Platt Perspective on Business and Technology

Rethinking vertical integration for the 21st century context 15

Posted in business and convergent technologies, strategy and planning by Timothy Platt on April 18, 2017

This is my 15th installment to a series on what goes into an effectively organized and run, lean and agile business, and how that is changing in the increasingly ubiquitously connected context that all businesses, and that all individuals operate in (see Business Strategy and Operations – 3 and its Page 4 continuation, postings 577 and loosely following for Parts 1-14.)

I focused in Part 14 on symmetrical and asymmetrical relationships as they can and do arise in supply chain and similar business-to-business collaborations. And I couched that discussion for the most part in terms of shorter timeframes, and on how collaboration shaping and accommodating terms arise in a more immediate here-and-now. My goal for this posting is to step back from that to consider longer timeframes and the prospect of both slow evolutionary, and sudden disruptive change. In anticipation of discussion to follow, I will continue from there to more fully discuss the details of symmetrical and asymmetrical collaborative relationships and how they are structured and carried through upon, looking at that from due diligence and risk remediation perspectives and from both sides of the table. But for here and now, I focus on the longer-term as such, and I do so through an at least brief and selective consideration of a very specific case study example:

• The Eastman Kodak Company, as it was when it created and led the market, and globally for easy to use cameras and for amateur photography
• And as its position in this market, and the size and strength of this market as a whole changed out from under it.

Let’s start at the beginning of this narrative arc and with George Eastman’s breakthrough innovation that in effect created the entire industry that his company came to dominate. And in that, I add a telling detail as to their once global reach for home and amateur photography and for a great deal of professional photography too. French: the one true language of France as a nation is one of the most zealously preserved languages on Earth for maintaining purity to its linguistic and cultural roots. There is even an all but revered, at least by many, body of French cultural luminaries, the Académie Française that has as one of its defining roles, the identification of foreignisms and adapted words and their replacement with more allowably French language-grounded alternatives, that would become the only accepted way to speak or write them. I mention this because when Kodak cameras first came out and crossed the Atlantic to find and build markets in Europe, French men and women commonly took to referring to cameras in general as Kodaks; Kodak became their word of common usage for these new devices. And it took a great deal of convincing from the Académie and its supporters to bring their public to use a more acceptably French alternative. They did, but this indicated the hold that Kodak as a company achieved in its new and growing industry.

George Eastman did not invent the camera, any more than Henry Ford invented the car. Both took what had been niche market offerings that only the few could afford or use, and made them into easy to use and inexpensive to own and operate products for mass markets. This, in Eastman’s case was his innovation – or rather his progression of closely interconnected innovations. He and his new company had to design and build cameras that were small enough and compact enough and inexpensive enough for an average man or woman on the street to be able to purchase and use. He had to do this in a way that would eliminate the hands-on technically difficult tasks of loading film into one of those older, pre-Kodak cameras, expose them to create images, and remove and process the resulting exposed firm without loss of the image captured. And he did this at a time when film development still required special dark room facilities and a willingness and ability to work with toxic, and I add noxious smelling chemicals. Kodak cameras were designed and built to eliminate the need for photographers themselves to have to work with those chemicals or carry out any of those still obligatorily complex steps. And he did make those steps easier and more straightforward for the people who would do this. And that meant designing and developing new forms of photographic film, that would be housed in film cartridges that anyone could pop into a camera, use and then remove for development and for the production of finished prints – by someone else. And it meant developing and offering easier to use pre-mixed photographic development chemicals. And Eastman had to develop a system of partner businesses that would do this photographic development work and print out finished products, and with a great deal of that work carried out through local pharmacies, and certainly as points where camera enthusiasts would purchase new rolls of film, and bring them in for development and to pick up their finished photos.

• George Eastman invented the easy to use and inexpensive, mass market camera and made photography a basic activity that anyone could use to record the events and moments of their lives through.
• But at least as importantly and certainly if that more technical half of his endeavor was to succeed, he devised and built an entirely new form of business-to-business collaboration and supply chain system, to address this new area of business possibility.

And cameras – George Eastman’s Kodak cameras became a standard given and for many and globally, and with the French even adapting the name of that company as the categorical name of that device – at least until the Académie Française was finally able to replace that with what they deemed to be a more appropriately French alternative: “la caméra.”

Then time passed and new innovations arose. Kodak became a preeminent source of specialty film such as medical X-ray film. And they supplied the world with a great deal of standard photographic film, as well as well as offering better and better cameras themselves. But patents expired and new competitors came in that undercut them for cost: new competitors that marketed very aggressively and successfully for market share. The Fujifilm Holdings Corporation, often simply referred to as Fuji comes immediately to mind in this context though Kodak and I add Fuji faced stiff competition for film sales from other companies too. And many of these companies also began offering lower cost cameras too.

And then Polaroid came out with its Land camera with its instant development film, and Kodak and their older cameras and film offerings that required outside film development and the built in delays and extra expenses that this entailed, faced an entirely new disruptively innovative challenge.

The original Model 95 Polaroid Land camera that first went to market in November, 1948 was expensive and it primarily appealed to people who were more inclined to be pioneer and early technology adaptors. But as newer and less expensive models and versions of this basic camera design came to market, Polaroid cameras came to capture a large and increasing share of the home and personal camera and photography markets, and particularly for when the greater image resolution and zoom-in magnification available in more standard cameras was not needed. They were easy to use and you got your finished photos in about one minute and all you had to do was to wipe the finished image with a chemical sponge that was provided to stabilize it so it would not fade – at least for several years.

Kodak, and certainly in the 20/20 perspective of hindsight, was not as quick to pick up on this challenge as they could and probably should have been, resting on the laurels of knowing that their cameras and film offered much better and much more long-lasting photographic results. And when digital cameras first came out they fell into essentially that same trap, and certainly at first and when the public was initially coming to define these new cameras in their thinking, and when they first came to see which businesses dominated this new market as its first movers. And the irony in that, is that the first electronic camera ever built, was devised and constructed by an engineer at Kodak: Steven Sasson, in 1975, using charge coupled device technology that was developed and designed there for its specific design features. I wrote an earlier series to this blog that I cite here for its immediate relevance in this context: Keeping Innovation Fresh (which can be found at Business Strategy and Operations – 2, as postings 241 and loosely following for its 16 Parts. I specifically note its Part 2 and Part 3 in this series’ context, where I discuss something of the histories of Xerox PARC and Menlo Park as case study examples of how innovative businesses do and do not actually develop and capitalize on the innovations and inventions that their people and their facilities initially devise. Kodak can be seen as fitting into one of the two basic patterns that were discussed there and certainly for this innovation, where other businesses captured large areas of this new market and much more quickly than a more proactive Kodak would have made possible.

Kodak certainly still exists as a business and it is still actively involved in a significant number of industry segments, offering quality products there. But its initial founding market and industry are now more niche and specialty than mainstream and particularly with an all but ubiquitous use of digital cameras for standard photography and with so many of those cameras coming from other companies and as globally sourced product offerings.

Let’s consider the arc of that narrative from the perspective of this series and this portion of it. Kodak, through the vision and drive if its founder, built itself into an industry defining and creating powerhouse, in large part by creating and I add managing what became a vast and with time globally reaching supply chain and business-to-business collaboration system, with Kodak providing cameras and film and all of the development chemicals that outside businesses would use in developing camera user photos and more, and with those outside film processing developers gaining profits from their participation in this endeavor. As a snapshot in time, this presents a very high point of success and one of asymmetrical business-to-business collaborative control. And Kodak as a company continued to both innovate and diversify in what it did and from those early days on.

Some of those ventures, and I cite what became the Eastman Chemical Company as a working example, began as in-house divisions or other holdings of the Kodak Corporation and were then spun off as separate business entities. Chemical production, to pursue that example, was initially developed as a division of Kodak that was tasked with producing the specific range of chemicals needed for processing and developing their film. But it was ultimately reorganized into a completely separate business from its parent company in 1994.

Maintaining this type of chemical production capability in-house was a natural direction for Kodak to pursue in its growth and development and certainly from early on, given its intensive need for photographic and related chemicals, and its capacity to innovate and develop from there. But with time it became more prudent to bring their overall Kodak business model back into focus and its finances back in line and in this case that meant selling off this venture – and particularly as the market demand for more strictly photographic industry chemicals began to shrink. Meanwhile, this division had actively diversified what it offered in order to keep itself relevant and profitable, with its product offerings coming to include a much wider range of specialty chemicals. So it broke off as a new and separate business with a strong start for success as such.

Some of Kodak’s expansion and diversification initiatives have not worked out as successfully as the now separate Eastman Chemical Company has. But I am writing here of a relatively long corporate history, beginning in August, 1880 in Rochester, New York if you choose to trace this back to George Eastman’s original Eastman Dry Plate Company where he produced his first amateur-usable cameras out of a third floor office and production facility that was located on State Street. Kodak itself was formally founded out of that business on September 4, 1888, also in Rochester and as an expanded continuation of it. And I have been writing in this narrative, of change and of slow and evolutionary change that has not always been recognized, and certainly early on for its potential and even likely impact. And I have been writing of disruptive and innovative change and both as it has arisen in this business under consideration here, and as it has impacted on this company from the outside – and even there without always being appreciated for its significance and certainly not quickly.

• When a new and even groundbreaking disruptive innovation first arises and begins to go to market, its initial buying audience – its original realized marketplace is in many cases going to be small from it primarily attracting a positive response from the smaller number of pioneer and early technology adaptors who would take the risk of investing in and using it.
• It is easy to confuse such a starter market as simply representing a niche market – that might fade away or might remain stably strong – but only for a niche consumer audience.
• I end this posting by posing an unfair and essentially impossible to always consistently avoid conundrum: that of discerning early on enough when a new innovation is only starting small and with an initial pioneer and early adaptor market that it will grow beyond, and when it is in fact more destined to start as and remain a more narrowly defined niche market offering that will never really grow all that much in the business opportunity that it offers.

Kodak, like many and even most long lasting and storied businesses, has seen and chosen wisely in this, on a number of occasions and certainly during its founding. And from the vantage of 20/20 hindsight, it has seen and understood the meaning of new and innovative in ways that subsequent history would show to have been correct, and often enough to survive and even thrive, but while missing on that on significant occasions too.

I am going to continue this discussion in a next series installment as indicated above towards the top of this one where I stated that I will “discuss the details of symmetrical and asymmetrical collaborative relationships and how they are structured and carried through upon, looking at that from due diligence and risk remediation perspectives and from both sides of the table.” Meanwhile, you can find this and related postings and series at Business Strategy and Operations – 4, and also at Page 1, Page 2 and Page 3 of that directory. And see also Ubiquitous Computing and Communications – everywhere all the time and its Page 2 continuation.

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