DATE: MAY 06TH 2012

KODAK CASE ANALYSIS Critical Perspective

ASSIGNMENT 1-SGMT 6000 SWAMINATHAN SUNDARRAJAN
STUDENT ID: 211884137

INSTRUCTOR: PROF CHARLES MCMILLAN

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Issue Statement: Within the perspective of industry transformation to digital imaging products, Kodak struggles to adapt and evolve its future strategic position deep-rooted in poor management capabilities, lack of internal competencies, corporate governance and failure to visualize a global strategy. Important Note: Creative Disruption in technology is not the root cause but one of Kodaks set of problems with limited scope1. Usually disruptive innovation comes with a change in consumer habits and call for a radical rethink in corporate strategy. The irony is Kodak invented the digital camera but sat on the technology, fearing that it would cannibalize on its core business. Application of BCG matrix2 indicates that Kodak was so indulged in protecting its cash cow (film business) that it failed to see threating industry transformations in digital imagery. This is a serious indication since the future strategies of the firm are dependent on management foresights and its ability to take strategic positions. Some leadership lessons:o Static leadership can be a curse. Kodak management was captive by its core business that it cannot think of another way to do things. This phenomenon the "incumbent's curse. When a company becomes successful, it develops a dominant logic. When the world went digital, Kodak's strengths became weaknesses. It could not overcome its dominant logic and build a new logic."3 o Did Kodak take a strategic position? Could they have entered the digital revolution earlier? The answer is that they did enter into digital products with the intention to satisfy the consumer needs. Even if Kodak had entered the digital photography earlier still it would find itself with the same problems. This is because digital cameras would become a commodity offering low margins and face competition from new players. The barriers to entry would become low allowing displacement by new industries like mobile devices including smartphones, tablets, and other devices with built-in cameras. As management I cannot imagine Kodak survive in year 2015 with business centered on pure electronic devices. o Diversification is not always a correct answer. Kodak diversified into new products lines like digital cameras, home printing, photo kiosks & digital minilabs an online printing. It could not leverage its existing strengths in imaging and chemical technology to succeed in these new product lines. The competencies required to succeed in these industries were quite different and Kodak simply did not have the depth. o Like many other established companies, Kodak ended up pinched between a cost and organizational structure derived from an outdated legacy business, and new business imperatives that simply couldn't support the old structure. Reinvention needs to be regular occurrence.

Analysis of Kodak Decision making based on digital imaging industry transformation (Porter 5 Forces) New entrants: Kodak was protected by its patents based on film based technologies. The industry was dominated by few players like Kodak, Fuji and Agfa who owned this intellectual property. Once consumers shifted to digital photography based on silicon chips the entry to barriers was broken. Even though the timing was wrong, Kodak did respond by entering digital photography space. But their ideas were limited to physical dimension of digital photographs. They ran short of ideas on how digital photography would manifest itself beyond photographs. The ideas exploded to the extent of eliminating physical storage of photographs which was the mainstay of Kodak. At the same the Kodak brand lost the leadership status and diluted its brand recognition. Strong new players from the consumer electronics (Samsung, Sony), and Mobile devices (Nokia, Samsung) had far stronger brand equity. The distribution network built by Kodak over a century is getting obsolete. The primary strength was printing of photographs at Kodak centres which are no longer relevant. To succeed in digital space Kodak needs presence in lifestyle shopping destinations. They needed presence in Walmart, Targets and other consumer electronics outlets. A major part of Kodak customer lifetime value was derived from printing of photographs. Whether it is home or lab the revenues would decline as consumers would store the photographs in hard disks. They would also share the photographs online via websites (Flickr, shutter fly, ofoto) eliminating physical inventory. The profits for Kodak are bound to be hit strongly by this shift in consumer behaviour. Kodak would also lose out on benefits due to economies of scale since their volumes in digital cameras are less and the margins are thin due to commodization of digital cameras. They would no longer retain their exclusivity since new players are much ahead in learning curve. I also expect strong possibilities of patent infringements battles for Kodak as competitors continue to invent in digital space. The switching to digital technology brings in rivals from related industries like consumer electronics, computers, printers and mobile phones. Suppliers: Digitization is driven by modularization bringing in substitute products. The inputs to digital photography such as LEDs, lenses, CCDs are easily accessible from multiple vendors. Any company can source, assemble and launch new brands. OEM concept remains strong to major players but is volatile. Competition for components is no longer confined to consumer electronics but brings in computers and mobile phone companies. Consumers prefer the convenience of miniaturization of equipments and this is a strong reason for increasing preference for taking digital pictures. Convergence of multiple industries like telecom, photography, communication, and telecom would

create disruption and possibly change industry dynamics of many industries. From case context Kodak is a relevant example. Kodak loses its hold on backward integration since it no longer dominates the value chain. The ease of access to raw material by competitors will ensure Kodak no longer dictates its supplier terms. Also it will become difficult to manage the cost of its multiple factories due to cost efficiencies. This may lead to shutting down factories and loss of jobs in Kodak American factories. Substitutes: Mobile phones are substituting digital cameras. Digital storage is substituting physical printing. Albums are no longer needed to share photographs. Consumers prefer online sharing via websites and mobile phones. In the Home printing market consumer prefer the flexibility to print anytime anywhere. Kodak restricted switch of consumers from other brands by making its printers exclusive (printer docs work only with Kodak cameras). In addition Kodak easy share does not offer any cost benefits. This gives the competitors like HP, Epson, Lexmark an edge to gain market share. Retail outlets like Walmart make a cut by offering cheaper printing prices. Buyers: The Intensity of rivalry
Metamorphosis of Kodak in Digital Imaging Industry (Nature of Industry Transformation) Post year 2004 Kodak would face a revolutionary change in industry dynamics. We can many clearly see multiple elements of digital industry change Trigger Experimentation Convergence Learnings from industry analysis Structural Analysis Managing Industry & Competition Internal Strategic Obstacles: o Inertia: Kodak executives were reluctant to invest in new technologies which disrupt their existing markets and revenues. Mid to senior executives (Except C level) compensation is driven by short term profits and therefore most of the time they are averse to risk. They prefer stable revenues and settled lifestyle. Though Leadership: As organizations compete in integrated world, managers must have the vision to foresee industry shifts. Kodak failed to see the danger from digital imagery, the mobile phone,

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increased connectivity and shifts in peoples habits. The initial direction of entering digital cameras was correct but needed further intervention in consumer understanding. They should have estimated the impact of digital storage(elimination of films & printing), online sharing(reduction of physical photos), convergence of mobile technologies(Mobile phones & camera) and entry of aggressive consumer electronics heavyweights(Samsung, LG & Sony) Organization structure: Kodak leadership & organizational effectiveness Integrated supply chain efficiencies & Competitive advantage: Globalization: Asia Strategy-Lost opportunities: Complete lack of Asian/emerging market strategies. This is peculiar of old American companies which think America is centre of world and neglected other markets. Difficulty in strategy execution Increasingly demanding customers-customization: Global distribution of selling films was not an asset and lost its value. People were using personal computers and inventory was created on semiconductors chips and not on films. There was no need to keep printed albums when someone can access it online Decreasing product life cycles

Charles McMillan, (2010) "Five competitive forces of effective leadership and innovation", Journal of Business Strategy, Vol. 31 Iss: 1, pp.11 22

http://www.reportr.net/2012/01/19/what-kodak-teaches-us-about-disruptive-innovation/
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http://www.ft.com/cms/s/0/5e8f9c28-edeb-11e0-a491-0144feab49a.html#ixzz1u1uHBfI9 by Charles McMillan

http://www.bcg.com/about_bcg/history/history_1968.aspx
Learning From Kodak. By: Newman, Rick, U.S. News Digital Weekly, 1/20/2012, Vol. 4, Issue 3