August 24, 2012 Wall Street Journal:
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.