COGNITION: THE LIMIT TO ORGANIZATION CHANGE; A CASE STUDY OF

EASTMAN KODAK

A THESIS

Presented to

The Faculty of the Department of Economics and Business

The Colorado College

In Partial Fulfillment of the Requirements for the Degree

Bachelor of Arts

By

Noah Simon

April 2011

COGNITION: THE LIMIT TO ORGANIZATION CHANGE; A CASE STUDY OF

EASTMAN KODAK

Noah Simon

April 2011

LAS: Leadership

Abstract

The following thesis examines an incumbent firm affected by change. It seeks to deepen

the understanding of the dynamic capabilities model by proposing cognition and not

previous resource deployment is the limit of change. Two similar companies, Eastman

Kodak and Polaroid will be compared during the shift from film to digital photography to

determine what separated the two companies.

KEYWORDS: (Organizational cognition, dynamic capabilities, path dependency,

cognition, perception)

TABLE OF CONTENTS

ABSTRACT

ACKNOWLEDGEMENTS

1 INTRODUCTION 1

2 LITERATURE REVIEW 6

2.1 Dynamic Capabilities...................................................................................... 7

2.1.1 How does a company survive?.............................................................. 7

2.1.2 What are the effects of core competencies?.......................................... 8

2.1.3 How are established companies affected by change?........................... 9

2.2 The Cognitive Perspective.............................................................................. 10

2.2.1 What does a path dependency mean for the individual?....................... 10

2.2.2 What are the effects of routines?........................................................... 13

2.2.3 What begins the process of change?..................................................... 14

2.2.4 What affects perception of change?...................................................... 16

2.2.5 What is needed to address and affect change effectively?.................... 20

2.3 Summary…………………………………………………………………... 21

3 METHODOLOGY 23

3.1 Data Selection……………………………………………………………... 24

3.2 Data organization………………………………………………………….. 27

3.3 Limitations………………………………………………………………… 27

4 RESULTS 29

4.1 History of the Digital Photography Market………………………………... 29

4.2 Coding System…………………………………………………………….. 31

4.3 Results……………………………………………………………………... 32

4.3.1 Research……………………………………………………………… 32

4.3.2 External/ internal factors……………………………………………... 37

4.3.3 Sales…………………………………………………………………... 40

4.4 Summary of Results………………………………………………………. 42

4.4.1 Kodak vs. Polaroid……………………………………………………. 45

5 CONCLUSION

50

5.1 Connections between the Findings and the Literature Base……………… 50

5.2 Implications……………………………………………………………….. 51

5.3 Limitations………………………………………………………………... 51

5.4 Future Directions………………………………………………………….. 52

6 APPENDIX A 53

7 APPENDIX B 56

8 APPENDIX C 59

9 WORKS CONSULTED 62

LIST OF FIGURES

4.1 Research and Development…………….…………………………………….... 25

4.2 External and Internal Factors………………………………………………….. 26

4.3 Sales and Consumer Confidence………………………………………………. 26

5.1 Adoption of Digital Cameras by US Consumers……………………………… 30

5.2 US Camera Sales………………………………………………………………. 30

5.3 Coding Explained……………………………………………………………… 32

5.4 Research Data………………………………………………………………….. 33

5.5 External/ Internal Factors……………………………………………………… 37

5.6 Sales…………………………………………………………………………… 40

1

CHAPTER I

INTRODUCTION

The one driving force behind all of time is change. Because of change nothing

can stay permanent. During the age of humanity, the effects of change have ranged from

miraculous to catastrophic. For those who possess better technologies, the advantage

gained is enormous. In the Bronze Age the Assyrians forged an empire because they

wielded bronze better than anyone else.1 The new technology was extremely beneficial

for the Assyrians, but it was a major threat to the competing nations. An advantage in

technology can create a disparity between those who possess it and those who don't.

The nature of change dictates that what once was is no longer. As humanity has

continued to imagine and invent, the previous way of doing things continues to become

obsolete. Obsolescence, however, is only detrimental for the incumbent. The new

technology which creates the obsolescence typically advances humanity and is

beneficial because of that. For the incumbent, however, it is a threat.

Change is accelerating. Innovations which disrupt in the short term, but are seen

as advances in the long term are becoming more common. The pace of change started

quite slowly, the domestication of animals occurred in roughly 3000B.C.2 which was

almost 150,000 years after the human which resembles modern humans is known to

1 James Harvey Robinson and James Henry Breasted, History of Civilizations: Earlier Ages, (New York

City: Ginn and Company, 1960), 791. 2 ibid.

2

have existed.3 Now, however, we are advancing at a tremendous rate. Moore's law

contends that computing power will double every two years.4 And more recently, Ray

Kurzweil, a leading futurist, built off Moore's law by suggesting all technology is

growing at an exponential rate.5 In many ways, this change is good and it has benefited

humanity. For some, however, change has been destructive. When new mindsets are

created and spread, the previous way of doing things is seen as wrong. Slavery in the

United States of America is largely accepted as wrong and is a prime example of old

mindsets being cast away. And the effects of this paradigm shift still persist today.

When new technologies are introduced, incumbent organizations are at risk. All change

can be both beneficial and damaging; it depends on which perspective is looked at. This

thesis will examine change from the incumbent‟s perspective.

For an incumbent, change can be dangerous. For thousands of years, aside from

walking, horses were the main source of alternative transportation. When the car was

invented and made popular, an entire history based on the horse was made obsolete.

When a disruptive technology is introduced incumbents are forced to adapt or perish.6

Firms have been able to adapt to disruptive change, but many have not. What prevents

some from succeeding?

This thesis will examine why some organizations are unable to adapt to change.

It will be argued that the past is not the determining factor. Instead, it will be argued

that the present is what determines success. An interdisciplinary approach is needed to

understand the nature of the past and present. 3 "New Clues Add 40,000 Years to Age of Human Species" in National Science Foundation [database

online]. [cited 2011]. Available from http://www.nsf.gov/news/news_summ.jsp?cntn_id=102968. 4 Gordan Moore, "Cramming more componentsonto integrated circuits," Electronics 38, no. 8 (1965)

5 Ray Kurzwiel, The Singularity Is Near, (USA: Viking, 2005), 652.

6 Dorothy Leonard-Barton, "Core Capabilities and Core Rigidities: a Paradox in Managing New Product

Development," Strategic Management Journal 13 (1992): 111-125.

3

Taking the dynamic capabilities model from business theory explains how the

past influences and creates the present. Dynamic capabilities was introduced by Teece

(1997) and argued a firm must respond to change by reallocating their resources to

better match the environment. A failure to do so meant the eventual destruction of the

firm.7 The dynamic capabilities model offers a solution to path dependency theory

which seeks to understand what the influence resource deployment has on the future.

Path dependency theory argues a company's resource deployment forces a company to

commit to a path which decides the direction of the firm.8 These fields focus on the role

of resources and how they determine the future of the company. This body of research

uses the past to determine future direction.

Cognition from psychology is used to introduce a new factor to the dynamic

capabilities model. The field of cognition seeks to discover what affects perception.

This relates to the following research in that an individual's perception of their

environment will dictate what decisions they make in the present.9 As firms are

operated by individuals, the role they play cannot be ignored. Cognition deals with how

information is processed in the present moment to determine future direction.10

This thesis will combine these two disciplines and argue the limit to a firm's

dynamic capabilities is rooted in cognition. It will be argued that dynamic capabilities

offers the solution to the problem of path dependence, but does not offer a complete

7 David J. Teece, Gary Pisano, and Amy Shuen, "Dynamic Capabilities and Strategic Management," in

Technological Know-How, Organizational Capabilities, and Strategic Management: Business Strategy

and Enterprise Development in Competitive Environments Hackensack, N.J. and Singapore: World

Scientific, 1997), 27-51. 8 JORG SYDOW, GEORG SCHREYOGG, and JOCHEN KOCH, "Organizational Path Dependence:

Opening the Black Box," Academy of Management Review 34, no. 4 (2009): 689-709. 9 Clark G. Gilbert, "Change in the Presence of Residual Fit: Can Competing Frames Coexist?"

Organization Science 17, no. 1 (2006): 150-167. 10

ibid.

4

explanation of what affects a firm's ability to change. This thesis will demonstrate how

the past exerts influence only up until the present moment. Path dependency is used to

explain the influence the past has on the present. Then, cognition will explain what

happens in the present moment and how the limit to change is rooted in cognition or

imagination, and not the past.

A case study of Kodak from 1974 to 2005 is used to explain how a company can

transform its business by adapting to a new technology while other companies cannot.

In order to do this, two similar companies, Polaroid and Kodak, will be compared. The

cognitive mindset of Kodak will be mapped using a coding system to analyze annual

reports. From the findings it will be determined why Kodak was able to successfully

adapt while a similar company such as Polaroid was not able to. A case study of

Polaroid was conducted by Tripsas and Gavetti (2000) will be used as a contrast. While

the two studies take slightly different approaches, the failure of Polaroid is clearly

explained and provides enough information to compare the two companies.

The following thesis examines the disciplines of path dependency, dynamic

capabilities, and cognition to explain the interplay between them to understand the

nature of change from the incumbent's perspective, while simultaneously arguing

cognition is the limit of said change. A case study of Kodak is then compared to test this

proposition.

Chapter II, the literature review overviews the current research in dynamic

capabilities and cognition to locate the gaps in research. The major gap this paper seeks

to identify is in relation to time. It will be argued that the dynamic capabilities resource

based model explains cognition up until the present where it begins to lose relevance. In

5

the present, cognition takes a more predominant role in determining the direction of the

firm. Thus, it is argued cognition is the limit to change, not previous resource

deployment.

Chapter III, methodology, will outline the procedures used to collect and create

the data set used to test the proposition. It will also explain the criteria used in the data

collection and why each is relevant.

Chapter IV, results, will examine the data set to determine what the mindset of

Kodak from 1974-2005 was and contrast it to the similar company, Polaroid. The

cognitive map discovered through this process will be analyzed to determine why

Kodak was able to respond to a change in the environment while Polaroid was not.

Chapter V, conclusion, will summarize the results and relate them back to the

model proposed in chapter II. Finally, future directions will be proposed.

6

CHAPTER II

LITERATURE REVIEW

This chapter is devoted to building the argument that the limit of organizational

change is rooted in the cognition of the employees, despite their cognition being shaped

and capability defined by the organization's resources. When a company is locked into a

system of doing business it is known as having a path dependency.1 Path dependency is

the issue dynamic capabilities addresses by demonstrating that a company can change if

they possess dynamic capabilities.2 The dynamic capabilities model seeks to explain

how organizations adapt to change through resource deployment.3 This will then be

combined with the study of mental beliefs and perception, a field known as cognition,

which will provide us with a framework to discuss and understand how individuals

think and form ideas. The integration of these two fields of research will create an

interdisciplinary framework to explain how cognition affects change, and what role a

company's resources play. Finally, this thesis will try and prove that cognition, not

resources, have a larger impact on how a company can change; that cognition is the

limit to change.

1 SYDOW, SCHREYÖGG, and KOCH, "Organizational Path Dependence: Opening the Black Box,"

689-709. 2 Teece, Pisano, and Shuen, "Dynamic Capabilities and Strategic Management," 27-51.

3 ibid.

7

Dynamic Capabilities

How does a company survive?

Dynamic capabilities are rooted in competencies. Firms who exhibit an ability to

adapt to change are said to have dynamic capabilities.4 This change is defined by an

ability to reorganize core capabilities and resources to realign the company with the

new environment. The following paragraphs outline the development of a company

leading up to a change. First, core competencies are defined. Second, path dependencies

are explained. And finally, dynamic capabilities are introduced.

In order for a company to survive it must successfully develop and maintain a

core competency.5 A core competency is the collective learning of an organization

which is difficult to imitate and easy to leverage. Leonard-Barton (1992) describes this

in more detail by providing four dimensions which make up a core competency:

technical systems, managerial systems, skills and knowledge, and values and norms. If a

company does not possess focus in the form of a core competency, then the company is

probably ineffective due to a poor allocation of resources.6 This research suggests that a

company must focus its efforts so resources are deployed in the most efficient manner

possible. Having a core competency does not mean a company is limited to a single

competitive advantage. In some cases the core competency is something fundamental to

the business such as innovation and this can be leveraged into many new products and

revenue streams.7 When they are leveraged, the company is able to fight from a

4 ibid.

5 Leonard-Barton, "Core Capabilities and Core Rigidities: a Paradox in Managing New Product

Development," 111-125. 6 C. K. Prahalad and Gary Hamel, "The Core Competence of the Corporation," Harvard business review

68, no. 3 (1990): 79-91. 7 ibid.

8

defendable position and attempt to gain market share.8 However, as core products

become more reliable and develop as important revenue streams, an over reliance on

them begins to take place. When this happens, a company loses its ability to quickly

adapt to change and is susceptible to being blind-sided by competing firms with new

technologies.9

What are the effects of core competencies?

As a company establishes its core competencies and products, their resource

deployment is refined to decrease inefficiency. This process, while increasing profits

also increases a company's path dependency.10

Path dependency is defined as a three

stage process which results in inefficiency and puts the organization in a difficult

position to respond to continuing changes. The first stage in path dependency is an

action which sets off a process of self-reinforcing success. This success eventually

narrows options as it is refined and a dominant routine is formed, stage two. Finally,

these routines become deeply engrained and become the single way the company

operates. A distinctive characteristic of this phase is that a company cannot rapidly

respond to changes in the environment because they are deeply invested in the pre-

existing routines formed by a path dependency.11

Path dependency explains to us that

the deployment of resources affects how a company is able to respond. The costs of

redeploying resources become so high companies fight to continue supporting their core

competencies which ironically turns them into a core rigidity instead; a core rigidity is

8 Leonard-Barton, "Core Capabilities and Core Rigidities: a Paradox in Managing New Product

Development," 111-125. 9 Jim Harris, Blindsided: How to spot the next breakthrough that will change your business forever, John

Wiley & Sons Canada, Ltd, 2002), 320. 10

SYDOW, SCHREYÖGG, and KOCH, "Organizational Path Dependence: Opening the Black Box,"

689-709. 11

ibid.

9

when a company is locked into a competency that is detrimental because it no longer is

a sustainable business model.12

However, this will only occur when a company is faced

with a threat to their business which requires a redeployment of resources. In many

cases, a company is not threatened and the path dependency is beneficial as their

efficiency is highest.13

The situation which forces a dramatic increase in redeployment

costs is the introduction of new technologies which makes incumbent's core

competencies ineffective.14

How are established companies affected by change?

When there is a shift in the environment due to a new technology, the

incumbent firm must respond to address the change. A failure to do so will lead to an

eventual decline in market share and longevity. Firms who exhibit an ability to adapt to

change are said to have dynamic capabilities.15

Teece (1997) introduces the dynamic

capabilities model by suggesting that in periods requiring a redeployment of resources,

the organizations which can identify new opportunities and then quickly and effectively

reorganize themselves will be in a strong position to take advantage of the change.16

More recent research has refined the idea to state that dynamic capabilities must be

consistent and not a response to incremental change. Rather, organizations must always

be refining their core competencies to match the environment regardless of how small a

threat may be seen as.17

All of this research examines why companies fail when the

12

ibid. 13

R. H. Hayes, "Strategic planning - forward in reverse," Harvard Business Review 63, no. 6 (1985): 111. 14

Leonard-Barton, "Core Capabilities and Core Rigidities: a Paradox in Managing New Product

Development," 111-125. 15

Teece, Pisano, and Shuen, "Dynamic Capabilities and Strategic Management," 27-51. 16

ibid. 17

Juha-Antti Lamberg et al., "Competitive dynamics, strategic consistency, and organizational survival,"

Strategic Management Journal 30, no. 1 (2009): 45-60.

10

environment changes, and what can be done to prevent and even take advantage of the

change. A company must be able to redeploy their resources to better match the

environment which means overcoming any level of path dependence. This model does

an excellent job of explaining what a company needs to do, but fails to go into detail

about how a company does it.

The Cognitive Perspective

The following sections explore the current research in the field of cognition to

build the argument that cognition is the limit of change. In order to do this, cognition

will first be linked to path-dependencies to explain what the effect of a path dependency

is on individuals working within the company. Next, an example using the Polaroid

Company will be introduced (this will be used again in chapter IV, results). These are

used to explain where an individual‟s cognitive mindset is before a change. Once it is

understood how a path-dependency affects an individual‟s cognitive mindset, the effects

of a new change will be examined. This is done to show how change can influence the

mental beliefs and actions of an individual. After this, a model which explains the

process of change will be introduced to show how an individual eventually changes

their mindset. Next, the perception of change is analyzed to explain what the limit of

cognition is. Finally, an explanation of how this pattern can be broken is introduced.

What does a path dependency mean for the individual?

A company with a path dependency is locked into a routine and is working to

further refine their process to more effectively use their resources. Most individuals

working in a company with a path dependency will see it as a routine or how they do

11

their job. These routines and procedures are considered to be the building blocks of an

organization‟s "memory".18

Routines are built off the employee‟s knowledge and the

institutionalization of them. The two components of a routine are procedural and

declarative knowledge. Lazaric (2008) argues an organization faces a paradox when

dealing with procedural and declarative knowledge. Declarative knowledge is the base

data that procedures are made of, and procedures are collections of declarative

knowledge grouped together to create a certain procedure or routine. An example of

declarative knowledge is knowing that a company gets $10 for every unit sold. Whereas

procedural knowledge is knowing how the company makes the product to be sold. As

more people learn the routines they become very good at accomplishing the tasks they

are trained for. However, as a firm changes, it becomes very hard for them to change

their now engrained habits. Conversely, if a firm only encourages free thinking, it

comes at the expense of cohesion. This means it will be harder to coordinate activity

and it will be harder to understand where an organization as a whole stands.19

This

collection of knowledge begins to add cognitive science to the path dependency model.

Routines are the effect a path dependency will have on its employees. The deployment

of resources and past refinements dictate how an employee will do their job. The

Polaroid Company provides an example of routines affecting how a company responds

to a changing market.20

A separate study conducted by Tripsas and Gavetti (2000) found that when the

Polaroid company was faced with the choice to introduce a new technology, digital 18

Nathalie Lazaric, "Routines and Routinization: An Exploration of Some Micro-cognitive Foundations,"

in Handbook of Organizational Routines Cheltenham, U.K. and Northampton, Mass.: Elgar, 2008), 205-

227. 19

ibid. 20

Mary Tripsas and Giovanni Gavetti, "Capabilities, Cognition, and Inertia: Evidence from Digital

Imaging," Strategic Management Journal 21, no. 10 (2000): 1147.

12

photography, they were unable to change their cognitive mindsets of how to operate a

camera business and as a result lost the opportunity to enter the digital photography

market despite having the best available technology. Problems were attributed to three

things: One, top management firmly believed people would want high quality photos.

Two, they wanted to apply the razor/blades model to digital which simply would not

work. The razor/ blades model relies on selling a razor for very cheap, but selling blades

at an intense mark-up. Polaroid would sell cheap cameras and expensive, disposable

film. And three, they did not have the capabilities to enter the field because their camera

manufacturing had been sidelined in favor of producing profits from film sales. These

three routines were deeply ingrained in the company and ended up costing them the

digital photography market and company longevity. Digital photography did not match

any of the conditions the company was designed for. Digital photo quality was low,

there was no film, and they did not have the capacity to produce high volumes of

cameras. The last glimmer of hope came from a new CEO who was an external hire and

was determined to change the structure of the company entirely. In line with the

previously mentioned cognitive research, Polaroid suffered from a core competency

which became a core rigidity.21

This case study illustrates the danger of routines.

Because of the routines Polaroid had refined, management only saw how digital

photography would not work for them. Instead, they should have been thinking of ways

to make it work. The path dependence led to such a high redeployment cost digital

photography was not seriously considered.22

21

ibid. 22

ibid.

13

What are the effects of routines?

If a routine dictates how an employee does their job, the habits which are

formed will influence resistance to change.23

When an organization undergoes change,

some employees will start to resist which is described as the threat-rigidity hypothesis.24

These effects are further studied by Bovey and Hede (2001) who conducted a study to

understand the nature of resistance. They identify three factors which determine the

level of resistance to change and are due to perception. First, the degree of control one

has over the change. Second, the impact the change is perceived to have on the

individual, and finally, irrational ideas.25

Bovey introduced irrational ideas explaining

that people have ideas about how life should be interpreted and use these when under

stress. Bovey develops this idea by explaining how they are most common when there

is a lack of information. One example of an irrational idea is: needs approval, which is

explained as someone who must have love and approval from all people they find

significant in their life. When this person is lacking in information they will allow this

irrational idea to control their life and thereby decrease their ability to cope with

change.26

They expand on the idea further by drawing on studies from Beck (1988),

Burns (1990), Corey (1996), Ellis and Harper (1975) which builds the point that

everyone subjects themselves to some form of self doubt which affects their emotions

and perception. These irrational thoughts affect how people react to organizational

change and a correlation between the number of irrational thoughts and how much

23

Barry M. Staw, Lance E. Sandelands, Jane E. Dutton, "Threat Rigidity Effects in Organizational

Behavior: A Multilevel Analysis," Administrative Science Quarterly 26, no. 4 (1981): 501. 24

ibid. 25

Wayne H. Bovey and Andy Hede, "Resistance to Organizational Change: The Role of Cognitive and

Affective Processes," Leadership & Organization Development Journal 22, no. 8 (2001): 372. 26

ibid.

14

resistance is generated has been found.27

Bovey claims that people can possess more

than one irrational idea and that when combined, the amount of resistance is greater.

This process is mainly due to the emotions people experience when subjected to change.

Further exacerbating the problem is the fact that people can have an emotional reaction

without cognition and this decreases their ability to cope with change.28

Finally, a major

impediment to change is the fear of the changing structure.29

When a change occurs,

very often the future becomes uncertain and this threat highly increases the amount of

resistance until more information is gathered.30

These reactions influence how

effectively an organization can change. Increasing the available information is an

important step in reducing anxiety and resistance, but the larger issue of breaking habits

and established routines still remains. Resistance to change is a cognitive process which

affects how quickly a firm can adapt after the change has been identified. If a firm's

ability to adapt is limited by how quickly employee resistance can be reduced31

then this

supports the notion that the limit of change is rooted in the cognition of the employees.

What begins the process of change?

If routines are the inhibitors of change in an organization, how does change

occur? George and Jones (2001) present a model which identifies the seven steps an

27

ibid. 28

R. B. Zajonc, "Feeling and thinking: Preferences need no inferences," in Attitudes: Their structure,

function, and consequences. (New York, NY US: Psychology Press, 2008), 143-168. 29

Andrew Krepinevich, "

7 Deadly Scenarios: A Military Futurist Explores War in the 21st Century," in (New York City: Bantam,

2009), 17. 30

ibid. 31

Wayne H. Bovey and Andy Hede, "Resistance to Organizational Change: The Role of Cognitive and

Affective Processes," 372.

15

individual must take before change can be fully enacted.32

At each of these steps

possible forms of resistance are also mentioned. The first step is the most important; a

discrepancy in an individual‟s schema (mindset) must be realized. Resistance is

generated when a schema change is ignored because the new information is simply

classified as an exception rather than a real change. After the change is acknowledged

the individual has an emotional reaction which is hopefully followed by rational

thought. Once the change is rationally examined and it is decided the change is not an

exception, the individual begins the process of altering his of her schemas to better

reflect the changed environment. After the schema has been changed the process is

complete. This article closely examines the process of cognitive change but does not go

into detail about the actual barriers people face. George and Jones (2001) take us

through the entire process of changing a mental model which results in changing the

firm's capabilities or orientation.33

This system outlines the process for cognitive change

and highlights the importance of an individual's ability to cope with stress induced by

change. As an organization undergoes a transformation, the individuals must cope with

the stress induced by said change. Also explained is how the process of change is

started. The previous research has examined how mental perceptions are created. The

research done by George and Jones (2001) explore how information can be limiting. It

is argued that because we have preconceived notions which have developed due to

routines, we will examine new information through these notions. An inability to see

new information in new ways instead of classifying it in your already structured ideas is

what inhibits change. This is a limit of cognition.

32

Jennifer M. George and Gareth R. Jones, "Towards a process model of individual change in

organizations," Human Relations 54, no. 4 (2001): 419-444. 33

ibid.

16

What affects perception of change?

We have begun to see ways in which organizations are affected by cognition.

Now we will examine more ways perception affects an organization‟s ability to change.

As discussed, prior resource deployment has an influence on the routines people

develop.34

And these routines affect how they will view new information.35

The three

new ideas examined in the following section are how hierarchy affects perception; how

age affects perception; and how, after change is acknowledged, the framing of the issue

affects decisions.

The studies presented thus far have focused on how top management makes

decisions. This, however, ignores how the organizational structure or hierarchy affects

decision making. Gavetti (2005) presents findings which suggest two things: First, the

accuracy of information is determined by an individuals' position in an organization.

Second, it presents further support that the search for answers is determined by the

decision making manager‟s cognitive maps.36

The gap Gavetti‟s research examines is in

the link between accuracy of information and position. The problems stem from the fact

that higher ranking decision makers affect change, but Gavetti‟s first point argues a

higher rank also decreases the accuracy of information. If a manager‟s cognitive map is

the guiding force behind the search for solutions, than a lack of their information‟s

accuracy will lead to a decreased search quality.37

Furthermore, if a manager or his

constituents are locked into certain routines then lack of clear information is

34

SYDOW, SCHREYÖGG, and KOCH, "Organizational Path Dependence: Opening the Black Box,"

689-709. 35

Elizabeth George et al., "Cognitive Underpinnings of Institutional Persistence and Change: a Framing

Perspective," Academy of Management Review 31, no. 2 (2006): 347-365. 36

Giovanni Gavetti, "Cognition and Hierarchy: Rethinking the Microfoundations of Capabilities'

Development," Organization Science 16, no. 6 (2005): 599-617. 37

ibid.

17

compounded because their schemas are not oriented towards change. Gavetti's (2005)

argument suggests that in order for a firm to make good decisions, the decision making

managers must also have good information, which is undermined by their position and

the established routines which can lead to employees being blind to creative answers to

new challenges. These studies suggest a firm is inhibited by its structure, and the affects

the structure has on its employees.

Scheepens (2005) ran a study designed to understand the relationship between

cognitive complexity and age. The results of this study showed a relationship between

experience and mental complexity where more experience created an increase in

complexity. An increase in mental complexity allowed managers to better understand

problems as they were able to view the problem from more perspectives.38

This research

coincides with the findings of Gavetti (2005) who demonstrated how the flow of

information is inhibited by organizational structure. These studies demonstrate how

organizational structure can affect the mental maps of decision making managers, which

then affect the direction of the firm. Information is an important part of decision

making, and these studies highlight the importance of flowing information. If a decision

maker is going to make a good decision for the firm, they need accurate information.

Again, this supports the claim that the direction of the firm is directed by the decisions

made by individuals. The studies suggest the inherent imperfections in information

collection affect the mental maps of the managers39

which are then used to make

38

Maurice A. M. Scheepens, "Making sense of an institutional change: The role of managerial

cognitions," Cogniţie Creier Comportament 9, no. 4 (2005): 737-766. 39

Gavetti, "Cognition and Hierarchy: Rethinking the Microfoundations of Capabilities' Development,"

599-617.

18

decisions. If a lack of information is inhibiting, than this research supports the claim

that the limit of change is rooted in cognition and not resource deployment.

Changes in the market must be diagnosed by the decision making management

as either a threat or opportunity. How they choose to diagnose the change will affect

how the organization as a whole responds. When a change in the market occurs, a

firm‟s top management must first perceive and then classify the change as either a threat

or opportunity. How the change is framed plays an important role in how the

organization will respond. Gilbert (2006) presents findings from research which states

that threat framing can lead to aggressive commitment.40

However, framing change as a

threat can also lead to organizational and cognitive rigidity.41

If a change is framed as

an opportunity then the organization can benefit from a more flexible and open

approach. This, however, comes at the cost of commitment.42

When a change in the

environment occurs the organization faces a paradox: either they can gain strong

commitment while running the risk of rigidity, or they can frame the issue as an

opportunity and work with less intense commitment. This paradox presents interesting

challenges for firms facing disruptive change. In some cases firms will have to present a

change as both a threat and opportunity. How a manager views the information is

critical in recognizing the need to change and their framing of the issue greatly affects

the mobilization of their constituents. In order for a firm to change it must have the

support and cooperation of the employees which make the company run which means

overcoming mental rigidities. 40

Daniel Kahneman and Amos Tversky, "Choices, values, and frames," American Psychologist 39, no. 4

(1984): 341-350. 41

Barry M. Staw, Lance E. Sandelands, Jane E. Dutton, "Threat Rigidity Effects in Organizational

Behavior: A Multilevel Analysis," 501. 42

Leonard-Barton, "Core Capabilities and Core Rigidities: a Paradox in Managing New Product

Development," 111-125.

19

A study done by Sitkin and Barden (2006) begins to look at how the framing of

an issue affects an organization‟s response to a change.43

In this article they try to

explain how people‟s perception of a change will affect the decisions they make.

Gilbert‟s (2006) study addresses the dimension of threat of opportunity and Sitkin and

Barden (2006) expand on the idea by introducing the dimensions of resources and

control. It is argued that these additional dimensions will affect how decision making

management reacts to the change.44

Their argument brings in research on prospect

theory which argues individuals are risk averse when considering potential gains, and

risk seeking when facing potential losses.45

The argument is expanded through studies

done on the threat-rigidity hypothesis. The threat-rigidity hypothesis supports the claims

that when individuals are faced with a threatening change their response is to become

rigid in their habits. They also found that these decisions are influenced by resources

and control.46

In a later study done by Kahneman and Tversky, (2001) it is concluded

that prospect theory is related to the potential loss or gain of tangible resources. And

finally, they draw on research which adds that the threat-rigidity hypothesis relates to a

loss of control.47

These findings allowed Sitkin and Barden (2006) to hypothesize that

in the face of a potential loss of resources, an individual will respond with a

nonisomorphic response, or a response that is a departure from what is considered

legitimate in the institutional environment. An example of this is a company deciding to

create hybrid cars because they are threatened. A similar response is expected when

43

George et al., "Cognitive Underpinnings of Institutional Persistence and Change: a Framing

Perspective," 347-365. 44

ibid. 45

Kahneman and Tversky, "Choices, values, and frames," 341-350. 46

Barry M. Staw, Lance E. Sandelands, Jane E. Dutton, "Threat Rigidity Effects in Organizational

Behavior: A Multilevel Analysis," 501. 47

ibid.

20

there is a chance for a gain in control. Finally, they postulate that an isomorphic

response, or a response which is in line with the institutional norms, will be invoked

when there is a potential gain for resources, or a chance of losing control.48

An example

of this would be a company which decides to continue producing combustion engine

cars because a new market opens up. Their study deepens our understanding of how the

environment affects the decisions of top management. The type of threat produces

certain responses, only some of which are innovative or "nonisomorphic". These

findings are based on individuals making decisions, but they suggest the internal

perception and social environment will affect the type of decision made.

These studies provide some examples of how cognition is limited. Cognition is

limited by the effects hierarchy has on perception; how age affects perception; and how,

after change is acknowledged, the framing of the issue affects decisions. These are

limits of cognition.

What is needed to address and affect change effectively?

While the past has a bearing on the mindset and physical resources one has at

the time of decision, there is another factor which lowers the influence this has;

creativity. The argument thus far has shown how resource deployment and routines lead

to a cognitive mindset in the present. This mindset then determines how an individual

see things. Then, more research was presented to show how cognition is limited by

external factors. However, this fails to address the important element of creativity. A

48

George et al., "Cognitive Underpinnings of Institutional Persistence and Change: a Framing

Perspective," 347-365.

21

common definition for creativity is: producing original or unusual ideas.49

This

definition can be applied to companies by linking it to the decision making individuals

running the company. Teece (2007) argues entrepreneurial leadership is the best

element to have if a firm is seeking a high level of dynamic capability.50

The ability to

not limit themselves to what has been done in the past, or what can be done with the

current situation is the key attribute. Tripsas and Gavetti (2000) found that when

Polaroid finally started to change, the key was an outside hire who came in and was

determined to change everything to better match the current environment. So, while he

had the same resources the previous leader had, he did not see it as only for the

razor/blades model. Again, this highlights how an entrepreneurial mind unlocks a

company's path dependency or core rigidities.51

If an entrepreneurial mind means the

past is less relevant in determining the direction of the company, then it can be said that

cognition is the limit to change.

Summary

This chapter serves to highlight what limits change. As it has now been proven,

the limit is cognition, not resources. Resources will have an important bearing on what

is thought of, but only if cognition is limited. If cognition is unbounded, new, creative

answers can be thought of. This is not to say resources have no influence. As the past

chapter has demonstrated, resource deployment influences current cognition52

, but that

49

"Creativity," in Cambridge [database online]. [cited 2011]. Available from

http://dictionary.cambridge.org/dictionary/british/creative_1. 50

David J. Teece, "Explicating dynamic capabilities: the nature and microfoundations of (sustainable)

enterprise performance," Strategic Management Journal 28, no. 13 (2007): 1319-1350. 51

Tripsas and Gavetti, "Capabilities, Cognition, and Inertia: Evidence from Digital Imaging," 1147. 52

Teece, Pisano, and Shuen, "Dynamic Capabilities and Strategic Management," 27-51.

22

influence is only limited by the cognition of the decision makers53

. Due to this fact, this

thesis will argue that cognition has a greater impact on how much change an

organization can see and implement.

53

Gavetti, "Cognition and Hierarchy: Rethinking the Microfoundations of Capabilities' Development,"

599-617.

23

CHAPTER III

MEHTODOLOGY

The purpose of chapter III is to describe the method used in this case study of

Eastman Kodak. This chapter will introduce the method of research, content analysis

and how it was conducted. After this is done, the three categories of research will be

explained and each criterion will be defined and justified.

Content analysis is a process of counting and cataloguing specific word phrases

which are then analyzed by deepening the understanding of why they were said by

matching phrases to patterns in the data. For this analysis, Kodak‟s “letter to the

shareholders” in their annual reports was used. A random sample of reports were

selected and read. From the random sample of 6 reports, general trends in word patterns

were found and these were then refined into categories. In all, three were selected:

research and development, external and internal factors, and sales/ consumer

confidence. Each of these categories were then broken down into more specific coding

criteria. After the criteria were established each annual report from 1974-2005 was

coded and entered into an Excel spread sheet. Total number of words was also counted

to measure the percentage each criterion took up. Finally, these data points were used to

create charts to visually measure them. These charts and graphs are used to create a

basic cognitive mind map of Kodak. The criteria they devote the largest attention to is

determined to be the focus or cognitive mind set the company is in.

24

Data Selection

Kodak‟s annual reports were broken down into three main criteria which were

then broken down into specific categories. The three categories of coding: research and

development, external/internal factors, and sales/ consumer confidence were chosen

because they were the necessary criteria in determining what Kodak was focused on in

regards to the transition between film and digital. Research and development was

chosen to measure what technologies Kodak had been focusing on in the prior year.

External and internal factors were also chosen to account for the company‟s response to

changes in the environment which could change the focus of the annual report as well

as allocation of funds. Finally, sales were chosen to measure what products Kodak was

focusing on for sales. Sales will provide a clear measure of Kodak's reliance on film

versus digital technologies. These three categories will provide the data sets required to

analyze the cognitive mindset of Kodak at a given year and over a 31 year period. Then,

within each of these categories the data was broken down further to provide accuracy in

data collection. The following is a list and brief summary of each criteria and what

qualified as a mention.

25

Figure 4.1

Research and Development

Code Expanded Code Definition

R-Gen General Research Used to count general mentions of research where there

is no mention of specific projects or departments.

Devel

Development Used to count mentions of Kodak's development of

their infrastructure through either acquisition or

developed facilities, etc.

R-

chem

Chemical Research Used to count mentions of Kodak‟s development of

chemicals. These chemicals are often related to film as

a large component of film is the chemical composition

they are made of. This also includes chemicals invented

for printing technologies.

R-film

Film Research Used to count mentions of Kodak‟s development of

films. This includes both consumer products and 35mm

film for the movie industry

R-digi

Digital Research Used to Count the mentions of digital technologies

research in the past year. This includes cameras and

supplementary technologies such as software, memory,

sensors, etc.

R-cam Camera Research Used to count the mentions of newly developed film

cameras. This includes instant and traditional.

R-

equip

Equipment Research Used to count the mentions of Kodak developing

equipment such as printers, scanners, etc.

R-

manu

Manufacturing

Research

Used to count the mentions of Kodak developing their

manufacturing capabilities. This includes new facilities

and processes.

26

Figure 4.2

External and Internal Factors

Code Expanded Code Definition

Econ-up Positively

Impacting

Economy

Used to count mentions of the economy positively

impacting Kodak‟s performance.

Econ-

down

Negatively

Impacting

Economy

Used to count mentions of the economy negatively

impacting Kodak‟s performance.

Ext-other Other External

Factor

Used to count mentions of unclassifiable external

factors. These include but are not limited to: lawsuits,

government intervention, etc.

Compet Competition Used to count mentions of competition impacting

Kodak‟s performance.

Saving Implemented

Savings Measure

Used to count mentions of implemented savings

measures made by Kodak in the previous years.

Expense Expenses Used to count mentions of incurred expenses.

Figure 4.3

Sales and Consumer Confidence

Code Expanded Code Definition

S-d-f Film Sales Down Used to count mentions of a decrease in Kodak film

sales. This includes both film and film cameras.

S-u-f Film Sales Up Used to count mentions of an increase in Kodak film

sales. This includes both film and film cameras.

S-d-d Digital Sales Down Used to count mentions of a decrease in Kodak digital

sales. This includes storage, software, and camera sales.

S-u-d Digital Sales Up Used to count mentions of an increase in Kodak digital

sales. This includes storage, software, and camera sales.

Cc-

decl

Decline in

Consumer

Confidence

Used to count mentions of a decrease in consumer

confidence.

Cc-

rise

Rise in Consumer

Confidence

Used to count mentions of an increase in consumer

confidence.

27

Data organization

After coding the data it was complied into Excel spreadsheets to organize and

visualize the data. Each year contained multiple counts. All counts were estimates as

phrasing led to some overlap and uncertainty. Each year had a total word count, a count

of how often a criterion was mentioned, and a rough count of how many words were

used in each mention (these were grouped into 6-word groups, roughly one line). The

number of words mentioned was then divided by total words to find a percentage for

each criterion. These percentages were then used to create tables from which the total

mentions could be analyzed. Percentage tables took data from every year to create a bar

graph which displayed the evolution of Kodak's thought.

Limitations

Within this process there were some areas which may have led to small amounts

of error. Missing criteria, counting errors, missing data, Kodak bias, and classification

errors are discussed in this section.

In creating the criteria for the segmentation and counting of word mentions there

were some categories which were left out. For instance health imaging technologies

were largely left out as they were not relevant to the majority of the study. Up until the

advent of digital technologies these were largely based in x-ray images. However, as

digital became more prevalent this technology was applied to health imaging. This was

noted and was counted as research into digital imaging. Digital health imaging was

largely intertwined with mentions of other consumer based research and accounts for a

very small percentage of the total mentions.

28

There is room for error in counting because of the subjective nature of the data

classification. Often there is overlap between subjects, and wording which is

ambiguous. There will be some error in the counts, but this is a small number.

There were three years which could not be obtained. The data sets were

collected from the Proquest annual reports database. All of the data sets were not

present, 1983, 1993, and 1994 are missing. Without these the accuracy of the total

finding suffers, but the general trends can still be observed.

As the data is derived from Kodak annual reports, it is important to remember

that these were written to shareholders. Because they were written for an audience

which has considerable power, it is clear that these are somewhat biased and were

written to reflect Kodak in a positive light. This will skew the counts as years where the

company performed poorly will have a higher concentration of research related topics.

In a year where performance was low, Kodak would shift the focus off results and

reframe everything as a plan for the upcoming year. Often, this involved increasing the

number of research mentions in order to illustrate what potential successes could be

expected in the coming year.

Finally, there was room for classification errors. As previously mentioned, there

were times when the wording was ambiguous or unclear. When this occurred a

preference for counting was taken. Because of this there is a small degree of error

brought around by a slightly inflated word count.

29

CHAPTER IV

RESULTS

The following chapter introduces and analyzes the qualitative data procured

from Kodak‟s annual reports from 1974-2005. The purpose of this section is to present

an analysis of the data so it can be determined if Kodak was able to effectively

reorganize and respond to the development of digital technologies. This chapter will

begin with an overview of the adoption rates of digital technology within the image

processing market. After a basic history has been established, the coding method will be

explained. Next, the data from the three criteria: research, external factors, and sales

will be presented. Once the results have been presented, they will be explained and

deepened by introducing anecdotes from the annual reports. Finally, it will be

determined why Kodak was able to succeed while Polaroid was not.

History of the Digital Photography Market

In order to give the results meaning, context outside of Kodak must be

presented. The following section aims to introduce a brief history of digital photography

in terms of adoption rate. This information will serve to sharpen the relevance of the

annual reports by providing context. The two charts below come from the US photo

industry 2010 review and forecast.1

1 PMA Marketing Research. "Photo Industry 2010: Review and Forecast." PMA Marketing Research 1,

no. 1 (2011)

30

Figure 5.1

Source: Photo Industry 2010: Review and Forecast

Figure 5.2

Source: Photo Industry

Source: Photo Industry 2010: Review and Forecast

31

This study presented two tables: adoption rate of digital cameras, and US camera sales.

Adoption rate measured how many homes in the US owned at least one digital camera.

In 1996 only 0.4% of all households owned personal digital cameras. By 2005 this

figure had grown to 49% and is projected to reach numbers surpassing 80% in 2011.

The second table measured camera sales as divided by digital and film. According to

these charts, digital photography was not a major part of camera sales until 2003 at

which point it accounted for just over 50% of all camera sales in the US. The evolution

of digital sales started in 1995 when digital accounted for less than 1% of all camera

sales. 10 years later digital camera sales held roughly 83% of all camera sales. By 2010

film was projected to hold less than 0.3% of all sales. This report provides an important

metric for the annual report coding to be measured against. Without this data it would

be impossible to gauge how successfully Kodak was at adapting to a new technology.

Coding System

This brief section is here to explain how to understand the coding system and

graphs. Understanding this will be needed to understand the research. Below is a sample

chart:

32

Figure 5.3

Coding Explained

Topic: R-gen Devel

R-

chem

R-

film R-digi

R-

cam

R-

equip

R-

manu

Year

1974 3 1 1 1 1 2 2

5.61% 1.40% 1.05% 1.75% 0.00% 1.05% 4.56% 3.16%

285 16 4 3 5 3 13 9

The highlighted text is the total number of six word groups in the annual report.

The bolded numbers are the number of mentions.

The italicized numbers are the total number of six word groups per topic.

The percentage is the: (total number of six word groups per topic) / (the total

number of six word groups)

Results

The following three sections present the results of the coding. Research,

external/ internal factors, and sales are examined below. Before specific findings are

mentioned, some general findings are presented. The average number of mentions for

any criteria over the 31 year period is 2.74% of the total words. Of the 31 years, annual

reports were only available for 28 of them.

Research

Kodak is a research company and their annual reports reflect their devotion to

innovation. Appendix A contains the full data set which is discussed here. Figure 5.4 is

the visualization of the data set for research and development.

33

Figure 5.4

Research Data

Over the 31 years of data collection, 28 of which were counted, some form of

research is mentioned every year. Unclassifiable research is mentioned in all but three

years. The average number of mentions as a percentage from total words is 5.06% in

each annual report. This figure combined with the other research criteria totals at an

average of 28.25% of words for each report. Of the 20 criteria, the average number of

mentions for each is 2.74% out of the total words. These findings highlight the

emphasis Kodak places on research and innovation. As quoted from the 1974 annual

report, “as detailed elsewhere in this report, our ability to sustain business growth has its

foundation in extensive research and development.”2

To supplement their spending in research, Kodak also spends a consistent

amount of attention on development. In order to grow as a company Kodak must invest

in new facilities and partnerships to continue to offer their products. On average, Kodak

spends 3.25% of total words in each annual report talking about their development

2 "Eastman Kodak Company Annual Report -- 1974," America's Corporate Foundation (1974): 0_1.

34

plans. Development, however, is only mentioned in 8 out of the 20 reports analyzed.

The distribution of these is fairly consistent as they occur approximately twice every 5

years. The consistency of development's mentions is broken with particularly high

mentions in ‟96 and ‟97 of 13.6% and 11.67% suggest Kodak was developing their

digital production facilities. The years prior to ‟96 were notable in that Kodak began to

sell digital cameras. The years following ‟97 are the years in which digital sales began

to boom. In 1976 Kodak reports: “a total of $497 million was invested in the company‟s

physical plant during 1976 to enlarge and improve facilities for the development,

production, sale and distribution of Kodak Products.” 3

Kodak‟s chemical research remains constant at roughly 0.16% of total words

until 1994 when Eastman Chemicals is spun off as a separate corporation. These

findings are inconclusive because of the incomplete and small data set.

Kodak has historically focused on film and their attention to film related

research is reflective of this. From the years 1974 – 2005 film is counts for 3.56% of the

total words. The results of film are inconsistently distributed. The graph displays two

peaks of research into film. The first begins to climb in 1974, reaches a peak in 1982

and ends around 1987 and follows a trend which mirrors Kodak‟s mentions of a

negatively impacting economy. These mentions revolve around Kodak‟s consumer film

sales. The second peak begins in 1995, reaches a peak in 1999 and ends in 2005. This

peak is centered on Kodak‟s involvement in 35mm film for movies, not consumer film.4

Therefore, we can say Kodak begins to decrease their focus on consumer film after the

early „90s. In 1982 Kodak reports their investment into film research by saying:

3 "Eastman Kodak Company Annual Report -- 1976," America's Corporate Foundation (1976): 0_1.

4 "Eastman Kodak Company Annual Report -- 2003," America's Corporate Foundation (2003): 1.

35

The paybacks from our research come in a rapid flow of new products,

including the disc camera and Kodacolor HR disc film, the new family of

Kodacolor VR films… The paybacks are evidenced, too, in advancing

technological achievements, such as the “t-grain” emulsion discovery

behind Kodacolor VR1000 film… and our demonstrated film-to-video

capabilities.5

And then in 1999 Kodak mentions these achievements in research:

Film usage also continues to grow dramatically. Film sales reached a new

peak in 1999, achieving double digit growth in the United States… This

apparent anomaly can be explained, in part, by the fact that traditional

camera and film are, themselves, making rapid advances in technological

sophistication.6

Despite inventing the first digital camera in 1975,7 Kodak‟s investments into

digital technologies remain very low until the mid to late „80s. Over the 31 year span

(28 of which were counted) Kodak spends an average of 7.23% of their words

discussing their research into digital technologies. If the average is calculated from

1990 to 2005, the average number of words dedicated to digital technologies takes up

14.55% of all words; almost 5.5x the average. These findings, while encapsulating

technologies which supplement digital cameras and digital cameras, show a very clear

preference for digital technology research in more recent years. From 1990 to 2005 a

wide variety of products were introduced. In 1999,

Kodak helped consumers turn 150 million of their pictures into digital

files, thanks to the ease and convenience of Kodak Picture CD, Kodak

Picture Disk, Kodak PhotoNet Online, and our “You‟ve Got Pictures”

service on America Online…Kodak has maintained its lead as one of the

top three digital camera brads in the world… As digital cameras become

more popular… Coming this fall, for example, is a new Kodak Advantix

5 "Eastman Kodak Company Annual Report -- 1982," America's Corporate Foundation (1982): 0_1.

6 "Kodak Annual Report -- 1999," America's Corporate Foundation (1999): 0_1.

7 Ben Dobbin, "Kodak engineer had revolutionary idea: the first digital camera

," Seattle PI (2005)

36

Camera that offers Advanced Photo System film users the single most

popular benefit of digital picture taking.8

This is representative of the diversity of products Kodak introduced to supplement

digital cameras.

Camera based research was only counted if it related to film cameras. As the

table shows, Kodak put a tremendous emphasis on film cameras prior to 1986 where the

average number of words was 5.44% of the total. After 1986, the average drops to

1.18%. These findings suggest that the cognitive mindset of Kodak shifts away from

film based cameras after 1986. 1985 and 1986 were bad years for Kodak as the

mentions of the economy negatively impacting their company and measurers they took

to increase savings are both very high as evidenced in the figure 1.2. This may have

influenced what was reported in 1985 1nd 1986. In 1978 Kodak has this to say about

their research of cameras: "The Kodak line of traditional cameras proved very popular

with consumers… Colorburst instant cameras introduced early in the year contributed to

substantial expansion…"9

Kodak‟s research in equipment and manufacturing has averages of 3.29% and

1.96% respectively. Equipment has a small relevance for consumer cameras, but their

use of digital sensors is noteworthy. Mentions of digital technologies being incorporated

into printers and scanners occur as early as the late „70s.10

During the late 1990s there

was a large increase in mentions as the implementation of digital technologies was

greatly increased. Manufacturing is largely related to Kodak‟s film and instant camera

production and is a small indicator of their emphasis. Prior to 1987 Kodak placed a

8 "Kodak Annual Report -- 1999," America's Corporate Foundation (1999): 0_1.

9 "Eastman Kodak Company Annual Report -- 1978," America's Corporate Foundation (1978): 0_1.

10 "Eastman Kodak Company Annual Report -- 1979," America's Corporate Foundation (1979): 0_1.

37

large amount of focus on improving their ability to manufacture these goods, but this

severely declined after 1987.

External/ internal factors

Exclusively examining research would result in a data set with limited accuracy.

In order to understand where Kodak‟s cognitive mindset has been it is necessary to

examine the external and internal factors which may have influenced their mindset.

These criterions may have influenced what information was reported by Kodak in their

annual report as well as offering an explanation as to why they focused on what they

did. The following section will examine the data related to external and internal factors

which may have directed Kodak‟s cognitive mindset. The external factors which will be

examined are the impact of the economy, competition, and other factors such as

government intervention. Appendix B reports the findings in full while a summarizing

graph is offered below.

Figure 5.5

External/ Internal Factors

38

The annual report Kodak sends to its shareholders must explain why the

company performed the way it did in the past year as well as setting expectations for the

coming year. As a percentage, the most commonly cited reasons for poor performance

stem from the United States Economy. Failures of the economy are mentioned in 19 of

the 28 reports with an average of 8.13% of the total words per mention. Combined with

positive mentions the economy is mentioned at least once in 22 of 28 reports. The

economy is cited in 79% of the total reports, and as having a negative impact in 86% of

those with a mention. This figure is much higher than average and has severe mentions

throughout the report. In 1982 Kodak uses 49 word groupings to highlight the negative

impact of the economy saying things like: Sales lagged in many markets, and a

combination of factors…currency exchange rates, and restricted pressure on our

economic activity, put pressure on our prices and margins.11

The economy is cited as

impactful very often and must be considered a major component in the company‟s

decisions each year.

The economy as a supporting factor is only mentioned in 8 of the 28 reports for

an average of 2.11% of the total words per mention. Separate of mentions of the

economy negatively impacting Kodak this is a small and irrelevant factor. One

explanation for the low number of mentions is that crediting the economy does not

instill confidence in the shareholders.

Competition should be a very important factor in Kodak‟s behavior. The

findings, however, only record it mentioned once throughout the entire data set and it

accounted for just 0.8% of the total words. Because of the low frequency of mentions

this data cannot be used in this research, and is a possible weakness in the study.

11

"Eastman Kodak Company Annual Report -- 1982," 0_1.

39

There are also external factors which did not fit into the categories of economy

or competition. These were factors such as government intervention in the markets or

litigations against Kodak. Other external factors were mentioned in 9 of the 28 reports

accounting for an average of 4.07% in those mentions. In total, the average number of

words accounted for 1.31% of the total words. Of the 9 mentions, not all were negative.

Because of the mixed nature of these factors they cannot be used as a reliable metric in

the research.

Savings was the most used at 6.18% average of all words over all 28 reports.

Additionally a total of 22 reports mention savings. As the graph illustrates, the number

of mentions correlate with the mentions of a negatively impacting economy up until

1985. In the 90‟s there is an increasing mentions again, mainly due to the increase in

new manufacturing processes taken on. In the 1998 annual report one line from the 12

mentions is: We refocused our portfolio, creating new opportunities to grow.12

Savings

is an important part of Kodak‟s annual reports and should be an indicator of the

company‟s cognitive mindset each year.

Expenses have a very low word count, counting for only 0.93% of the total

words. With 10 mentions expenses should help construct a picture of the cognitive

mindset of Kodak. Of the 10 mentions each one counts for an average of 2.61% of the

total words. These mentions largely occur before 1991 and are often used to explain

poor performances.

12

"Kodak Annual Report -- 1999," 0_1.

40

Sales

Sales provide an important metric into how much Kodak was pushing certain

products. The categories analyzed here are mentions of gains or losses in sales for film

and digital. And consumer confidence which is used to analyze times when Kodak

thought consumer confidence in their products had an impact on their performance.

Located below is a graph containing the data for the sales data while the complete data

set is listed in Appendix C.

Figure 5.6

Sales Data

The first category is: film sales down. There are 13 reports which contain

mentions of a decrease in film sales. In these reports the average word count is 4% of

the total words. Looking at the graph shows us the figure 5.2 majority of these mentions

(9) occur after 1991 which is when digital sales begin to rise. It is clear that the rise in

digital sales began to decrease film sales. This is supported by

The next category is: film sales up. Film is historically the main medium in

which images are captured and this is reflected in Kodak‟s sales. Film shows very

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

S-d-f S-u-f S-d-d S-u-d Cc-decl Cc-rise

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

41

strong sales up until 1989 when the average word count begins to drop. Prior to 1989

the average word count was 9.41% of the total words. An excerpt from Kodak‟s 1978

report which is representative of the tone of Kodak‟s increase in film sales follows.

“Sales of Kodak photographic products rose 19 percent.”7A And in 1979,

“photographic division sales rose 14 percent.”13

Post 1989 the average word count

drops significantly to 1.96% of the total words. Prior to 1989 film was the only option,

but towards the beginning of the „90s digital photography began to gain a foothold in

the camera market and because of this film sales started to shrink. After 1989, further

mentions of film sales are primarily related to 35mm film used for shooting movies.14

This is strong evidence for the impact digital photography had on film sales. The annual

reports post 1999 begin to acknowledge the sharp decline of film sales which

supplements the findings which only acknowledge the number of mentions, but not the

content.

Digital sales down are the next category to be presented. These findings indicate

that digital sales are only mentioned once over the 28 reports and in this mention it only

accounts for 0.83% of the total words. These findings are insignificant for the overall

study.

Digital sales up are the final sales category examined. A rise in digital sales has

been mentioned in 7 of the 28 reports. This, however, is skewed by the fact that the first

commercially available digital camera was introduced in 1991. Of the 13 reports from

1991 to 2005, 7 mention a rise in digital sales. The table highlights the rapid increase in

sales for Kodak. From 1999, when digital sales are first mentioned, to 2005 the average

13

"Eastman Kodak Company Annual Report -- 1979," 0_1. 14

ibid.

42

word count is 9.39% of the total words. In 1999 an increase in digital sales only

accounted for 1.76%. And in 2000 it rose to 10% of the total words. According to the

photo industry 2010 review and forecast in 1999 digital sales were 1.15% of total

camera sales. In 2000 digital cameras accounted for 18.6% of total sales. By 2005, the

last year in my data set digital sales were reported to be 83% of the total camera sales.15

In the years from 1999 to 2005 Kodak devoted on average 9.39% of all words each year

to discuss a rise in digital sales. Over the 7 year span it is fair to say this is reflective of

growth which seems to match the market‟s growth pattern.

A decrease in consumer confidence is mentioned in 4 of the 28 reports and has

never accounted for more than 1.5% of the total words. The low impact, low frequency

nature of this category makes it unusable for this study.

An increase in consumer confidence is the final category which was analyzed. A

rise in consumer confidence is mentioned in 15 of the 28 reports. Within these 15

reports the average mention is 3.3% of the total words. There are two clusters of data:

1974-1982 and 1995-2005. These clusters correspond to many different aspects of

Kodak‟s business and because of this is it is impossible to correctly apply the findings.

Summary of Results

The following results will summarize the findings and then compare Kodak to

Polaroid to determine why Kodak was able to survive while Polaroid was not.

The three criteria: research and development, external and internal factors, and

sales/ consumer confidence are used to determine if Kodak was able to acknowledge

and adapt to the introduction of digital technologies.

15

"Eastman Kodak Co Annual Report -- 2005," America's Corporate Foundation (2005): 0_1."Eastman

Kodak Company Annual Report -- 2002," America's Corporate Foundation (2002): 1.

43

Looking at the history of digital camera adoption rates and sales we see the

beginning of digital photography is 1996. The coding results clearly show that digital

technologies were being developed by Kodak engineers as early as 1975 with a focus

large enough to mention by 1980. Kodak is able to claim that they are the inventor of

digital photography as one of their engineers invented the technology in 1975.16

While

the coded mentions of digital are not all directly related to digital image sensors, all of

the technologies mentioned are important components of a digital camera. One of the

earliest successful digital technologies mentioned is a Photo CD used to record images;

a digital substitute for film.17

Later, Kodak introduced the DCS digital camera in 1991

which was initially limited to photo journalism.18

Kodak's annual reports also mention

film and film camera research as decreasing from 1991 and 1989 respectively. In the

later reports, Kodak mentions the introduction of new technologies to support digital

photography such as a deep integration with the internet19

and mobile devices.20

All of

the results suggest Kodak was able to acknowledge and adapt to the introduction of

digital technologies.

Interpreting these findings through the lens of cognition presents a clear picture

of Kodak‟s mindset during the transitory years. In the first half of the research there are

strong groupings of film related research and mentions of increases in film sales.

Development and manufacturing infrastructure also show a preference for film and

supplementary products. This creates a clear cognitive model where Kodak was clearly

focusing on film and related products and infrastructure up until 1990. After 1990 the

16

Ben Dobbin, "Kodak engineer had revolutionary idea: the first digital camera," 17

"Eastman Kodak Company Annual Report -- 1992," America's Corporate Foundation (1992): 0_1. 18

"Kodak DCS 100," [cited 2011]. Available from http://www.nikonweb.com/dcs100/. 19

"Kodak Annual Report -- 1999," 0_1."Eastman Kodak Co Annual Report -- 2005," 0_1. 20

"Eastman Kodak Company Annual Report -- 2005," America's Corporate Foundation (2005): 0_1.

44

mentions of film and supplementary products begins to drop. In place of their traditional

film sales, digital technologies begin to take their place. The number of mentions for

digital photography had been growing since 1980 and reached a tipping point in the late

„90s. Digital sales also increase in mentions after 1999 eventually replacing film

mentions altogether. The cognitive map for the second half of the data set clearly

reflects a preference for digital technologies.

External and internal factors demonstrated a strong influence on Kodak's annual

reports. Despite frequently citing the US economy as a factor in decreasing the

company's success there is still a large amount devoted to savings measures, research,

and sales. This seems to suggest that while Kodak did suffer from the economy, it had a

minor impact on their research. A negatively impacting economy certainly has an

impact of the Kodak mindset, however. There are a consistent number of mentions

which seem to increase the number of research and savings mentions. In terms of

numbers of mentions there is a clear trade-off between the number mentions regarding a

negatively impacting economy with research and savings. The cognitive map presented

is then one in which if there is an increase in number of mentions of a negatively

impacting economy it is balanced by an increase in number of mentions devoted to

research and savings. This map is not representative of what was influencing decisions

as much as it was playing to what the shareholders wanted to hear. One possible

influence these factors had was a genuine shift in focus. It is possible that in the wake of

a poor year, Kodak not only chose to mention future plans, but that they also focused on

making their plans top priority. In this way, external and internal factors may have

influenced future directions more than is let on by the annual reports. If this is the case,

45

the cognitive map is similar to the one presented above, but it is not a reflection of what

the shareholders want to hear, and more a true plan Kodak aimed to follow.

Sales were an important metric in determining how successful Kodak's

innovations were. The results from sales are very clear. Film sales were dominant until

1992, after which digital began to overtake film in relevance. From 1995 on, digital

sales were the most mentioned in each annual report. These findings demonstrate with

an extreme clarity that Kodak's digital sales were strong from 1995 on. The cognitive

map presented by these findings is consistent with the one presented by research and

development. Both emphasize film in the first half of the study, and a reduction for film

in the second while digital gains strength.

The cognitive map this research presents is one where film is dominant up until

the early „90s. At this point digital begins to replace film as the dominant focus; a

process which is very similar to the US photo industry 2010 review and forecast. The

effects of the external and internal factors seem to do more to influence what is said in

the report. This, however, can be interpreted as Kodak making sincere plans for the

direction of the company. Therefore, it can be said that Kodak was able to acknowledge

and adapt to a change in the market.

Kodak vs. Polaroid

In order to determine if the limits of change are rooted in cognition, two similar

companies will be examined. From chapter IV, the literature review, the case study of

the Polaroid Company will be compared with this case study of Kodak. It will be asked,

why was Kodak able to succeed while Polaroid was not? First, Polaroid will be

presented to determine what capabilities they possessed during these transitive years

46

and what they did to adapt to the change in the environment. The case study of Polaroid

was conducted by Tripsas and Gavetti and was conducted independently of this

research. Second, Kodak will be examined to see what their cognitive mindset was

during the transitive years and what they did to adapt to the change in the environment.

After the two are presented, the differences will be explored. Finally, the environment

as a factor in the success or failure will be questioned. At the end of this analysis, an

answer to the research question, is cognition the limit to change will be presented.

A case study by Tripsas and Gavetti (2000) of the Polaroid Company was

presented earlier in chapter II. Here, the findings are recounted and summarized.

Polaroid was in possession of a highly developed film business and had some success

developing digital cameras.21

In fact, Polaroid had developed the PDC-2000 digital

camera in 1996, a few years before the digital photography market started to grow.22

When the environment changed they were unable to realign their company because they

were not able to restructure their company. The business was built around film

production and sales and used a single model which could not be adapted to digital

photography. Because of this Polaroid suffered immensely until a new CEO was

brought in from outside the company. At this point Polaroid completely tore down their

existing structure to better fit the changing environment. This, however, came too late.

In 2001, Polaroid filed for chapter 11 bankruptcy protection.23

The results presented in this section provide a cognitive map of the Kodak

company from 1974-2005, the years in which digital photography began to develop.

The two maps which are most important to analyze are film and digital. To supplement

21

Tripsas and Gavetti, "Capabilities, Cognition, and Inertia: Evidence from Digital Imaging," 1147. 22

Unknown, "Hot Shots," The Photographer 1, no. 1 (1996) 23

"Polaroid Archives," [cited 2011]. Available from www.polaroid.com.

47

these findings, sales will be used as measure of how successful Kodak was at realigning

their companies focus. The first cognitive map is film. The factors which will be used to

construct this map are: chemical research, film research, camera research, film sales up,

and film sales down. Using these to construct a map presents a cognitive map where

Kodak shows a clear preference and reliance of film towards the beginning of the

dataset. After time progresses, the reliance and mentions of film begin to decrease

despite resurgence in sales towards the end of the chart. The digital map is the opposite.

Using digital research and digital sales up as metrics a cognitive map for digital can be

created. In the beginning, there are very few mentions of digital technology. Towards

the end, however, the number of mentions dramatically increases and digital becomes

the primary focus. By examining these mental maps it is clear Kodak was primarily

focused on film, but during the 90‟s they were able to redefine their business and adapt

to the changing environment. Their 1997 annual report states "Our Kodak Business is

PICTURES-helping people, in business or as consumers, to take, make, and use

PICTURES..."24

and later "Digital imaging is the key to helping customers and

consumers do more with their PICTURES. This market has enormous potential, and we

believe our investment will pay off."25

So, what was different between the two

companies? Both had developed some digital technologies prior to the full transition,

but only Kodak was able to effectively realign.

What between these companies was different? Why was Kodak able to succeed

while Polaroid did not? It is clear from Tripsas and Gavetti's (2000) report that Polaroid

suffered from a path dependency. Their company was formed to create film based

24

"Eastman Kodak Company Annual Report -- 1997," America's Corporate Foundation (1997): 0_1. 25

"Eastman Kodak Company Annual Report -- 1997," America's Corporate Foundation (1997): 0_1.

48

cameras, but they had also researched digital technologies and possessed good digital

sensors.26

And, towards the end of the company, a new CEO was brought in and was

able to realign the company to focus on digital technologies albeit late.27

Kodak was

also a highly developed film company as evidenced by the cognitive maps it possessed.

And, like Polaroid, it had ventured into developing some digital technologies. Then, as

the market evolved and began to demand more digital products, only Kodak was able to

take advantage of the change. Both companies possessed very similar capabilities, but

what separated Kodak from Polaroid was their cognitive mindset. As evidenced in their

1997 annual report, Kodak fully embraced the new technology and then realigned their

company to reflect this. In later reports, Kodak acknowledges the decline in demand for

film and the rise of digital technologies.28

The data alone shows Kodak was able to

successfully realign their company, and their two cognitive maps, film and digital,

clearly reflect this. Film was dominant at the beginning of the transformative period, but

waned towards the end. This process was identified by Kodak. Their digital cognitive

map does just the opposite, starting very small with a few mentions, but rapidly

increasing as demand and capability began to encourage more digital products. Because

Kodak was able to recognize the shift, they were able to realign.

It can be argued that the environment played a large role. Yes, this is true, new

technologies such as the internet did increase the demand and usefulness of digital

photography. But, Kodak recognized the need before 1991, the year they released their

first commercial digital camera, the Kodak DCS.29

So, while the environment led to the

26

Tripsas and Gavetti, "Capabilities, Cognition, and Inertia: Evidence from Digital Imaging," 1147. 27

ibid. 28

"Eastman Kodak Company Annual Report -- 2002," 1. 29

"Eastman Kodak Company Annual Report -- 1991," America's Corporate Foundation (1991): 0_1.

49

explosion of digital photography, Kodak clearly recognized the importance of it much

earlier.

In conclusion, the reason Kodak was able to survive and even flourish was not

because of their capabilities. Polaroid shared many of the same capabilities, but they did

not possess the cognitive imagination to see digital as a viable, important part of the

imagining business. Kodak redefined what business they were in from film images, to

imaging in order to reflect the enormous cognitive shift. In 1992 Kodak reports,

Through this same time period, we commercialized a fundamentally new

film-based technology-the Photo CD system- and partially due to its large

potential, we redefined our participation strategy. Our principal business,

we concluded, was in images and not in every form of imaging. Recording

images, storing images, transmitting images, and delivering image

outputs- this is our competitive advantage.30

This quote, from 1992, demonstrates Kodak's different mindset. And the result of this

different cognitive map was Kodak's ability to realign.

30

"Eastman Kodak Company Annual Report -- 1992," 0_1.

50

CHAPTER V

CONCLUSION

The purpose of Chapter V is to review the results as they relate to the literature base and

confirm or deny the proposed framework which argues cognition is the limit to change, and

finally, to conclude the study. The following sections will examine the ties between the results

and literature base, discuss possible implications of the study, acknowledge possible limitations,

and provide directions for future research.

Connections between the Findings and the Literature Base

This section will review the findings and identify the ties between the results and the

literature base. To begin, Tripsas and Gavetti‟s (2000) study clearly demonstrates the potential

downfalls of a path-dependence through their case study of Polaroid. This case illustrates how a

core competency can develop into a core rigidity. The study conducted by this thesis illustrates

that while a company can be following a path dependency, it does not wholly determine the

future direction of the firm. The data was used to create cognitive mind maps of Kodak and

from this it was determined that Kodak was able to affect change. Because Kodak and Polaroid

were similar companies during the time period leading up to the '90s there was an identifiable

difference. This difference led to the success of one company, Kodak. The framework presented

in chapter II argues that the past only dictates direction up until the present moment,1 at which

1 Ilídio Barreto, "Dynamic Capabilities: A Review of Past Research and an Agenda for the Future,"

Journal of Management 36, no. 1 (2010): 256-280., David J. Teece, Gary Pisano, and Amy Shuen,

"Dynamic Capabilities and Strategic Management," in Technological Know-How, Organizational

Capabilities, and Strategic Management: Business Strategy and Enterprise Development in Competitive

Environments Hackensack, N.J. and Singapore: World Scientific, 1997), 27-51., JORG SYDOW,

GEORG SCHREYOGG, and JOCHEN KOCH, "Organizational Path Dependence: Opening the Black

Box," Academy of Management Review 34, no. 4 (2009): 689-709.

51

point cognition takes over and chooses the direction.2 The results in chapter IV clearly

demonstrate that Kodak was able to change the direction of their company while Polaroid was

not. And the only clear difference between the two was the cognitive mindset of Kodak, which

is illustrated in the results. If this is the case, then the ability to change is limited by cognition

and not resource deployment.

Implications

The obvious implication of this is that a company can adapt to change if they have the

cognitive mindset. So, a good step for any management to take is a willingness to change. And

while previous resource deployment and structure will have some influence, the limit of change

is rooted in cognition. If an individual can imagine a possibility then it is just a matter of

redeploying resources to better match the new reality. This research suggests an open mind to

possibilities is a vital part of an organization‟s health.

Limitations

Some limitations were outlined in chapter III. Larger limitations are listed here. Annual

reports were used instead of personal interviews and this created disconnect between the actual

cognitions and what was reported. A second limitation was the separate nature of the two case

studies. Each took a different focus and were not conducted by the same authors. Because of

this, the data from the Polaroid case study may not have been as accurate as needed. A final

limitation was the data collection. As previously mentioned, the subjective nature decreased

accuracy.

2 Mary Tripsas and Giovanni Gavetti, "Capabilities, Cognition, and Inertia: Evidence from Digital

Imaging," Strategic Management Journal 21, no. 10 (2000): 1147., Maurice A. M. Scheepens, "Making

sense of an institutional change: The role of managerial cognitions," Cogniţie Creier Comportament 9,

no. 4 (2005): 737-766., Dovev Lavie, "Capability Reconfiguration: an Analysis of Incumbent Responses

to Technological Change," Academy of Management Review 31, no. 1 (2006): 153-174., Tomi Laamanen

and Johan Wallin, "Cognitive Dynamics of Capability Development Paths," Journal of Management

Studies 46, no. 6 (2009): 950-981., Jennifer M. George and Gareth R. Jones, "Towards a process model of

individual change in organizations," Human Relations 54, no. 4 (2001): 419-444.

52

Future Directions

This final section will introduce future areas of research. Cognition could be applied

more thoroughly to the framework and in doing so craft a better understanding of how cognition

is limited. The interplay between cognition and the past could also be deepened. This thesis

sought to examine one facet of the interplay by arguing cognition is the limit to change.

Specifically, that resources can be redeployed when a new mindset and direction is proposed,

but a new mindset is the requirement. The complex interplay between how past actions

influence the present can be examined more fully. The past, in the absence of creativity, does

have a strong influence on the future of the firm and the exact mechanisms could be explored in

more detail. A more complete look at this relationship designed to explore the limits of the

model from every part would be useful. Another area of improvement is the case study of

Polaroid. This should be conducted in a manner similar to this case study of Kodak and by the

same researcher in order to provide more accurate results. Finally, the photography market is set

to change again as mobile devices, such as cell phones are beginning to replace the need for

consumer digital cameras. One further case study would be to analyze the current mindset of

Kodak in response to the upcoming change in the photography market.

53

APPENDIX A

Topic: R-gen Devel R-chem R-film R-digi R-cam R-equip R-manu

Year

1974

3 1 1 1 1 2 2

5.61% 1.40% 1.05% 1.75% 0.00% 1.05% 4.56% 3.16%

285 16 4 3 5 3 13 9

1975 3 2 1 2 1 1

5.00% 4.50% 1.50% 0.00% 0.00% 7.50% 3.50% 3.50%

200 10 9 3 15 7 7

1976 1 1 3 4 5

4.83% 0.00% 1.38% 4.14% 0.00% 8.97% 10.34% 0.00%

290 14 4 12 26 30

1977 2 1 3 3 2 1

4.24% 0.00% 1.21% 3.03% 0.00% 6.06% 2.42% 1.21%

330 14 4 10 20 8 4

1978 5 3 1 1 1 1 1

7.78% 6.67% 1.11% 1.11% 0.00% 5.56% 3.33% 2.22%

180 14 12 2 2 10 6 4

1979 3 2 1 1 2 3

2.22% 0.00% 6.67% 1.11% 0.00% 0.56% 1.67% 9.44%

180 4 12 2 1 3 17

1980 4 2 1 2 1 2 1 2

4.23% 3.85% 1.54% 2.31% 1.54% 4.23% 1.15% 5.77%

260 11 10 4 6 4 11 3 15

1981 9 2 2 1 3 4 2

20.00% 0.00% 3.13% 5.00% 3.75% 7.50% 10.00% 1.88%

160 32 5 8 6 12 16 3

1982 3 1 2 4 2 5 3 1

3.04% 2.61% 1.30% 6.09% 2.61% 10.87% 4.35% 3.91%

230 7 6 3 14 6 25 10 9

1983

1984 5 4 2 7 2 2 3 2

8.10% 8.10% 1.43% 5.71% 1.90% 5.24% 4.29% 1.90%

210 17 17 3 12 4 11 9 4

1985 2 1 1

2.27% 0.00% 0.00% 2.27% 0.00% 2.27% 0.00% 0.00%

220 5 5 5

54

1986 4 2 1 1 1 2 1

6.80% 2.40% 1.60% 4.80% 1.20% 0.00% 1.60% 1.20%

250 17 6 4 12 3 4 3

1987 2 1 3

10.00% 0.00% 0.00% 0.00% 0.00% 0.00% 6.80% 14.00%

250 25 17 35

1988 7 1 1 1

0.00% 16.15% 0.00% 2.69% 2.31% 1.92% 0.00% 0.00%

260 42 7 6 5

1989 1 2 1 1 1

2.40% 3.20% 1.60% 2.00% 0.00% 0.00% 3.60% 0.00%

250 6 8 4 5 9

1990 1 1 4 2 1

0.00% 1.15% 0.00% 1.15% 12.31% 0.00% 5.00% 0.77%

260 3 3 32 13 2

1991 2 4 2 3

1.54% 4.62% 3.85% 17.31% 0.00% 0.00% 0.00% 0.00%

260 4 12 10 45

1992 4 1 1 2 1

4.29% 0.00% 1.07% 1.43% 5.36% 8.93% 0.00% 0.00%

280 12 3 4 15 25

1993

1994

1995 3 1 4

7.27% 0.00% 0.00% 1.21% 5.45% 0.00% 0.00% 0.00%

330 24 4 18

1996 1 6 2 1

0.80% 13.60% 0.00% 3.20% 1.60% 0.00% 0.00% 0.00%

250 2 34 8 4

1997 4 4 3 3 2

10.00% 11.67% 0.00% 4.44% 8.89% 6.67% 0.00% 0.00%

180 18 21 8 16 12

1998 3 1 2 10 1

7.78% 0.56% 0.00% 3.89% 32.22% 0.00% 3.89% 0.00%

180 14 1 7 58 7

1999 2 2 6 1

2.94% 0.00% 0.00% 5.88% 15.29% 0.00% 4.71% 0.00% 170 5 10 26 8

55

2000 2 2 9 4

3.21% 0.00% 0.00% 5.36% 16.79% 0.00% 7.50% 0.00%

280 9 15 47 21

2001 2 3 1 9 1 1 6

2.50% 3.06% 0.00% 2.22% 13.61% 1.11% 1.39% 5.83%

360 9 11 8 49 4 5 21

2002 3 2 5 2 3

3.33% 0.00% 0.00% 3.70% 10.00% 2.59% 3.33% 0.00%

270 9 10 27 7 9

2003 2 2 3 15 2

4.59% 2.16% 0.00% 3.51% 27.57% 0.00% 2.16% 0.00%

370 17 8 13 102 8

2004 3 1 8 1

0.00% 5.38% 0.00% 2.31% 21.15% 0.00% 1.54% 0.00%

260 14 6 55 4

2005 3 1 9 2

6.79% 0.00% 0.00% 1.79% 18.93% 0.00% 5.00% 0.00%

280 19 5 53 14

56

APPENDIX B

Econ-up Econ-do Ext-other Compet Saving Expenses

Year

1974 2 6 1 1 2

1.75% 8.77% 2.46% 0.00% 1.05% 1.75%

285 5 25 7 3 5

1975 1 1 2

0.00% 5.00% 0.00% 0.00% 4.00% 7.00%

200 10 8 14

1976 1 1 1 4

1.38% 1.38% 1.03% 0.00% 6.55% 0.00%

290 4 4 3 19

1977 1 1 2 4

0.61% 0.61% 3.94% 0.00% 6.67% 0.00%

330 2 2 13 22

1978 3 3 1 2 1

3.33% 18.33% 1.11% 0.00% 2.22% 1.67%

180 6 33 2 4 3

1979 2 3 1 1 2

0.00% 6.67% 12.78% 1.67% 5.56% 5.56%

180 12 23 3 10 10

1980 3 5

0.00% 15.00% 0.00% 0.00% 18.85% 0.00%

260 39 49

1981 1 3 1

1.88% 17.50% 0.00% 0.00% 5.00% 0.00%

160 3 28 8

1982 1 10 3 1

4.35% 21.30% 0.00% 0.00% 6.09% 0.87%

230 10 49 14 2

1983

1984 2 7

0.00% 24.76% 0.00% 0.00% 17.62% 0.00%

210 52 37

1985 3 10 1

0.00% 10.45% 0.00% 0.00% 12.27% 2.27%

220 23 27 5

57

1986

10

0.00% 0.00% 0.00% 0.00% 13.20% 0.00%

250 33

1987 1 1

2.80% 0.00% 0.00% 0.00% 2.80% 0.00%

250 7 7

1988 1

0.00% 0.00% 3.85% 0.00% 0.00% 0.00%

260 10

1989 2 2 1 12 3

0.00% 4.40% 1.60% 0.80% 24.00% 2.80%

250 11 4 2 60 7

1990 1 1 1

0.00% 1.15% 5.38% 0.00% 1.15% 0.00%

260 3 14 3

1991 5 2 3

0.00% 8.85% 0.00% 0.00% 1.54% 2.69%

260 23 4 7

1992 2 3 1

0.00% 1.79% 0.00% 0.00% 3.93% 0.71%

280 5 11 2

1993

1994

1995 1 1

1.52% 0.00% 0.00% 0.00% 3.03% 0.00%

330 5 10

1996

0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

250

1997 1 1 2

0.00% 4.44% 4.44% 0.00% 6.67% 0.00%

180 8 8 12

1998 5

0.00% 0.00% 0.00% 0.00% 13.33% 0.00%

180 24

1999 1

0.00% 0.00% 0.00% 0.00% 2.94% 0.00% 170 5

58

2000 1

0.00% 0.71% 0.00% 0.00% 0.00% 0.00%

280 2

2001 1 5

0.00% 0.83% 0.00% 0.00% 5.00% 0.00%

360 3 18

2002 2 3

0.00% 2.59% 0.00% 0.00% 4.81% 0.00%

270 7 13

2003 1 2 1

1.35% 0.00% 0.00% 0.00% 2.16% 0.81%

370 5 8 3

2004 1

0.00% 0.00% 0.00% 0.00% 1.54% 0.00%

260 4

2005

0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

280

59

APPENDIX C

S-d-f S-u-f S-d-d S-u-d Cc-decl Cc-rise

Year

1974 3 1 2

0.00% 5.26% 0.00% 0.00% 0.70% 3.51%

285 15 2 10

1975 4 3

0.00% 6.00% 0.00% 0.00% 0.00% 7.50%

200 12 15

1976 4 1

0.00% 13.10% 0.00% 0.00% 0.00% 1.72%

290 38 5

1977 2 2

0.00% 1.21% 0.00% 0.00% 0.00% 1.21%

330 4 4

1978 5

0.00% 21.67% 0.00% 0.00% 0.00% 0.00%

180 39

1979 3

0.00% 9.44% 0.00% 0.00% 0.00% 0.00%

180 17

1980 3 1

0.00% 5.77% 0.00% 0.00% 0.00% 1.92%

260 15 5

1981 5 1

0.00% 14.38% 0.00% 0.00% 0.00% 3.13%

160 23 5

1982 1 3

1.30% 9.13% 0.00% 0.00% 0.00% 0.00%

230 3 21

1983

1984 2 4

1.90% 10.48% 0.00% 0.00% 0.00% 0.00%

210 4 22

1985 4 1 1

9.09% 2.27% 0.00% 0.00% 1.36% 0.00%

220 20 5 3

60

1986 6

0.00% 11.20% 0.00% 0.00% 0.00% 0.00%

250 28

1987 5 1

0.00% 8.00% 0.00% 0.00% 0.00% 1.20%

250 20 3

1988 7

0.00% 13.85% 0.00% 0.00% 0.00% 0.00%

260 36

1989 2 1

3.20% 0.80% 0.00% 0.00% 0.00% 0.00%

250 8 2

1990 1 1

0.00% 1.15% 0.00% 0.00% 0.00% 2.69%

260 3 7

1991 2 1 1

1.92% 1.54% 0.00% 0.00% 1.15% 0.00%

260 5 4 3

1992 3

0.00% 4.29% 0.00% 0.00% 0.00% 0.00%

280 12

1993

1994

1995 2 1

0.00% 2.42% 0.00% 0.00% 0.00% 6.06%

330 8 20

1996 5

0.00% 9.20% 0.00% 0.00% 0.00% 0.00%

250 23

1997 3 4

6.11% 0.00% 0.00% 0.00% 0.00% 6.67%

180 11 12

1998 2

5.56% 0.00% 0.00% 0.00% 0.00% 0.00%

180 10

1999 3 1 1 2

7.06% 1.76% 0.00% 1.76% 0.00% 4.12% 170 12 3 3 7

61

2000 2 4 1

0.00% 4.29% 0.00% 10.00% 0.71% 0.00%

280 12 28 2

2001 3 1 3

3.61% 0.00% 0.83% 4.17% 0.00% 0.00%

360 13 3 15

2002 3 2 3 1

4.44% 2.22% 0.00% 5.19% 0.00% 1.48%

270 12 6 14 4

2003 3 1 6 1

4.05% 1.08% 0.00% 19.73% 0.00% 1.08%

370 15 4 73 4

2004 2 7 3

1.92% 0.00% 0.00% 13.08% 0.00% 5.77%

260 5 34 15

2005 1 1 5 1

1.79% 0.71% 0.00% 11.79% 0.00% 1.43%

280 5 2 33 4

62

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