Kodak and Our Future

Steven Sasson, the inventor of the digital camera, was inducted into the Consumer Electronics Hall of Fame today.

He invented the digital camera in 1975.

Steven didn’t work for Nikon or Canon or Matsushita or Sony.

Steven worked for Kodak.

On October 10, 1975 Kodak dominated photography and traded for a split adjusted per share price of $10.72. 32 years later, on October 10, 2007, Kodak closed at $27.36. That’s a 155% gain.

On October 10, 1975 the Dow closed at 823.91. On October 10, 2007 the Dow closed at 14,078.69. That’s a 1,609% gain.

In those 32 years Kodak went through countless CEOs and layoffs accompanied by an equal or greater number of strategic, rebuilding, restructuring, acquisition and divestiture plans, all duly noted in an endless series of press releases ranging in tone from depressing to disastrous. Occasionally Kodak would score a small success in one of their markets, but most of the time the company flopped on the deck like a dying fish.

In the most recent example in 2006 Kodak sold 2,183,000 fewer digital cameras in the U.S. than it did in 2005, losing 31% of market share along the way.

Kodak invented consumer photography. Kodak made photography accessible and affordable for every consumer of every income level and demographic segment. Kodak was the 800 pound gorilla of the U.S. photography market and fought toe to toe on the world market with Agfa and Fuji. Kodak invented, manufactured and merchandised nearly every single component needed for photography in nearly every single segment of the photography market. All of those products were analog.

The world has moved en mass to digital photography.

Kodak invented digital photography.

Kodak is a pale, shrunken, struggling shadow of its former self.

What happened?

In 1975 when Steven Sasson viewed the first low resolution image created by the first digital camera, every single photography product sold by Kodak was based on film, chemicals, paper and the electro-mechanical products required to utilize them. Kodak was a very large global company based on a specific type of process using specific types of products. Kodak had been doing business this way, very successfully, since George Eastman, the founder, introduced the first roll film camera in 1888.

Doing things a specific way over a long period of time, and being pretty successful at it, leads to tremendous organizational inertia. It also leads to a specific set of expectations by stakeholders, in this case, customers, employees, shareholders and Wall Street.

You don’t turn a battleship of that size, with that much mass, that much momentum, that much inertia, on a dime. In fact, you don’t turn it at all, which explains why the company that invented digital photography essentially missed out on the digital photography revolution.

It is easy to look back at Kodak’s executive leadership at the time and, with 20/20 hindsight, castigate them for being short sighted idiots for not pouring the company’s resources into the development of digital photography technology and re-inventing the company around it.

However, an objective analysis reveals that if the CEO of the time had announced in 1975 that Kodak was on a road map to cease film camera production entirely and decrease film production over 80%, Wall Street and the shareholders would have burned him in effigy and run him out of town on a rail. They would have demanded that Kodak re-create the “give them the razor and sell them the blades” recurring revenue business model of analog photography in the digital realm. The management of the time was expected to keep pumping out profits every quarter and to not rock the cash-cow analog photography boat. They were not expected to lead the charge of revolutionary change.

And, even if they wanted to, they would have discovered as their successors did that Kodak was institutionally incapable of adapting to the revolutionary change of digital photography. Even when they saw the writing on the wall, even when they realized there was no other route to survival but revolutionary change, they could not turn the giant boat of Kodak. There had been too many good days, too many successes, too many accolades, too many years doing things the way they had always been done. The leaders of Kodak could not alter the momentum, the organizational inertia, of Kodak.

The reason they failed is large human organizations like Kodak, even when faced with certain doom, do not readily adopt revolutionary change. In general, large human organizations never get past the first three stages of human adaptation to change: shock, denial and anger. They rarely get to the last two stages: testing and acceptance. Instead, they loop through the first three stages, alternating between shock, anger and denial, until they are overrun, crushed and left behind by the new reality.

This applies equally to large businesses, communities, cities and countries.

It also applies to our immediate future.

The next great wave of opportunity is Green. As the U.S. finally wakes up to this opportunity the unique entrepreneurial environment here will give rise to remarkable innovations and life- and world-altering technologies.

Most will die on the vine. Most of the rest will die of neglect. Most that remain will be rejected.

They will not be immediately adopted or implemented for the same reason Kodak invented digital photography and subsequently watched the digital photography ship leave the dock without it: large human organizations do not turn on a dime.

Over the coming election cycle we will all be bombarded with candidates vying to out-Green each other. They will spout an endless stream of easy, simple solutions to our energy and environmental challenges. Their sound bites will sound very similar to the academic I recently read who proclaimed “we need to re-engineer our cities.” Right.

It is one thing to be a visionary. It is one thing to be innovative. It is one thing create new solutions.

It is quite another to understand how large human organizations, such as large companies, communities, cities and nations, test, adopt and propagate fundamental change.

On Friday, October 12, 2007, Kodak announced it would no longer be an Olympic sponsor. Kodak is pulling back from the world stage, no longer a world player. They are withdrawing behind our borders, becoming isolationist, hunkered down in their steadily shrinking bunker.

Steven Sasson invented the digital camera in 1975.

Steven Sasson worked for Kodak.

Let’s hope that as entrepreneurs, companies, communities, cities and a nation we demonstrate better skills at adapting to change than Kodak. Let’s hope we demonstrate the understanding required to both envision change and implement it. Let’s hope that we retain our ability to stay engaged with and lead the world with innovation instead of inventing it, ignoring it, being crushed by it and finally withdrawing back into a shrinking hole.

Sources: Kodak, IDG News Service, Commodity Systems, Inc., Capital IQ, New York Times, ImagingInfo.com, Consumer Electronics Association

2 thoughts on “Kodak and Our Future

  1. Lee Wochner

    This analysis cuts across all avenues of human endeavor. Innovation is difficult in politics, academia, and day-to-day life, whether it’s trying to introduce new thinking in some ivory towers, or new vegetables onto your kids’ dinner plates. People avoid change, because every change is a smaller metaphor for the Big Change: death. As your story illustrates, though, change happens anyway — witness the slow death of Kodak; at least the change you try to manage presents the opportunity of something more to your liking.

  2. Scot

    And Kodak, yes, Kodak, makes the easiest digital cameras to use. Great sensors, solid superzooms, compact and rugged. I’ve had my DX6490 for 3 years now and love every minute using it.