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The SparkCom Blog

Will Kodak Successfully Pivot into Pharmaceuticals? I Doubt it.

by
Adam Hartung
Post Date:
July 30, 2020
Last Update:
July 30, 2020
In the Whirlpool, Innovation, Leadership, Marketing, Strategy, Trends

Yesterday (7/28/20), President Trump surprised a LOT of people announcing that via the Defense Production Act (DPA) the US government is going to give Kodak $765 million to make pharmaceuticals. The tie to current COVID-19 pandemic issues, for which the Act was invoked, is at best tenuous. Somehow the announcement seems to be more about moving pharma production back to the USA. Which is why it left me, and a lot of others, asking “why would you pick Kodak?”

Everyone knows the Kodak story. Great innovator, makes the Brownie and creates an entirely new market called “amateur photography.” From an era when almost nobody had a picture of themselves, Kodak made pictures commonplace. And the company was a wild success. The US Department of Defense asked Kodak to help them develop a way to send photos digitally from satellites to earth, and after spending a lot of taxpayer money Kodak invents digital photography. A very happy DOD allowed Kodak to keep the civilian rights to digital photography. Locked into the profits from film sales, Kodak never develops the products or market and licensed away the technology. Which doomed Kodak to the world of business history books as one of the classic business screw-ups of all time, riding film sales to death and missing the next big market wave.

Over the last 20 years there’s been nothing new to excite anyone about Kodak. They tried launching a blockchain technology-based business for photographers to manage picture rights. Way too late and poorly conceived, and lacking any demand, that went nowhere. Lacking any new ideas leadership grabbed the lightest “shiny new thing” and launched Kodak’s own cryptocurrency “KodakCoin.” Missed it? So did everyone else. In a word, Kodak was going nowhere.

I always recommend watching trends, and then pivoting your strategy to be on trend. So why didn’t the blockchain and cryptocurrency “pivots” work? Simply, Kodak brought nothing to the marketplace. They didn’t identify an un-met or under-met need and try to fill it with a better solution. Kotak just tried to jump into some shiny technology and throw it onto the marketplace hoping someone would think they needed it. They didn’t. So those pivots failed.

Big companies can pivot. IBM pivoted from a mainframe hardware company into a software and services company. And that worked because IBM understood customers had un-met and under-met needs for enterprise applications and Software-As-A-Service (SAAS) use. IBM moved from making expensive, over-developed hardware to meeting a very real customer need, and the pivot revitalized a nearly obsolete company.

Even before IBM, Singer was once a manufacturer of sewing machines. As the 1960s ended home sewing was in a tailspin, and commercial sewing was all going to Asia. Singer had nothing new to offer, while it’s primary competition (Brother) was innovating gobs of new features to make sewing better, faster, easier and cheaper. So Singer sold (all its products, manufacturing, brand name, etc) to Brother. Leadership studied the marketplace and identified a very big, growing and under-met need for defense electronics suppliers. Leadership carefully acquired leading companies with new technologies in forward looking infrared, heads up displays and others to build a leading-edge defense contractor. Note, they first identified an under-met need. Second, (via acquisition) they brought to market a lot of product innovation to improve customer performance in ways not previously utilized. The pivot was built on under-met needs and innovation.

So what is the plan for Kodak? Kodak knows nothing about pharmaceuticals, and their understanding of “chemistry” (to the extent it still exists) has NO application in pharma. (Ever heard of a joint venture called DuPont/Merck designed to apply DuPont chemistry expertise to pharma? I didn’t think so. It didn’t survive.) The plan is to build a company to make the most generic “pharmaceutical ingredients.” Not blockbuster pharmaceuticals. Literally, the very most generic ingredients. Not better ingredients. Not cheaper ingredients. Just make what already exists – and almost assuredly at a higher cost.

These Kodak ingredients are not innovative. Making them is not innovative. The reason “big pharma” doesn’t make these is because they are GENERIC products of low value, and production has moved to China and India where costs are lower. There is no innovation in these products. And Kodak has NO PLAN to add any innovation. None. Not in products, not in manufacturing process, not in markets served or customer service. Nope. Kodak plans to take 3 to 4 YEARS (any idea how fast markets move these days) to develop a plant to make a generic product that is sold on the basis of cost.

The only way this works, at all, is if the government forces, by regulation, U.S. pharma companies to buy from Kodak (in 3 to 4 years when they supposedly can make the stuff.) Otherwise, why pay the higher price? Today, American politicians constantly decry the high U.S. drug prices. So we are to expect that $765 million of taxpayer money will be spent on a plant, to make a generic compound, readily available in the world today, at a higher price, that will then be forced into American pharma products making them EVEN MORE EXPENSIVE! This is exactly how America ended up with the Bath Iron Works to make Navy ships which are the MOST expensive in the world – and thus wholly non-competitive in commercial ship production.

Does this not sound …… problematic? If we need U.S. based manufacturing for these products every single pharma company in the USA could open a plant faster, manufacturing at lower cost than Kodak, and with no quality or other regulatory concerns. There literally is no need for Kodak to become a supplier in this supply chain. And – absolutely no reason the U.S. taxpayer should be expected to teach Kodak how to “pivot” into becoming a new company. If the White House wants to use the D.P.A. to make more generic pharma compounds then it can push [insert any pharma company name you like here] to do it like they pushed G.M. to make ventilators!

Net/net – this is a pivot, and Kodak desperately needs to pivot. But this will not be a successful pivot. Because it is not targeting an unmet or under-met need. It is not utilizing innovation to create a better solution for meeting customer needs. This is making a generic product, that is readily available, at a higher cost than it is available today. Who wants this?

I’m sure Kodak shareholders are happy. Today. But this is a train wreck. Don’t expect this plant to ever make it to fruition, as the pharma companies will unwind this deal long before Kodak makes anything. And if we’re lucky, taxpayers will get some of their money back. But who knows, because this is a really stupid idea.

TRENDS MATTER. If you align with trends your business can do GREAT! Are you aligned with trends? What are the threats and opportunities in your strategy and markets? Do you need an outsider to assess what you don’t know you don’t know?