Kodak & the Digital Revolution

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REV: NOVEMBER 2, 2005

GIOVANNI GAVETTI
REBECCA HENDERSON
SIMONA GIORGI

Kodak and the Digital Revolution (A)
In February 2003, Daniel A. Carp, Kodak’s CEO and chairman, reviewed 2002 sales data with Kodak’s senior executives. Film sales had dropped 5% from 2001 and revenues were down 3%. 2003 did not look any brighter: Carp expected revenues to grow only slightly and net income to remain flat or decrease (see exhibit 1 for information on Kodak’s financial performance and exhibits 2 and 3 for information on sales of cameras and film rolls in the United States). The film industry was “under pressure unlike ever before.” Carp predicted a “fairly long downturn”1 for traditional photography sales as consumers turned to digital cameras, which did not require film. Kodak was moving more of its manufacturing to China, where it could boost film sales, and was planning to slash 2,200 jobs, or 3% of its work force, especially in the photo-finishing business. Carp had received a master’s in business from MIT. He had begun his career at Kodak in 1970 as a statistical analyst. Since then, he had held a variety of positions at Kodak. In 1997, he became president and COO, and was appointed CEO on January 1, 2000. He believed Kodak’s current struggle was one of the toughest it had faced. How could he use digital imaging to revitalize Kodak?

Kodak, 1880-1983: A brief history
In 1880, George Eastman invented and patented a dry-plate formula and a machine for preparing large numbers of plates. He also founded the Eastman Kodak Company in Rochester, New York. In 1884, he replaced glass photographic plates with a roll of film, believing in “the future of the film business.”2 Although Kodak originally faced severe challenges, it quickly became a household name. Eastman believed success came from a user-friendly product that “was as convenient as the pencil.”3 Kodak regarded marketing as essential to its success. It first advertised film in 1885. Eastman coined the slogan “You press the button, we do the rest” when he introduced the first Kodak camera in 1888. He identified Kodak’s guiding principles: mass production at low cost, international distribution, extensive advertising, and customer focus, and growth through continuous research. He also articulated Kodak’s competitive philosophy: “Nothing is more important than the value of our name and the quality it stands for. We must make quality our fighting argument.”4 In the black-and-white film era, Kodak’s leadership came from its marketing and its relationships with retailers (for shelf space, and photo-finishing with Kodak paper). Some competitors had better products, but consumers liked Kodak’s offerings, and felt no need to pay for an enhanced product.5 ________________________________________________________________________________________________________________ Professors Giovanni Gavetti and Rebecca Henderson and Research Associate Simona Giorgi prepared this case from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

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Kodak and the Digital Revolution (A)

The idea that money came from consumables, not from hardware, emerged early. In selling cameras, Kodak used a razor-blade strategy: it sold cameras for a low cost, and film fueled Kodak’s growth and profits. Over time, Kodak’s managers paid...
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