Kodak & the Digital Revolution

After the early 1960s, attempts to enter the market were rare; the film composition’s balance of chemical and physical properties and the know-how embedded in manufacturing made creating compatible products expensive and risky. Kodak had worked to develop color film since 1921 and spent over $120 million to do so by 1963. 7 Its photo-finishing process became the industry standard. Most rival brands, although of excellent quality when properly processed, fared badly in typical photo shops. 8 Within Kodak, corporate power centered on Kodak Park’s massive film-making plant.

Kodak’s CEOs typically came from manufacturing jobs in the Park. They were largely similar; most received the same training, and attended MIT’s Sloan School of Business as a sort of finishing academy. Since mistakes in the manufacturing process were costly, and profitability was high, Kodak avoided anything risky or innovative. It developed “procedures and policies to maintain the status quo. ”9 Kodak reached $1 billion in sales in 1962.

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In the 1960s and 1970s, it introduced new products like the 126 and 110 cameras, which moved beyond consumer photography to medical imaging and graphic arts.

Most of these products exploited silver-halide technology and were incremental improvements. By 1976, Kodak controlled 90% of the film market and 85% of camera sales in the United States. Its technological strength and speed to market precluded the emergence of serious competitors. 10 In 1981, its sales reached $10 billion. In 1981, Sony Corporation announced it would launch Mavica, a filmless digital camera that would display pictures on a television screen. Pictures could then be printed onto paper.

Kodak CEO Colby Chandler contended people “liked color prints” and Kodak could introduce its own digital camera, but managers became concerned about the longevity of silver-halide technology. A manager said, “It sent fear through the company. ” The reaction was, “my goodness, photography is dead. ”11 Exploration and Diversification, 1983 – 1993 Diversification into other businesses Between 1983 and 1993, Kodak acquired IBM’s copier services business; Clinical Diagnostics, which produced in-vitro blood analyzers; Mass Memory, which sold floppy disks; and other bioscience and lab research firms.

It also acquired Sterling Drug, a pharmaceutical firm that sold products like Lysol and aspirin, for $5. 1 billion. Kodak’s managers felt the pharmaceutical industry was related to its core “chemical” business: R&D was pivotal, and margins were high. Between 1987 and 1992, Kodak’s share of the film market decreased by 5%. 12 Competition in the core imaging business: Fuji Photo Film Co. “We were the imaging company of the world. We literally had no competition for so long, management hadn’t become accustomed to it.

Historically, if there was a competitor, Kodak would blow them away. ” A former Kodak executive13 2 Kodak and the Digital Revolution (A) 705-448 Fuji Photo Film Co. , headquartered in Tokyo, was founded in 1934 as a comprehensive maker of photographic materials. It produced film for movies and other applications, dry plates, and photo printing paper. In the 1960s, Fuji started looking for alternatives to developing and producing silverhalide film and established a joint venture with Rank Xerox (Fuji Xerox). 14 Fuji entered the U.

S. market in 1965 as a private brand supplier. It first marketed film under its own name in 1972. In 1976, Fuji was the first to introduce 400-speed color film. Many photo-finishers switched to its photographic paper and supplies, which cost 20% less than Kodak’s. Kodak’s managers ignored internal analyses of Kodak’s eroding market share: “they didn’t believe the American public would buy another film. ”15 See exhibit 4 for data on film market share. In 1981, Fuji became the official sponsor of film at the 1984 Olympics.

Kodak had balked at the cost of officially sponsoring film supplies. Fuji capitalized on the opportunity and boosted its U. S. market share to 12%, while its market share in Japan was over 70%. Peter Palermo, then senior vice president of imaging, noted, “It was December 7th [Pearl Harbor Day] at Kodak. ”16 By 1985, other new labels included Konica, Agfa, dozens of private-labels, and Indian, English, and Korean brands. Consumers had learned they could get high-quality pictures with film that cost much less than Kodak’s did.

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