The Downfall of Eastman Kodak: Core Competency Theory Misapplied
Eastman Kodak, a household name for decades as a pioneer in photography and chemical manufacturing, fell into bankruptcy due to a critical misapplication of core competency theory. This article explores the factors leading to Kodak's downfall and whether the company's trajectory could have been altered.
A Historical Overview of Eastman Kodak
Founded in 1892, Eastman Kodak was initially a maker of photographic products. By the 1920s, Kodak had expanded its operations to include the production of all the chemicals needed for photography and other industries. This led to the establishment of Tennessee Eastman, which later became Eastman Chemical, a major player in the chemical industry. Eastman Chemical manufactured a wide range of products, from explosives used in nuclear weapons to cellulose fibers, making Kodak a significant player in both the photography and chemical sectors.
In the 1960s, Kodak made a significant technological breakthrough by inventing Kodel, a polyester fiber. Kodel became highly sought after due to its excellent properties, particularly for use in cigarette filters. Additionally, Kodak's high-purity gelatine was a critical component in pharmaceutical manufacturing, including the production of drug capsules.
The Misapplication of Core Competency Theory
The company experienced a turning point in the 1990s when it was advised to adopt core competency theory. This theory posits that core competencies are central resources, skills, and capabilities that allow a company to create unique value. However, this approach was misapplied by suggesting that Kodak should spin off its non-core-competency businesses, such as Eastman Chemical and its gelatine company. This decision was made without a full understanding of Kodak's core competencies.
Following this advice, Eastman Kodak sold off Eastman Chemical and its gelatine operation, which were the most profitable parts of the company. By focusing solely on its imaging products, Kodak intended to maintain its position as a leader in the photography market. However, this strategy inadvertently hollowed out the company's revenue base, leaving it vulnerable to technological shifts, most notably the rise of digital photography.
The Impact on Kodak's Business Model
The revenue from traditional film-based photo products declined as consumers increasingly turned to digital solutions. Despite Kodak's inventions in digital imaging, including the production of camera sensors and popular digital camera lines, the company's core chemical and fiber businesses were no longer generating the same levels of profit.
Moreover, Kodak's emphasis on imaging also affected other complementary revenue streams. For example, the sale of printing plates and copiers, which Kodak had acquired through strategic mergers, failed to compensate for the losses in chemical and fiber revenues. Kodak's core imaging business was further impacted by the success of industry competitors who were better positioned to adapt to digital technology.
Ironically, the digital revolution that was seen as a threat to Kodak also provided opportunities, such as the rise of massive inkjet printing presses. However, even in this market, Kodak faced stiff competition from established players like HP, highlighting the broader challenges the company faced.
Could Kodak Have Been Saved?
The misapplication of core competency theory by Kodak's leadership was a critical factor in the company's decline. However, the question remains: could Kodak have avoided bankruptcy with a more strategic approach?
A more comprehensive understanding of Kodak's diverse revenue streams and core competencies could have led to a more balanced business strategy. Emphasizing the continued importance of its chemical and fiber operations, while also investing in digital technologies, might have allowed Kodak to weather the technological shifts more effectively.
Additionally, a more proactive approach to innovation and collaboration with technological leaders in the digital space could have helped Kodak remain a competitive player in the photography industry. Failing to do so, the company stagnated, allowing its competitors to seize market opportunities.
Conclusion
The bankruptcy of Eastman Kodak serves as a cautionary tale about the importance of a balanced business strategy and a deeper understanding of core competencies. By misapplying core competency theory and overlooking the significance of its chemical and fiber operations, Kodak lost its footing in the rapidly changing photography industry. While the digital revolution posed significant challenges, a more strategic approach could have potentially saved the company.