Twenty years ago the Eastman Kodak Company and Fujifilm were facing very similar situations. Both companies received the majority of their income from the sale of photographic film, and both saw a revolution coming that would destroy the market for that film. With the development of digital cameras there would be less and less use for film. Both companies recognized this, but they responded in very different ways.
Kodak’s efforts through the 1990s and the following decade have been analyzed extensively, and various theories and explanations have been offered for its choices, but the bottom line is that the company failed to find anything that could replace film. Through the 1970s and 1980s, as it increasingly focused on its most profitable product—film—it either exited or failed to enter a number of other areas that could have helped it adapt to the coming crash of the film market. As the rise of digital photography proceeded, Kodak experimented with various products to augment its film business, including hybrid digital-film cameras and pharmaceutical drugs, but nothing developed into a major market. After filing for Chapter 11 bankruptcy in 2012, Kodak shed many of its liabilities along with many of its product lines—including consumer cameras and film—and emerged in September 2013 as a much smaller and different firm. The company now focuses on printing technologies used by businesses and sensors used on touch screens.
The effects of Kodak’s choices reverberated far beyond the company. Its home city of Rochester, New York, was hit hard economically as the number of people employed by Kodak in Rochester dropped from 62,000 in the 1980s to fewer than 7,000 in 2012. This played a large role in the dramatic decline in Rochester’s population—from a peak of 330,000 in 1950 to around 210,000 in 2012—and in the drop in the average income in Rochester from above the national average to below.
By contrast, Fujifilm moved much more decisively into new product lines. Recognizing that it had extensive expertise in dealing with the antioxidant chemicals used in photography, it used that expertise to develop antioxidants
for use in cosmetics that help improve skin condition and now has a major cosmetics line. It developed optical films for use with flat-panel screens. Indeed, it became so accomplished at developing new technologies that in both 2012 and 2013 it was named one of the top 100 most innovative companies in the world by Thomson Reuters. It remains a strong and profitable company even though its previous major product, photographic film, now accounts for only a tiny percentage of its sales.
At its core, the tale of Kodak and Fujifilm is a story about the importance of “making value.” For decades both companies had done an excellent job of creating products—mainly different types of photographic film and the materials needed to develop that film—that had great value for people and for society as a whole. But over time the value of popular film photography changed. The availability of digital cameras that were more convenient and less expensive to operate than film cameras decreased the value of film, making the traditional core business of both Kodak and Fujifilm steadily less profitable. To remain viable the companies needed to find new ways to make value. As explained, Fujifilm has thus far done that far more successfully than Kodak.
Although it is not yet in widespread use, the concept of making value is a particularly effective way of examining the success and failure of individuals, businesses, communities, and nations. Making value is the process of using ingenuity to convert resources into a good, service, or process that contributes additional value for a person or society. While value creation is often used to refer to the ability to provide things of worth for the customer or user, making value is used here to emphasize the entire system of activities that is necessary to conceive, produce, and deliver these things—especially the design and production processes that often receive less attention in discussions of value creation.
It is important to recognize that it is not only companies that fare better or worse depending on how well they succeed in making value. The welfare of individuals, communities, states, and entire countries depends on their ability to make value and take advantage of that value.
Consider, for example, the development of Research Triangle Park in North Carolina. For six decades, from the 1920s through the 1980s, a healthy textile industry drove much of the state’s growth. But by the 1990s, rising living standards in the South combined with greater access to low-cost capacity in other countries led most textile manufacturers in North Carolina and the rest of the United States to relocate overseas. Similarly, tobacco—farming and the production of tobacco products—was a major part of the state’s economy through the 1960s, but by the 1990s most of the tobacco industry in the state had relocated overseas.
Instead of stagnating in the wake of these major changes, North Carolina has been replacing its lost jobs in textiles and tobacco with a variety of new jobs in high-tech industries such as analytics, electronics, and pharmaceuticals. In a sense, the state had been preparing for this transition for over half a cen-
tury, since it established Research Triangle Park (RTP) in the 1950s to foster innovation in the region. RTP is a prominent example of local government working with private industry and academia to create a local ecosystem for innovation that attracts and nurtures high-tech companies and takes advantage of the talented students graduating from nearby universities, including Duke University, the University of North Carolina at Chapel Hill, and North Carolina State University. Encompassing Raleigh, Durham, and Chapel Hill, RTP is now home to a rapidly growing number of companies that make electronics components, design software, and develop nanomanufacturing techniques, while the western part of the state manufactures a large percentage of the world’s fiber-optic cables and contains a large number of data centers, including those run by Google, Apple, Facebook, and AT&T. In the face of the decline of its textile and tobacco industries, North Carolina found many new ways to make value.
The examples of Kodak, Fujifilm, and North Carolina illustrate that technologies and global forces, such as expanding access to international markets and workers, change and transform the value associated with a product, service, region, or set of skills. Individuals, companies, communities, and countries that do not change effectively in response can be left behind.
This is a particularly important lesson for Americans to keep in mind today because the economy is facing a number of disruptive changes. Economists and engineers predict, for example, that advances of automation and business processes in manufacturing and across the economy will continue to reshape the labor market in dramatic ways. Computers and streamlined operations are likely to replace an increasing number of workers in a variety of occupations. As much as 50 percent of US jobs are at risk. As this transformation of the labor market continues, the effects on society could be severe unless new types of jobs are created to replace the ones that have been displaced.
Furthermore, globalization and the development of emerging economies have intensified competition. Although US-based businesses remain among the best in the world along multiple indicators of research and output of manufactured goods and services, competitors from several countries are catching up quickly. Because of this many observers worry that, without efforts to strengthen innovation, US-based businesses will not keep pace with the global economy.
As this report discusses, the same forces that are causing these disruptions—technological advances, reorganized business processes, and shifts in the balance of growth throughout the global economy—are also opening up new and exciting opportunities for value creation. There are already many indicators of such positive developments, such as the high demand for computer programmers and emerging innovations and market opportunities. However, a growing number of experts are concerned that, unless actions are taken to get in front of these changes, they could have significant consequences for the future prosperity of the United States and for individuals, companies, and other organizations
in the country. Just as these changes are not caused by any one economic sector or set of actors, they also create a need—and therein a significant opportunity—for many actors to respond to these challenges. The individuals, companies, and countries that can truly understand these changes and act on them will be the ones that are most able to prosper in the 21st century.