Why Did Kodak Go Bankrupt?

Thesis

By

Jan Hrnčiřík

State University of New York

Empire State College

2020

Reader: Tanweer Ali

 Statutory Declaration / Čestné prohlášení

I, Jan Hrnčiřík, declare that the paper entitled:

Why Did Kodak Company go bankrupt?

was written by myself independently, using the sources and information listed in the list

of references. I am aware that my work will be published in accordance with § 47b of Act

No. 111/1998 Coll., On Higher Education Institutions, as amended, and in accordance

with the valid publication guidelines for university graduate theses.

Prohlašuji, že jsem tuto práci vypracoval/a samostatně s použitím uvedené literatury a

zdrojů informací. Jsem vědom/a, že moje práce bude zveřejněna v souladu s § 47b zákona

č. 111/1998 Sb., o vysokých školách ve znění pozdějších předpisů, a v souladu s platnou

Směrnicí o zveřejňování vysokoškolských závěrečných prací.

In Prague, 10.12.2020 Jan Hrnčiřík

 Acknowledgment

I would like to express my gratitude to my primary supervisor, Tanweer Ali,

who guided me throughout this project. I would also like to thank my

girlfriend and my family who supported me and offered insights into the

study.
 Table of Contents

1. Introduction ............................................................................................................. 6
2. Literature Review ................................................................................................... 7
2.1. Introduction ....................................................................................................... 7
2.2. Sources .............................................................................................................. 7
2.3. Conclusion ........................................................................................................ 9
3. Methodology .......................................................................................................... 10
3.1. Financial ratios ................................................................................................ 10
3.2. SWOT Analysis .............................................................................................. 11
3.3. Porter’s Five Forces ........................................................................................ 11
3.4. Product Life Cycle .......................................................................................... 12
4. Kodak’s Journey to the Top ................................................................................ 13
4.1. George Eastman-Journey to the Photographic World .................................... 13
4.2. Kodak Company Establishment...................................................................... 15
4.3. Kodak Brand Worldwide Rise – Beginning ................................................... 17
4.3.1. Kodak Marketing Strategies/ Advertising ...................................................... 18
4.4. Kodak Dominates the Market ......................................................................... 20
5. Industry & Company Analysis ............................................................................ 20
5.1. Kodak’s Financial Analysis ............................................................................ 20
5.2. SWOT Analysis .............................................................................................. 26
5.3. Porter’s Five Forces Analysis ......................................................................... 32
5.4. Life Cycle of Product ...................................................................................... 34
6. Falling from the Leading Position ....................................................................... 38
6.1. Competitors Analysis- The Rise of Fuji Film ................................................. 38
6.2. Digital Era ....................................................................................................... 40
7. Bankruptcy ............................................................................................................ 44
8. Kodak Company after Bankruptcy..................................................................... 44
9. Lessons Other Businesses Can Learn from Kodak’s Failure ........................... 45
10. Conclusion / Discussion .................................................................................... 45
11. Appendices ......................................................................................................... 46
12. References .......................................................................................................... 49
Abstract

The research question of this thesis is “Why did Kodak go bankrupt?” Kodak filed for

bankruptcy in 2012. The main goal of this thesis is to determine what mistakes and steps

led to this failure. By highlighting the mistakes of a large company like Kodak, many

other firms may learn valuable lessons from Kodak’s failure. In order to articulate the

various reasons for Kodak’s bankruptcy, several different methods will be used, and the

combined results will define the reason(s) for this failure. To obtain these necessary

results, analysis such as Strengths, Weaknesses, Opportunities, and Threats (SWOT),

Porter’s Five Forces, the Life Cycle of the Product, and the Calculations of Financial

Ratios will be used. Each of these methods produced slightly different results, but, taken

together, the consensus was that Kodak underestimated the industry transition from film

to digital technology. This, together with other factors, like the decline of sales in roll

film and the rise of strong competitors, caused the company to declare bankruptcy in

2012.
1. Introduction

The research question of this thesis is “Why did Kodak go bankrupt?”

In the process of developing the first draft of an outline for my senior project, I read many

different case studies about Kodak that helped me understand the company’s decline in a

logical, structured way.

The thesis statement is an important, integral beginning point for every essay. It should

demonstrate the main points or the essential core of the senior project. I have been

developing this thesis statement based on the sources I have read so far from the available

body of knowledge on this topic.

The goal of this thesis is to analyze the rise and fall of the Eastman Kodak Company

(hereafter referred to as Kodak) in 2012, in order to provide useful retrospective material

for other companies to be able to learn from Kodak’s mistakes and be aware of better

approaches and practices in terms of decision making going forward.

The first part of this senior project will focus on Kodak’s rise to a position of prominence

within the photo retail industry. To clearly and accurately introduce the reasons behind

Kodak’s success, I will start from its primary sector, photography, where the history and

the development of personal photography will be explained by providing the ideas of

George Eastman who, in collaboration with another professional, developed and

established the Eastman Kodak Company. The global rise of the Kodak brand, the

development and success of roll film, the invention of the first personal cameras, and

other important aspects of Kodak will be analyzed and explained.

Kodak fell from a leading position in the market. All of the steps that led to this failure

will be analyzed and discussed beginning with the business strategy Kodak had been

following from its inception until the digitalization of the industry. For Kodak, the turning

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point was the development of the first digital camera in the world and the subsequent

refusal of company leadership to develop this type of camera for the commercial

photography market. The reason for this is simple and can be found in the form of another

corporation with a similar business model: Gillette. Gillette does not generate the majority

of its profits from selling razors; most of the profits are from the sale of blades. This was

the same case was for Kodak with the sale of cameras and rolls of film. Rolls of film

represented the biggest revenue stream for the company. Therefore, investments were

made in this sector because of demand from the market.

The next important segment discussed in the outline will be the competitor’s analysis and

the comparison of Kodak with other photography-based companies (particularly Fuji

film) which are alive and well in today’s market. The beginning of Kodak’s decline as

well as the steps taken by joint venture companies, the sale of patents, and other

similarities will be explained as contributing factors to the bankruptcy itself.

2. Literature Review

2.1. Introduction

The main goal of this Literature review is to collect and summarize already existing

arguments and theories about the fall of the Eastman Kodak company in 2012 and

supplement them with the additional knowledge obtained by using the several different

methods and analyses previously described. The literature review should help orient the

reader with regard to this topic and help them navigate different sources of information

on this topic to compare different conclusions.

2.2. Sources

The history of Kodak and about George Eastman will be drawn primarily from the

original Kodak company page where goes into explicit detail and supports its statements

by providing relevant pictures and articles from newspapers published during the

7
company’s timeline. Information provided on the Kodak page will be used as a primary

source for the history of the company. However, it will not be relevant for further

research.

George Mendes provides a detailed, strategic analysis of Kodak’s failure in his paper

“What Went Wrong at Eastman Kodak?”. Mendes states that the failure of Eastman

Kodak would not have happened had a more flexible strategy been chosen. A major flaw

in Kodak’s strategy was, as already mentioned, its dependency on film sales coupled with

its late, slow adaptation to the digital era.

Another work by Richard Hess of Yonsei University concluded that the reasons for

Kodak’s failure were mostly the external factors such as the era of digital development

coupled with internal factors like faulty decision making and poor strategic choices.

Willy Shih from MIT University had another perspective on Kodak's failure. His

conclusion centered on the disruptive technology of the digital age and its harmful effects

on Kodak.

Scott D. Anthony, on the contrary, argues in his article for Harvard Business Review

“Kodak’s Downfall Wasn’t About Technology,” that even though the external demand

for digital technology played a role in Kodak’s failure, it was not the core issue. He

contends that even with the rise of digital technology, Kodak could have chosen different

avenues of expansion, say the manufacture of chemicals for instance.

Even though most sources mention digitalization as the biggest contributing factor to

Kodak’s failure, each source approaches that problem differently to emphasize different

problems within Kodak.

Willy Shih explains the difficulty of transitioning to new technology. The production of

roll film required extremely complicated and very expensive technology. Kodak was

heavily invested in these technologies, therefore a transition to a completely new

8
technology would have been costly. Because management was not confident about the

future of digital technology, they were slow to adopt—a decision that ultimately led to

bankruptcy.

George Mendes argues that the failure of Kodak was the result of faulty strategic

decisions. He mentions that repeated mistakes in strategy occurred in Kodak, which led

to a slow reaction to the digital age and after developing the digital technology, the

implementation was not successful due to constant changes in strategies.

Richard Hess concluded in his research that external and internal factors played role in

Kodak’s failure. The combination of rising competition and the digitalization transform

combined resulted in the decline of Kodak. Richard Hess concluded that: “Kodak’s

management was convinced that as long Kodak did not move into the digital era and

change the imaging industry, no one else would” (2014, p.21).

In his article for Harvard Business Review, Scott D. Anthony discusses the slow transition

of Kodak into the digital era. He compares Fuji’s innovative approach in terms of seeking

new opportunities and Kodak’s stagnation and stumbling. Anthony wrote:

While Kodak stagnated and ultimately stumbled, Fuji aggressively explored new

opportunities, creating products adjacent to its film business, such as magnetic tape

optics and videotape, and branching into copiers and office automation, notably

through a joint venture with Xerox. (2016).

These articles combined with the calculations from the U.S. Securities and Exchange

Commission, where annual reports of Kodak are posted, provided me with a detailed

understanding of Kodak’s failure.

2.3. Conclusion

Among the data sources collected for this thesis, similar ideas are explored, but their final

assessments and conclusions differentiate from each other. The era of digitalization

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played an inevitable role in Kodak’s failure, and almost every source I have collected for

this work mentions this. To an extent, I agree. However, I am more inclined to the belief

that while technology played an important role in Kodak’s disruption and failure, there

were other cumulative factors at work.

3. Methodology

Since Kodak filed for bankruptcy in January 2012, many academic materials regarding

its failure have been produced. In this thesis, both quantitative and qualitative data will

be used. The quantitative data were collected in terms of numbers primarily from the

financial reports of Kodak in different years. These reports contained profits, sales,

investments, and other important data. These data were collected from the U.S. Securities

and Exchange Commission where all annual reports of Kodak can be found. All the

collected data from the annual reports will be used to calculate ratios. There will also be

a comparison with Kodak’s main competitor, Fuji Film, in terms of stock price and

financial reports over the years.

Qualitative data will be an important part of this thesis as well. This data will be used

through several analyses. The combination of those data is necessary for this particular

thesis because the failure of Kodak was caused by several factors. By combining the data

from these several analysis methods with empirical numbers supporting this thesis’s

argument, the result should be demonstrably clear.

3.1. Financial ratios

Financial ratios are created to obtain a variety of important information about a company.

Calculations are made using data collected from a company’s annual reports, which

include balance sheets, income statements and cash flow statements (Financial Ratios -

Complete List and Guide to All Financial Ratios, 2020).

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This thesis will use several ratios to include the following: liquidity ratios, debt ratios and

return ratios. Each ratio will define different results and the combination of these ratios

should illustrate the overall situation within Kodak. The financial ratios will serve as a

tool to find key year and this year will be analyzed further by other methods.

3.2. SWOT Analysis

The key aim of this analysis is to help organizations become completely informed about

their key aspect, knowledge of which is necessary in management decision-making

processes. This analysis is helpful in a variety of situations such as searching for new

opportunities, changing internal policies, and planning future investments. Companies

can also use SWOT analysis to see how they perform, to see areas where the company is

operating well but also the areas where changes are needed (Schooley, 2019).

The SWOT analysis of Kodak will be compiled from the data collected from 2007 on,

which is the year where small signs of decreasing market share started to emerge as a

result of ratios calculation. This was most likely the year when Kodak could have acted

to change its organizational structure and avoid bankruptcy.

3.3. Porter’s Five Forces

Porter’s Five Forces is a framework devised by Michael E. Porter, a professor at Harvard

Business School (Scott, 2020). Within this model, five common, competitive forces are

defined and analyzed, due to their impact and role in every market. This framework helps

lead to a better understanding of the weaknesses as well as the strengths of an industry.

To be able to efficiently establish a business strategy, one needs to perform a deep

analysis and be aware of the many external issues, threats and opportunities in the market.

The Five Forces are a very effective tool in terms of shaping the design of a corporate

structure. This model is also a great tool for market analysis and can be used to calculate

11
market productivity and increase the long-term viability of different kinds of enterprises

across a variety of business sectors.

This analysis will be used in the thesis in order to recognize the primary external threats

that Kodak faced leading up to its bankruptcy.

3.4. Product Life Cycle

The life cycle of the product can be described as a theoretical model that predicts the

phases of a product’s different stages throughout its time in the market. Products are

created, they then operate in the market, and they leave the market at some point. There

are many different types of products on the market, therefore each product has its

individual lengths of phases throughout the model. Some products last just several days

on the market and some of them can last for decades (Heizer, Render, Munson, & Griffin,

P. 2020).

Kodak will be analyzed through this model and the results will support the stated reasons

for Kodak’s failure. Since Kodak made most of its revenues from selling film, the product

“film” will be fitted into the model analysis to analyze the introduction, growth, maturity,

and decline of this product.

Conclusion

All of the listed methods will be used in this thesis to make clear the reasons behind

Kodak’s failure. I have found one Porter’s Five Forces analysis of Kodak, but this analysis

was done on different years than those analyzed in this thesis. I have not found an author,

who has completed these analyses to show the incorrect decisions and mistakes made by

Kodak. However, the combination of analysis methods I have proposed for this thesis

should result in points that clearly define Kodak’s failure.

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4. Kodak’s Journey to the Top
4.1. George Eastman-Journey to the Photographic World

The majority of people categorized as geniuses are born as the youngest children in a

family. This has been true as far back as Wolfgang Amadeus Mozart to the more recent

Albert Einstein and George Eastman.

Many successful people have difficult childhoods and establish their success as a reaction

to the difficulties they have faced from a young age. This was true of young George

Eastman, who was the youngest of three children born in Waterville, New York.

Difficulties had long been following him and his family. When George turned five, his

father, George Washington Eastman, moved the family to Rochester New York to pursuit

of a new business enterprise. There, the elder Eastman dedicated his energies to the

establishment of the Eastman Commercial College. Unfortunately for the Eastman

family, the worst scenario occurred: George’s father suddenly died, which led to the

collapse of the college and the financial hardship of the family.

These circumstances forced the now fourteen-year-old George to quit the school and find

some employment to support his now poor family. His first job as a messenger boy for

an insurance business company paid just three dollars.

A year later, he became an insurance policy office boy. He quickly took over the political

filing for and wrote legislation on his own initiative. His wage grew to five dollars a week,

but even with this increase, the salary was still not adequate to cover his family’s costs.

This led George to learn accounting at home with the goal of getting a better paying job.

George stayed in the insurance business where his hard work and talent led to his eventual

employment at the Rochester Savings Bank where his income tripled to over fifteen

dollars a week (George Eastman. n.d.).

While insurance and photography are two completely different areas, the vision of one of

George’s colleague’s set George Eastman on a new path. Eastman had arranged a holiday

13
to Santo Domingo. At the suggestion of his colleague, he decided to make a record of this

vacation. Eastman ordered photo equipment containing wet plates that required the use

of a dark room to be developed. The photographic setup was approximately as large as a

modern-day microwave and also required a heavy tripod to be used properly. He also had

a tent to distribute photographic emulsion on the special glass plates before exposing

those photos and developing these exposed plates before they dried out. In order to be

able to take a photo, there were other complex necessities such as several chemicals, glass

tanks, a holder for the wet plates. In addition to this, the photographer also needed to carry

water with him. This photographic setup contained so many items that carrying it around

throughout vacation would be inconvenient and problematic.

This was the starting point at which Eastman started to be extremely interested in

photography and have a vision of a future to simplify the photography process. At this

time, Britain was the center of the photographic world, and it was where most professional

photographers lived. From British magazines, George found out that some photographer

had been developing their own emulsions to be used with the wet plates. Following their

lead, Eastman started developing his own emulsion using a special recipe retrieved from

a British photographer.

Eastman continued to work at the bank during the day while at night he experimented

with plates in his mother’s kitchen. He had worked out a formula for dry plates built on

three years of photographic experiments. With the developed formula for dry plates, he

had also figured out and patented a machine that was capable of mass-producing those

dry plates with the goal of selling them all around the world (Eastman, n.d.).

14
 Eastman Dry Plate Company (American, 1880–1884)

All these steps led George Eastman into the business world where he gave legal form to

his ideas by establishing a company.

4.2. Kodak Company Establishment

In the late 1870s, Eastman came up with the invention of a gelatinous dry emulsion and

machinery that enabled the mass production of dry plates. Following this, the year 1880

was revolutionary for George Eastman. In 1880, with the gain of a patent, he started the

commercial production of dry plates. It was this act that intrigued businessman and family

friend, Henry Strong, with whom Eastman co-founded the Eastman Dry Plate Company

in Rochester, New York. Eastman left his job at the bank to devote himself fully to the

company whose basic pillars were product innovation and the highest possible customer

satisfaction. However, the company did not fare well in the first few months as dry boards

often showed defects. So, Eastman replaced them completely free of charge in the

interests of customer satisfaction (Hudson, 2012).

It was these problems that prompted Eastman, in collaboration with camera manufacturer

William H. Walker, to replace the too heavy glass dry plates with a brand new product –

a roll-based photographic paper film that could be used in all the cameras available at the

time. Before long, Eastman invented a paper film machine that dramatically reduced

15
production costs. This revolutionary invention paved the way for Eastman’s business

(Coe, n.d.).

It was this success that led Strong and Eastman to set up a company in 1884 called the

Eastman Dry Plate and Film Company. Eastman was appointed CEO and Strong was

appointed president and treasurer. A year later, the associates opened a wholesale office

in London.

In 1885, the company came up with the production of the first transparent photographic

film bearing the name “EASTMAN” (K, n.d.).

In 1888, Eastman published a new protective trademark “Kodak”, which he also named

his first camera. The founder of Kodak (Eastman) stated:

I devised the name myself. The letter ‘K’ had been a favorite with me — it seems

a strong, incisive sort of letter. It became a question of trying out a great number

of combinations of letters that made words starting and ending with ‘K’. The word

‘Kodak’ is the result.

The Kodak camera was the first portable camera containing a 100-frame film that was

introduced by the Eastman Dry Plate and Film Company in June 1888. The customer was

given the opportunity to send the camera with the used film back to Eastman’s factory in

Rochester for a fee of ten dollars. Here, the images were printed after processing and sent

back to the customer along with a new role in the camera. All the benefits were summed

up in Eastman's famous marketing slogan: “You press the button, we do the rest” (Coe,

n.d.).

The following year, the first transparent scroll film was introduced, which enabled the

development of Thomas Edison's film camera in 1891. The company changed its name

to Eastman Company. (K, n.d.)

16
Another success came in the 1900s when the company began the production of simple

inexpensive cameras called Brownies, which were sold for one dollar. In doing so, the

company laid the foundation for the concept of snapshot photography and made it

possible for the general public to take photos (Vyplelova, 2018).

4.3. Kodak Brand Worldwide Rise – Beginning

Before Eastman Kodak, photography had been perceived as something professional,

requiring experts to immortalize moments in film/paper form. Eastman’s vision was to

reform and improve this complicated method of taking photos. After the development of

dry plates and the simplification of the photograph, his company started to rise in an

unprecedented manner.

The critical starting point was the development of the first personal camera named:

“Kodak” with the registered patent number 540 (Schreiner, 2012).

Original Kodak Camera, Serial No. 540 (Eastman, 1888)

These two innovations by Eastman completely changed the photography game.

Knowing that dry plates with gluten had great potential, Eastman built a factory in

Rochester where dry plates would be manufactured not only for the usage of Kodak but

for the whole photographic market. By introducing the Kodak camera, the company

became known as the creator of the amateur photography industry. This photo industry

17
changed the way people viewed both cameras and photography itself. Because the photo

industry, and by extension the ability to capture moments in time, was completely new to

most people, the sale of original Kodak cameras and film rolls rapidly increased in the

United States and all over the world (Hess, 2014).

The development of the photo itself was, at that time, still the work of professional staff.

Eastman knew that if the company was to grow, satisfying its customers had to be its top

priority. Kodak figured out that the simplest solution was to have the customers send the

film back for processing. After purchasing a Kodak camera and film roll, customers were

able to take 100 photos. Afterward, customers could just send their cameras back to

Kodak where all the photos would be developed, the new film would be put into the

camera, and both camera and film/photos would be sent back to customers. This simple

idea has revolutionized the popular attitude to the amateur photo industry (Hess, 2014).

4.3.1. Kodak Marketing Strategies/ Advertising

To increase Kodak brand awareness and the sale of roll film, Kodak also developed

thoughtful marketing campaigns to attract as many people as possible. One of the first

campaigns was the famous slogan that emphasized the simplicity of taking pictures with

Kodak equipment.

“You press the button, we do the rest” summed up George Eastman's groundbreaking snapshot camera
system." November 1889

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Another highly successful campaign created by Kodak was the term “Kodak Moment”.

Kodak emphasized values such as family gatherings, vacations or other important

situations and moments that people would love to immortalize. All those important life

events were branded with the term “Kodak Moment”, which entered the amateur

photographic world successfully. Whenever Kodak customers felt like taking a picture of

a special moment, they would call it a “Kodak Moment”. This created demand across a

variety of demographics, but especially women (Hudson, 2012).

Kodak was aware that the biggest percentage of its customers were women, so they

oriented their marketing campaigns and strategies accordingly. According to their

campaigns and promotions, every caring mother should take the responsibility to

immortalize the lives of their growing children by taking photos with the help of Kodak.

“The snapshots you want tomorrow, you must take today!”

Alison (2020, May 27)

Kodak’s marketing campaigns also changed perceptions of vacations by pushing the idea

that there is no proper vacation without memories in the form of photos.

All these campaigns spread the Kodak brand globally, and the firm became one of the

strongest names in the business world (The rise and fall of Kodak’s moment, 2012, March

16).

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 4.4. Kodak Dominates the Market

Eastman was an extremely thoughtful manager and knew how to lead the company

forward. Because of Eastman’s principles and methods, Kodak grew significantly every

year leaving competitors far behind. Mass production at low cost, international

distribution, extensive advertising and customer focus were the principles that led Kodak

to market domination (Hudson, 2012).

CHKILI, H. Market domination (2018, May 02).

5. Industry & Company Analysis

5.1. Kodak’s Financial Analysis

Introduction

Even with financial troubles that started in the late 20th century, Kodak’s situation was

manageable. However, five years before the bankruptcy, the financial reports had

worsened each year, which finally led to bankruptcy. Kodak’s financial situation will be

analyzed from 2007 until the year of its bankruptcy in 2012 in terms of financial ratios,

which will be helpful in showing trends that occurred within Kodak.

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Liquidity Ratios

The current ratio of Kodak from 2000 to 2012 shows an increasing trend until 2009 when

the company started to have troubles covering their short-term debts with the current

assets they had. The liquidity of Kodak had been decreasing in parallel with the potential

investors’ interest in buying shares of Kodak.

Debt Ratios

This debt ratio shows the comparison of total debt and total assets and when the result is

greater than one, it means that the company has more debt than assets. In the case of

Kodak, the turning point was 2007 when the ratio started to grow rapidly until Kodak’s

bankruptcy in 2012.

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A debt-to-equity ratio indicates how much a company is financed by lenders and how

much it is funded by equities from shareholders. A high debt-equity ratio means higher

leverage of the company, which indicates a greater risk to its shareholders. In the case of

Kodak, this ratio had been in relatively normal numbers until 2009. The huge drop reflects

a negative equity of $33 million.

(U.S. Securities and Exchange Commission- Eastman Kodak Company, 2010)

The deficit equity occurred in Kodak because it had huge losses and needed to save

money for liabilities that had not been paid yet.

22
This ratio shows that the Kodak company had been losing the ability to pay the interest

on outstanding debt. This ratio is usually used by lenders to see how risky it is to lend

money to a company. The ratio was extremely low in 2007, which indicates a bleak

situation for Kodak. The lower the ratio is, the greater the chance the company will go

bankrupt, which is in fact what happened to Kodak.

Kodak's cash flow ratios indicate Kodak’s inability to generate enough money to cover

current liabilities. A higher ratio means that the company has enough cash to repay

liabilities. From 2002, Kodak started to lose cash in hand, which continued until its

23
bankruptcy. Kodak showed, again, that the money it generated was not enough to cover

all its liabilities.

Return Ratios

A return on asset ratio is used as a number to show how a company is profitable relative

to its assets. From this graph, it is clear that Kodak over-invested in some of its assets,

assets which did not produce enough revenue growth. From 2007, Kodak demonstrated

its inability to maximize the use of its assets, which resulted in a steady, continually

decreasing ratio and final bankruptcy.

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The return on equity shows the performance of Kodak based on its net income, which is

divided by the shareholders’ equity. There was a slight decrease in this equity except in

2009 because Kodak decided to suspend cash dividends.

The return on capital employed describes Kodak’s extremely dire situation in terms of

profitability derived from its capital. All the capital Kodak had divided across several

industries, to include printing and photography, were not able to generate reasonable

profits, which led to extreme distress and final bankruptcy. This decrease was already

visible in 2000, but the most substantial losses happened between 2007 and 2010.

Financial Analysis Conclusion

All the calculated ratios showed decreasing trends for Kodak. These financial

measurements projected Kodak’s inability to generate enough profit to cover all the

company’s necessary liabilities. Kodak has invested in printing, an online photo-sharing

platform and digital imaging, but the profitability of these markets was simply not

sufficient. From all the ratios calculated, year 2007 was identified as a key year, as a

year where several ratios showed decreasing trend. The year 2007 will be analyzed

further, to recognize mistakes made by Kodak.

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 5.2. SWOT Analysis

Introduction

This SWOT analysis was made according to data collected from 2007, which was the

year when Kodak’s financial struggles started to occur and that the market position of

Kodak started to decrease.

SWOT analysis is an important tool to recognize how Kodak balanced its weaknesses

and threats with its strength and opportunities. The year 2007 and subsequent years will

be analyzed in terms of financial ratios.

Strengths Weaknesses
- Strong globally known brand
- Dependence on film sales
- Strategic acquisitions
- Strategies planning
- R&D focus
Opportunities Threats
- Digitalization - Powerful competitors
- Licensing with other - USA economy decrease
companies - Roll film decline

Strengths

Strong, Globally Known Brand

The advantages and capabilities of the Kodak brand and the company’s multinational

distribution network were established during Kodak’s long history, during which time

Kodak also integrated the belief and trust of Kodak customers into its business model

(UK Essays, 2018).

For years Kodak was one of the top three firms in terms of market shares. Businessweek

listed the organization in the Top 100 Multinational Brands in 2007. Brand value was

one of the top priorities for Kodak. Because of these investments towards strengthening

the brand name were made. In 2007, a successful marketing campaign for raising brand

awareness was introduced named “Taste of Minnesota”.

26
Kodak planned and managed tours across twelve cities within the United States in one

year. Every single stop in the cities aimed to inform and inspire photographers to enrich

their experience and abilities. These measures fulfilled the task to strengthen the firm’s

powerful brand reputation, which resulted in a competitive advantage (Datamonitor,

2008). The company’s management took care of brand awareness throughout the world

with excellent results, giving Kodak a significant advantage over its rivals.

Strategic Acquisitions

The Kodak company persisted with its purchase of new businesses and alliances in order

to achieve and maintain its strong position on the market. Kodak purchased Incad Inc, a

leading company in the inkjet printing market, the acquisition of which made Kodak one

of the top three industrial printing companies in the market (Datamonitor, 2004).

Kodak continued in the printing market and, in February 2007, it introduced a printing

system called Kodak All-in-One Ink, which was supposed to increase revenue and growth

in the future. (Kodak-annual report 2006-2007, p.6)

R&D Focus

The importance of research and development (R&D) had long been strongly one of the

company’s top priorities, and the success of Kodak in its early years was the result of

excellent R&D. In 2007, Kodak’s spending on R&D was $535 million, which could be

also represented as 5% of the annual revenue, thus confirming the importance of R&D

for the company. Kodak had a variety of events related to product creation. Through

research collaboration and agreements, the company worked with a wide range of other

institutions like universities and government labs. Kodak’s stable R&D techniques and

qualities bolstered the company’s competitive position in the market. (Datamonitor,

2008)

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Weaknesses

Dependence on Film Sales

The structure of the company was formed in such a way that the sale of photographic

supplies such as roll film played an extremely (and later excessively) important role in

the company’s success. While cameras were not that expensive, Kodak knew, that the

customer would keep purchasing more products (i.e. roll film) and use the company’s

services, since the development of roll film was necessary for amateur photography.

While this model led Kodak to the top of the photography market, it might have also been

a factor in poor future planning.

Strategic Planning

In terms of business strategies, two schools of thought could be followed by companies:

the Rational Thinking Perspective (RTP) and the Generative Thinking Perspective (GTP).

RTP process uses a highly organized empirical method with statistics and accurate data

collection in order to arrive at the best possible result. GTP on the other side is far less

formal and mathematical emphasizing instead a more imaginative or unorthodox plan or

approach (Mendes, 2016).

Insufficient diversification and exclusive reliance on a universal solution is a risky

approach, one that led the company towards a less balanced perspective in other potential

areas. Since the beginning of the company, the RTP approach had been used for the

manufacturing and selling of cameras and photo supplies. Cameras produced at relatively

low costs were followed up by the sale of roll films that meant high margins for the

company. Therefore, the company primarily depended on the sale of roll film, which

resulted in the sales of sold equipment being less cared for and focused on. This lack of

a well-established diversification strategy led the company to be too narrow in terms of

what the photo industry could potentially offer. Risky actions were resisted, and

28
establishment quo-maintaining practices and regulations were implemented (Mendes,

2016).

Opportunities

Digitalization

The opportunity to fully invest in emergent digital technologies had been available to the

Kodak company since the development of the first digital camera in 1976. However, the

company made decisions that took it in a different direction. Kodak’s opportunity lay

behind the decision to choose the right marketing strategies that would then lead the

company towards continuous success in the photography industry. Given the declining

demand for standard photography, including roll film sales, it was important for Kodak

to begin adapting to the digital era (Datamonitor. 2008).

Kodak understood that the digital era was approaching, so, somewhat late in the game,

they started to reveal digital cameras to customers. In 2007, Kodak announced a new

digital camera called Kodak Easyshare C653, which enlarged Kodak’s digital portfolio

(Stafford, 2007).

Licensing with Other Companies

Sharing knowledge is a process wherein companies jointly research, develop and improve

an idea, which, after licensing and agreements, the overall improvement could be much

faster and much more effectively than by any single company working alone.

Kodak made several very thoughtful alliances and agreements throughout its rise. An

example of a cross-licensing agreement would be its cooperation with the Sony

corporation. Both of the companies granted approval to the other to access each other’s

patents and other information from their respective portfolios. Sony was a major producer

and distributor of audio-video and communications industry products, so it made sense

29
for Kodak to draw inspiration from Sony and gain some insight for further, future

improvements (Datamonitor, 2008).

Threats

Powerful Competitors

Even though Kodak was the founding pillar of personal photography, the industry

developed and grew in unexpectedly fast ways, which were followed by the establishment

of strong competitors throughout the world.

For all the goods and services from various firms worldwide, Kodak faced fierce market

competition. One of the biggest roles played in the threat from competing companies was

the price policy. The price policy was critical in both the photo and video industries

because competitors lowered their profit margins in order to obtain more customers and

earn more of the market share. Fuji Film was one of the first companies competing against

Kodak before digital technology was on the market. However, after the digitalization of

competitors like Canon, Nikon and Sony, Kodak began to lose its market share

(Datamonitor, 2008).

US Economic Decrease
The growth rate of the GDP in the United States dramatically dropped during the mid-

2000s. In 2006 the growth was 2.9%. In the following year of 2007 growth dropped to

1.9%. This downturn was attributed to stock market volatility, as well as very poor

housing metrics followed by negative customers backlash (Rich, 2013)

The “Great Recession” in the United States had a markedly negative effect in terms of

demand for Kodak goods and services.

Roll Film Decline

The global market for roll films had already demonstrated a tendency to decrease. For

example, in 1999, more than 800 million film rolls were sold, but, by the year 2006, the

demand dropped so dramatically that only 204 million rolls of film were purchased. As a

30
consequence of the lowered demand for roll films, the financial struggles started for

Kodak as early as the end of the 1990s and came to full fruition by the mid-2000s. This

decline was also reflected in the price of shares, which dropped to $23 per share in 1999

from a previously valued $90. The roll film decline played an essential role in Kodak’s

decreasing value (Kilic, 2013).

The Film and Photofinishing System Group (FPG) was once one of Kodak’s most

profitable components. However, from 2004 to 2006, the revenues gained from this

segment had been decreased dramatically from $7,051 to $4,156 million. The Kodak

company stated the following in its 2007 annual report: “The market for motion picture

films remains stable with significant impact from digital substitution still expected to be

some time away” (U.S. Securities and Exchange Commission-Eastman Kodak Company,

2007).

Conclusion

The SWOT analysis found that the biggest mistakes Kodak made revolved around

decision making, missed opportunities, customer demand and threats from competitors.

Kodak focused too heavily for too long a time on the production of roll film. Even though

the opportunities to invest in digital technology were there, they were not recognized

early enough. Even when Kodak finally invested in digital photography, its management

was not convinced of its importance. Instead, Kodak tried to hedge its bets by pushing a

combination of technology and printing, which was, at the time, profitable. However,

Kodak missed the fact, that printing digital images is not a sustainable way to generate or

keep customers. Another issue found in the SWOT analysis is that Kodak knew about the

digital transition, but that its calculations and estimates of the eminent digital era were

done incorrectly, which led to a slow, delayed adaptation to digital technology. These

31
incorrect decisions combined with more successful competitors, like Fuji Film, led

Kodak’s declining market share and to bankruptcy.

5.3. Porter’s Five Forces Analysis

Porter’s five forces: 1. Competition in the industry, 2. Potential of new entrants into the

industry. 3. Power of suppliers 4. Power of customers 5. Threat of substitute products

(Scott, 2020)

Competition in the Industry

The business in which Kodak operates is a highly dynamic electronic products market.

Considering the competition in the industry, the overall long-term profitability of

Kodak’s business is directly influenced by its market competitors (Scott, 2020). Kodak’s

biggest competitor will be analyzed further in the thesis.

Potential of New Entrants into the Industry

Before the digitalization of photography, entering the photography industry presented a

severe financial difficulty due to the expense of necessary technologies: hardware,

software, photo paper and the chemicals needed for developing photos.

The digitalization of the photo industry has drawn in a large number of new entrants in

recent years, both in the United States and internationally. When it comes to emerging

technologies, the menaces of recently entered competitors present a challenge for existing

companies trying to keep ahead of industry trends (Duncan, 2016).

Power of Suppliers

Markets in which there a small number of suppliers makes it difficult for companies to

switch between suppliers or find different ones. This reality leads to the increased power

of suppliers over production companies. However, from another perspective, businesses

may reduce their production costs and raise their profitability in a scenario where there

are multiple suppliers or the switch between them is at a low cost. In the case of Kodak,

32
the number of suppliers compared to the number of buyers is significantly higher, which

means that the supplying companies do not affect pricing significantly, therefore, this

could be considered a weak threat (Scott, 2020).

Power of Customers

The power of customers in terms of Porter’s Five Forces refers to the ability of customers

to push a company towards decreasing prices. In the past, customers did not have much

power to influence Kodak. However, with the rise of competition and a wide range of

products in the market, it is not difficult for customers to switch between products.

Therefore, the power of customers represents a significant threat to Kodak (Karami,

2019).

Threat of Substitute Products

The threat of different products that could act as substitutes for Kodak’s portfolio is

considerable. Digitalization has enabled companies to produce better, more in-demand

products for a relatively better price. Digital cameras are not the only products that are a

threat to Kodak. Other industries like mobile phones have been developing quickly and

the technology is still improving, which could also present Kodak with big problems in

terms of competition (Duncan, 2016).

Porter’s Five Forces Conclusion

Porter’s Five Forces analysis helped to identify the biggest threats that Kodak faced/faces.

The biggest threat found from this analysis is the combination of new product substitution

and the power of customers. The digitalization era brought with it many new products

from a variety of companies. At the same time, customers gained much more leverage

because of an increase in options to choose from, a factor that makes the industry leaner

and more competitive for companies.

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 5.4. Life Cycle of Product
Life Cycle of Product is divided into four stages: Introduction, Growth, Maturity,

Decline.

The figure below shows the four pillars of the Product Life Cycle together with the

connection to the costs for establishing and promoting, to the revenues from sales until

the final loss.

(Heizer, Render, Munson, & Griffin, 2020).

This analysis method has been used across the market throughout companies, in order to

keep up with trends and recognize the value and time of a specific product or service.

Since Eastman Kodak has had several products at their disposal, this analysis will

emphasize roll films, which were the main, most profitable product from the Kodak

portfolio. The life cycle of product model will be used as an analysis method of the

Eastman Kodak company and will be one of the main pillars in determining the missteps

and incorrect decisions made by Kodak.

Introduction

Before a product is developed, research needs to be done to find out whether customers

would be interested and whether there will be a demand for a given product. The

beginnings of the Kodak company have been mentioned earlier, however, it important to

emphasize that when Kodak created the first personal camera in 1888, it became a turning

point for the company and the photography industry. Eastman found a gap in the market

that he managed to exploit with revolutionary technology to kickstart a new era of

34
personal photography. The beginnings of such endeavors are always difficult and demand

financial backing to develop products into their final form and, most importantly, to get

the product to the customers. Eastman knew exactly what was important. Because of this,

he did not underestimate marketing campaigns and he promoted his products widely. The

first Kodak camera required dry plates in order to take a photo. These dry plates were

predecessors of the better-developed roll films that were produced later as a result of

constant product improvement (Hudson, 2012).

Growth

In 1896, Kodak reached 100, 000 produced cameras. Personal photography had been

rapidly growing, and the increasing demand for Kodak products led the company to

enlarge its production. One factory in Rochester was simply no longer enough. With the

still growing number of new customers, the empire of Kodak rapidly grew, not only in

the United States but all around the world. In 1900, a new camera called a “Brownie” was

introduced and priced just for one dollar, which made photography available to almost

everyone. Due to the great success of cheap cameras and film rolls, Kodak kept increasing

its production and focused on roll film development because of its market dominance in

that area (Cowling, 2012).

In 1935, these instant improvements culminated in the invention of a revolutionary color

roll film known as Kodachrome. Later production of Kodachrome became widely used

in both commercial and amateur photography. The rapid growth in usage could be

explained by Kodachrome’s easy use and processing Positive feedback came to Kodak

from a variety of amateur photographers as well as from professionals. For example, in

1935 the US photo magazine American Cinematographer presented the new Kodachrome

as “sensational” and followed up by interviewing people who saw Kodachrome images

and considered them to be the best available in commercial film (Pope, 2016).

35
Pope (2016) in his study reported several positive instances of feedback to Kodachrome:

By early 1941, a film professional writing in International Photographer—journal of

Local 659, the Hollywood chapter of the International Alliance of Theatrical Stage

Employees and Moving Picture Machine Operators summarized Kodachrome's

achievement with similar enthusiasm: “No other contribution to the science of

photography has become so popular or can produce such faithful color reproduction for

so little expense and mental effort” (p.3).

The fame and importance of Kodachrome elevated Kodak to the pinnacle of market

domination. Kodachrome played an extremely important role in the rise of Kodak.

However, it also blinded management with its success, which contributed to several

unfortunate decisions in the future. This notwithstanding, Kodachrome shifted roll films

product into its maturity phase.

Maturity

During the maturity phase, the sales of products realize their maximum growth in the

market and start to decrease. Generally, companies at this stage tend to extend this

maximum profitable stage by improving a product in the hope of staying at the top for as

long as possible. The desire of companies to avoid the decline leads them to invest in

new, more in-demand product development to be able to keep up with the fast-growing

competition (Kopp, 2020).

The Kodak company, however, decided to deviate from the textbook knowledge about

the product life cycle and continued to market their roll films. During Kodak’s highest

peak, their domination of the market, especially the home market, was sensational with

90% of film rolls and 85% of cameras supplied by Kodak. Kodachrome was able to stay

at the top of the market for 74 years, which assured the company management about the

36
profitability of films and contributed to establishing more chemical labs and factories to

produce more and improved roll film (Cowling, 2012).

Decline

The stage of decline generally occurs when the revenue numbers drop, competition with

other companies becomes increasingly intense and, most importantly, when demand

shifts because of changes in customer preferences changes due to better, easier and

cheaper technology. At this point, most companies try to improve efficiency and

distribution rather than increase sales of obsolete products.

Due to the decreasing demand for photography film, the declining revenues of Kodak’s

most profitable product pushed the company to its first financial difficulties. In 1999, the

market value of a Kodak share fell rapidly to $23 per share from a previous valuation of

$90 per share. Since the company had large factories for the chemicals and roll films, the

market situation forced Kodak to reduce employees. This took place in 2002 when the

company laid off 5000 workers (Kilic, 2013).

Life Cycle of Product Conclusion

The product life cycle is a perfect method for recognizing Kodak’s critical missteps. The

production and sale of roll films were the main focus of the company. Extremely sizable

investments were made in terms of factories and chemicals and others to be the best in

the market. Kodak managed to keep this product around for 74 years on the market, which

is unprecedented in this kind of technological and highly competitive market. The founder

of the Eastman Kodak company followed the life cycle of the product because he was not

afraid of changes. From the development of dry plates, he came up with the roll films

because he knew that the technology was still improving and if he did not do anything

other companies would eventually innovate ahead of him. This mentality of progressive

thinking was missing in later Kodak management, and it likely pushed the company

37
towards bankruptcy and the loss of its market share. Most companies try to keep the

maturity phase going for as long as possible, but the improvement and development of

the product is a necessary step towards the extension of the maturity phase in the market.

Kodak tried to prolong roll film operations in the market for longer than needed.

However, the decision could be understandable from one point of view because of the

investment into roll film developments and also because of the stable sales of this product

for decades. Kodak simply did not want to give up on its “best” product. This had fatal

consequences for the future of the company.

6. Falling from the Leading Position

6.1. Competitors Analysis- The Rise of Fuji Film

Fuji Photo Film Co. was established in 1934 in Japan as a company producing equipment

and materials for photography. It produced dry plates as well as roll film and also the

paper needed for photography printing. An important milestone occurred when Fuji

entered the US market in 1965 and developed a new colored film that was compatible

with Kodak equipment. Products such as color film and printing photo paper made from

Fuji Film were 20% cheaper than the same products from Kodak. Because of this, many

people had switched to Fuji Film (Gavetti, Henderson, & Giorgi, 2004).

(Gavetti, Henderson, & Giorgi -Worldwide Film Market Share, 1990-2002)

38
The Summer Olympic Games in Los Angeles represented a turning point for Fuji Film

because they were able to negotiate and became official sponsors of the 1984 Olympic

games. The popularity of Kodak among US citizens had been high for decades, but after

the Olympic games, Fuji Film became more popular in the United States and led to Fuji’s

dramatic market share increase. From that point on, Fuji became Kodak’s main

competitor in the photography industry with a 10% market share in the United States and

70% in Japan, Fuji was a very real threat to Kodak (Schreiner, 2012).

FUJIFILM HOLDINGS CORPORATION (FUJIY) Interactive Stock Chart

(Grant, R. M. 2016,).

This table shows the difference in terms of digital transition between Fuji and Kodak.

While Fuji Film grew, Kodak had been losing profit, market share and employees.

Competitors Conclusion

Focused on high-quality products with lower prices, Fuji managed to enter the

photography market successfully. Even with the difficulty of transitioning into the digital

age, Fuji has managed to persevere when compared to Kodak, which has not.

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 6.2. Digital Era

The beginning of the digital era actually started in 1975 when Steven Sasson, an engineer

working for Kodak, developed the first digital camera. The camera was very large and

heavy, and it used cassette tapes to save the token image, which took around 23 seconds

to capture (McAlone, 2015).

According to Richard Hess, Kodak reacted unexpectedly. Steven J. Sasson stated: “My

prototype was as a toaster, but the technical people loved it. But it was filmless

photography, so management’s reaction was, that’s cute, but don’t tell anyone about it.”

(Hess, 2014).

The development of the first digital camera was just a side project for the Kodak company

and taking into account the number of sales from roll film, taking step towards digital

cameras seemed like an incorrect and unnecessary decision to Kodak management.

The invention of this first digital camera was a very big deal for the development of

Kodak–mostly for the engineers who saw the potential of this product. When Steven

Sasson presented the camera to the management of Kodak, he knew everything about the

technical parts and the composition of the camera. However, those managers asked

completely different types of questions concerning the impact of the camera, asking why

people would want to show pictures on televisions, how would these pictures be stored

and other similar questions that Sasson was not able to answer (KodakTube, 2008).

The interview Sasson made for Kodak Tube had several important messages. One of the

messages pointed out by Sasson was:

If I look back over the thirty years, as much as we thought things would happen,

so much more happened. Anytime you are inventing anything, look at your

invention, but realize that the rest of the world is inventing along with you.

(Sasson, 2008)

40
Even though Kodak did not invest in digitalization at the time, the technology developed

by Sasson was declared as a patent with the U.S. Patent No. 4132919, and it was titled as

an electronic still camera. This step enabled Kodak to gain revenue from this technology

from other companies that demanded their technology (Brachman, 2017).

There was a gap between the first digital camera development by Kodak and later cameras

from competitors. In 1988, Fuji came up with a digital camera as well. However, it was

more sophisticated and better developed. Then the digitalization occurred through many

brands from Nikon to Canon to Apple. The photo industry had been shifting rather

quickly towards the impending digital future until 2007 when Apple revealed the first

iPhone, which definitively moved the photo industry towards the digital age (Bhatia,

2019).

(Lucas, H., & Goh, J. How Kodak missed the digital photography revolution)

The digitalization of the photography world continued growing rapidly. Most of the

photography market was able to adapt and adjust to this era with the development of

digital cameras. The general opinion of the public is that Kodak did not invest in digital

technology, which led to its bankruptcy. But the fact of the matter is that Kodak was the

leader of digital camera sales in the United States in 2005. The sales of Kodak digital

cameras in 2005 in the United States increased by 21% to 28 million together with a

market share that increased from 21% in 2004 to 24,9% in2005. However, even though

41
Kodak produced digital cameras, it was just a side project of the company for a long time.

(N.D., 2006)

Kodak Processes Before Digitalization

Picture capture Picture process Print service

Film sale Retailers films processing Printing

Camera sale

This chart shows the power of Kodak's nearly total control of the entire process of film

development in the traditional photography market. Kodak covered this process

systematically from beginning to end as a result of a perfectly structured company, which

led to market domination for many continuous years. Kodak managed to cover all

necessary photographic processes. This strategy forced people to engage in the repetition

of this process. This repeated process of capture imaging meant that Kodak had

permanent revenue from every step of the process (Mendes, 2016).

Processes After Digitalization

Digitalization brought completely new processes to photography beginning with the

technology of capturing an image, to software and online services for image processing,

to saving images on storage devices, to a final choice of processes beginning from

printing an image to sending the image in digital form. Customers now had many more

options and the process of photography had become much simpler compared to the

processes surrounding roll films.

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 (Gavetti, Henderson, & Giorgi, 2004)

Kodak tried to adapt to the digital era, but the Razor Blade strategy within the company

held the organization back from a potential rise in this new era. The company was used

to dominating the market in the photo-oriented process. However, with the advent of

digitalization, completely new processes were invented, processes wherein Kodak was a

beginner and did not have the new skills required (Gavetti, Henderson, & Giorgi, 2004).

After the digital era started to spread throughout the market, Kodak finally made a good

strategic acquisition in 2001 when they bought Ofoto, an online photo-sharing site. There

was real potential in this online platform. However, Kodak unwisely used this site to try

to convince people to print their photos. Ofoto needed to be sold when the company filed

for bankruptcy in 2012 (Scott, 2017).

Digital Era Conclusion

Kodak was the established leader in the photographic market for several continuous

decades, a reign that strengthened the market position of the company. The original roll

film photography was the area where Kodak dominated and the area in which Kodak

employees were leading industry professionals and experts. Digitalization changed the

rules of the game, and even though Kodak eventually tried to adapt, their strategy to

43
continue with roll film sales and production had weakened the digital possibilities of the

company. It cannot be said that Kodak underestimated the R&D because they invented

the digital camera. However, management’s approach towards new technology was rather

skeptical, which slowed down digitalization within Kodak at a critical juncture. It would

have been interesting to see what would have happened if Kodak had fully invested in

digital technology in 1975, and gained the “first-mover advantage” in the digital market.

7. Bankruptcy

As a result of the market situation and the financial reports of the company, Kodak filed

for Chapter 11 bankruptcy protection in January 2012 with the statement that the

company would stop producing and selling digital cameras and from then on would be

focused on printing and digital imaging markets. This protection put Kodak in a better

situation in terms of loans to creditors (Grant, 2016).

8. Kodak Company after Bankruptcy

Kodak has been trying to get reclaim its stature in the market. However, following the

bankruptcy, the share price of Kodak steadily decreased until the recent announcement

and Kodak company transformation.

(Eastman Kodak Company (KODK) Interactive Stock Chart, 2020)

The sharp rise of Kodak shares happened as a result of Kodak’s announcement to open a

new division called Kodak Pharmaceuticals with the goal of helping to defeat Covid-19.

According to Jim Contineza, executive chairman: “Kodak is proud to be a part of

44
strengthening America's self-sufficiency in producing the key pharmaceutical ingredients

we need to keep our citizens safe” (BBC, 2020).

Kodak has now made a decision that could lead to a potential breakthrough and the

resurrection of a fallen giant.

9. Lessons Other Businesses Can Learn from Kodak’s Failure

Kodak’s failure is commonly used as an example of businesses should not operate. Kodak

was not the only giant corporation that dramatically lost its market position and fell into

near obscurity. Nokia or BlackBerry would be similar cases. In all these cases, The Life

Cycle of Product would be applicable in a slightly different form. Just as Kodak’s life

cycle was focused on roll film, Nokia’s case would center around the software running

on their devices that would fail the process of the product life cycle.

Nowadays, with technology moving forward faster than ever before, companies should

learn from these past mistakes to prevent potential failures. The case of Kodak serves as

an excellent cautionary tale. 5G is about to permeate the world. Artificial intelligence is

developing rapidly. Internet connectivity (deemed a human right by the United Nations)

will be soon available everywhere in the world. All those aspects could potentially bring

new opportunities for many companies, but on the other hand, it could also harm

companies just as digitalization harmed Kodak.

10. Conclusion / Discussion

The failure of Kodak resulted from a combination of several incorrect steps that will be

now summarized in chronological order.

1. The analysis of Life Cycle of Product showed that Kodak relied too heavily on

roll film sales, and that management wanted to prolong this photography method

longer than was actually healthy from the perspective of the Life Cycle Theory.

45
 2. The Porter’s Five Forces analysis found that the combination of new product

substitution and power of customers were threats that caused the downfall of

Kodak. The digitalization era brought many new products from a variety of

companies. Customers were given more options to choose from, which made it

hard for Kodak to keep up.

3. The SWOT analysis found that Kodak has focused for a long time on roll film

production even though the opportunities to invest in digital technology were

there, they were not recognized early enough. When Kodak finally invested in

digital photography, management was not adequately convinced of its

importance. Therefore, they tried to hedge by pushing technology in conjunction

with printing, which was, at that time, profitable and missed the fact, that printing

digital images is not desirable or sustainable for customers. These incorrect

decisions combined with the success of competitors like Fuji Film led to Kodak’s

market share drop.

4. Financial analysis through calculated ratios projected Kodak’s inability to

generate enough profit to cover all the company’s necessary liabilities. Kodak has

invested in printing, in an online photo-sharing platform, in digital imaging, but

the profitability of these segments was simply not sufficient. This financial

analysis has shown that Kodak could not effectively operate with all its assets and

investments.

These major mistakes combined led to Kodak’s bankruptcy in 2012.

11. Appendices

History of Photography

Since prehistoric times, there has existed a need for the earliest peoples to graphically

record events, such as hunters-gatherers drawings on cave walls. Efforts to capture the

46
surrounding images of life have improved over time. Various background materials such

as wood, leather, clay plates began to be used. In ancient Egypt, there was an invention

called papyrus, which is considered to be the precursor to today's paper. This paper began

to be used not only for recording text but also for artistic paintings. The painting, which

was both lengthy and costly, was eventually replaced by a photograph.

The first real photograph was created by a Frenchman named Joseph Nicéphore Niepce.

Niepce was inspired by Enefelder's lithograph. Solnhofen limestone was needed for

printing. He tried to replace it with a stone that he used on various substances to help with

the camera baseline. In 1822, Niepce created the first known photograph of Pope Pius

VII, using a glass plate sensitive to a layer of natural asphalt that was washed down with

a mixture of kerosene and lavender oil. However, this photograph was destroyed. In 1827,

he followed up his success by making the heliographic film "View from the Window at

Le Gras", which entered history as the first preserved photograph in the world. The image

created on a tin plate covered with lavender was exposed for over eight hours. Niepce

began replacing the lithographic stone with other washers such as glass, copper, zinc and

silver. This innovation led to the launch of other inventions that led to the development

of the photograph we know today. 3. (Ševelová & Tichá, 2007)

Nicéphore Niépce (1827)

In 1837, Frenchman Louis Jacques Mandé Daguerre came up with the discovery of

daguerrotypes – a technique that allows one to get a sharper photo in minutes. The

47
principle of the creation of the photo was the heating of a silver-plated plate under the

action of mercury vapors, which after lighting creates an image (Ševelová & Tichá 2007).

On August 19, 1939, the invention of daguerreotypes was given over from the hands of

the French Academy of Sciences to the public. This day went down in history as World

Photography Day (Pikous, n.d.).

This requirement was removed in 1871 by the invention of the bromo silver negative,

known as the “dry process”. Photographs made in this way could be produced industrially

and, moreover, kept for later use. However, the bromosil silver negative did not enjoy

much popularity at first, as the collochia negatives achieved a higher quality of

fabrication. George Eastman contributed to the improvement of the technology of the use

of bromo-silver plates in 1880. However, the plate needed to be replaced after each slide.

Hannibal Goodwin solved the situation by inventing film as a new photographic

background material. Eastman used this innovation to make scroll films. This is when the

mass spread of black-and-white photos begins. In 1888, the Eastman Dry Plate Company

of the Rochester, New York came up with the production of the first Kodak cameras using

these scroll papers (Ševelová & Tichá, 2007).

48
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