Date post: | 13-Sep-2014 |
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Business |
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Eastman Kodak : Meeting the Digital Challenges
Group: 1 Anjali Tyagi Gina MatthewsJulie Rocher Nishant Chauhan Samir Gandhi
Overview :
Sep 2003, Eastman Kodak’s CEO, Dan Carp, presented a Digital Imaging Strategy to its investors that would involve $ 3 billion of new investment.
The strategy called for rapid acceleration in Kodak’s technological & market development of its digital imaging business.
Kodak’s dividend would be slashed for this purpose & thus, the company’s shareholders became louder & bolder in raising dissatisfaction with this decision.
Also, Carl Icahn, who had acquired 7% of Kodak’s stock, opposed Carp by stating that a massive investment of this kind may or may never generate returns.
Add to that, Kodak’s growth was declining & net income by down by two-third’s.
Also, the competition in the digital business was getting aggressive, profit margins were reducing & Kodak’s lack of experience in the hardware business added to the uncertainty.
The challenge in the case is to determine whether to go ahead with this $ 3 billion investment plan or to focus on its established products & markets
About Kodak• Eastman Kodak Company-Established in 1901 by George
Eastman.• Slogan – “ You press the button, we do the rest”• Provide a fully integrated photographic service supplying the
camera and film through to processing and printing.
Business principles
Mass production at low cost
International distribution
Extensive advertising
Customer focus
Growth and development
Fair treatment of employees
Reinvesting profits for business growth
Creating a Digital strategy
To emphasize focus on digital imaging business & develop a strategy 3 themes were emphasized:
1) Incremental Approach:
Building a presence by introducing products & services according to advancement of technology & customer’s acceptance. For this purpose, they came up with a lot of hybrid cameras offering mix of digital & traditional photography.
2) Distinct Strategy for Consumer and Commercial Markets:
Differentiated product range for each segment in both markets reflected in their price differentials 3) Alliances:
In order to become a key player in digital imaging & add competitive advantages by utilizing external resources, Kodak partnered with large software & hardware firms, such as Microsoft, Intel, HP and Olympus to develop many new products & services.
Hybrid initiatives Kodak launched in the 1990s
‘You’ve got pictures’ was co-developed with AOL and launched in 1998. This system gave consumers the opportunity to drop film rolls off and have them delivered to their AOL email address
Photo Net, established in 1997, was another initiative that can be considered similar to ’You’ve got pictures’
Evaluation of Incremental Approach
These products & services had in common that they sought to increase the value of using Kodak’s film
Most of these hybrids faced a sharp decline once digital imaging started to grow rapidly.
It is of course hard to tell whether the revenues generated before the revolution compensated the R&D money.
And it’s hard to say whether spending that money on pure digital products would be a wiser decision. However, it became clear that no one wanted a hybrid, but rather a fully digital system
Easy Share System (Consumer Market)
An integrated systems approach for the consumer market in order to make digital imaging easy.
The system includes:
1) The broad range of Easy Share digital cameras
2) Transfer of images from camera to PC at the touch of a button
3) Easy Share software allows downloading, organizing, editing & emailing of images.
4) The system enabled the picture experience anytime, anywhere: at home, at retail or on the road (kiosk).
Commercial Sector :
Health Imaging
Commercial Imaging
Commercial Printing
Kodak’s Resources & Capabilities
Failure One – A Paradox between Logic & Creativity in Strategy
The most important step in any strategy is the very strategic choice of the initial approach
Issues
How Kodak Missed the Information Age
Failure Two – A Paradox Between Revolution & Evolution in Strategy
Even when a business strategy is formulated and agreed, there are often differences on how best to implement strategic change
Film = Huge profits and market dominance
Digital Imaging = Uncertain, low profits, low volumes at the given time
Stock price
Failure Three – A Paradox Between Markets & Resources in Strategy
What is the true source of competitive advantage?
Failure Four – A Paradox Between Competition & Co-operation in Strategy
How an organisation should respond to rival businesses is a paradox between competition and co-operation
Kodak has two alternatives to choose from:
1)$ 3 Billion investment plan & try to gain dominant position in the digital market OR
2) Abandon the above plan & establish core competency in those sectors where it had a strong market position & where margins are strong: commercial & medical imaging markets & supply of photo-finishing services & consumables
Plan A : - Better quality of products & services in digital business- Ease of use & Convenience -Future potential of Digital industry -Technological know-how -Easy to capture market & form alliances because of their brand- Deviate business from falling films &traditional photography business
Potential problems:-Established Competitors like FUJI, Sony, Canon -Mobiles -Rising Debt & unfavorable financials- Shareholders Dividend slashed
Plan B :- Print media & Commercial printing is strong revenue generator -Core competency & Leadership in printing -Costs saving -Less competition compared to digital business -High margins, Health Imaging & Commercial Imaging have better returns -Problems in execution of new products
Potential Problems:- Lag behind in the Digital Industry -E-services- Falling Traditional business- Films were becoming outdated
Kodak V FUJIKodak FUJI
Market leader initially Gained considerable market share in US by aggressive marketing
Higher prices Slashed prices to compete
Defensive strategy Offensive strategy
Compatible only with Kodak products
Compatible with Kodak Cameras & Films
Strong distribution network Distribution network is good for Digital Industry
Failed in Japan, lower market share in Japan
Higher market share of FUJI in US in comparison
Stronger Brand value Brand not as strong as Kodak
Better Technology Technology not as good as Kodak
Recommendation:
1) Scrap the $ 3 Billion plan
2) Develop core competency in existing products & markets.
3) Outsource Digital Business & maintain existing Easy Share System
4) Focus traditional photography & films in current & emerging markets & reap the maximum cash since it’s a cash cow.
5) Pay Dividend
Conclusion:
-Kodak delayed in realizing that Digital business is the way to go in the future.
-Kodak’s vision of digital photography is not ready since the company is not yet prepared. -Hence, they should start this on small scale, & thus, not sell Kodak health and home product division for paying debts.
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