I and people of my generation remember Kodak as an iconic rock-solid business that represented the brilliance and ingenuity of American capitalism. After all, from an early age, we used Kodak cameras and loaded our cameras with Kodak film. I still remember receiving a Kodak Instamatic as a birthday gift. Any memory that was worth remembering was referred to as a “Kodak moment.” We visited amusement parks where Kodak booths and shelves full of Kodak film were everywhere. So what happened? Why is Kodak once again in the news and what lessons can business people learn from the failed Kodak model?
I have always believed that had Kodak smelled the coffee and taken advantage of their edge in technology, particularly in digital, they could have been the Apple today and Apple might never have been what it is. A Forbes article put it this way: “Kodak was so blinded by its success that it completely missed the rise of digital technologies.” It should be a lesson for all businesses who are on cruise control and miss out on opportunities. They often fail to hear the drums of the oncoming competition and innovationin the industry in general believing that they will always be in the leadership position that they are in. Imagine where they would have been if they developed digital technology to the next level and came out with a phone/camera. Kodak’s management in the 80’s and 90’s was unwilling to consider digital as a replacement for film. This decision was not only flawed but as it turned out fatal.
The executives at Kodak knew fully well that the world was moving to digital but they were so enamored with their own success that they believed that they were best at staying the course and sticking to their core business of film. It reminds me of a manufacturer of typewriter ribbons who dismissed the oncoming generation of computers as a passing fad. It was easy for successive Kodak CEO’s to simply blame the company’s debacle on theirpredecessors.
In 1976, Kodak had an 85% market share in cameras and a 90% market share in film. In less than a half centurythey went from being one of the charm bracelets of American business to the poster boys for failed business models.
After bankruptcy in 2012 and many other failed attempts since, Kodak recently announced that they were going into the pharmaceutical business, where they now say they have been all along because of the chemicals they sold for film developing. As early as 1988, Kodak bought Sterling Drug for $5.1 billion but soon learned that chemically treated photo paper isn’t really the same as hormonal agents and cardiovascular drugs. It sold Sterling in pieces, for about half of the original purchase price.
In January 2013, the Bankruptcy Court approved financing for Kodak to help it emerge from bankruptcy by mid-2013. It also sold many of its patents for approximately $525 millionto a group of companies (including Apple, Google, Facebook, Amazon, Microsoft, Samsung, Adobe Systems, and HTC) under the names Intellectual Ventures and RPX Corporation. On September 3, 2013, the company emerged from bankruptcy having shed its large legacy liabilities and exited several businesses. Personalized Imaging and Document Imaging are now part of Kodak Alaris, a separate company owned by the UK-based Kodak Pension Plan.So here was Kodak without a real identity, other than its ability to boast of a glorious past.
So the next opportunity recently came knocking on Kodak’s doors: the COVID-19 pandemic. Kodak announced it would begin production of pharmaceutical materials. Like in 1988, they are again justifying their incursion into pharmaceuticals, this time touting their manufacturing capacity. It was perfect timing as the Trump administration agreed to a $765 million government loan to launch a new division called Kodak Pharmaceuticals, which was to eventually produce as much as 25% of the active ingredients for generic medications in the United States. The deal helped fulfill a key Trump administration priority to reduce dependence on foreign production of drugs and other crucial products.
Kodak CEO Jim Continenza called its new chemical business “the heart of who we are,“just like they did in 1988 when they bought a failed drug company and reasoned that it was a “natural” acquisition for them. Following the news, Kodak’s stock surged a whopping 530% in about 5 days. Kodak’s stock rose so fast it tripped 20 circuit breakers in a single day. But then the other shoe dropped on Kodak as the company was accused of wrongdoing, launching an SEC investigation. Eastman Kodak shares plummeted after the government put the brakes on the pending deal that would help it produce generic drug ingredients.
Apparently on July 27, a day before the loan was officially announced, more than 1 million shares of Kodak stock exchanged hands, roughly quadruple its daily average, according to Senator Elizabeth Warren, who exposed the possible wrongdoing. She also noted that shortly before the announcement, Kodak Executive Chairman James Continenza bought about 46,700 shares, although Continenza regularly purchased Kodak stock since joining the company in 2013, the company said, and has not sold any of it.
Kodak officials are still hopeful that they will be exonerated and that they will be in a perfect strategic position to produce pharmaceuticals at a time when the US must diminish its foreign independence. In the meantime, its nail-biting time for Kodak as it once again faces a crossroads of where to go in the future. It all goes back to the fateful decision not to move away from filmand to expand the digital business. Sometimes businesses make decisions that impact their future and there seems no escape from the bad decisions that were made.
For businesses there’s much to be learned from the Kodak debacle. For one, being on top of consumer demands and trends is key. It is critical to pay attention to competition and to try to be ahead of the curve by anticipating future trends. Turning a blind eye to the realities of an industry is a prescription for disaster.
Although Kodak officials no doubt evaluated their business from time to time, they failed to appreciate that the brand is only as good as its success. They seemed to feel that their brand was so strong that they would overcome any changes in the industry. For example, they successfully weathered the challenge of Polaroid with its instant photos.
Their willingness to switch focus to pharmaceuticals is not a bad thing and some businesses should also explore venturing into other opportunities, but relying on the government to create the business might just be their most recent undoing. Kodak is a business story that will long be studied but hopefully the lessons to be learned will not be lost on a new generation of businesses.