In every society, firms perform three functions, the social function, the managerial function, and the entrepreneurial function. The social function defines the very existence of the firm as a social institution: the serving of consumer and social needs; the provision of employment and income for labor; and the contribution of funds the support of the local and national community. The managerial function of the firm determines how economic resources should be allocated to alternative uses, and how different tasks are to be performed. The entrepreneurial function accommodates the discovery and exploitation of new business opportunities–the most important function, as it keeps the firm alive for decades, even centuries to come.
The three functions aren’t independent from each other. The social function, for instance, imposes different constraints on the entrepreneurial and managerial functions, while the entrepreneurial and the managerial functions impose their own constraints on the social function. This means that a failure in any of the three functions undermines the other two functions, and if it goes unchecked, can end in the demise of the organization. That’s exactly what happened in the case of Eastman Kodak.
In its early days, the company excelled in all three functions. In the social area, it generated thousands of jobs; and contributed resources to the national, state, and the local, Rochester, community. In the managerial area, it executed a shrewd marketing strategy by bundling nicely its cameras with the film processing photography technology, often giving cameras away to sell its film and processing chemicals, as Goggle (NASDAQ:GOOG), and Microsoft (NASDAQ:MSFT) have been doing these days. In the entrepreneurial area, it offered consumers innovative products that allowed them to capture everyday moments.
Over time, however, the company failed to come up with new versions of its products that will fed-off imitators, as Apple (NASDAQ:AAPL) has been doing in recent years–Polaroid and Fuji’s challenge is the case in point. The company further failed to leverage its core competences and capabilities in photography chemistry to expand into emerging industries, as other late 19th century American companies did. Corning Inc. (NYSE:GLW), for instance, survived and thrived by leveraging its core capabilities, the processing of glass substances, to develop a sting of blockbuster products, the glass for Edison’s electric lamp, the traditional TV tubes, the heat-resistant glass for missiles and kitchen ware, the fiber-optic cables that power the Internet, and the glass for flat panel TVs. Procter & Gamble (NYSE:PG) has also survived and prospered by constantly replenishing and expanding its product portfolio to address emerging consumer needs.
The Bottom Line: Eastman Kodak’s decline and fall is a failure of its leaders to develop the appropriate buffers to keep competition from imitating and replicating its strategy; and to match effectively corporate resources and capabilities with emerging market opportunities–an entrepreneurial failure that eventually undermined its other two functions, leading to its demise.