Natalya Vinokurova on What Happened to Kodak?

In this episode of Lehigh University’s College of Business ilLUminate podcast, we are talking with Natalya Vinokurova about how the rise and fall of Kodak is a prime example of a once dominant company that failed to navigate a turbulent period of technology transition. 

Vinokurova is an associate professor of management at Lehigh's College of Business. Her research focuses on understanding problems of innovation diffusion, or why some good ideas fail to spread while some bad ideas are widely disseminated.

Vinokurova spoke with Jack Croft, host of the ilLUminate podcast. Listen to the podcast here and subscribe and download Lehigh Business on Apple Podcasts  or wherever you get your podcasts.

Below is an edited excerpt from that conversation. Read the complete podcast transcript [PDF].

Editor’s Note: After detailing the many technological and business innovations and breakthroughs Kodak made throughout the 20^th century, including how the company invested in digital technology over the second half of the century, Vinokurova discusses the company’s downfall and lessons learned. 

Jack Croft: It seems like one of the key moments for Kodak was its decision to invest heavily in inkjet printing after, as you say, decades of investing heavily in digital imaging that still did not seem on the verge of having a market. So how did their investment in inkjet printing—again, with this idea that that was the future, people would be printing their own images at home—how did that go so wrong for them? And what effect did the advent of smartphones with the large screens and high-resolution cameras have on Kodak's business model?

Natalya Vinokurova: To be very clear, by 1999, digital cameras do take off. But by that point, there are lots of competitors in this space. So the only way you could make money in this business is it wasn't enough to have top market share, you had to have a dominant market share to make money. And absolutely nobody makes money because you have tens of dozens of competitors in the digital camera space. 

For Kodak, Willy Shih, who is now at the Harvard Business School, leads a division that commercializes digital cameras. And one of Willy's brilliant breakthroughs was to charge royalties on the patents Kodak had generated along the way. So if you are a manufacturer who is trying to get into digital cameras, Kodak people will come to you and say, "OK, well, did you know that we hold all these patents and you have to pay us a licensing fee?" 

Despite that kind of genius, the fundamental dynamics of the industry for standalone digital cameras were such that it was barely breaking even. And so Kodak is sitting there and they need to figure out what to do. And they see HP making a lot of money on inkjet printing. 

And by the way, Kodak, as part of its R&D investment in multiple technologies, was investing in R&D and had a number of projects, including partnering with HP, as far back as the 1980s. So this is not like a sudden, "We woke up one morning and we'll do inkjet printing," but this is this idea that, "If digital cameras enable more people to take pictures, then they're going to print these pictures. So we might as well have a part of that pie."

And as you previewed, the unfortunate thing about Kodak timing is that Kodak comes out with its first printer in 2007, consumer-oriented printer. And the idea they had is they would charge half the amount of what HP was charging for its inks and still make a lot of money. 

The unfortunate thing about their timing is the same year as they come out with their inkjet printer, Steve Jobs introduces the first iPhone. And the smartphones don't just get rid of the need of us to have digital cameras. They also obviate the need for us to print them in order to share them or to view them.

And it's one of these interesting pieces where it's not like Kodak didn't see smartphones coming. There are folks at Stanford who wrote this wonderful piece about how Kodak anticipated Facebook and Instagram back in 1996, almost 10 years before Facebook was launched. 

The problem is they had no way of making it from the future they saw to the future they saw from their starting point. And so this is the story of Kodak where they invented a lot of these technologies. They anticipated a lot of the technologies. But as a company, they couldn't cross over from space A to space B. And in part, we think this had to do with the uncertainty about the timing of adoption of digital photography. 

And part of that uncertainty stemmed from all the other pieces of the ecosystem that needed to come together. Personal computers had to become more powerful. Printers had to become faster. All the wireless technology had to become faster. In the 1990s, I think it's easy to forget that printing a single digital image took 10 minutes, an 8 by 10, if you wanted to print it in color. 

And so I think for Kodak, it's a combination of seeing things coming, but not knowing when they will come that made managing this transition particularly difficult.

Croft: The transition or, I guess I should say, the downfall happened relatively quickly for a company that had led in innovation for so much of the previous century. I mean, by early 2012, Kodak was in bankruptcy. You've called it a canonical example of a company that failed in the face of technology transition. And based on your research, it seems obvious that they did a lot of things right, and they tried to do other things right. So I'm wondering, what lessons do you see that other companies that now hold leading market positions in what is a highly competitive and almost constantly disruptive field of high-tech today, what can they do to avoid the same fate?

Vinokurova: I agree with you that [the} Kodak story is so relevant to companies today, whether in high tech as they're facing AI or for car manufacturers, the future looked like it was hybrid and maybe electric and maybe hybrid again. So a lot of companies are dealing with these issues of uncertainty, around the timing of the adoption. 

And I think the other thing that makes it harder for the leadership of these firms to make good choices is there are so many things that could-- there are so many potential futures that could realize. In Kodak's case, one of the things we didn't talk about that they did is they tried to diversify. They tried to diversify into copiers. They tried to diversify into pharmaceuticals as kind of alternatives of, "If I cannot win in this business, what do I diversify into?" 

And I think the lesson for the companies today is there isn't a silver bullet. And what's frustrating about the Kodak example is they followed a lot of the management literature's recommendations on what they should do. They invested in R&D, they explored new markets, they diversified, they brought in external executives. 

Part of the message of this [research] work is not necessarily, "Here's the recipe for how you do it differently." The message of this work is, "This is an important challenge faced by these companies." And the extent to which they experiment widely and try different things, that's really the only prescription we can offer.

But I think part of it is there is an organizational challenge of, imagine your CEO of a highly successful company comes to you and says, "Look, we need to make these investments. And by the way, they will be very expensive." Kodak was spending hundreds of millions of dollars a year. And the outcomes of them are uncertain. Having patience for those investments is one of the lessons.