Kodak

Blog

11 October 2017

In the second half of the last century, the American company Kodak held more than 90% of the U.S. market for photographic products. The company had managed to achieve this giant market share through a combination of technological innovation and savvy marketing. Kodak sold its cameras for next to nothing. It made its money by selling the film cassettes for these cameras. Thanks to its outstanding innovative strength, Kodak was able to design the world’s first digital camera in 1975 and patent the design in 1978. You would think that a bright future was guaranteed. Reality proved otherwise. In the digital era, the company was completely surpassed. Kodak was declared bankrupt in 2012. How could this have happened?

It’s a well-known phenomenon in the business world that being the market leader has its positive and negative sides. Of course it’s great to be the biggest, the strongest and the richest. Paradoxically, a market leader is always in a vulnerable position as well. There are several reasons for this vulnerability. Its competitors are copying the things that it does well. They imitate this without it costing them a thing. Its competitors are continually trying to chip away at its market share. The market leader can only lose market share and will hardly or not be able to increase it. Its smaller competitors can become bigger, whereas the market leader can only get smaller. These examples of vulnerability are external.

Much more dangerous is the internal vulnerability. It manifests itself in at least three ways. Self-importance (“We are the best!”), complacency (“It’s fine as it is, isn’t it?”) and self-overestimation (“We’re too big to ever go down.”). This disastrous trio is what ruined Kodak too. The company made such enormous amounts of money with its highly successful production and marketing strategy that it hesitated too long to bring its own invention, digital photography, to the market. It was making money selling rolls of film, wasn’t it? Why would you endanger that steady income stream by competing against yourself with a new product? Why would you kill the goose that lays the golden eggs? The company consciously put its technological potential on the backburner for 20 years. In the end that became Kodak’s downfall.

“There are dozens of other examples of companies that in a similar way, by putting on the brakes, did not survive the digital revolution. What lessons can be learned from this by directors and supervisory board members of successful companies? First of all, be vigilant. ”

There are dozens of other examples of companies that in a similar way, by putting on the brakes, did not survive the digital revolution. What lessons can be learned from this by directors and supervisory board members of successful companies? First of all, be vigilant. The better and more successful you are, the more dangerous it is. Never take your success for granted. Use it as an inspiration for the next innovation and not as a soft mattress to rest on your laurels. Take responsible risks with a portion of the money that you have earned. Secondly, regularly reassess the composition of the board of directors and the supervisory board. In our current times, everything develops and rejuvenates faster than ever. Therefore, make sure to take one or more young people on board, as well as ‘digital experts’. Many of the products and services in the near future do not use digital applications but are digital applications. This should be reflected in the company’s leadership. Thirdly, keeping things as they are is a one-way ticket to decline. Supervisory board members: explicitly ask the directors about their plans for the future. Where do we stand two years, three years and five years from now? In what areas will we innovate? Take a snapshot of it: your Kodak moment!

 

This blogpost is also available in Papiamentu. Click here to download a pdf version.

Do you have a question about corporate governance yourself? Please e-mail it to governance@ekvandoorne.com and perhaps your question will be discussed in the next blogpost.