Kodak Strategy

6 June 2016

Introduction Eastman Kodak Company, also known as Kodak is a digital imaging and photography company which is best known for its photographic film products. One of the most dominant companies of its time, Kodak made photography available to the masses, but failed to adapt its business model to the development of digital photography. Recently by shedding many of the businesses that made them famous, Kodak has emerged from bankruptcy and also coming back to New York stock exchange. Now Kodak is concentrating on selling printing equipment and services to businesses. 1.1 A Brief History of Kodak: Pioneer of Film and Digital Photography Eastman Kodak Company commonly known as Kodak is an American multinational imaging and photographic equipment, materials and services company. It’s headquartered is in Rochester, New York, United States and incorporated in New Jersey. It was founded by George Eastman in 1888.”You press the button, we do the rest” promised George Eastman in 1888 with this advertising slogan for his Kodak camera. Kodak is best known for photographic film products.

During most of the 20th century, Kodak held a dominant position in photographic film, and in 1976 had a 90% market share of photographic film sales in the United States. Kodak began to struggle financially in the late 1990s as a result of the decline in sales of photographic film and its slowness in transitioning to digital photography, despite having invented the core technology used in current digital cameras. 2007 was the most recent year in which the company made a profit. As part of a turnaround strategy, Kodak focused on digital photography and digital printing and attempted to generate revenues through aggressive patent litigation. In January 2012, Kodak filed for bankruptcy protection. In February 2012, Kodak announced that it would cease making digital cameras, pocket video cameras and digital picture frames and focus on the corporate digital imaging market. In August 2012, Kodak announced the intention to sell its photographic film (excluding motion picture film), commercial scanners and kiosk operations as a measure to emerge from bankruptcy. In January 2013, a court approved financing for the company to emerge from bankruptcy by mid-2013.

1.2 Products and services

The distinct products & services of Kodak are given below: Traditional & Digital cameras Printers- Both Industrial & Personal Kiosks and digital photo frame Online printing Besides that Kodak has expanded its business into-

Printing Supplies Document Imaging or Info imaging Film & Television Aerial & Industrial Markets Research & Development Medical imaging

1.3 Major Competitors The Main competitors in the field of photography equipment of Kodak are Canon, Fuji, Sony and Hewlett-Packard. In the secondary field that includes Konica, Xerox and Olympus. Market Share

Source: Digitimes Research, compiled by Digitimes, August 2010

1.4 Objective Objective of the case study is to find out why Kodak has been struggling for years and how it could overcome the challenges it currently faced. Here we have tried to analyze despite numerous efforts in acquiring new competences and turn around its business model, why Kodak has so far failed to impress consumers and stakeholders. For that we analyzed competitive market position by using Porter’s five forces model, SWOT & Kodak’s Key Success factors. 2. Answer to the questions

Question 1: What competitive forces seem to have the greatest effect on industry attractiveness? Discuss the nature of competition in the international photography equipment industry. Competitive forces are those factors that influence the competitive position of a company in an industry or market. For analyzing the competitive factors external environment plays very vital role. Harvard Business Review published “How Competitive Forces Shape Strategy” by a young economist and associate professor, Michael E. Porter in 1979.It uses concepts developed in Industrial Organization (IO) economics to derive 5 forces that determine the competitive intensity and therefore attractiveness of a market. The five forces that Porter identified shape each industry and each market. These forces determine the intensity of competition & hence the profitability & attractiveness of the industry. So the nature of the competition in the international photography equipment industry is discussed below by focusing on Porter’s five forces: Rivalry among competitors

Numerous competitors active in all segments of the imaging industry (rolled films, traditional photography, digital photography, traditional printing, and digital printing). The Main competitors in the field of photography equipment are Kodak, Canon, Fuji, Sony and Hewlett-Packard with a secondary field that includes Konica, Xerox and Olympus. The rate of consumer adoption of the new technology is faster than the expectation. So the competition is fierce and companies are continuously releasing new products and innovations. This is happening only to be closely followed by its rivals with similar offerings. Technological advancement has made a decrease in sales for traditional products which is forcing incumbents to quickly release new digital solutions. Sony and Canon are coming with new technologies and differentiated products in the market. Switching costs for consumers is very low because of the companies like Fuji and Olympus. Threat of substitutes

The fast advent of digital technologies led to rapid switching and a range of new substitutes. Mobile phones and easy access of internet forcing the companies to offer entirely new products that have undercut many traditional products. Modern cell phones are now inbuilt with high definition photography capabilities which is reducing the attractiveness of existing cameras. Digital image capturing devices are found in laptops, tablets, cell phones, televisions and cameras. This solution is hard to differentiate and thus consumerschoices are driven by price. Free, cloud-based solutions (Picasa, photobucket, flicker, etc.) offered in the management of pictures undermine the attractiveness of branded, paid solutions offered by major players.

Threat of New Entrants

Some specific areas of the industry like health imaging, document imaging or printing suppliers could be viable for new entrants. But Profitable markets that yield high returns will draw firms. The profit potential in this industry is insignificant. The result is many new entrants will effectively decrease profitability.

Bargaining power of suppliers

Cameras providers can develop their own manufacturing processes what Kodak does or turn to the numerous parts manufacturers that minimize the bargaining power of suppliers. Primary materials like silver used in the manufacture of rolled film are becoming more expensive as demand has grown tremendously. Thus suppliers have the upper hand and can more easily choose who they sell to. Bargaining power of buyers

The major players in the industry like Kodak, Canon, Fuji, Sony& Hewlett-Packard have strong bargaining powers relative to sellers. As this the era of globalization consumer’s ability to purchase the new products is influenced greatly. This is because all the multinational organizations are offering variety of products and consumers buying trend are shifting. So after analyzing the competitive forces of this photography industry and we may say that it is apparently Unattractive Industry.

Question 2: What are the key success factors that determine the success in the digital segment? There are three main factors that are root causes now to determine the success in the digital segment of photography. Technology and innovation are relevant to all areas of these factors of success within in the digital segment, as partnering and alliance within the industry is increasing. Technological advancement and innovation: The digital photography industry has become a market cluttered with traditional photography industry experts as well as experts from the information technology industry.

Both industry types are known to be committed to innovation, as constant improvement is essential in both industries. Therefore, Digital Photography Industry = Experts from Traditional photography industry + experts from Information Technology industry. Industry veteran Mr. Megargee has said that comparing traditional photography with digital photography is like comparing water colors to oil paintings. An example of technological innovation is the development of photo sharing applications, like- Picasa, Facebook, Twitter, Kodak Gallery using Kodak’s digital photo frame and Kiosks.

These may require a wireless device like Bluetooth that can give user an instant experience of moment sharing to any corner of the world. Such development offer consumers a means of communicating and dealing with images in the digital domain where they may be sent and where new information added, rather than being limited to the constraints of the print domain. Another leverage point of technological innovation is the use of technology to support the reduction in costs associated with product development, design and manufacture. Product design and product features: With a large variety of digital products in a rapidly increasing market; design and product feature- at different price entries- is another area of importance for the industry. The usability and simplicity of the camera is vital for the consumer. Having achieved fashion accessory status, consumers are looking for a product that has the right ‘look’ and is simple to use, rather than something complicated that takes the ease out of sharing images.

Developing camera designs, lens quality, features such as the ‘easy share’ as well as accessories like- data cable, memory cards associated with the digital cameras are all critical to the future competitive success of Kodak. Acquiring and partnering with mutual interest organizations: With the rapidly expanding market and the increasing swift “to market” innovations, formation of strategic alliances to enhance product and service offering flexibility has become increasingly important. Example as- win-win affiliation- such as the ten years alliance between Kodak and Motorola and acquisition of Ofoto renamed (Kodak Easy Share Gallery) to boost online service such as- data storage and data transfer are essential to staying apace with the changes occurring in the industry.

Question 3. Critically analysis why Kodak’s 4year strategy failed to achieve the desired outcome Kodak’s strategy: Initially, Kodak chose to sit back and take a ‘wait and see’ or ‘late mover’ approach to the digital revolution. By 2003, sales in the traditional arm of the business were starting to fall as more and more people opted to move to digital, but still Kodak did not intend so much to the market driven customer orientation. On 25 September 2003, the then CEO Daniel Carp revealed the four pillars strategy to Kodak’s investors. Through the four pillars strategy, Kodak was hoping to become a $20 billion company by the year 2010. This four pillar strategies were- 1. Managing the traditional film business for cash and manufacturing share leadership 2. Leading in distributed output

3. Growing the digital capture business 4. Expanding digital imaging service After three years of decreasing sales, major drops in the share price and massive staff cuts, Carp, the CEO, announces that Eastman Kodak was going to re-invent itself through a radical change to its strategic plan. The subsequent low-cost strategy that followed helped make photography, simple, cheap, and accessible to all, but by 2003, Kodak was still losing grounds as it had still not fully embracing the new digital media. In short, Kodak had been an iconic brand. It then spent billions on research in the digital field. However, than positioning itself as a market leader, Kodak instead took the strategic decision to become a low-cost provider.

Managing the traditional film business: Although the future of the photography industry was clearly in the digital realm, the company’s main profit was derived from its traditional photography business where the company was very slow or unwilling to exit the traditional photography business. So Kodak’s strategic decision caused the poor performance in 2000 as the traditional photography market was at a declining stage of product life cycle PLC. 2. Leading in distributed output: Even though there were fewer profits to be made in digital print, Kodak has been keen to ensure that it does receive some of those profits. But people now don’t prefer printed photographs unless really required, instead they like digital camera and digital photo frame to view photos instantly and immediately want to share them to friends, family and relatives anywhere in the world. As such to cope up, Kodak has moved into the sphere of- Ink Jet Printers.

3. Growing the digital capture business: The volume of global camera sales increased by 38% to just over three million units in 2003. Almost all of the increase came from the sale of digital camera whereas the Kodak had 8% of the global market. Kodak was reticent to be market oriented and reticent to fully embrace digital photography for two main reasons: Lower profit in digital photography than traditional photography Digital photography cannibalized the traditional photography where most of the cash revenue, resources, and infrastructure were still on. But more revenue could be achieved through economy of scale by producing more digital cameras considering the shifted change in consumer preference. 4. Expanding digital imaging service: Instead of expanding digital camera business, this strategic part focused on inclusion and expansion of differentiated products and services like- Digital Picture frames

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