Contents
Kodak is often cited as an example of a company that slept through change. That is only half true. Kodak did not sleep through the change; Kodak invented it in its own lab and predicted it in its own studies. Something else was missing. Sun Tzu warns that if you know only one side, you will win and lose in turn. Kodak shows how costly it becomes when you misjudge yourself. An example of the principle “Know the Enemy and Yourself”.
A world market leader
Situation
For decades, Eastman Kodak is the dominant photography brand in the United States. Its business is based on film, chemicals and photo paper. Cameras are cheap; the money is made on every roll of film that is developed and every picture that is printed.
Link to the principle
Such a successful business model shapes a company’s self-image. If you have been winning with one thing for decades, you easily come to think that this thing is who you are. This is exactly where the problem of self-knowledge begins.
The invention in its own house
Situation
In 1975 the young Kodak engineer Steven Sasson builds an electronic camera on behalf of his supervisor, Gareth A. Lloyd. It weighs about 3.6 kilograms, takes black-and-white pictures of 100 by 100 pixels and stores each picture on a cassette in 23 seconds. The pictures are shown on a television. Sasson demonstrates the camera to several executives. As he later recalls, they doubt that anyone will want to look at photos on a television when prints have been cheap and popular for more than a hundred years.
Link to the principle
Kodak knows the new technology better than any competitor. But management judges it by the standard of its own business. If you look at the opponent only through the lens of your past strengths, you underestimate it.
The 1981 study
Situation
In 1981 Sony unveils an electronic camera. According to the strategy consultant Chunka Mui, a major photo retailer asks Kodak whether there is cause for concern. Vince Barabba, head of market research, then compares film and digital technology with the backing of top management. The result: digital photography can replace the film business, but Kodak has about 10 years to prepare.
Link to the principle
Its knowledge of the opponent is astonishingly good. The study names the danger and even the time frame. What follows is no longer a problem of knowledge but a problem of self-assessment: what are we if film disappears?
Naming the wrong enemy
Situation
According to Mui, in the years that follow Kodak uses digital technology mainly to prop up film, chemicals and paper. In the mid-1980s, Kodak’s labs develop the first megapixel sensor. In 1996 Kodak launches the Advantix system, a digital preview that still requires film. The project costs more than $500 million and is almost entirely written off. George Fisher, CEO since 1993, tells The New York Times in 1999, in essence, that Kodak long regarded digital photography as the enemy.
Link to the principle
Kodak gets its opponent wrong. The real competitor is not the new technology but anyone who captures memories faster and more cheaply. Had Kodak seen itself as a company for pictures rather than for film, the digital camera would have been an opportunity.
The end and a comparison
Situation
On January 19, 2012, Eastman Kodak files for bankruptcy under U.S. law and emerges in September 2013 as a smaller company. Its Japanese competitor Fujifilm faced the same upheaval. It used the profits from its film business to invest in other fields, including medical technology and cosmetics.
Link to the principle
Both companies saw the same opponent coming. The difference lay in self-knowledge: Fujifilm asked what capabilities it had beyond film. Kodak clung to what had made it big.
Key takeaways
Key lessons
- Don’t just ask what the competition can do; ask what you are beyond your current business.
- Don’t judge something new by the standard of your old success.
- If your own study sounds the alarm, act while there is still time.
- Name the real opponent, not the most convenient one.
- Use today’s profits for tomorrow’s capabilities.
Summary
Kodak knew digital photography earlier than anyone else: it had built the first camera and predicted the upheaval in a study of its own. The company failed because of the other half of the principle. It saw itself as a film manufacturer, treated the new technology as an enemy and thereby lost a decade’s head start. Fujifilm shows that the same upheaval could be survived with better self-knowledge.
Sources
- Sun Tzu: The Art of War, Chapter 3. China, c. 5th century BC.
