UMD Business Experts Comment on Kodak and its Bankruptcy Filing

COLLEGE PARK, Md., Jan. 19, 2012 /PRNewswire-USNewswire/ -- With the Eastman Kodak Company filing for bankruptcy, the Robert H. Smith School of Business at the University of Maryland offers experts for related commentary. The Smith School has an in-house facility for live or taped interviews via fiber-optic line for television or multimedia content.

Kodak: Too Little, Too Late

Hank Lucas, the Robert H. Smith Professor of Information systems, has written the forthcoming book, Searching for Survival: Lessons from Disruptive Technologies (Praeger, June 2012). It includes a chapter (summarized below), "Kodak Misses its Moment."

Kodak is a tragic example of a company that had everything going for it, but was unable to cope when innovative digital technologies came along. Kodak's demise was brought about not by a single event, but as with many disasters, a series of conditions and events brought the company down. These include:

• Kodak's own invention of the digital camera in 1975.
• The firm's inability to understand that others flooding the market with digital cameras, combined with the Internet, changed the process by which people captured and shared images.
• The company's rigid bureaucratic structure prevented it from responding quickly to threats.
• Senior management was unable to convince middle managers to move away from their analog, chemical and film mindset.
• Management was distracted by foreign competition (e.g. Fuji) in film and a suit by Polaroid on instant photography.
• Kodak exhibited a certain amount of arrogance thinking that it could control the pace at which consumers converted from film to digital photography.
• The company wanted to protect its cash cow film business as long as possible.
• Over the years Kodak tried to diversify into unrelated fields and then pulled out .
• One hundred-plus years of success and a market share that at times exceeded 90 percent.

These factors led to skepticism about digital photography and denial of the threat to Kodak from digital technologies. Kodak appears to have never understood the Internet and digital technologies.

Current CEO, Antonio Perez, came from Hewlett Packard's printer division, and picked up on Kodak's research in this area to turn the company into a manufacturer of consumer and commercial printers while living off of its patent inventory. Unfortunately, this strategy has taken too long to work as Kodak has less than a three-percent market share of printers and is rapidly running out of cash. It is trying to sell its patent trove, which is a little like cutting off your arm as one analyst put it.

Now, Kodak has joined a growing list of companies like Blockbuster and Borders. For a these firms, the new business models based on technological innovations were well publicized, but the incumbents did not respond until too late, and then they were unable even to copy their competitors, much less come up with something more innovative themselves. Kodak's inability to respond to a digital world has been a disaster for its employees. In the 1980s the company employed 145,000 people around the world. Today that number is around 19,000, and with a bankruptcy filing imminent, their jobs are in jeopardy, as well.

What's a company to do? For Kodak, it may be all over at this point. In bankruptcy, Kodak can sell its patent portfolio, find a buyer for its printer business and liquidate. Hopefully Kodak's story will be a lesson for other companies confronted by technological innovations: You cannot wait, and your response must be bold.

Kodak Should Have Folded Earlier

Brent Goldfarb, associate professor of entrepreneurship and management, recently co-authored "Optimal Inertia: When Organizations Should Fail" recently in the journal Ecology and Strategy. He says Kodak is one such company that should have "failed," or closed down in an orderly fashion, instead of turning to bankruptcy. 

Goldfarb's position, detailed in this Smith YouTube Channel video (http://www.youtube.com/watch?v=xC8Zb_IALew), is summarized here:

Kodak has been faced with a particularly difficult problem. The production of film is a very sensitive process, and for this reason Kodak was a rigid organization – as small mistakes could have large consequences. This made the transition to digital costly. Ironically, Kodak was reasonably successful in their transition and quickly achieved a market leading position. The problem was that market leadership in a low-margin business is not a great prize. Kodak has not been a victim of poor management, rather, the poor circumstance of being on the wrong side of creative destruction; its fate largely unavoidable.

Instead of trying to pursue the digital photography market, (Kodak) would have been better off slowly shutting down while profiting as much as possible from the dying film market. While this is a terrible outcome for Kodak stakeholders, particularly employees, history did not treat the company kindly anyway. They might have been better off trying to provide enough resources to the employees being displaced and to those managing the shrinking enterprise so as to ensure continuity and thereby extracting as much profit as possible from the market. They could then return what's left to the shareholders, whose dividends are increased further with the company not plowing money back into research and development.  

CONTACT: Greg Muraski, +1-301-405-5283, [email protected]

SOURCE Robert H. Smith School of Business