Kodak Versus Polaroid
- 1. Case study Kodak versus Polaroid For Innovation Management By Former EMBS students Kodak vs. Polaroid: Disruptive Innovations in Photography Markets Responses to the challenge of digital imaging technology How would you characterize the technological, market and organizational capabilities of Polaroid and Kodak prior to the advent of digital technologies? Contrast the two responses of the two companies, focusing on the different organizational approaches adopted to develop and commercialize digital imaging technologies! The importance of strategic innovations in dynamic markets like the photography industry is increasing more and more. In this respect, Polaroid and Kodak played, and still play, a big role in here. Both global players, try to dominate the market over the years, but both companies in different ways. Kodak dominated the halide market while Polaroid owned all patents on the instant photography. Both still competing, a completely new market emerged during the last decade, also composed via the computer revolution, the internet affinity and the nanotechnologies, digital imaging was born. A huge dynamism in this sector is recognized and firms have to react, however their strategy is to follow up like it will be in the following case study about Kodak and Polaroid. Technological change is never easy to manage and there are technological battles in every day’s life existing to be reconciled.
- 2. It is always a challenge to adapt to new market conditions, needs and desires, to gain or keep the competitive advantage, especially concerning those innovations which are generating market and technological discontinuities. In this sense, a discontinuous innovation is a product completely new to the customers and did not exist before. As companies are handling this, the next paragraphs will go more in detail concerning the technological, market and organizational capabilities of each company. Kodak, a multinational company from America with the entire name of Eastman Kodak Company, is one of the main players within the photography industry. It produces imaging, photographic materials, digital printing as well as any kind of complementary goods. The inventor is George Eastman, creating roll films for film makers first in 1885. Upon that, the company went further and had a range of successes to show up. However, nowadays business seems to be different. All new discontinuous innovations threatened its core competencies. Existing structures need to be redesigned, ineffective routines have to get out of the company and new organizational entities are set up. A lot of changes are made and people need to be prepared for that. Just a few months ago, Kodak posted loss and planned to cut costs in order to fire people. In fact, Kodak enjoyed a long time a global leadership imaging but things changed rapidly. According to that, fear and threat are eligible. The new Kodak CEO tried to calm down the situation a little bit with introducing a new mantra like ‘Our business is pictures, not technology!’. In our opinion, it is a mantra where he appeases himself and his employees in order to make the best out of the situation because Kodak’s lack was the technological experience. Kodak was too far behind and ill-suited to develop and pursue digital technologies by its own. This market has raised up so strongly, that Kodak struggles to acquire new requisites, new capabilities which are necessary to continue on the photography market. The Kodak company enjoyed during years the leadership in films. It was a mass market mentality, the film became standard, which is the best thing can happen. But the new business with tech films, picture CDs and digital cameras almost ruined the company. There is a high margin market and Kodak did not play a role anymore.
- 3. So Kodak needed to do an effort to pursue on that emerging market with a demand of new technology and to widespread via marketing and distribution strategies the products. Kodak reacted quickly and the suddenly, the picture CD became a fixed part of its production line, which was recuing the firm from a big failure, and finally, pushing Kodak into a broad commercial triumph. Another strategy Kodak followed was to acquire new companies in order to go beyond its scope. In this case organizational capabilities could have been acquisitions, internal or joint ventures. Kodak followed all of them. Kodak redesigned its structure in order to establish routines which are different from the old habits and to separate from the core set which was rather necessary than contemplated. Another point was that Kodak was far behind the research, development and innovation situation from the market, so it decided as well to turn into joint ventures which are based on a new partner who gives access to its knowledge and other capabilities. Kodak just needed to execute those strategies and gave as a counter value its image, reputation and distribution channels. Thus, a joint venture with Intel was designed, to develop affordable digital pictures from standard chemical film, but because of struggles within this JV, it became organizationally a separate entity. Kodak also acquired other companies with regards to firms which have already begun to develop or commercialize products under the new technological standards. Kodak purchased other companies having already successful digital products, as e.g. Imation Corporation’s, used for medical imaging. The purchases went even further to acquire companies with special strategies enabling the development of new products, new technologies, new sources. How did Polaroid dealt with the technological changes? Polaroid is an American company as well, established 1937 by Edwin Land, who based his invention on instant film cameras with light polarizing filters, until the business changed dramatically. Polaroid failed at some issues concerning that, e.g. developing a movie system, Polavision, which was not successful at all, or digital cameras where they simply did not catch the market in a right way. After 2009, Polaroid will stop selling instant cameras around civilized countries. Polaroid is already licensing its name, for use, for manufacture, for sell, for distributing. Thus, a lot of actions take place in order to avoid the complete bankruptcy.
- 4. Polaroid enjoyed, as well as Kodak, some good market shares while the first instant camera was introduced. Polaroid was always on its way to improve the quality, to decrease the development time and to introduce color. The dominant position at that time belonged to Polaroid but the rapid technical change destroyed the value of this firm. Digital imaging was substituting the need of a Polaroid camera. The advantage they had was clearly gone, because they were a technology-driven, not market-driven company. However, Land himself held over 500 patents and had a strong position upon that. Polaroid even had an argument with Kodak when it entered into the instant photography. Kodak got sued successfully by Polaroid and left the US market directly. Polaroid always had the vision that it is Polaroid which is creating the market, not the other way around. Polaroid never used its market and marketing capabilities in order to particularly gain knowledge about the customers or to develop different distribution channels to catch new customers. Polaroid had a strong distribution through K-Mart and Wal-Mart and they were satisfied with that. The management did not want to go beyond the scope. By avoiding direct competition with traditional cameras, which were sold primarily through specialized camera stores, Polaroid was able to establish a strong presence without provocating a competitive reaction. Polaroid founded itself in strong market position concerning instant cameras, so why changing something. It manufactured in-house, two plants were responsible for the production of Polaroid products, on the one hand the camera manufacturing, and on the other hand the color negative plant/thin film coating. Everything went so well that a change was not necessary for any success, until the markets were reallocated. As a consequence, Polaroid needed to change its whole organization shifting into responding to their external environment, where they often cannot react directly and efficiently. At this time constant improvement in its products did not mean anything anymore, the market changed and Polaroid was not ready to play in this league. The firm dropped prices on cameras in order to stimulate adoption and subsequent demand for films. ‘Film prices and thus margins were then increased’, was then the strategy which worked for while, but it was not the final solution.
- 5. At that moment, Polaroid got a new CEO, McCune, with a new vision and a new commitment to invest a lot of dollars into the business again. Therefore, on the agenda were microelectronics, optical designs, software, complementary goods and fiber optics. So the technological capabilities changed drastically within this new organizational change, they moved forward, even if they were not prepared for the change on the market, but with its new CEO and his vision investments are done. A lot of new people were hired in order to fulfill the market needs, to work on technological devices, to make the R&D department more successful and to follow up the new mantra as the ‘technical challenge- we can do it’. The company tried to overcome its past failures, it puts money for establishing new distribution channels, which was impossible to imagine in former times. The mentioned reorganization of the company was essential to not go completely bankrupt. Polaroid let companies pass it in former times, nowadays it probably won’t happen anymore because they learnt out of the situation where they were in big trouble. The new management team was and is really successful, for the right positioning on the market. They outsourced as well some activities, the R&D expenses decreased and the advertising expenses increased. The transition from a technology-driven to a market-driven company was finalized. This conversion Polaroid was about to do and to put a lot of effort into, however, Kodak is still a competitor in the photography business, even more nowadays than in former times, although the first official battle in the 80’s had a great impact on the strategies of both companies. They met in the same ring, where Polaroid successfully sued Kodak for its entry into the business with another instant camera. In this respect, the case Polaroid versus Kodak went around the world and is well-known nowadays as an important signal on how far defensive patenting can go. Polaroid’s patent was a basic government patent concerning the monopoly for instant cameras for a set period. Kodak's entry into the market would have pushed the price down, as competition is supposed to be like, but the US court banished Kodak from the whole US market. So Kodak put further attention on other products it had/has, which is a good example of how to contrast the both companies. Organizational capabilities had to be used in different like we already mentioned, especially when we come back to nowadays business strategies. In large-scale strategy innovation initiatives, cross-functional teams of managers used panels of experts in this new technology to look at the coming out of digital photography and identify the potential new business opportunities of the future marketplace.
- 6. Kodak understood the impacts of digital photography on the industry and made important changes in their corporate strategy. R&D expenditures were shifted from a focus on new silver halide projects to an provisional, ‘‘hybrid’’ strategy, balancing the needs of the still- strong silver halide business with the growing potential of digital photography. In the decade that followed, Kodak became a force in the world of digital photography, including the development of Picture CDs, Picture Makers, the purchase of their partners to produce digital cameras, the purchase of online photofinishers as well as JVs. Thus, Kodak was transitioning within the market to digital photography, rather than being left in its wake. It shifted its business strategy to create new value for both Kodak and its customers. On the other side, Polaroid, ignored all signals of the change into digital photography and stuck with its products and projects concerning just improvements. It did not get the value of how to create importance in this emerging marketplace, on how Polaroid can be again a niche market leader. So the management had to come with a new strategy. They decided to license the name Polaroid in order to get royalty fees upon that. In fact, therefore, they created new value for companies which want to use the name and its good image, as well for the customers who know about good quality products from Polaroid.