Kodak vs. Fujifilm: Innovation, Leadership, and Strategy

Introduction: Company Histories and Core Businesses

Eastman Kodak, in the words of Hill and Jones (2007, p. 482), "was incorporated in New Jersey on October 24, 1901, as a successor to the Eastman Dry Plate Co., the business originally established by George Eastman in September 1880." As the authors further point out, the Dry Plate Company had primarily been established to facilitate the development of a more portable and user-friendly dry photographic plate. Eastman is credited with laying a strong foundation for a fledgling business, with his key goal being to simplify photography. It was not, however, until 1888 that making photography accessible to everyone began to appear as a realistic goal. That year, Eastman introduced the very first easily portable camera (Hill and Jones, 2007). According to the authors, this camera made use of Eastman's patented film, meaning that the company had effectively gained control of "all the stages of the photographic process" (Hill and Jones, 2007, p. 482). As a result, sales boomed, firmly putting Kodak on the path to success in photographic technology.

The consumer photography market was largely dominated by Kodak throughout the 1800s and into the early 1900s. The company's yellow boxes, as Hill and Jones (2007) point out, were common in nearly every corner of the world. The company, however, began to experience significant challenges in the 1970s and 1980s that led to a drop in its return on equity. Its main threat was the changing nature of the industry: "major innovations were taking place within the photography business, and new methods of recording images and memories beyond silver halide technology, most noticeably digital imaging, were emerging" (Hill and Jones, 2007, p. 483). Despite its promising beginnings, Kodak has more recently struggled to stay afloat. As noted, Kodak's original core business was film and camera production; currently, the firm largely focuses on imaging for business and related technologies.

Established in Japan in 1934, Fujifilm could be regarded as a relatively young company in comparison to Kodak — its main rival in the photographic and electronic equipment market. At the outset, the company largely focused on the production of motion picture and photographic films. It was not until the 1940s that Fujifilm ventured into other markets, chiefly equipment, lenses, and optical glass (Patersen, 2012). Unlike Kodak, Fujifilm subsequently moved into electronic and medical imaging as well as printing in the 1960s. Like Kodak in the U.S., Fujifilm was the dominant player in Japan's photographic and electronic equipment marketplace (Naftel and Spiwak, 2000). For approximately two decades after its founding, the company elected to focus largely on its home region, with its first foray into overseas markets coming through a partnership with Rank Xerox, a United Kingdom-based company (Bouchikhi and Kimberly, 2008). Later, the company entered the U.S. market, performing far more successfully there than Kodak did after the latter ventured into Japan (Naftel and Spiwak, 2000). Notably, in comparison to other film manufacturers, Fujifilm was the most successful at predicting the shift from film to digital photography, preparing for it, and implementing strategies aimed at surviving this fundamental change. Today, the company is involved in the production and development of color film, photofinishing chemicals, and digital cameras.

Innovation Approaches at Kodak and Fujifilm

Innovation, in the words of Herzog and Leker (2011, p. 10), is "the commercial exploitation of a new idea or invention." The two companies' approaches to innovation have been markedly different. Kodak took the role of a cautious player — up until the digital revolution in photography had already taken hold. From the outset, Kodak's formula for success relied on research and development to produce new and enhanced products. For instance, the company pioneered an approach whereby it offered inexpensive cameras for sale in order to generate revenue from consumables such as papers, chemicals, and film when customers brought their pictures for development. Kodak was also the first company to present a digital camera to the market, although it did not fully exploit that product's market potential. Over time, however, Kodak's reaction to change proved to be slow, and the company had a tendency to underestimate its rivals, compromising its ability to respond quickly to competitor moves.

In seeking to embrace innovation, Fujifilm has consistently demonstrated flexibility — particularly in its decision to transition away from film. Rather than attempting to compete primarily through marketing, as Kodak elected to do, Fujifilm embraced new business and product development. While the transition from film to digital was apparent to both companies, it was Fujifilm's response that proved most effective. Fujifilm was more efficient in execution, despite the fact that many contextual factors — internal politics, strategy, and market forecasts — were similar for both companies at the outset. While Kodak has, within the last two decades, abandoned most of its original flagship products, Fujifilm has kept most of its original product portfolio intact while simultaneously venturing into new areas, extending its interests well beyond film development.

Management Differences and Their Impact on Success

In addition to being slow to respond to innovation, Kodak's management was, prior to its bankruptcy filing, largely reactive rather than proactive in addressing competitive challenges. As DePamphilis (2013) observes, one of the key factors that put Eastman Kodak on the path to decline was the entry of foreign competitors — most notably Fujifilm — into its market. These competitors undercut Kodak's film prices. In the words of Hill and Jones (2007, p. 483), "finding no apparent differences in quality and obtaining more vivid colors with the Japanese product, consumers began to switch to the cheaper Japanese film." Kodak's response to these competitive pressures was, at best, lukewarm. There were several strategies management could have adopted to neutralize such moves — including taking deliberate steps to differentiate its products. Instead, the company's management stood by as its market eroded. Another significant misstep, as Hill and Jones (2007, p. 483) note, was the failure to "improve productivity to counteract rising costs," which made continuous product improvement difficult and further reduced the company's market share.

Fujifilm's management, by contrast, had effective cost-control measures in place. For instance, the company ensured that film was produced in a single country rather than across multiple countries, which, as Hill and Jones (2007) note, provided Fujifilm with a meaningful cost advantage and ultimately positioned it as the cost leader. Fujifilm's management has also historically appeared more decisive and forward-thinking. Kodak's management recognized the potential of an easy-to-use 35mm camera but quickly dismissed the idea — a decision that could rank among the greatest examples of managerial shortsightedness in corporate history. Several years later, the more flexible and forward-thinking Fujifilm management successfully introduced a similar camera, and customers shifted to it in large numbers (Hill and Jones, 2007, p. 483).

The blunders and smart moves made by the management of both companies had a direct impact, years later, on each company's success. In basic terms, Kodak's fortunes declined while those of Fujifilm improved.