Monday, January 16, 2012

Why Fujifilm Survives (and Kodak May Not)

The Economist this week has a really good article about the diverging fortunes of Kodak and Fujifilm. The reasons given in the article are various although many of them can be summed up as poor execution and slowness to change on the part of Kodak.

It's not that Kodak didn't see change coming. For example, "Larry Matteson, a former Kodak executive who now teaches at the University of Rochester’s Simon School of Business, recalls writing a report in 1979 detailing, fairly accurately, how different parts of the market would switch from film to digital, starting with government reconnaissance, then professional photography and finally the mass market, all by 2010. He was only a few years out."

I encourage you to read the whole article, but I wanted to point out one particular contrast. It's interesting because it runs something counter to certain conventional Marketing 101 wisdom.

Kodak tried (unsuccessfully) to parlay its experience with chemicals into pharmaceuticals. However, its main thrust was ultimately to transition their analog film business directly into the digital domain. As the article notes, "George Fisher, who served as Kodak’s boss from 1993 until 1999, decided that its expertise lay not in chemicals but in imaging. He cranked out digital cameras and offered customers the ability to post and share pictures online." By contrast:

Fujifilm diversified more successfully. Film is a bit like skin: both contain collagen. Just as photos fade because of oxidation, cosmetics firms would like you to think that skin is preserved with anti-oxidants. In Fujifilm’s library of 200,000 chemical compounds, some 4,000 are related to anti-oxidants. So the company launched a line of cosmetics, called Astalift, which is sold in Asia and is being launched in Europe this year.

Fujifilm also sought new outlets for its expertise in film: for example, making optical films for LCD flat-panel screens. It has invested $4 billion in the business since 2000. And this has paid off. In one sort of film, to expand the LCD viewing angle, Fujifilm enjoys a 100% market share.

Kodak's execution may have been flawed but, in important respects, its strategy stemmed almost directly from Theodore Levitt's famous 1960 Harvard Business Review article, "Marketing Myopia." This article popularized the idea that companies should define themselves in terms of markets and customer needs, rather than products--such as thinking in terms of the "transportation" market rather than the "railroad" product. The idea is that companies doing so are better able to transition to new products and services as underlying technologies and environments change.

When Kodak decided it wasn't in the film business (a product) but in imaging (a broader customer need), it was following a well-worn strategic dictum.

While this can be a good approach, I've argued previously that it's often not. "Understanding of customers," or brand strength, or distribution channels can be less important than fundamental competitive advantages rooted in technology.


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