 1
Eastman Kodak’s business segments
CONSUMER DIGITAL IMAGING
GROUP (“CDG”) SEGMENT
CDG’s mission is to enhance people’s lives and social
interactions through the capabilities of digital imaging
and printing technology. CDG’s strategy is to drive profitable
revenue growth by leveraging a powerful brand, a
deep knowledge of the consumer, and extensive digital
imaging and materials science intellectual property.
◆ Digital Capture and Devices includes digital still
and pocket video cameras, digital picture frames,
accessories, and branded licensed products. These
products are sold directly to retailers or distributors,
and are also available to customers through the
Internet . . . As announced on February 9, 2012, the
company plans to phase out its dedicated capture
devices business. . .
◆ Retail Systems Solutions’ product and service
o?erings to retailers include kiosks and consumables,
Adaptive Picture Exchange (“APEX”) drylab
systems and consumables, and after sale service and
support . . . Kodak has the largest installed base of
retail photo kiosks in the world.
◆ Consumer Inkjet Systems encompasses Kodak Allin-
One desktop inkjet printers, ink cartridges, and
media . . .
◆ Consumer Imaging Services: Kodak Gallery is a
leading online merchandise and photo sharing
service . . .
CASE 10 EASTMAN KODAK’S QUEST FOR A DIGITAL FUTURE 485
Competition
In most of the markets where it competed, Kodak was subject to intense competition.
In digital cameras, phones incorporating cameras had decimated all but the quality segment
of the market. Online photographic services were also ferociously competitive:
Kodak’s Gallery was the market leader, but it competed with a host of other online
competitors, including: Shutter?y, Snap?sh, Walmart.com’s Photo Center, Fuji?lmnet.
com, Yahoo Photos, and Sears.com.
Kodak’s highest margins were earned on consumables, notably photographic paper.
However, Kodak faced strong competition, mainly from Xerox, Hewlett-Packard, 3M,
and Oji, as well as from many minor brands. Its attempts to differentiate itself through
superior technology, particularly in inkjet printing paper, were only partially successful
GRAPHIC COMMUNICATIONS
GROUP (“GCG”) SEGMENT
GCG’s strategy is to transform large graphics markets with
revolutionary technologies and customized services that
grow our customers’ businesses and Kodak’s business
with them.
◆ Prepress Solutions is comprised of digital and traditional
consumables, including plates, chemistry,
and media, prepress output device equipment and
related services, and proo?ng solutions. Prepress
solutions also include ?exographic packaging solutions,
which is one of Kodak’s four digital growth
initiative businesses.
◆ Digital Printing Solutions includes high-speed,
high-volume commercial inkjet printing equipment,
consumables, and related services, as well as color
and black-and-white electrophotographic printing
equipment . . .
◆ The Business Services and Solutions group’s product
and service o?erings are composed of high-speed
production and workgroup document scanners,
related services, and digital controllers for driving
digital output devices, and work?ow software and
solutions. Work?ow software and solutions, which
includes consulting and professional business process
services, can enable new opportunities for our
customers to transform from a print service provider
to a marketing service provider . . .
FILM, PHOTOFINISHING AND
ENTERTAINMENT GROUP
(“FPEG”) SEGMENT
FPEG provides consumers, professionals, and the entertainment
industry with ?lm and paper for imaging and photography.
Although the markets . . . are in decline . . . due to
digital substitution, FPEG maintains leading market positions
for these products. The strategy of FPEG is to provide
sustainable cash generation by extending our materials
science assets in traditional and new markets.
◆ Entertaining Imaging includes origination, intermediate,
and color print motion picture ?lms, special
e?ects services, and other digital products and services
for the entertainment industry.
◆ Traditional Photo?nishing includes color negative
photographic paper, photochemicals, professional
output systems, and event imaging services.
◆ Industrial Materials encompasses aerial and
industrial ?lm products, ?lm for the production
of printed circuit boards, and specialty chemicals,
and represents a key component of FPEG’s strategy
of extending and repurposing our materials science
assets.
◆ Film Capture includes consumer and professional
photographic ?lm and one-time-use cameras.
Source: Eastman Kodak 10-K report, 2011: pp. 5–8.
Reproduced by permission of Eastman Kodak Company.
486 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
in resisting the tide of commoditization and, across all markets, Kodak was suffered
the growing trend for consumers to view their photographs on screens rather than in
printed form.
In commercial markets, competitive price pressures were less severe than in
the consumer sector, in particular the opportunity for Kodak to differentiate its
offering through packaging hardware, software, and services into customized “user
solutions.”
Kodak’s Resources and Capabilities
Digital imaging was a classic “disruptive technology.”8 For traditional photographic
companies, it was “competence destroying”9—digital technology undermined the usefulness
of many of their resources and capabilities Yet, as late as 2011, Kodak still possessed
some potentially valuable resources and capabilities.
● Brand and distribution: Kodak’s traditional resource strengths had been its
brand and its global distribution presence. Two decades of decline and wrenching
technological changes had weakened both. Despite Kodak’s brand recognition,
it was unclear whether it added value and market appeal to Kodak’s
consumer and commercial products.
● Technology: For two decades Kodak had maintained one of the world’s biggest
research efforts in imaging. During 2000–05, its research labs in the United
States, the United Kingdom, France, Japan, China, and Australia had employed
more than 5000 engineers and scientists, including more than 600 PhDs. Between
1975 and 2011, Kodak had been issued 16,760 patents. Table 3 identi?es
some of Kodak’s principal areas of technological strength.
● New Product Development: Despite Kodak’s strengths in basic and applied
research and its long history of successful new product launches, the company
had struggled to move away from its traditional long and meticulous product
development process to embrace the fast-cycle world of electronics.
Table 4 shows ?nancial data for Eastman Kodak, while Table 5 shows data for its
business segments.
Re?ections
As Perez re?ected upon Kodak’s two decades of digital transformation, he was struck
by the paradox of Kodak’s progress. In terms of adapting to a highly disruptive technological
revolution, Kodak had been surprisingly successful. For a company that had
dominated its traditional market for so long and so thoroughly as Kodak had, to survive
the annihilation of its core technology, and to build the capabilities needed to become a
signi?cant player in a radically different area of technology was unusual. Yet, in terms of
?nancial performance, Kodak had failed: for all of Kodak’s technical and market achievements,
Perez and his two predecessors, Dan Carp and George Fisher, had been unable
to build a ?nancially viable digital imaging business. Where had they gone wrong?
● It was dif?cult to argue that Kodak had been too slow or that it had failed to
recognize the digital threat—as early as 1979 Kodak produced a remarkably
CASE 10 EASTMAN KODAK’S QUEST FOR A DIGITAL FUTURE 487
TABLE 3 Kodak’s technical capabilities
Area of
technology Kodak capabilities
Color science Kodak is a leader in the production, control, measurement, speci?cation, and visual
perception of color, essential to predicting the performance of image-capture
devices and imaging systems. Kodak has pioneered colorimetry—measuring and
quantifying visual response to a stimulus of light.
Image
processing
Includes technologies to control image sharpness, noise, and color reproduction.
It is used to maximize the information content of images and to compress data for
economical storage and rapid transmission. Kodak is a leader in image processing
algorithms for automatic color balancing, object and text recognition, and image
enhancement and manipulation. These are especially important in digital photo-
?nishing for image enhancement, including adjustments for scene re?ectance,
lighting conditions, sharpness, and a host of other conditions.
Imaging systems
analysis
Provides techniques to measure the characteristics of imaging systems and components.
Predictive system modeling is especially important in Kodak’s new product
development, where it can predict the impact of individual components on
the performance of the entire system.
Sensors A world leader in image sensor technology, with 30 years’ experience in the design
and manufacture of both CCD and CMOS electronic image sensors used in cameras,
machine vision products, and satellite and medical imaging.
Ink technology A world leader in dyes and pigments for color printing. Pioneer of micro-milling
technology (originally invented for drug delivery systems). It has advanced
knowledge of humectants (which keep print-head nozzles from clogging), and
surface tension and viscosity modi?ers (which control ink ?ows).
Inkjet
technology
Innovations in the electronic and thermal control of inkjet heads coupled with
innovation in inks have given Kodak technological advantages in inkjet printing. In
commercial printing, Kodak’s continuous inkjet technology has permitted the ?exibility
of inkjet printing to be matched with substantial improvements in resolution
and color ?delity.
Micro?uidics Micro?uidics, the study of miniature devices that handle very small quantities of
liquids, is relevant to ?lm coating, ?uid mixing, chemical sensing, and liquid inkjet
printing.
Print media A leader in applying polymer science and chemical engineering to ink-receiving
materials. Expertise in specially constructed inkjet media in which layers of organic/
inorganic polymers are coated onto paper or clear ?lm and multilayer coated structures
of hydrogels and inorganic oxides.
Electronic
display
technology
Through its joint venture with Sanyo, Kodak pioneered organic light-emitting
diode (OLED) technology for self-luminous ?at panel displays. Kodak’s OLED display
panels extended from small-screen devices to larger displays.
Software EasyShare software focused on ease of image manipulation, printing, and storage
(even without a computer). Commercial software leads in work?ow solutions
(Kodak EMS Business Software), scanning software (Perfect Page), and printing
software (Kodak Professional Digital Print Production Software); strengths in control
software and printing algorithms that overcome technical limitations of inkjet
printing and optimize color and tone reproduction (e.g., the Kodak One Touch
Printing System).
Source: www.kodak.com.
488 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
TABLE 4 Eastman Kodak: Selected ?nancial data, 2006–2011 ($million)
2011 2010 2009 2008 2007 2006
From income statement
Sales 6022 7167 7609 9416 10,301 10,568
Cost of goods sold 5135 5221 5850 7247 7757 8159
Selling, general, and admin. 1159 1275 1298 1606 1802 1950
R & D costs 274 318 351 478 525 578
Operating earnings (600) (336) (28) (821) (230) (476)
Interest expense 156 149 119 108 113 172
Other income (charges) (2) 26 30 55 86 65
Restructuring costs 121 70 226 140 543 416
Income taxes 9 114 115 (147) (51) 221
Net earnings (764) (687) (210) (442) 676 (601)
From balance sheet
Total current assets including 2703 3786 4303 5004 6053 5557
Cash 861 1624 2024 2154 2947 1496
Receivables 1103 1196 1395 1716 1939 2072
Inventories 607 746 679 948 943 1001
Property, plant, and equipment 895 1037 1254 1551 1811 2602
Other long-term assets 803 1109 1227 1728 4138 3509
Total assets 4678 6226 7691 9179 13,659 14,320
Total current liabilities including 2150 2820 2896 3438 4446 4554
Payables 706 959 2811 3267 3794 3712
Short-term borrowings other liabilities 152 50 62 51 308 64
Long-term borrowings 1363 1195 1129 1252 1289 2714
Postemployment liabilities 3053 2661 2694 2382 3444 3934
Other long-term liabilities 462 625 1005 1119 1451 1690
Total liabilities 7028 7301 7724 8191 10,630 12,932
Shareholders’ equity (2350) (1075) (33) 988 3029 1388
From cash ?ow statement
Net cash from operating activities (998) (219) (136) 168 328 956
Net cash used in investing activities (25) (112) (22) (188) 2408 (225)
Net cash ?ows from ?nancing activities 246 (74) 33 (746) (1294) (947)
Number of employees 17,100 18,800 20,250 24,400 26,900 40,900
Source: Eastman Kodak annual reports.
CASE 10 EASTMAN KODAK’S QUEST FOR A DIGITAL FUTURE 489
accurate forecast of the evolution of digital imaging and it had been a pioneer
of digital cameras.10
● It was also dif?cult to argue that Kodak had failed in implementing its digital
strategy in terms of being a laggard in developing the capabilities needed
to compete in digital imaging. Kodak’s market leadership in digital cameras
pointed to its ability to build technological know-how, apply that know-how to
develop attractive new products, and market those products in ?ercely competitive
digital markets.
● Perhaps Kodak’s emphasis had been on the wrong markets and wrong products?
Kodak’s biggest losses had been in the consumer market, Kodak’s traditional
stronghold. Was this market simply too unattractive because of intense
competition? Had Perez’s emphasis on printing been misplaced? Might Kodak’s
scarce resources been better spent on other parts of the digital value chain
(such as image capture through cameras and sensors and displays)?
● A further possibility was that Kodak’s vision of establishing itself as a leader
in digital imaging was misconceived. In 2000, Kodak had announced its intention
to be at the center of the $225 billion “infoimaging” industry. But did this
TABLE 5 Eastman Kodak: Results by business segments, 2007–2011 ($million)
2011 2010 2009 2008 2007
Net sales from continuing operations
Consumer Digital Imaging Group 1739 2731 2626 3088 3247
Film, Photo?nishing, and Entertainment Group 1547 1762 2262 2987 3632
Graphic Communications Group 2736 2674 2718 3334 3413
All other — — 3 7 9
Consolidated total 6022 7167 7609 9416 10,301
Earnings (losses) from continuing operations
before interest and taxes
Consumer Digital Imaging Group (349) 278 (10) (177) (17)
Graphic Communications Group (191) (95) (107) 31 104
Film, Photo?nishing, and Entertainment Group 34 91 187 196 281
All other — (1) (16) (17) (25)
Total of segments (506) 273 54 33 343
Segment total assets:
Consumer Digital Imaging Group 929 1126 1198 1647 2442
Graphic Communications Group 1459 1566 1734 2190 3723
Film, Photo?nishing, and Entertainment Group 913 1090 1991 2563 3778
All other — 1 — 8 17
Total of segments 3301 3782 4923 6408 9960
Source: Eastman Kodak 10-K reports.
490 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
“infoimaging” industry really exist? Or was digital imaging part of the overall
computing and communication sector?
Finally, Perez wondered as to what lessons could be drawn from the comparative
success of Fuji?lm. For all of Fuji’s similarities to Kodak, its performance had been radically
different: its revenues had grown (in terms of US dollars), and it had been consistently
pro?table (Exhibit 2).
EXHIBIT 2
Fuji?lm Holdings Corporation
1992 2011
Sales
($million)
Net income
($million) Employees
Sales
($million)
Net income
($million) Employees
Fuji?lm Holdingsa 9126 593 24,868 27,440 1412 35,274
Eastman Kodakb 20,577 1146 132,600 6022 (764) 17,100
Notes:
a2011 data are for ?nancial year to March 31, 2012.
b2011 data are for year ended December 31, 2011.
Despite the strong similarities between Fuji?lm and
Kodak—both companies were heavily dependent on
?lm during the early 1990s and both had diversi?ed into
other imaging technologies (Fuji?lm had a major position
in plain-paper copiers through its Fuji/Xerox joint
venture)—the two companies responded to the digital
revolution with di?erent strategies which led to very different
?nancial results.
Like Kodak, Fuji?lm recognized the implications of
digital imaging for its core business and struggled to
adapt its strategy. However, a key di?erence was Fuji’s
recognition that digital imaging alone would be unlikely
to support the business of a large company, hence its
emphasis on diversi?cation. Under its chief executive,
Shigetaka Komori, Fuji?lm underwent a major restructuring
between 2000 and 2010 (especially during 2005/6
and 2009/10) involving business closures, employee layo
?s, and ?nancial write-downs.
Comparing Fuji?lm and Kodak in 2012, the most
obvious di?erence is Fuji?lm’s business diversity. Its
three business segments comprise a variety of di?erent
businesses:
Imaging solutions (14.8% of total sales) included traditional
photo imaging products (photographic paper,
?lm, and supplies) and electronic imaging (mainly
digital cameras).
Information solutions (40.5% of total sales) included
medical systems, pharmaceuticals, cosmetics, ?at panel
display materials, graphic arts materials, data storage
tapes, industrial X-rays, and optical devices.
Document solutions (44.8% of total sales) comprised
o?ce supplies, o?ce printers, and document product
services.
Fuji?lm’s diversi?cation has combined selective
acquisitions (since 2000, $9 billion has been spent on
40 acquisitions) and internal development based upon
CASE 10 EASTMAN KODAK’S QUEST FOR A DIGITAL FUTURE 491
Fuji?lm’s existing technical capabilities. In particular, it has
built upon its chemical and coatings expertise to diversify
into cosmetics, pharmaceuticals (especially drug
delivery systems), components for LCD panels, and a
variety of plastics products. The quest to exploit technical
capabilities in “functional compound molecular design,
chemical reaction control, and organic synthesis technologies”
resulted in several discoveries. For example,
human skin was observed to be similar to photographic
?lm: it contained collagen and was about the same thickness.
Fuji?lm discovered that many of the antioxidants
used to preserve photographic ?lm could be used for
skin care products.
Sources: www.fuji?lm.com; “The last Kodak moment?”
Economist, January 14, 2012; Stefan Kohn, “Disruptive innovations
applied: A review of the imaging industry,” http://www
.iande.info/wp-content/uploads/2011/03/StefanKohn
DisruptiveInnovationsFuji?lm.pdf, accessed September 20, 2012.
Notes
1. “Eastman Kodak Company and its U.S. Subsidiaries Commence
Voluntary Chapter 11 Business Reorganization,”
Press Release ( January 19, 2012).
2. “Kodak’s New Focus,” Business Week ( January 30,
1995): 62–68.
3. Eastman Kodak Company, “Kodak Leaders Outline Road
Ahead to get Kodak ‘Back on Track’,” press release
(November 11, 1997).
4. Eastman Kodak Company, “The Big Picture: Kodak and
Digital Photography,” www.Kodak.com/US/en/corp/
presscenter/presentations/020520mediaforum3.shtml.
Website no longer available.
5. See www.Kodak.com/US/en/corp/presscenter/
presentations/020520mediaforum3.shtml, accessed October
29, 2009. Website no longer available.
6. Interview with Antonio Perez, President and COO, Kodak,
PMA Magazine (February 2004).
7. “Why Kodak Still Isn’t Fixed,” Fortune (May 11, 1998).
8. J. L. Bower and C. M. Christensen, “Disruptive Technologies:
Catching the Wave,” Harvard Business Review
( January/February 1995).
9. M. Tushman, and P. Anderson, “Technological Discontinuities
and Organizational Environments,” Administrative
Science Quarterly 31 (1986): 439–465.
10. Andrew Hill of the Financial Times observed: “In 1979,
the company put together a graphic timeline laying
out roughly when Kodak’s customers would make the
transition to digital imaging, starting with government
clients, moving through graphic businesses and ending,
in about 2010, with retail consumers. In 1991, the group
drew up a digital strategy … Even the potential threat from
camera-enabled mobile phones was ‘war-gamed’ by Kodak
executives in the early 2000s.” (“A Victim of Its Own Success,”
Financial Times, April 2, 2012.)

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