A Kodak Moment for the Oil Companies
Updated: Oct 7, 2020
The term “Kodak Moment” originally referred to a rare or special occasion that is captured on (Kodak) film. The term has also come to describe a situation in which a business fails to foresee structural changes in its industry such that the company eventually falls into bankruptcy. The Kodak company was a world leader in film photography. They also recognized the advent of the digital age. In fact, they introduced one of the first digital cameras, and it was a good one. I know because I bought one and liked it. However, management at Kodak tried to maintain revenues and profits from their existing film business, while simultaneously destroying that business. They failed to achieve that goal, and soon fell into bankruptcy.
In its early days the company the company had been innovative and, maybe more important, willing to sacrifice a currently profitable product line for a new technology. The company’s founder, George Eastman bet the company on change twice — once when he moved out of plate photography to rolls of film, and later when he moved to color.
A third opportunity for reinventing the company came when, in 1975, an employee invented the one of the first digital cameras. That’s when things started to go wrong. Rather than bet the company once again, management played a defensive strategy and, as we have seen, eventually lost the game, going out of business in 2012.
As I was writing an update to this post (October 2020) news outlets such as CNN were running the following story: Shell to cut up to 9,000 jobs in shift to low-carbon energy. In a previous post we saw that BP is facing the same challenge. It is natural to make a comparison between the oil companies and Kodak. Just like Kodak, the oil companies recognize the change that is bearing down on them, and they are taking action in response. But will that response be enough?
The oil companies can move in one of two directions. The first direction would be to say that they are really energy companies, not oil companies. If that is the strategy then they will move into the “clean energy” space by building wind turbines, solar farms and similar facilities, along with the matching electrical distribution networks. The other potential direction is to develop new sources of energy that utilize their strengths in the processing of hydrocarbons, and in their ability to manage large, risky projects such as drilling for oil in ultra deepwater.
The second strategy, a move into energy ventures that build on the strengths of the oil companies, would seem to make the most sense. Shell, for example, is developing technologies for the manufacture of hydrogen, an inherently clean fuel, and one that is used in the processes for making other clean fuels. Other oil companies may be interested in the possibility of adding a Fischer-Tropsch step to a Direct Air Capture facility in order to make clean, synthetic liquid fuels. Ventures such as these are risky and their size will require special project management skills. But that is where oil companies excel, whereas they do not excel at working in a highly regulated, low margin, low risk electrical utility business area.