Wednesday, December 06, 2006

Why Kodak’s Strategy Will Work…

The November 27th issue of Business week had a very interesting article about Kodak and some of the tough choices and strategy shifts it had to undertake over the past 10 years. Over the past ten years, Kodak had to re-invent itself from a film company to a print company to a digital technology provider illustrated by its recent deal with Motorola. So what's behind Kodak's transformation? First, despite the resistance to change that any strategy shift entails, is the recognition of a true identity and business purpose. Kodak is an image company and as such, it is able to adjust, though painfully, through the value chain of the image business.

In a sense, this is a classical illustration of Clayton Christensen's "Law of Conservation of Attractive Profits". The law of conservation of attractive profits states that in the value chain there is a requisite juxtaposition of modular and interdependent commoditization, that exists in order to optimize the performance of what is not good enough. When modularity and commoditization cause attractive profits to disappear at one stage in the value chain, the opportunity to earn attractive profits with proprietary products will usually emerge at an adjacent stage (quote from The Innovator's Solution). This happened to the computer industry (see Intel) and is happening to the image industry. Kodak's bet that the growth of digital photography will happen in mobile phone and that profits margins for sensor chips will be twice those of the digital camera business aligns with the above law. Kodak is identifying new revenue opportunity in the image value chain and aggressively pursuing the shift in the value chain. That's true leadership and it will pay off. Good luck Mr Perez.

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