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Thursday, February 2, 2012

End of an era

Strategic Perspective
End of an era
By René B. Azurin

Kodacolor-II. Ektachrome. Tri-X. These names trigger memories because, years ago (when I was young and foolish), I fed countless rolls of those classic films into my Canon FT to take pictures of everything from mini-skirted coeds in Diliman to vermilion sunsets on Manila Bay. I recall now the feel of those familiar yellow canisters in my hand because Eastman Kodak, the company that made them, has announced that it is bankrupt. An erstwhile technology pioneer, Kodak has ironically become victim to the inexorable march of technology.

The technology that allowed the Eastman Kodak Co. to dominate the photographic film market for well over a century was the flexible and rolled photographic film created by inventor George Eastman in 1883. The company was founded in 1889 after photography buff Eastman developed an easy-to-use handheld camera to go with the film and then launched it with the catchy slogan, “You press the button, we do the rest.” The product’s success was assured because it tapped into a long-unfulfilled human need to preserve memories of important events in one’s life. (Not everyone, of course, could afford a sculptor or a painter to create a record of one’s existence.)


Eastman’s was a truly revolutionary product that made picture-taking possible for everyone and it created a whole new market that had not been there before. For a very long time, Kodak protected its dominance by making processing part of the price of the film (thereby locking in the consumer) and by cleverly virtually giving away its cameras to expand the market for film (a strategy later copied by Gillette when it virtually gave away razors in order to sell its disposable razor blades). Obviously, the astute Mr. Eastman did not need to be taught -- as MBA students are now taught in business strategy courses -- that such are the ways business monopolies are maintained without having to ask for government intervention. As late as 1976, Kodak was said to control 90% of the film market in the US.

(Aside: Apple’s Steve Jobs seemed to want to use a similar strategy when he chose closed systems for his various i-Products but he never had the kind of superior technology that might have allowed him to do that. Instead, he owed his few marketing successes to his ability to dazzle a specific consumer base with products consisting of user interfaces full of bells and whistles but not much else in terms of really innovative technology. Already surpassed by many other companies in terms of technology, Apple’s future is thus not particularly bright.)

Significantly, 1976 also marked the year that Kodak created its first digital camera, developing in the process several thousand patents in the digital imaging field. Digital picture-taking technology of course caused the decline and eventual demise of the film business but Kodak cannot legitimately claim that it was blindsided by technological developments from out of the blue. In fact, with the products developed in its research labs, Kodak could very well have led the world into the digital era. That Kodak’s management failed to do this by capitalizing on new innovative technologies in its very own industry that it had developed itself is the apparent result of a rather common type of management shortcoming: the fear of sacrificing certain current profits for uncertain future profits. In the lingo of MBA professors, this is referred to as the decision to “cannibalize” your products, meaning, introduce a new product that will compete with and eat into the markets of your current products. Admittedly, for chief executives, this is a risky policy decision and, given quarterly results-oriented shareholders, one that can quickly diminish the value of a chief executive’s stock options and soon cost him his high-paying job.

Well, professional managers of well-established, stock exchange-listed companies are typically forced to be no more than glorified bean counters and, unlike entrepreneurs, have a very poor appetite for risk. Protect-that-quarterly-earnings-report is usually their guiding principle, hardly a management approach conducive to bold decision-making. In Kodak’s case, the film business in 1976 was still much too lucrative to turn its back on and the company’s executives did not have the strategic perspective to fully appreciate what they had and how the market was evolving. Belatedly trying to adapt by reinventing itself into a digital printer, Kodak has, beginning in 2003, made a massive effort to get out of its traditional operations -- shutting down 13 manufacturing plants and 130 processing labs and cutting 47,000 people out of its workforce -- but, by then, it was far too late. The inadequacies of its management had spelled its doom.

I took the pictures of my wife giving birth to my children using Ektachrome. My children’s early years were documented on Kodacolor-II and Tri-X, and printed in the darkroom on Kodak paper. I may still have an affinity for classical photography but, admittedly, I haven’t myself used Kodacolor-II or Ektachrome or Tri-X for many years now. Recently, I took my trusty Canon FT to Mang Bert on R. Hidalgo Street (the old photo enthusiast’s supplies heaven) in Quiapo for cleaning and lubrication but, really, I don’t see myself as using it again. The lure of digital technology and its instant product ultimately proves irresistible.

Digital imaging is here to stay (at least until the next revolutionary technology appears) and, notwithstanding any nostalgia for the palpable feel of cellulose and the sensuous appeal of photographs exquisitely printed from fine-grained Kodak film stock, the film era is clearly no more. While some ghost of the old Eastman Kodak Co. may emerge from the bankruptcy process, the era it created has undeniably come to an end. As the horse-drawn carriage gave way to the automobile, as the mainframe computer to the PC, and as the posted letter to email, technology inexorably develops, spelling the death of companies (and industries) and the birth of others. That’s just the way it is. And, by the way, MBA professors don’t really know the remedy for narrowly focused, short-sighted management.

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