The Kodak Moment

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How would you respond if electrical engineer, Steven Sasson, presented to you the first ever digital camera? Yes, the prototype may have weighed 3.6kg but the innovation itself was the foundation for such colossal digital development. Well, if you were CEO of Kodak, Walter Fallon, you would have put it on a dark shelf in the hopes no one would ever see it. Why? To avoid the maturity and decline of their film and print products, the core focus for the company in 1975. Fear of their existing market offerings becoming redundant spurred an unwillingness to cannibalise and in hindsight, one of the worst business decisions ever made, better known as ‘The Kodak Moment’.

Leading up to 1975, Kodak had all the makings of an innovative company. They had the size, the manpower, the motivation and the brains. What they lacked was good management decisions and the confidence to evolve. They faced this innate desire to preserve past inventions (Chandy & Tells, 1998), and their fear of cannibalisation left the door wide open for competitors to explore Kodak’s lost opportunities.

The development of the first digital camera

Harvard Business Review describes new product development in recent times as needing to take a holistic or ‘rugby’ approach – a process where the unified team throws the ball back and forth until the desired outcome is reached (Takeuchi & Nonako, 1986). This analogy shows that while product development generally follows a distinct path, it’s often not linear. After completing the idea generation, market potential estimation, concept testing, design and development and beta-testing, a company may go back to the design and development stage to further improve the product before re-testing and launching.

One of the issues for Kodak was the lack of structure in their product development process. Sasson was working on an alternative task when he unintentionally veered off course and saw an opportunity to create something great. There was no real pre-planning or brainstorming involved. Secondly, there was no market potential estimation done until after the camera had been developed; a step that could save a company huge amounts of time and money. Additionally, management shut it down before there could have been further development, beta testing and of course, a launch. Steven Sasson described the reaction to film-less photography as being something similar to ‘that’s cute but don’t tell anyone about it‘.

But even if unintentional, the top down approach to product development was loosely followed.

Research and the product life cycle

Kodak was concerned with both the adoption rate of the digital camera as well as the rate at which film would move into the decline stage. So what Kodak did do was undertake in-depth research into the diffusion of innovation curve, which estimated the potential adoption rate of this new digital camera. But unlike well planned and thought-through product developments, this research was done after the product had been developed. Research showed that due to the high cost of materials required to manufacture the product, the high level of risk in purchasing such a unSteve-Sasson-with-the-first-ever-digital-camera-he-invented-for-Kodak_140814ique product and the quality of the digital image (in 1975, it was 1 megapixel), adoption would be slow (Tran, 2014). The curve would show a slow incline with high-income risk takers getting on board but significant adoption not pushing the product into the growth stage for around 10 years. But still, even with ten years up their sleeve to evolve, re adjust their business model and master the product, their concern was not about satisfying consumers or the long-term benefits of being first to market, it was about the impact introducing a digital camera would have on existing offerings. Kodak had the opportunity to be a unified team throwing the ball back and forth for 10 years – they missed this opportunity.

In 1975 Kodak’s film and print products were in the maturity stage, having been available for 87 years. Fallon’s fear was that introducing digital cameras would instantly and prematurely force film into decline, tearing down everything Kodak knew, even though research said otherwise.

What were the consequences?

In 1991, Kodak’s biggest competitor, Fuji, introduced the first digital camera to the market. By this stage, consumers were ready, they were better educated and the product was streamlined, it was cheaper and developed well enough for adoption to be rapid. Kodak’s film products stopped selling and market share plummeted. Kodak had 10 years to master the digital camera, to adapt their business to the market and become a leader in the digital world, but instead paved a path to success for their competitor, and even that didn’t prompt change.

In 1976 Kodak held 90 per cent of the market. In 2012 they filed for bankruptcy.

Kudos to Kodak for wanting to stay true to their original business model. Pity that’s not what doing business is about.

References:

Takeuchi. H, Nonako. Ikukiro (1986) The New New Product Development Game, Harvard Business Review, January 1986 Issue, https://hbr.org/1986/the-new-new-product-development-game, viewed April 24 2016.

Chandy. R, Tells. G (1998) Organizing for Radical Product Innovation: The overlooked role of willingness to cannibalise, Journal of Marketing Research, Vol 54, Issue 4, pp 474-487

Tran. T (2014) Consumer Understanding and New Product Adoption, Business journal of consumer marketing, issue 1, p. 5.

Danniella McGowen 216223021

 

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