Post on 29-Nov-2014
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Christian Sandström holds a PhD from Chalmers University of Technology, Sweden. He writes and speaks about disruptive innovation and technological change.
Before digital imaging, Eastman Kodak had been a rising star for a century.
Kodak had popularized
photography and made it accessible, user-friendly and
affordable.
Digital imaging was the next revolution.
In the early 1990s, Kodak tried to make predictions regarding the diffusion of the new technology.
Back in 1985, Kodak founded the ’Technical Intelligence Group’ which primarily dealt with such issues as the substitution of film by digital imaging.
Digital imaging had been hyped back in the 1980s but no major commercial breakthrough had been
accomplished yet.
In 1994, the group had come up with a technology substitution forecast.
Under the direction of Terry Faulkner, Tone Kelly had made a forecast which was based
upon the logic of an S-curve.
History has shown that new technologies and products tend to be
diffused at an initially low pace…
As the technology becomes more widely known and the performance reaches sufficient levels the pace increases…
… And eventually the growth slows down as the market starts to mature.
Based upon this logic and a careful analysis, Faulkner and Kelly concluded
in 1994 that 50 percent of the market would be digital in 2004.
This forecast turned out to be remarkably accurate (it actually
happened in 2003).
For a company that made virtually all its profits on film, this wasn’t good news.
When the forecast was
presented to top management it
wasn’t well received by everyone.
Some of them referred to the large installed
base of cameras and others
pointed at the growth
opportunities related to emerging markets.
One can understand people who did not want to believe in these
estimates…
The implications were huge for a company like Kodak who made virtually
all profits on film.
The value of being vertically integrated
would be lost.
The competence base related to film would be rendered obsolete.
The figures basically suggested that Kodak would be burning in ten years,
unless the entire company was changed.
Frightening.
While far from everyone was convinced, both the CFO Harry Kavetas (though not publicly) and the
CEO George Fisher believed in the forecast.
With this information in your hands, what would you do on Monday?
Fisher and Kavetas thought that Kodak had always been about film and that transforming
the entire company in less than a decade would be very difficult.
They therefore tried to sell the company.
Having started at Kodak in 1961, Faulkner now became director of Strategic Initiatives in 1995
reporting to George Fisher.
His main job was to find potential buyers or companies that could merge with Kodak and to provide Fisher and Kavetas with talking points.
Some of the companies that were approached declined after the first meeting…
… Canon…
… and Motorola.
A potential merger with Xerox was
discussed in January 1996,
but did not lead anywhere.
The discussions were renewed in 1997, but nothing
happened.
Faulkner thought that a merger with HP would have been the ideal solution.
In May 1997, Fisher met with Lew Platt of HP.
The discussions resulted in a joint venture…
… but not more than that.
After having lost this opportunity it became increasingly difficult to find a potential partner.
Kodak became increasingly desperate and even Gillette was approached with a proposal…
Proctor & Gamble did not want to marry
Kodak either.
Persuading these companies to merge with Kodak must have been quite a rhetorical
challenge…
… Faulkner became increasingly frustrated and the last two efforts had seemed very far
fetched…
Having had virtually no vacation for two years and worked very hard he eventually opted for
early retirement in late 1998.
Digital revolutions tend to put companies as well as people in troublesome situations.
Eventually, Kodak never merged with anyone and had to go through the revolution on its own.
Thanks to:
Terry Faulkner