August 24, 2012 Wall Street Journal:
Kodak to Sell Film Business That Made It a Blue Chip
Since I was a lean director there, this bears reporting on.
The fact that there is a film business to sell is a testament to years of hard work by some talented lean implementers, including Tom, a regular reader here. The challenge, as the collapse kicked into exponential rates, was to hold the margins as long as possible to generate cash for the transition plan.
We all have opinions on how well that transition is being executed, whether it ever had a chance, or the motivations behind some of the strategies, but I really don’t want to get into that here.
What is germane, though, is that we are witnessing an entirely predictable process that was described many years ago in Clayton Christensen’s book The Innovator’s Dilemma.
Kodak was not slow to grasp digital photography… they invented it.
Nor were they slow to understand its implications.
As in Christensen’s model, the problem was that film was too profitable. The problem for Kodak, and other companies who have suffered a similar fate, was that the core business model simply could not easily adapt to a completely different profit engine.
Though Kodak has largely exited the consumer products industry (except for their consumer inkjet printers, which never disrupted the market like Kodak intended them to), they remain a market leader in commercial graphics and printing, thanks to a couple of key acquisitions back around 2004-05.
Because they have a dominant market share, however, the only avenue for growth is through growth of that market, as there isn’t much headroom for capturing market share. As even large-scale graphics transition to “soft” display, the open question is whether or not they are continuing to chase shrinking markets with the latest obsolete technology. (They sold off their OLED business a couple of years ago.)
Kodak was traditionally a chemical company specializing in light-sensitive coatings, and the technology to manufacture them into useful products. They saw themselves, though, as being in the imaging business. When imaging separated from their actual core competency, these troubles began.
What business are you in? How well you answer that question is more important than you think.
Mark,
Thanks for the kinds words. And yes, you are correct in that the Film business would probably have been sold or shuttered many years ago had it not been for the aggressive implementation of Lean concepts. In fact I know of no other business that could have profitably survived volume decreases that this business did. Somebody will buy the business and probably make money on it for years to come though.
As for those that think Kodak didn’t jump on the digital band wagon fast enough, as you said, we invented digital photography. More correctly, the problem was that we didn’t find another business with similar profits to replace film. If you look at the very small number of other companies who are making digital cameras today, they’re all struggling to make any money at it. Remember, with digital photography, there is no consumable to make all that money on. And how many of you print every picture you take these days? Enough said.
And so it is indeed a sad day to see Kodak put up for sale the business that George Eastman revolutionized so many years ago, but it was probably inevitable. Film arguably did the best job with Lean of anybody within the Eastman Kodak Company.
Tom
“And how many of you print every picture you take these days?”
Yet printer companies near give away the printer in order to sell more huge margin ink refill cassettes.
Kodak apparently should have cornered the market on the printer paper and made profits there.
“The problem … was that the core business model simply could not easily adapt to a completely different profit engine.”
A very good example of this is the recording industry. They think that their product is recordings on hard media (CD, cassette, vinyl album) but their product is really the promotion of the artists and presentation of the artists/songs to the listeners. With the advent of digital media and decline of hard media, the recording industry is now constrained from getting true profits from presenting artists and the artists songs in live performances. This has been done by the monopolistic tactics of the concert promoters,ticket sales agencies, and scalpers that eliminate competition and true market pricing for the artists.
The recording industry should be able to give away digital copies of artists songs for free and then reap the profitable sales in hard goods and concert seat sales. If the recording industry could auction off concert seats based on location of the seat and whether the bidder had loyalty points (by purchasing hard goods- cd’s, tshirts, books, etc from the artist/band), there would be true pricing. So that front row seat that the scalping company harvests for $59.95 plus ticket agency fees and taxes of $39.99 using less than legal or fair tactics (swarmed log in’s from India, multiple servers, etc) The scalper then resells that ticket for $500 for a $400 profit. The auction model would change this to a $400 profit to the record company/artist. Make the seat auction live until 12 hours prior to the event and issue the ticket electronically linked to the buyers credit card or loyalty card – any questions about that function see the airline ticket model.
But this would require breaking the ticket companies monopolies and concert venues monopolies.