explained to me, modularization “makes consumer products, our consumer products, a commodity.” Once consumer electronic products transitioned to digital, Shohtoku noted, leading brands such as Panasonic and Sony lost their competitive edge in those markets.This explains how hundreds of companies, many of them startups, could move into imaging and how a company such as Go Pro Inc., based in San Mateo, California, could appear out of nowhere and take the consumer video recorder market by storm.Not only was a major technological change upending our competitive landscape; challenges were also affecting the ecosystem we operated in and our organizational model.
Eastman Kodak is often mischaracterized as a company whose managers didn’t recognize soon enough that digital technology would decimate its traditional business.
However, what really happened at Kodak is much more complicated — and instructive. is often cited as an iconic example of a company that failed to grasp the significance of a technological transition that threatened its business.
It’s a situation that many makers of technology products are now facing or may soon face.
While the technology presented one set of problems, figuring out how to manage declining film sales while trying to extract maximum profits presented another.
Management was constantly tracking the rate at which digital media was replacing film.
But several factors made it exceedingly difficult for Kodak to shift gears and emerge with a consumer franchise that would be sustainable over the long term.Wide rolls had to be changed over and spliced continuously in real time; the coated film had to be cut to size and packaged — all in the dark. Only two competitors — Fujifilm and Agfa-Gevaert — had enough expertise and production scale to challenge Kodak seriously.The transition from analog to digital imaging brought several challenges.At a certain point, you just don’t have enough volume anymore to absorb your fixed costs.In Kodak’s case, film had a finite shelf life, so as sales declined, the company had to figure out how to shrink the size of production batches without driving unit costs up too far or forcing the selling price up, which would have led to a death spiral.To begin with, senior leaders at Kodak were acutely aware of the approaching storm.I know because I arrived at Kodak from Silicon Valley in mid-1997, just as digital photography was taking off.First, digital imaging was based on a general-purpose semiconductor technology platform that had nothing to do with film manufacturing — it had its own scale and learning curves.The broad applicability of the technology platform meant that it could be scaled up in numerous high-volume markets (such as microprocessors, logic circuits, and communications chips) apart from digital imaging.I remember when the yearly sales of a particular type of Kodak film went below a single wide, roll production batch.Shrinking the run length would drive up the proportion of time and materials expended in setup, and shifting to smaller production lines would incur additional capital expense, something that would have been impossible to justify.