Kodak and HME

Most mornings I turn on the television to catch the news before I get out of bed. Today was no exception, but I let a commercial play without muting it. That is an exception. It was a Kodak ad promoting its new line of printers.

Since as a photographer I have shot thousands of rolls of Kodak film, mixed and used hundreds of gallons of Kodak chemicals and exposed thousands of sheets of Kodak paper with an enlarger’s lamp, it made me think how much Kodak has changed since I became a customer in 1963. It also triggered the realization that Kodak’s history is replete with lessons for the HME industry, but one really sticks out: We can’t hold on to the past. We must change with our environment regardless of why or how the environment changes.

Kodak created amateur photography and made relationships with virtually everyone in America. Those who are older than digital photography used Kodak film and perhaps Kodak cameras. Those not older than digital photography have likely had digital images printed on Kodak paper and may have used a Kodak digital camera. By 1993, the value of those relationships with Kodak had grown to $16 billion in sales.

But today, and for the last five years, the company has annual sales stuck at $10 billion. That means from 1993-2002, sales declined 37.5 percent, and then had no change for five years. Kodak’s competitor Canon has had sales growth of 38 percent in the last five years. Kodak has made a profit for three of the last five years but reports a cumulative loss of $415 million for those years. Canon, on the other hand, has a cumulative profit of $16 billion (about 10 percent of sales) for the same period.

During the last 15 years, the photographic equipment and supply industry has gone through an archetypal shift that is every bit as dramatic and perturbing as what our industry has just commenced. One of the lessons we should learn from this is some companies do just fine in spite of new environments. On the flip side, we can see agonizing failure. Why has Kodak failed to perpetuate its enchanted story?

First, we should understand the great shift in its environment. It is all tied to the digital age, and more specifically to digital photography. Kodak built its business when cameras used film, photographic papers had silver-based emulsions and labs used chemicals to bring out the effects of light on the film and paper.

In the late 1990s, however, the world quickly adopted digital photography. Images are still captured with a camera, but on a sensor that converts the light to electrons and stores thousands of them on a card the size of a thumbnail. The pictures that were shared by printing them on paper are now shared via email, digital slide shows and digital picture frames. It is easy to see how Kodak’s sales evaporated.

But they didn’t have to. Kodak saw digital photography on the horizon just as we have seen the effects of the Medicare Modernization Act, the Deficit Reduction Act and the Medicare Improvements for Patients and Providers Act on the horizon.

In fact, Kodak developed the first digital camera in 1975 and put it on the market in 1991. But while Kodak was helping to lead the world into digital photography it was simultaneously producing film cameras, film, chemicals, photo papers, photo labs and other products for silver-based photography that dates to 1837 in France. Canon and other competitors stopped producing film cameras years ahead of Kodak.

As a businessperson, it is easy to see how difficult it could be for Kodak to turn away from its tried-and-true revenue stream. However, by devoting so much attention to the old environment, Kodak gave less attention to the new environment. There were plenty of rivals who were willing to forget the days of film and move on to the digital world. Not adjusting quickly enough to the new environment has cost Kodak market share, billions in potential profits and billions in losses.

As we are in the early stages of great change in our industry, we need to be careful not to remain so connected to our past that we make it difficult to make our place in the future.

Wallace Weeks is founder and president of Weeks Group Inc., a Melbourne, Fla.-based strategy consulting firm. You can reach him at 321/752-4514 or [email protected].