kodak and the digital destruction of value chains

Kodak and the Digital D t ti f V l Ch iDestruction of Value Chains

Few technologies have been as disruptive as digital technology. It has turn industry after g gy y

industry upside down.

One reason for this is of course that it as destroyed the competence base of y p

established companies.

Mechanical calculators used to be based upon cogwheels and with the shift to electronics, the

value of all this competence was lost.

When the interior of a product instead lookedlike this, many mechanical companies lost, y p

their competitive advantage.

The same thing happened with cameras.

Another reason for the turmoil is that digital technology has destroyed established value chains.

Large and complex value chains have been removed since the technology is much simpler and cheaper.

Let me give a few examples…

Once upon a time there used to be radio stores in societyradio stores in society…

Calculator stores…

… Plenty of camera stores…

… Music stores.

In these cases, digital technology has removeddownstream activities in the value chain…

… and therefore lost much of theircompetitive advantage.

Kodak used to be vertically integrated…

… and had many sites like this one around the world (photos from Stockholm).

Needless to say, this implied high entry barriers and a better relationship to customers.

It took many decades before Fujifilm becamea threat to Kodak…

But when the digital revolution came intomotion, these sites became useless.

Cameras were instead sold in consumerelectronics stores and film declined rapidly.

Severalcamera

t hstores havealso goneg

out of b ibusiness.

The continuous consumption of film generated continuous revenues andgenerated continuous revenues and

visits to the local camera store.

And they repaired your camera.

Consumerelectronics isn’t

repaired, becausenew, better

products enter the market all the time.

Thousands of camera storesThousands of camera stores around the world have died.

The same thithing

happened to ppRadio stores.

The special radio stores made money on reparation, and therefore, transistor radios did

not fit into this value chain.

They were instead sold via discount stores.

How many radio stores do weh i th ld t d ?have in the world today?

With the shift from mechanical calculators, the sales channel shifted to bookstores.the sales channel shifted to bookstores.

No more reparation, and moreover, the pricewas in the end so low that no money could be

made on repairing these products.

Have you ever repaired an electronic calculator?

The music industry is experiencing preciselythe same kind of value chain destruction.

Bookstores have also losttheir competitive advantage

ith th i f th i t twith the rise of the internet.

How many special TV stores doHow many special TV stores dowe have nowadays?

And how often do you repairAnd how often do you repairthese products?

When it is broke, you’ll have a good reason to buy a new, better and cheaper one instead.

Digital technology has created valuechains which are much shorter and simpler.p

It has created value…

… by removing activities…

… and made products so cheap that it makes no sense to repair them anymore.

All these digital products have are nowadaysmainly sold via huge consumer electronics

stores or over the internet.

This is of course much cheaper and it makes sense economically…

But there’s been quite some creativedestruction associated to this revolution.

Christian Sandström is a PhD student at ChalmersPhD student at Chalmers University of Technology in Gothenburg, Sweden.in Gothenburg, Sweden.

He writes and speaks about disruptive innovation and

technological change.

Christian Sandström is a PhD student at ChalmersPhD student at Chalmers University of Technology in Gothenburg, Sweden.in Gothenburg, Sweden.

He writes and speaks about disruptive

B t h t h d t K d k?

innovation and technological change.

But what happened to Kodak?

Christian Sandström is a PhD student at ChalmersPhD student at Chalmers University of Technology in Gothenburg, Sweden.in Gothenburg, Sweden.

He writes and speaks about disruptive

B t h t h d t K d k?

innovation and technological change.

But what happened to Kodak?

Find out more:www.christiansandstrom.org

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