STRATEGIC DRIFT
ILLUSTRaTION 6.4 Kodak: the decline and fall of a market leader
Knowledge of technological and market changes may not be enough to avoid strategic drift.
In the twentieth century, Kodak, the manufacturer of
photographic film and cameras, was one of the world’s
most valuable brands. Based in Rochester in New York
State, by 1976 Kodak had 90 per cent of film and
85 per cent share of camera sales in the USA, and
by 1996 turnover was $16bn (£9.6bn, €12bn) and
in 1999 profits nearly $2.5bn. Initially known for its
innovative technology and marketing, it had developed
digital camera technology by 1975, but did not launch
digital cameras until the late 1990s by when it was
too late.
By 2011, its traditional photography business had
been almost entirely eroded, first by digital cameras
and then by smartphones. Turnover was only $6bn, it
was loss making, the share price had plummeted and
in 2012 it filed for bankruptcy protection. How did
Kodak miss such a fundamental shift in the market?
According to Steve Sasson, the engineer who
invented the first digital camera, the response to his
invention in Kodak was dismissive because it was
filmless photography. There were similar responses to
early internal intelligence reports on digital technology:
‘Larry Matteson, a former Kodak executive . . . recalls
writing a report in 1979, detailing fairly accurately how
different parts of the market would switch from film to
digital, starting with government reconnaissance, then
professional photography and finally the mass mar-
ket, all by 2010.’1 Another internal report in the early
1980s concluded that digital technology would take
over the camera industry in about ten years; ten years
in which Kodak could work out its response.
The Kodak response was to use digital to enhance
the film business. For example, in 1996 Kodak
launched a film system using digital technology to pro-
vide users with a preview of shots taken and indicate
the number of prints required. It flopped.
It was executives in the film division who carried
most weight and they were over-confident about Kod-
ak’s brand strength. They also misjudged the speed
of the change in customer buying preferences. For
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example, they believed that people in fast-developing
markets such as China would buy lots of film, but
many moved from no camera at all to digital. The
profit margin on digital was also tiny compared with
film and there was a real fear of product cannibal-
isation. Rosabeth Moss Kanter of Harvard Business
School also pointed to the Kodak culture: ‘Working in
a one company town did not help … Kodak’s bosses
in Rochester seldom heard much criticism … ’. More-
over, ‘executives suffered from a mentality of perfect
products, rather than the hi-tech mindset of make it,
launch it, fix it.’1 They also moved slowly: ‘Even when
Kodak decided to diversify, it took years to make its
first acquisition.’1 Kodak’s attempts to diversify by
developing the thousands of chemicals its research-
ers had created for use in film for the drug market
also failed.
In 1989, the Kodak board needed to choose a new
CEO. The choice was between Kay R. Whitmore, a
long-serving executive in the traditional film busi-
ness, and Phil Samper, who was more associated
with digital technology. The board chose Whitmore,
who insisted that he would make sure Kodak stayed
closer to its core businesses in film and photographic
chemicals.2
As late as 2007, a Kodak marketing video announced
that ‘Kodak is back’ and ‘wasn’t going to play grab ass
anymore’ with digital.3
Sources: (1) The Economist, 14 January 2012; (2) New York Times,
9 December 1989; (3) Forbes, 18 January 2012.
Questions
1 Which of the reasons for strategic drift are
evident in the Kodak story?
2 Drawing on the lessons from Part I of the
book as a whole, how might Kodak’s problems
have been avoided?
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