The Psychology of Kodak’s Downfall

What the demise of Kodak teaches us about executive leadership.

Posted Aug 12, 2020

MBPROJEKT_Maciej_Bledowski/iStock by Getty Images
Source: MBPROJEKT_Maciej_Bledowski/iStock by Getty Images

Eastman Kodak Company was the biggest name in photography, creating the first fully portable camera in the late 1800s and bringing complex photography to people around the world. Their business model was simple: sell inexpensive cameras at low margins and bring in real revenue with easy-to-use products and services such as film, photographic paper, and picture processing. 

And they dominated the industry for a century, with a monopoly-resembling 80 percent of the film market in the United States. Yet, as pointed out by Will Rodgers, “even if you are on the right track, you’ll get run over if you just sit there.”

In early 1975, Kodak engineer Steve Sasson invented a toaster-sized digital camera, launching the beginning of a technological shift from film cameras to digital. However, Kodak was in their heyday crushing competitors and blinded by success, so the response to Steve’s groundbreaking idea was, “That’s cute, but don’t tell anyone about it.” 

The CEO at the time was Walter A. Fallon, a chemist-turned-executive who grew up in the company and, while serving as CEO and then later chairman, took the organization from $3.48 billion in 1972 to $10.8 billion in 1982. Sounds like an undeniable success story, right?

To the contrary, this was actually proof that revenue growth is different than strategically positioning an organization for the future. Sure, Kodak expanded quickly under Fallon’s leadership, but they simultaneously failed to navigate disruptive technologies, thus losing the long-term game in dramatic fashion to competitors like Sony and Fujifilm.

In fact, in 1982 Fallon and Colby Chandler, Kodak’s president, doubled down on the disc camera, even telling shareholders it was an industry disruptor, the most successful camera ever created. They strongly believed it was the next game-changing innovation, as opposed to digital cameras, stating that the worldwide response to disc technology “confirms our belief that the disc system will be… the new engine that will drive this industry forward.”

Kodak had another chance to course correct in 1989 when they decided to replace chief executive Colby Chandler with either vice-chairman Phillip Samper or president Kay Whitmore. Nonetheless, due to a hierarchical, risk-avoidant culture, the organization chose a more cautious Kay Whitmore, who according to The New York Times said he would keep Kodak closer to its core film business, emphasizing stability over adaptability, pragmatism over vision, and focus over innovation.

And that’s exactly what he did. Under Whitmore’s leadership, Kodak stayed true to the past and failed to go all-in on the digital camera; they were risk-avoidant, execution-oriented, and had a CEO with traditional values that saw the future as more of the same. They were outplayed by rivals in the heart of digital transformation, and they ultimately filed for Chapter 11 protection on January 19, 2012.

The story of Kodak is the story of risk-aversion in the C-suite, and it teaches us at least four lessons about executive leadership:

First, executive leadership is vastly consequential to the fate of organizations. Kodak could have changed the course of history with a single decision: selecting Phillip Samper instead of Kay Whitmore. The psychology of Whitmore and other top executives — Walter Fallon and Colby Chandler — was unapologetically traditional, and this mindset supported executing on an existing business model but moved breakthrough innovation to the back burner.

Second, organizations become more homogenous over time. Science shows cultural values filter out individuals with different personality styles, explaining why Kodak selected leaders with the same values, and also why they kept double-clicking on the existing strategy rather than taking the organization in new directions.

Third, personality forecasts how executives make strategic decisions. After evaluating over 4,500 CEOs, academics at Harvard, Stanford, and the University of Chicago found executives scoring higher on creativity and adaptability invested more in innovation than low scorers. On the other hand, CEOs that scored high on conscientiousness were leading low growth companies, a finding consistent with research showing conscientious executives are less adaptable and risk-taking, like the prudent leaders at Kodak.

Fourth, Kodak’s story illustrates what happens when executives fail to balance radical innovation with executing on current competitive advantages. They wanted to keep the gravy train rolling with existing core competencies but failed to dexterously shift between the paradoxical demands of long-term strategic positioning and short-term execution. We all have natural tendencies; the trick is reading the situation and adjusting our aperture to match organizational needs.

After evaluating thousands of executives, I’ve found that Kodak’s story of relying too much on one’s strengths is very common. The base rate of failure is over 65 percent because executives overuse natural strengths and neglect the other side of leadership. In the end, the only route to personal improvement (and effectiveness) is having the courage to confront reality head-on, for it allows us to minimize biases and balance the inherent tensions in social life and business leadership.

References

Deutsch, C. H. (2008). At Kodak, Some Old Things Are New Again. Retrieved from The New York Times.

Frank, M. D. (1982). Eastman Kodak Co. Chairman Walter Fallon told Shareholders at… Retrieved from UPI Archives.

Gow, I. D., Kaplan, S. N., Larcker, D. F., & Zakolyukina, A. A. (2016). CEO Personality and Firm Policies. National Bureau of Economic Research.

Holusha, J. (1989). Click: Up, Down and Out at Kodak. Retrieved from The New York Times.