Kodak built a digital camera in 1975 and kept protecting film

In 1975 Steve Sasson, a young engineer at Eastman Kodak in Rochester, was asked to see what could be done with a new kind of image sensor, the CCD. He built a prototype about the size of a toaster, weighing around 3.6 kilograms, that captured black-and-white images of 100 by 100 pixels and wrote each one to a cassette tape, a step that took about 23 seconds. The pictures were viewed on a television through a separate playback unit. Kodak patented the work and kept researching electronic imaging, but years passed before it sold digital cameras.

Kodak was then the reference for photography: film, paper, chemicals and processing, a business that earned money each time someone pressed a shutter. When consumer digital cameras arrived, Kodak did make them, and in the mid-2000s it was among the top sellers in the United States. The profits were the problem. A digital camera is sold once and needs no film, and film margins had funded the whole company. As pictures moved to memory cards, phones and screens, film sales collapsed. In January 2012 Eastman Kodak filed for Chapter 11 bankruptcy protection, and it emerged in 2013 as a much smaller company focused on commercial imaging.

The customer was paying for the moment

For decades Kodak’s promise lived in a phrase that entered everyday speech, the “Kodak moment”: a moment worth keeping. Film was the carrier of that value, and for a long time the only practical one. Customers bought film because they wanted the moment kept.

When a better carrier appears, the value travels to it. Digital made keeping a moment cheaper and faster, and soon made it shareable. Demand for what Kodak stood for never went away; its format lost its role. We have a name for the maneuver this situation calls for, value swapping: you keep the value pinned and change the source that carries it. Kodak had the brand, the technology and the customer trust needed to carry the moment into the new medium, and its organization was built around the old carrier.

The portfolio you protect

A digital camera inside a film company is a product that eats the business paying the salaries. Every sensible financial review compares the new line’s thin margins with the rich ones of the old line, and the old line wins the comparison, year after year. The book puts the trap in one sentence: 76% of the value of a dying market is 76% of nothing, yet from the inside it always looks better than 10% of a market being born.

That makes the case a lesson in governance more than in technology. Kodak had the invention and the patents. What it lacked was a way to judge the new category on its own trajectory, instead of against the margins of film, and a plan to move its values onto the new carrier while the film business still had years of cash left to fund the move.

Set the trigger before you need it

In our method the evolution of values fires on triggers defined in advance: events that, if they happen, set the change in motion. For a film company, one obvious trigger would have been the point where a digital picture cost an ordinary family less than a printed one. Writing that trigger down in the 1980s would have taken a page. Acting on it when it fired would still have hurt, but on a timetable the company chose, with a plan already agreed by the people who would have to carry it out.

The hardest version of this problem is the one Kodak faced, where the best-selling line and the threat to it come from the same lab. If that sounds like your portfolio, planning the swap while the old line still pays is part of what we do.