Kodak
In 1976, Steve Sasson demonstrated the world's first digital camera to Kodak executives.
In 1976, Steve Sasson demonstrated the world's first digital camera to Kodak executives. Thirty-six years later, the company filed for bankruptcy. This wasn't a failure to sense disruption - Kodak's R&D labs detected every signal. It was organizational neuropathy: when nerves can't transmit signals to muscles, sensory systems become irrelevant.
Three blockers prevented Kodak from acting on clear environmental signals. Incentive blockers: 70% of profits came from film, and digital meant immediate cannibalization. Infrastructure blockers: hundreds of millions sunk into chemical manufacturing plants. Identity blockers: Kodak's culture was 'film company' down to hiring and promotion paths. Meanwhile, the company systematically eliminated portfolio diversity - divesting Sterling Drug (1994), photofinishing (1997), Eastman Chemical (1999), medical imaging (2001), cameras (2004), and graphic communications (2009). By 2010, Kodak had transformed from a diverse technology conglomerate into a pure-play film company precisely as digital photography was eliminating film demand.
The failure illustrates a principle about constructed niches. For a century, Kodak built the film photography ecosystem: cameras, film, paper, processing chemicals, retail development. By the 1990s, they held ~70% film market share. They invented digital photography but couldn't abandon their constructed niche. The company spent years (1990-2012) trying to regenerate its film business when reinvention was required. The lesson: successful niche construction becomes a tomb when the environment shifts. Kodak didn't fail because digital photography arrived - it failed because it had eliminated every business that could have carried it through the transition.
Strategic Pivots of Kodak
Diversified technology conglomerate → Photography-focused company
failureKey Leaders at Kodak
Steve Sasson
Engineer
Invented the first digital camera at Kodak in 1975, but leadership shelved the technology
Cautionary Notes on Kodak
- Systematically eliminated diversity in pursuit of efficiency
- Film margins (70%) led to divesting lower-margin businesses (20-30%)
- Optimized for quarterly earnings rather than long-term survival
- Invented digital camera in 1975 but couldn't adapt
- Assumed film was permanent
- Divested diversifying businesses
- Rigid membrane prevented adaptation to digital photography
- Invented digital photography in 1975 but went bankrupt in 2012
- 70% profit dependency on film created insurmountable incentive blockers
- 36 years from signal detection to corporate death
- Had 80% market share but stayed in dying film market
- Invented digital photography but failed to transition
- Protected low-fitness film division despite clear data showing decline
- Let politics and sunk cost fallacy override fitness measurements
- Fed the dying business while starving digital innovation
- Protected low-fitness film division despite clear data showing digital was the future
- Politics and sunk costs overrode fitness measurements
- Invented digital photography but couldn't commercialize it
- Century of niche construction created insurmountable path dependence
- Your greatest strength becomes your prison
- Misread gradient speed - treated medium gradient as slow
- Had digital technology but failed to reallocate in time
- Invented digital camera (1975) but shelved the technology
- Dismissed early digital adopters as outliers rather than leading indicators
- Lacked systematic quorum-sensing mechanisms for market transitions
- Incentive misalignment delayed acknowledging core business obsolescence
- Filed bankruptcy in 2012, emerged as $150M company from $31B peak valuation (1997)
- Attempted regeneration when reinvention was required
- Wasted decades trying to revive film business
Kodak Appears in 13 Chapters
Filed for bankruptcy (2012) after systematically eliminating portfolio diversity through 1990s-2000s. Divested Sterling Drug, photofinishing, Eastman Chemical, medical imaging, cameras, and graphic arts - transforming from diverse conglomerate into pure-play film company as digital eliminated film.
Eliminating diversity before crisis →Failure case for assuming current conditions (film dominance) were permanent. Divested diversifying businesses in pursuit of focus, then collapsed when digital photography cycle displaced film demand.
Assuming permanence →Cited alongside Blockbuster, Nokia, and BlackBerry as example of rigid membrane preventing adaptation when technology shifted. Membrane mechanisms preserved identity during growth but became barriers to necessary change.
Rigid membranes preventing change →Chapter's central cautionary tale. In 1976, Steve Sasson demonstrated first digital camera - 26 years before bankruptcy. Tragedy wasn't failure to sense; it was transduction failure. Three blockers prevented action: incentive (70% profits from film), infrastructure (sunk costs), identity (film company culture).
Organizational neuropathy →Dominant film photography company destroyed when digital photography disrupted technological paradigm. Example of technology disruption causing organizational extinction despite previous market dominance.
Technology disruption as extinction →Failed marginal value test with 80% film market share (2000). Despite inventing digital photography, stayed in dying film market, refusing to migrate to digital patch. By 2012, filed for bankruptcy.
Refusing to leave the patch →Exemplifies catastrophic failure of letting politics override fitness data. By 2005, film division had fitness score 2/10 - they knew: film sales declining 15% annually, digital growing 40%. But film was 'strategic,' 'heritage,' a 'cash cow.' Fed $500M annually plus $3B cumulative R&D into dying division. Bankruptcy 2012.
Politics vs fitness data →Failed to kill low-fitness variants despite clear data. Film fitness score 2/10 (2005): sales declining 15% annually, digital growing 40%. But leadership protected film's budget, starving digital. Measuring fitness perfectly but letting politics override data.
Measuring but not acting →Exemplifies how successful niche construction becomes trap. For century, constructed film photography ecosystem (cameras, film, paper, chemicals, retail). By 1990s held ~70% film market share. Invented digital photography (1975) but couldn't abandon constructed niche. Filed bankruptcy 2012.
Constructed niche as tomb →Cautionary example of misreading gradient speed. Detected digital photography gradient in 1990s but treated it as slow gradient (waited 15 years to commit) when it was actually medium-speed (5-7 years). By the time resources reallocated, competitors had won.
Misreading change speed →Founded 1888, dominated film for century but became case study in quorum-sensing failure. Despite inventing first digital camera (1975), dismissed digital as minority behavior. Between 2000-2003, multiple thresholds crossed but recognized too late. Filed bankruptcy 2012.
Missing the threshold →Failed regeneration example. Spent years (1990-2012) trying to regenerate film business when reinvention or exit required. Wasted time and capital attempting to revive dead business model rather than accepting root system was obsolete in digital era.
Regeneration vs reinvention →Example of corporate freezing - maintained only 2% digital investment while market shifted to digital photography. Metabolism stopped, company died. Counterpoint to WeWork's overheating: both temperature extremes are fatal.
The freezing death →