Kodak and Fujifilm: divergent strategies in the photography industry

Kodak & Fuji

Eastman Kodak has long been a major player in the photography industry. For much of the 20th century, the company dominated the industry in the United States. The company was founded by George Eastman in 1888 and rose to prominence shortly thereafter. The company struggled, however, once Japanese films began to arrive on the market at a lower price point that Kodak film. Kodak had grown comfortable with its near monopoly in the industry and was not accustomed either to being an innovator or to being a low cost producer. It soon found itself sharing the market. It tried to grow through acquisitions but there was discussion that the company's traditional management practices were stifling innovation, even when it bought an innovative company (Hitt, Hoskisson, and Harrison, 1991).

Further changes came to Kodak in the 1990s with the popularization of digital photography, followed by the Internet and smartphones. As the pace of the industry has increased significantly, Kodak has struggled to match that pace. The company today faces a poor financial situation. It has substantial pension obligations as the result of having thousands of workers during its heyday, but the company today is much smaller, having struggled to stay out front of the digital revolution. Today, Kodak has essentially re-invented itself as an imaging company.

Fujifilm was founded in 1934 as a photographic film manufacturer. The company grew to prominence in its native Japan. By 1965, it had entered the American market, selling film as an exporter, and in 1966 entered Europe via West Germany. The company has expanded its products to things like batteries and medical imaging and printers over the years. As with Kodak, Fuji was not a fast mover on the digital revolution and only began investing in digital later on. More recent diversification has taken Fuji into the pharmaceutical business and it has increased the pace of international expansion, trying to leverage growth in emerging markets.

The two companies clashed in the 1990s over access to the Japanese market for Kodak. While Fuji had relatively easy access to the U.S. market, Kodak never could figure out the Japanese distribution system, and argued that this constituted an illegal trade barrier (Baron, 1997). This case highlights a key difference of the management of these two companies during the film era. Kodak preferred to utilize its substantial North American manufacturing capacity and enter foreign markets via exporting and trying to manage its own channel. Fuji has always been oriented towards local production even in emerging market countries, something that gives that company a much greater presence and better access to the full range of distribution channels.

Differences

In addition to the strategy regarding local production there are two key differences between these two companies in evidence even today. Neither one responded particularly well to the digital photography revolution, but Fujifilm today is a diversified entity that have found niches in other imaging categories, but has also proved willing to enter entirely new businesses. It is too early to tell if this will be successful, but the approach is completely different from that of Kodak.

Kodak's approach remains relatively conservative. While rebranding the company as an imaging firm, Kodak management has effectively presided over the dramatic shrinking of the company. Its approach has avoided unrelated diversification. While today that might be a reasonable strategy given the firm's competencies, a look into the past shows just how risky this concept is. At one point, Kodak had a virtual monopoly on film in the U.S., at a time when cameras only used film. During this period, management did not do any diversification, but instead chose to milk the cash cow that their market position gave them. Yes, this allowed Kodak to build up cash, but it did nothing to position the company for the future. There was no innovation and this conservative -- even lazy -- approach to business would come back to haunt them later. Not only were they unable to diversify to protect against threats to their main business -- they had three decades to deal with threats in between Fujifilm's entrance to the U.S. market and the rise of digital photography, and yet Kodak management did nothing. As a result, when they needed to be an innovative, fast-paced company they simply lacked the ability to be that. Kodak's fall from grace directly reflects the conservative management policy, and while the company has tried to address that culture today, it has only been able to make some partial improvements.

Changing Market Conditions

As has been noted, both of these companies have faced significant changes to their market conditions. Since the mid-1990s, the photography market has undergone multiple changes. After a century where the only major innovation was color, the industry has moved from digital cameras to smartphones and online image processing. Both Kodak and Fujifilm were slow to respond to these trends, and have suffered as a result. Fuji has maintained a presence in digital cameras, allowing it to still win earnings from photography. Kodak has effectively ceded the photography market to other firms. However, neither is a major player in the smartphone industry nor in the photo processing software industry. Both have been forced to move on to other forms of imaging, leaving the consumer market mostly to other companies.

This diversification has not been sufficient for Kodak, and the company's struggles are well-documented. Kodak finds itself in a position where it is able to make small profits, but is far too small a company for its pension obligations. It simply did not save enough of its earnings from the cash cow years for a rainy day. Fujifilm has been more successful over the years, and this has allowed it to continue to expand its operations. Further, Fujifilm has embarked on unrelated differentiation in order to add new incomes streams. This approach from management has been more aggressive, but some of these new ventures like pharmaceuticals are too young for the effectiveness to be determined.

Kodak, in the meantime, is now struggling to reinvent itself. The company finds itself having to try to attract talented people, but without the cash or desirable location (sorry, Rochester) to attract the best talent. Further, there is perpetual uncertainty about the future of the company. Thus, reinventing itself as an innovator has proven to be a much greater challenge for Kodak than it has been for Fujifilm. Part of the problem was the conservative culture at Kodak, and part of it is that Kodak waited far too long to recognize the changes in the external environment and mount a credible response.

For its part, Fujifilm's management did a better job and the company is performing better today. Also, because it utilizes local production, it is not weighed down by pensions as Kodak is. For both of these companies, the same three steps are recommended to improve managerial flexibility. Both companies need to realize that they are now in the technology business and need the types of lean, efficient cultures that drive innovation. Creativity must be given pride of place, and that means in the C-suite as well. Second, culture change needs to be supported with intrapreneurship programs (Alpkan et al., 2010). This will allow the company to develop its own innovation even with low capital availability, by providing managerial support and company time to drive innovation. The third recommendation is that both companies need to widen the scope of related industries. They both still see themselves as imaging firms -- especially Kodak -- but really that business is in a constant state of flux. They need to take a much broader view of what their business is in order to open themselves up to new ideas.

Works Cited:

Alpkan, L., Bulut, C., Gunday, G., Ulusoy, G. & Kilic, K. (2010). Organizational support for intrapreneurship and its interaction with human capital to enhance innovative performance. Sabanci University. Retrieved May 6, 2013 from http://research.sabanciuniv.edu/14209/1/Management_Decision_final.pdf

Baron, D. (1997). Integrated strategy and international trade disputes: the Kodak-Fujifilm case. Journal of Economics and Management Strategy. Vol. 6 (1) 291-346.

Hitt, M., Hoskisson, R., Ireland, D. & Harrison, J. (1991). Are acquisitions a poison pill for innovation? The Executive. Vol. 5 (4) 22-34.

McWilliams, a. & Siegel, D. (2001) Corporate social responsibility: A theory of the firm perspective. The Academy of Management Review. Vol. 26 (1) 117-127.