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KODAK'S CHALLENGE: SURVIVING THE DISRUPTIVE "WINDS OF CHANGE" This case was prepared by Boris Morozov and Rebecca J. Morris both from the University of Nebraska at Omaha. The views presented here are those ofthe case authors and do not necessarily reflect the views ofthe Society for Case Research. The authors' views are based on their own professional judgments. Copyright © 2009 by the Society for Case Research and the authors. No part of this work may be reproduced or used in any form or by any means without the written permission ofthe Society for Case Research
On June 1, 2006, the house lights dimmed at the Wall Street Journal's All Things Digital conference. On the large screens fianking the stage, a film called the "Winds of Change" started. In the film, a dignified white-haired spokesman standing in front of sentimental images of puppies, babies, balloons and birthday parties began talking about the "golden days" at Kodak— the days of the "Kodak moment" in photography. Signaling a shift in the tone of the film, the spokesman looked straight into the camera and said, "Get's ya misty, doesn't it? Yep, they shoveled on the schmaltz pretty thick—but that kinda crap doesn't work anymore." Now people wanted everything to be digital, the speaker stressed, becoming more frenzied as he spoke about digital photography and Kodak's role in it. The viewing audience chortled when the speaker intoned. You thought they (Kodak) were just hiding out waiting for this 'digital thing' to blow over didn't you? Oh, sure. For a while they were like, 'Ohhh, there's no way digital's going to catch on'.. .But now Kodak's back! With swelling enthusiasm, the spokesman extolled Kodak's research and development in digital photography, ending by pulling at his hair and exclaiming, "You were a Kodak moment once and by God, you'll be one again...only this time its digital. Whooo-yeah!"^ The spokesman appeared somewhat startled by his own outburst and sheepishly walked off stage as the film ended and the lights came up. Wall Street Journal columnist, Kara Swisher then welcomed Kodak CEO, Antonio Perez to the stage to the audience's vigorous applause and cheers. Paul Simon's song, "Kodachrome" played as Perez took the stage. Swisher began her interview saying, "That was a really funny movie. I liked that film!" Her first question, however, was not so approving. "What happened," she asked as Perez settled into his chair, "What from your perspective happened at Kodak—because it was one ofthe greatest brands in history?"^
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Perez responded without hesitation, saying: First of all there was this notion that came out of incredible success. The notion was that maybe if Kodak doesn't move into digital—the imaging world will never move into digital. ...They (Kodak) were running a business with gross margins between 60-70% and those things are hard to let go, especially when you are confronting a business model that is going to give you, if you are lucky, something around 30%. So that means that you have to change the whole company. From the way you design, to the way you manufacture, to the way you distribute, you know.. .the whole thing. It is very tough. So Kodak is very late to the digital space. But Kodak was not late in investing in digital. Kodak was very rich. Kodak hired very good people and those people were actually doing the right things. In the last fifteen years, Kodak developed one ofthe most impressive IP (intellectual property) portfblios-in digital capture, image processing, pixel technology and all sorts of things...color management, you name it—actually a leader in all of those spaces. Now, why didn't they commercialize that? I don't know.^
Referencing Kodak's transition from traditional photography to digital, S wisher asked, "So, how did you get the film people out—because it's a film company?" Perez described his approach...