The Untold Story Behind Kodak’s Bankruptcy

Kodak, once the king of photography, saw its glory days fade in the digital age. While many historians point to the shift towards digital technology as the primary cause of Kodak’s downfall, the underlying reasons behind this transition and the role of the 'core competency' theory are far more complex and pivotal. This article delves into the critical decisions and business maneuvers that eventually led to Kodak’s bankruptcy, shedding light on the crucial role of Eastman Chemical and the neglect of Kodak’s true breadwinners.

From Photography to Chemicals

Eastman Kodak Company, founded in 1892 as a manufacturer of photographic products, began to diversify into various chemical and industrial sectors by the early 20th century. By the 1920s, Kodak had recognized the benefits of manufacturing all the necessary chemicals in-house, leading to the establishment of Tennessee Eastman, which later evolved into Eastman Chemical. This division became a cornerstone of Kodak's profit structure, producing a wide range of chemicals essential for numerous industries, including explosives, pharmaceuticals, and textiles. Notably, Eastman Chemical played an integral role in the production of materials used in the U.S. nuclear arsenal.

In the 1960s, Kodak's innovation yielded another significant commercial success with the introduction of Kodel, a high-quality polyester fiber. This invention proved to be highly sought-after and was extensively utilized in cigarette filters and other industrial applications. Additionally, Kodak's gelatin production division, based in Massachusetts, supplied high-purity gelatine to the pharmaceutical industry, with Kodak becoming a major supplier of pharmaceutical-grade gelatine used in drug capsules.

The Core Competency Theory and Its Impact

The 'core competency' theory, which gained popularity in the 1990s, emphasized the importance of identifying a company's key strengths and leveraging them to enhance performance and profitability. In the case of Kodak, the core competency theory led to a set of misdirected business decisions. Key executives at Kodak were advised to divest of non-core competency businesses, such as Eastman Chemical and the gelatin division, despite these being major profit generators.

By the mid-1990s, the board decided to focus Kodak entirely on its imaging business, leading to the sale of Eastman Chemical and the gelatin division. This transition was believed to streamline Kodak's operations and focus on its core competency in imaging. However, the decision to sell off these high-profit segments proved to be a critical mistake. These spin-offs resulted in a significant loss of revenue and profitability for Kodak, as these divisions were the primary sources of its earnings.

The Impact on Kodak’s Profitability

The revenue from the sale of chemicals and fibers, which were essential for both traditional and digital imaging, was crucial to Kodak's financial health. By discontinuing these profitable operations, Kodak left itself vulnerable to the rapidly evolving digital landscape. Although Kodak did not lag in the transition to digital technology, the emphasis on maintaining a purely imaging company led to the neglect of the vital revenue streams from chemicals and fibers.

Add to this the challenge posed by the digital photography market. Despite inventing the digital camera, Kodak’s lack of focus on core chemicals and fibers hindered its ability to fully capitalise on the growing demand for digital imaging solutions. The fact that they were not leveraging these segments to support their digital imaging business weakened their overall position in the market.

Kodak’s Evolution and Current Status

Today, Kodak has shifted its focus to high-volume, low-margin industrial printing solutions, particularly in inkjet printing. Hewlett-Packard, a major competitor in this market, represents Kodak’s primary rival in this segment.

This evolution has marked a significant shift for Kodak, highlighting the challenges of adapting to changing market dynamics and the importance of maintaining a balanced portfolio of core competencies.