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Evaluate Kodak Strategy in traditional photography. Why has the company been so
successful throughout the history of the industry?

Eastman, who founded Kodak in 1885, had two prerogatives. The first one was to create a common
product: something as a user friendly product “as convenient as a pencil”, and second was to
develop a revolutionary invention, anticipating customers’ needs. This long run approach allowed
Kodak to blow away all its competitors consequently leading the firm to dominate the film and
camera markets by 1976. At that time Kodak represented 90% of the film market and 85% of the
camera market.
Since the beginning Kodak was able to base its strategy on innovation, having at the same time a
customer focused policy. Great innovation could result worthless without a customer fidelity policy.
Therefore the firm decided to create user-friendly products.
That is the reason why suddenly after the firm introduced onto the market a revolutionary product
such as the roll of film, this could have created new opportunities alone, it also launched a new
camera, easy to use for all the people, marketed with an emblematic slogan: “You press the button
we do the rest.”
Hence, Kodak carried out a penetration strategy with mass production at low cost and an aggressive
marketing policy, with the objective of increasing market share or sales volume, rather than to make
profit in a short term.
Kodak’s core business was films, but it understood early that “money come from consumables and
not from hardware”, hence they started to produce cameras, perceiving that the market was offering
such a great opportunity to become a household name since the two businesses were
complementary. This approach allowed Kodak to develop a razor-blade strategy, selling cameras at
low cost, but profiting on film sales.
Selling the cameras even below break-even point allowed to have a dominant market share in both
markets, low camera prices boosted the market penetration of its camera and at the same time it
increased film sales since they were the only ones compatible with the Kodak camera. The
customers were obligated to pay a higher price for the films allowing the company to reach higher
margins.
This strategic thinking allowed Kodak to become very popular with both consumers and retailers,
creating a positive effect. Thanks to that Kodak’s brand grew exponentially acquiring significant
market share.
As a direct consequence, the film industry had entry barriers very tough and new entries in the
market were very rare, moreover Kodak had an excellent know-how in their products, allowing the
firm to minimize costs and maximize profits. Competitors were not able to sustain the competition,
so the higher profitability of Kodak was invested mostly in R&D projects , allowing the firm to
increase the technological gap with potential latecomers. By 1963, in fact the company was able to
introduce a color film, revolutionizing again the market of camera and films, on one side increasing
the traditional photography demand and on the other creating new market segments, such as
medical imaging and graphic arts.
In conclusion Kodak was so successful, because it was able to mix a first mover policy with a
penetration strategy, balancing innovation and consumer focus, through a continuous growth, a
substantial development of technologies and an aggressive marketing strategy. Thus revolutionizing
its industries with a product accessible to everybody and easy to use, becoming the standard
technology.

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Compare traditional photography to digital imaging. What are the main structural differences? Will
digital imaging completely replace traditional imaging in the long run? How value creation and
appropriation changed in digital photography relative to traditional photography?

The technological discoveries in the imaging processing methodologies led to changes at an

organizational and structural level.
These new technologies created new market opportunities and brought a significant change in the
whole imaging chain, making it much wider and specialized, and consequently increasing the
demand and the needs of the customers.
The increased technology complexity led to an increase of the number of specialized companies, the
model business of a totally vertical company was no more feasible in this new type of market.
The companies were facing a fast pace changing market and a more aggressive competition in price,
quality and usability of products and in complementary assets offers to consumers, from both old
and new competitors. In fact, entry barriers were still high but could be avoided thanks to alliances
with more specialized companies and thanks to know-how outsourcing processes of non core
business parts, leading to an horizontal business model, offering complementary services. On the
contrary, films were the only storage technology and they required a significant know how in
developing process and only few firms had this kind of technology.
As a consequence, the higher competition drove down the margins and the possibility of a market
share concentration remained only a blurry memory of the old times.
From a retail perspective, main market for all the imaging firms, the film has been supplanted by
the digital era, through a digitalization process that allows the acquisition and the possibility to view
the images directly on the PC or on the television, avoiding the costs of processing film. But on the
other hand Salomon Smith Barney’s expectation in the Worldwide photography output revenues
clearly shows that analogic would still be a consistent part of the market in the near future. In fact,
traditional camera and instant camera have a negative expected trend sales, passing from 68,5% in
2000 to 31,7% in 2006 on the total expected camera revenues. Hence, even if the analogical market
is in a monotonous decreasing phase, considering a long run scenario, there will be forever a niche
market of consumers who still sees the analogical photography as a real quality product.
Therefore, the digital imaging completely revolutionized the world of photography and imaging,
changing also its dynamics. In the imaging era, there is no longer the possibility to persist as a
razor-blade, focused on customers, to completely customize consumers. There are too many
competitors and the imaging chain is to wide. Hence, Most of the firms choose a first mover policy,
focused in some specific segment of the supply, offering several and unique complementary assets
and investing continuously, investments in R&D, to persist a continuous innovation, for the
appropriation of the value created.
As a matter of fact, the true profitable opportunities now come from the horizontal and
complementary enhancement of the imaging chain, in fact even if the image capture process did not
change significantly, there are new main features coming from the quality of the pictures and the
possibility to modify different settings while taking the photograph. Customers are driven by both
price and new features, allowing the companies to individuate different price segments with
different profitability, but the high competition allows only small profits in the low price segment
where the firms fight a cost reduction battle.
The new processes that has been added to the digital imaging chain has been the digitalization
process and the storage process. The former led an increase in the number and in the peculiarities of
the imaging related services, the latter focused on the different storage technologies. Those new
processes show a completely different competition framework based on a user-friendly and a
quality strategy, leading to numerous and diversified segments. Though the firms are able to work

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and innovate continuously on specific products, being focused on specific segment of customers,
increasing considerably the appropriability conditions and consequently their own margins.

Why did Fisher’s attempt to transform Kodak fail?

As it states in “The Dynamic Capabilities of Firms: an Introduction”, by David Teece and Gary
Pisano: “Change is costly… The ability to calibrate the requirements for change and to
effectuate the necessary adjustments would appear to depend on the ability… to quickly accomplish
reconfiguration and transformation ahead of competition.”
Fisher attempted to quickly transform Kodak, from a chemical based company into a technological
based company, he believed that investing in equipment development was the best strategy to
increase Kodak’s profitability. Hence, he fragmented and scattered Kodak over many division, he
wanted to change the vertical structure of Kodak into a horizontal company that outsourced most of
its equipment. But he did not consider all difficulties coming from a systems-level change,
architectural innovations require time to be learnt, new routines have to be integrated and
coordinated. Fisher was facing a company, where routines were a very important part of the system,
Kodak seemed to have developed the personality of an “old man”, set in his ways. Decisional and
operating processes were really rooted in Kodak.
As matter of fact of Fisher’s failure, BusinessWeek, in an article “Can George Fisher fix Kodak
today?”, states: “Fisher has been able to change the culture at the very top. But he has not been able
to change the huge mass of middle managers, they just don’t understand this world” .
Unfortunately, productive systems display high interdependence, and that it may not be possible to
change one level without changing others and Fisher’s restructuring of Kodak was too quick, too
radical and too wide. Kodak managers were not able to understand how to deal with this new idea
of doing business, and so there was poor communication between Kodak divisions.
Hence, one of the most important mistake of Fisher was not understand how depth of the razor-
blade culture and how Kodak was stuck in its routines, underestimating the learning process of an
architectural innovation in terms of timing.
Moreover, Fisher was not able to understand the dynamics of the photography market. He did not
realize how tough it was the completion of the digital sector, and on the other hand he was too naïve
towards the film market that should have been protected more, increasing constantly the gap with
the competitors.
In the film market Fuji was feeling very quickly the gap with Kodak, gaining year by year, market
shares and consequently decreasing Kodak’s margins. In fact, as the Worldwide film market share
shows, in Fisher’s era Kodak’s market shares passed from more than 50% to less than 40% and Fuji
passed from 20% to 30% market shares.
Instead, in the digital market, Kodak faced ferocious competition from Japanese companies such as
Sony and Canon, as well as Hewlett-Packard and other U.S. rivals more accustomed to the
blistering pace of change in digital technology. And with dominant formats for things like image
compression and low-cost photo-quality printers still emerging. The problem was that competitors
were rapidly producing competing products at ever lower prices, and Kodak had trouble in the
development of any kind of technological leadership.
As a matter of fact, Fisher wanted Kodak to participate profitably “in all the five links of imaging
chain: image capture, processing, storage, output and delivery of images for people and machines
anywhere”, but he left a gap in some huge demand segments. Fisher knew the possibility in
investing in lower-cost photo-quality printers, which permitted people to print the picture at home,
but he preferred to invest in the creation of Kodak’s kiosks which would have allowed consumers to
print their own photo’s, in almost any retail store. Probably he thought that the two machines were
related to two different markets, but suddenly after he changed his strategic plan, trying to fill the
gap in his Kodak supply, creating an alliance with Bill Gates he entered in the home market.

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Hence, Fishers’ attempt failed because at the organizational level the changing was too aggressive,
and Kodak was not a high flexible firm, and on the other hand his policy was a mix of
misunderstandings of market, demand and competitors dynamics.