Creative Destruction: Kodak Teeters on the Brink

Rochester-based Eastman Kodak (EK) has been around since 1894, and was a blue-chip Dow Jones Industrial Average stock from 1930-2004. The company has been on the annual Fortune 500 list of America’s largest companies every year since the rankings started in 1955. But the company hasn’t turned a profit since 2007, and is now on the verge of filing for bankruptcy, according to an article in today’s Wall Street Journal.

Here are some excerpts:

“Eastman Kodak Co. is preparing to seek bankruptcy protection in the coming weeks, people familiar with the matter said, a move that would cap a stunning comedown for a company that once ranked among America’s corporate titans.

That Kodak is even contemplating a bankruptcy filing represents a final reversal of fortune for a company that once dominated its industry, drawing engineering talent from around the country to its Rochester, N.Y., headquarters and plowing money into research that produced thousands of breakthroughs in imaging and other technologies.

The company, for instance, invented the digital camera—in 1975—but never managed to capitalize on the new technology.

Such uncertainty [about the company’s future] was once unthinkable at Kodak, whose near-monopoly on film produced high margins that the company shared with its workers.

Former employees say the company was the Apple Inc. or Google Inc. of its time.”

MP: The rise and fall of Kodak is a great example of several economic principles including Schumpeterian “creative destruction,” “consumer sovereignty,” market competition, and the discipline of the market. It also illustrates the economic reality that even a firm with a dominant, near-monopoly status in the short-run (Kodak, IBM, ALCOA, Microsoft, etc.) will be unable to maintain that position in the long-run due to innovation, advances in technology, changes in consumer preferences, competition, substitute products, etc., usually even without antitrust enforcement.

As further evidence of the constant “churning and creative destruction” of a dynamic market, I reported recently on CD that only 67 companies on the Fortune 500 list of the largest U.S. companies in 1955 were also on the Fortune list in 2011. In other words, only about 13% of the Fortune 500 companies in 1955 were still on the list 56 years later in 2011, and almost 87% of the companies have either gone bankrupt, merged, gone private, or still exist but have fallen from the top Fortune 500 companies (ranked by revenue).

Disclaimer: This page contains affiliate links. If you choose to make a purchase after clicking a link, we may receive a commission at no additional cost to you. Thank you for your support!

About Mark J. Perry 262 Articles

Affiliation: University of Michigan

Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan.

He holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University in Washington, D.C. and an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota.

Since 1997, Professor Perry has been a member of the Board of Scholars for the Mackinac Center for Public Policy, a nonpartisan research and public policy institute in Michigan.

Visit: Carpe Diem

Be the first to comment

Leave a Reply

Your email address will not be published.


This site uses Akismet to reduce spam. Learn how your comment data is processed.