{"id":16900,"date":"2016-11-17T23:32:15","date_gmt":"2016-11-18T04:32:15","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/fujifilm-outlasting-the-kodak-moment\/"},"modified":"2016-11-17T23:32:15","modified_gmt":"2016-11-18T04:32:15","slug":"fujifilm-outlasting-the-kodak-moment","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/fujifilm-outlasting-the-kodak-moment\/","title":{"rendered":"Fujifilm: Outlasting the \u201cKodak Moment\u201d"},"content":{"rendered":"

Eastman Kodak was once the leading film producer in the world, with 80% market share compared to its next closest competitor, Japanese owned Fujifilm, whom trailed with a mere 17%. [8]\u00a0 In the 1980\u2019s, “both Fujifilm and Kodak knew the digital age was surging towards [them], but the question was, what to do about it.” [2]\u00a0 Each company took a different approach to addressing digital transformation and the results were significant: in 2012, Kodak filed for bankruptcy, sold its patents, and exited its legacy businesses while Fujifilm grew into a $20.8 billion revenue company.\u00a0 [1] [4]\u00a0 While Kodak has become a classic example of failed innovation in the digital age, the keys to Fujifilm\u2019s survival are lesser known.\u00a0 This piece will focus on how Fujifilm changed an element of its business model to adapt to and ultimately leverage the digital revolution.<\/p>\n

Business Model.<\/strong>\u00a0 A business model consists of four essential elements that together define how a business creates value for the customer: (1) customer value proposition, (2) profit formula, (3) key resources, and (4) key processes. [5]\u00a0 Fujifilm\u2019s adaptation will be explored using the first element of this framework: customer value proposition.<\/p>\n

Customer Value Proposition.\u00a0 \u201cIt\u2019s not the product that creates value but the value proposition<\/em>.\u201d [6]<\/strong><\/p>\n

Fujifilm originally created value for customers by delivering quality photography film at a fair price via convenient retailer locations.\u00a0 Compared to Kodak, Fujifilm differentiated itself by offering comparable film products at a significantly cheaper price to consumers.\u00a0 But in the 1980\u2019s, Fujifilm realized photography would be going digital and faced a decision regarding what strategy to pursue. [3] \u00a0How did Fujifilm approach this problem and what did they decide?<\/p>\n

Scott Anthony, author of The Little Black Book of Innovation<\/em>,<\/em> recently published three questions businesses should ask themselves when considering a digital transformation.\u00a0 Though written 20+ years after Fujifilm\u2019s dilemma, they provide an excellent lens for understanding how Fujifilm adapted its value proposition:<\/p>\n

    \n
  1. \u201cWhat business are we in today?<\/strong><\/li>\n
  2. What new opportunities does the disruption open up?<\/strong><\/li>\n
  3. What capabilities do we need to realize these opportunities?\u201d [1]<\/strong><\/li>\n<\/ol>\n

    What business are we in today?<\/strong> Where Kodak remained focused on the film industry, Fujifilm questioned what business it was in.\u00a0 Was it in the camera film business or the imaging business? [1] \u00a0After recognizing it could leverage prior expertise in other industries, Fujifilm redefined itself as both an imaging and information technology company.\u00a0 As early as 1983, Fujifilm demonstrated this expanded position when it produced the world\u2019s first digital x-ray imaging diagnostic machine, the FCR. [9]\u00a0 Fujifilm\u2019s experience led it to pursue three lines of effort: Imaging, Information, and Document Solutions. [9]\u00a0 Figure 1 clearly depicts Fujifilm\u2019s accelerated transition from a company dependent on revenue from photo film to an imaging and information technology company.<\/p>\n

    Figure 1. Fujifilm Portfolio Mix<\/strong><\/p>\n

    \"fig-1a\"<\/a><\/p>\n

    (Note: \u201cImaging Solutions\u201d in the figure above refers to Fujifilm\u2019s camera and photographic film segment)<\/p>\n

    What new opportunities does the disruption open up?<\/strong>\u00a0 As it entered new industries and material\/ computer technology advanced, Fujifilm\u2019s opportunities grew.\u00a0 For example, what began as innovation in x-ray technology, transformed into a $3.8 billion business segment, with advancements in endoscopes, medical-use picture systems, and pharmaceuticals. [9]\u00a0 Figure 2 depicts Fujifilm\u2019s industry mix as of its 2016 Annual Report.<\/p>\n

    Figure 2. Fujifilm Portfolio Diversification<\/strong><\/p>\n

    \"fig-2b\"<\/a><\/p>\n

    What capabilities do we need to realize these opportunities?<\/strong>\u00a0\u00a0 As Fujifilm expanded its value proposition and identified new customer problems, the company recognized certain capability and knowledge gaps.\u00a0 In the 2012, for example, Fujifilm acquired SonoSite, an American ultrasound equipment maker, and went on to develop leading point of care imaging products which have garnered top awards. [3]<\/p>\n

    Recommendations.<\/strong>\u00a0 Innovation is an ongoing and iterative process that will quickly stagnate in the absence of a long-term strategy and investment.\u00a0 As Fujifilm continues to compete in the post-digital age, the company should consider the following recommendations.<\/p>\n

      \n
    1. Increase investment in research and development (R&D). Since 2009, Fujifilm has decreased its investment in innovation from $1.73 to $1.48 Billion or from 7.6% to 6.5% of revenues (see Figure 3). [4] \u00a0The decline in R&D spending has yielded an improvement in operating margins, but could slow innovation in the long term, counter to Fujifilm\u2019s strategy.<\/li>\n<\/ol>\n

      Figure 3. R&D Expenses<\/strong><\/p>\n

      \"fig3a\"<\/a><\/p>\n

        \n
      1. Expand partnerships, like that of its biomolecular imaging alliance with General Electric, to help fund R&D, create value for new customers, and further establish the brand as a leading imaging technology innovator. [7]<\/li>\n<\/ol>\n
          \n
        1. Slow the rate of industry diversification and focus on deepening expertise, pursuing innovation, and growing market share in healthcare and materials technology. Diversification across several industries with a variety of imaging products was essential to Fujifilm\u2019s initial survival in the digital age, but expansion into additional industries could spread its R&D funding too thin.<\/li>\n<\/ol>\n
            \n
          1. Maintain a lean operating model and a robust employee skills re-training program. By retraining current employees to adapt to new technologies, Fujifilm will continue to deepen its expertise and deliver on its customer promise.<\/li>\n<\/ol>\n

            Wordcount: 797 without citations or figures.<\/p>\n

            Citations<\/u>:
            \n[1] Anthony, Scott.\u00a0 \u201cKodak\u2019s Downfall Wasn\u2019t About Technology,\u201d 性视界 Business Review, July 15, 2016, https:\/\/hbr.org\/2016\/07\/kodaks-downfall-wasnt-about-technology, accessed November 2016.<\/p>\n

            [2] Inagaki, Kana and Osawa, Juro, \u201cFujifilm Thrived by Changing Focus,\u201d The Wall Street Journal, January 20, 2012, http:\/\/www.wsj.com\/articles\/SB10001424052970203750404577170481473958516, accessed November 2016.<\/p>\n

            [3] K.N.C., \u201cSharper Focus,\u201d The Economist, January 18, 2012, http:\/\/www.economist.com\/blogs\/schumpeter\/2012\/01\/how-fujifilm-survived, accessed November 2016.<\/p>\n

            [4] \u201cAnnual Report 2015,\u201d Fujifilm Holdings Corporation, 2015, http:\/\/www.fujifilmholdings.com\/en\/investors\/annual_reports\/2015\/pack\/pdf\/Financial-Section.pdf, accessed November 2016.<\/p>\n

            [5] Johnson, Mark W., \u201cA New Framework for Business Models,\u201d 性视界 Business Review, January 21, 2010, https:\/\/hbr.org\/2010\/01\/is-your-business-model-a-myste-1, accessed November 2016.<\/p>\n

            [6] St\u00e4hler, Patrick, \u201cThe offer is only one building block to fulfill the value proposition,\u201d June, 16, 2015, http:\/\/blog.business-model-innovation.com\/2015\/06\/product-is-not-the-value-proposition\/, accessed November 2016.<\/p>\n

            [7] Kohn, Stefan, \u201cDisruptive Innovations applied: A review of the imaging industry,\u201d http:\/\/www.innovation-portal.info\/wp-content\/uploads\/StefanKohnDisruptiveInnovationsFujiFilm.pdf, accessed November 2016.<\/p>\n

            [8] Cohan, Peter, \u201cHow Success Killed Eastman Kodak,\u201d Forbes, October 1, 2011, http:\/\/www.forbes.com\/sites\/petercohan\/2011\/10\/01\/how-success-killed-eastman-kodak\/#6944c9bc4d86, accessed November 2016.<\/p>\n

            [9] \u201cAnnual Report 2016,\u201d Fujifilm Holdings Corporation, 2016, http:\/\/www.fujifilmholdings.com\/en\/investors\/annual_reports\/2016\/pack\/pdf_TOP\/Annual-Report-2016.pdf, accessed November 2016.<\/p>\n

             <\/p>\n","protected":false},"excerpt":{"rendered":"

            How two camera film companies saw the dawn of the digital age, but only one survived.<\/p>\n","protected":false},"author":2677,"featured_media":16937,"comment_status":"open","ping_status":"closed","template":"","categories":[609,405,2393,466,2394],"class_list":["post-16900","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-diversification","category-film","category-fujifilm","category-kodak","category-photography"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/digitization-challenge-2016\/","yoast_head":"\nFujifilm: Outlasting the \u201cKodak Moment\u201d - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/fujifilm-outlasting-the-kodak-moment\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Fujifilm: Outlasting the \u201cKodak Moment\u201d - 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