Kodak Didn't Kill Rochester. It Was the Other Way Around

Another great read from the Wall St. Journal.  Substitute Rochester for Buffalo and Kodak with ????? that's the problem is there are no big companies left in Buffalo...

Kodak Didn't Kill Rochester. It Was the Other Way Around

The film pioneer invented the digital camera but couldn't escape the intellectual limitations of geography.

By RICH KARLGAARD

The population of Rochester, N.Y., peaked in 1950 at 330,000. Its largest headquartered company, then and now, was Eastman Kodak. Two years later a popular radio show called "The Adventures of Ozzie and Harriet" jumped to the new medium of television. Kodak sensed a winner and sponsored the show. Little Ricky Nelson liked to tote around a Kodak Brownie Camera, which sold for $5.95.
Kodak's successful run outlasted that of "Ozzie and Harriet," which went off the air in 1966, and that of its hometown. Rochester began to shed population rapidly after a race riot in 1964, and five years later its second largest company, the Haloid Corporation, decamped for Norwalk, Conn., later renaming itself Xerox. But Kodak, with its large flows of cash and a top global brand, thrived in the 1960s and 1970s.
Then, gradually, the company began to lose its way. Kodak's troubles first appeared not in stalled revenue but in gradually declining profit margins—a point a year for most of the 1980s. The company's first consumer digital camera appeared in 1995, but buyers preferred Sony, Canon and other Japanese imports. Kodak began selling its digital cameras at a loss to keep up.
The rout was humbling for Kodak, one of whose engineers invented the digital camera in 1975. Also humbled was CEO George Fisher. Mr. Fisher—an extremely successful manager and Ph.D. in applied mathematics who had pushed Motorola hard into cellphones before taking over at that company—became chief at Kodak in 1993. Yet even he could not stop the company's decline.
Kodak's erosion became a mudslide during the last few years. Buy a smart phone today, get a camera free. Sure, the iPhone's camera might not rival Nikon's—yet. But the history of digital technology is one of the bottom steadily catching the top.

 

Bloomberg

The headquarters of Eastman Kodak Co. in Rochester, N.Y.

If Kodak's looming bankruptcy closes the book on this storied company, much will be written about the company's blindness to digital cameras and then smart phones. Rubbish! Kodak knew the future was digital as far back as the 1970s and, with Mr. Fisher at the top, began hiring managers with deep digital knowledge.
Kodak's problem wasn't blindness. Rather it was that film was a fatally attractive cash cow. Even in its decline, the company's film business produced outrageous profit. That cash paid for Kodak's forays into digital, but the result was that Kodak's digital cameras never learned to run on their own two feet. Trust-fund babies seldom do.
Kodak's other structural problem is geography. When you study the history of great American companies that stumbled and failed, or only partially recovered, you see how difficult it is to overcome the mindset of your immediate surroundings. Businesses located in places where success is the norm, and innovation is built into the ecology, have a better chance of fixing themselves.
Intel almost bit the dust in the mid-1980s but came back to greater glory. Like Kodak, it faced ruinous Japanese competition. Intel didn't hesitate. It shed its memory-chip business and bet the ranch on microprocessors. That was a big bet and it was ruthless. Memory-chip factories were shuttered and people were laid off. That was, and is, easier to do in Silicon Valley, where the laid-off can more readily find new jobs, than in a small city like Rochester, whose population is now at 210,000 plus.
Paralysis can infect cities and regions, and not just small ones. It is still a mystery how the entire Boston-area-based minicomputer industry could fail so suddenly in the early 1990s. Digital Equipment, Data General, Wang, Apollo—all went poof. Each fell from the top of their industries to death in less than a decade.
The two kings of Route 128—Digital's founder Ken Olsen and Wang's founder An Wang—were stubbornly resistant to personal computers. Together, they cast a kind of omerta over the region: PCs must never be mentioned!
John Chambers, CEO and chairman of Cisco, cut his management teeth at Wang. Mr. Chambers tells a story about playing tennis with An Wang in the late 1980s. He tried to talk to Wang about PCs. Wang became so upset that he stormed out of the match.
IBM also nearly died during the early 1990s. But unlike the companies in Boston, it retooled and recovered. Why? I would argue that IBM, being a New York City company—okay, a suburban one—had a healthy disrespect for the status quo and zero tolerance for omerta. Tough-talking Lou Gerstner had no qualms about shedding a couple hundred thousand jobs.
What Mr. Gerstner did was difficult. It would have been infinitely harder to do in Rochester, because the impact on a small city and the multiplier effect of lost jobs, axed all at once, would have been a civic disaster. Of course, Kodak's slow bleed has turned out to be a civic disaster anyway.
The world might be flat. But innovation and adaptation remain local