The curious case of Kodak and its leap into drug manufacturing

“ Business is a process of deploying / re-deploying assets (investments) in order to gain margins ”

Kodak and Fujifilm both ruled the global photo industry in the 1980 – 2000 era, however, both met with dramatically divergent fates, atleast until now. While Fujifilm was able to successfully retool its business model into synergetic industries / verticals (and now turns approximately $22 bn in revenues), Kodak went bankrupt in February 2012.

“ A good business model is one that adapts itself to regularly show increased profitability / maintain profitability in the wake of changing market scenarios (positive Income Statement effects) “

-     In the wake of changing market dynamics, firms that can utilize fewer assets / deploy fewer assets yet generate high margins will stand the test of times and will be eventual winners

The Kodak juggernaut: An old man telling youngsters to shape up and do things the old way

Kodak chose to ignore the threat that digital posed to its legacy business and instead of changing its business offerings / building defense strategies around its legacy business, it continued to push more and more investment into it. (Increasing asset base -> Reducing profitability)

And by the time Kodak realized that this strategy wasn’t working, it then immediately tried to push investments aggressively into digital cameras, inkjet printers, and all other related markets, without realizing the shift in customer need from printing to storing images electronically (Further Increasing asset base coupled with declining revenues-> Further Reducing profitability)

Additionally, by the time Kodak started pushing huge investment in these markets, these markets were becoming a race to the bottom as new competitors emerged and flooded the market with increasingly low-cost products. (Red-ocean market coupled with very high asset base -> Lowest possible margins)

On the other hand,

Fujifilm understood that digital is going to be the legacy business’ s revenue / profit killer and hence it looked for ways to find synergies for its existing processes, IPs, products with other industries so as to utilize the existing asset base to maximize its profits. The legacy business now accounts for only 1% of the global business.

Fujifilm decided to utilize its scientific assets in other industries – Fujifilm had developed a vast array of chemical compounds (approximately 20,000 of them) over the years supported by a strong IP. These were now taken out of their original film photography research context and redeployed in other industries, namely pharmaceuticals, healthcare, and cosmetics. (Maintaining asset base coupled with industry-wide expansion -> Increased profitability)

Synergy with the cosmetic industry – Collagen a material used in colour photographic films has vast and important usages in cosmetic products. Fujifilm held a huge accumulation of unique collagen technology to manufacture various types of collagen. Hence, it could successfully enter the cosmetic industry by implementing their know-how on collagen and utilizing their unique IPs built over the same.

Synergy with drug development – Fujifilm realized that drug development manufacturing consisted of similar infrastructure as those used for film production, and hence it was able to utilize the same asset (lab infra) to develop new drugs. Fujifilm now conducts research on cancer, Alzheimer’s, and a host of other diseases, while also developing new viral vaccines and gene therapies. As we speak, it is now in the development stage of a Covid-19 vaccine!!!

It seems that Kodak learnt the important lesson of finding synergies with other industries while utilizing its own resources and IPs, albeit late. Kodak began making drug ingredients four years ago and will now dramatically expand production at its New York and Minnesota facilities. With the additional impetus given by the Trump administration, Kodak expects drugs to make up 30 – 40% of its future business and help reduce US’ over-reliance on India and China for generic drugs.