Eastman Kodak, the one-time film giant and inventor of the digital camera recently humbled into bankruptcy protection, was a victim of its foolish policy of outsourcing key operations far from its factory floor in the United States, says Willy Shih, a professor of management practice at Harvard Business School.
Before joining Harvard, from 1997 until early 2005, Shih was president of the consumer digital and applied imaging business at Kodak. He says that although there may be short-term financial attractions for high-technology companies in outsourcing basic manufacturing and assembly work to places where labour is cheaper, they must be careful not to throw the baby out with the bathwater.
He uses a concept which he calls 'industrial commons', meaning a critical mass of people, ideas, manufacturing, engineering and research and development facilities that are crucial to product development, and which must not be lost if a firm is to keep its technological advantage.
Shih's thoughts on Kodak's decline are contained in a Harvard newsletter called Working Knowledge. He has also been researching the dangers and opportunities of outsourcing over several years.
He says that developing and executing a manufacturing process often sparks ideas that lead to creation of innovative products. So when companies send production of items such as televisions and memory chips abroad, they risk losing the critical expertise to produce the next generation of cutting-edge products.
In the case of Kodak, founded in 1880 and for decades synonymous with films and cameras, Shih says: 'Much of the camera technology was invented in the US, but US companies gave it all up. Because of the decisions of managers in the distant past, the US had lost its capability to make all the critical components that were needed to put together digital cameras.'