Kodak’s last chance for survival ~ a recommendation on strategic direction
During 2011, Kodak was under intense pressure to survive in the digital imaging business. As professor Burley describes, ‘Kodak was caught in a perfect storm of not only technological, but also social and economic change’ (Neate, 2012). As of Thursday 19 January 2012, Kodak filed for bankruptcy protection (Neate, 2012) and has until 2013 to reshape its business and exit out of the bankruptcy plan (Business Spectator, 2012).
Eastman Kodak (Kodak) was once a leader (Finnerty, 2000) and legendary brand in the photographic film industry (Associated Press, 2011b). It used the catchy slogan “You press the button, we do the rest” (Kodak, 2011) to successfully market its digital camera products. It employed as many as 145,300 people and sales as high as $16 billion when it monopolised the US photography industry and became number one in the industry in 1988 (Dobbin, 2011). Recently, Kodak lost 90 percent of its market value (Weiss, 2011) and is facing the threat of extinction (Associated Press, 2011b).
In this case study, we propose and defend a recommended strategic direction for the company to implement in the next three to five years based on a balanced assessment of the company’s options. We first conduct a detailed analysis of Kodak’s internal and external environments to understand the opportunities and threats facing the company.
Kodak has tried to transform itself from an aged old film technology business into a fast and digital cultured business but has failed as a result of decline in sales in the United States (Deutsch, 2004). It is still trying to play catch-up with rivals (Associated Press, 2011b) such as Canon, Sony and HP for the past 15 years. Its current products and services span across digital cameras, inkjet printers, sensors, retail kiosks, workflow and business process services and software through to consumer, professional photographic film, paper processing chemicals and industrial materials such as films for printed circuit boards (Kodak, 2010).
Through the help of drug and discounts stores, Kodak was able to add self-service kiosks to encourage people to print their own digital photos (Deutsch, 2004). Kodak formed strategic joint ventures with companies like Sanofi, AOL online (Grant, 2005), and most recently in 2007 Cinelabs (Beijing) Ltd (Kodak, 2007). It has tried to acquire several smaller successful companies such as Ofoto and Practice works to fill in the missing pieces of technology and markets that it did not have capabilities in (Deutsch, 2004).
Kodak has several strengths to distinguish itself from rivals. Kodak has superior brand recognition (Aaker, 1992; Deutsch, 2004; Grant, 2005) as compared to rival brands such as Agfa based on US consumer reports (Simonson et al., 1994). Its brand was supported by its massive worldwide distribution presence through retail photography stores, film processors and professional photographers which provided Kodak with the competitive advantage (Grant, 2005). Kodak leads in the higher-end photo quality camera segment (Smith, 1999) where it launched its major innovations in imaging (Grant, 2005). Traditionally, Kodak has strengths in photofinishing services and consumables such as paper, ink and chemical technology (Grant, 2005). This is derived from a rich portfolio of 11,000 patents (Associated Press, 2011b) derived from a strong R&D investment during the early 1980s (Grant, 2005). Kodak was financially secure with cash flows flowing from its existing photography business during the early 1990s (Grant, 2005).
On the other hand, Kodak has weaknesses. Kodak avoided taking risks, they were not innovative enough and relied on existing procedures and policies to maintain standards (Gavetti et al., 2005). They were slow to bring new products to market (Grant, 2005). Its retail network of stores was a depreciating asset due to the increase use of home computers, email and print technologies (Grant, 2005). Kodak focused too heavily on the extremely competitive entry-level market and failed to develop innovative products fast enough (Grant, 2005). Its product development and sales departments were fragmented and scattered over many divisions (Gavetti et al., 2005).
Subsequently, Kodak’s middle managers were resistant to change and did not understand the digital world (Gavetti et al., 2005; Lucus & Goh, 2009). Kodak managers ignored analysis work based on information gained from Kodak’s eroding market share (Gavetti et al., 2005). Kodak managers lacked vision and strategy (Gavetti et al., 2005).
A few opportunities exist for Kodak. It can build consumer trust in digital that Kodak already has in film (Smith, 1999). Kodak could focus on its core business and develop new technologies (Gavetti et al., 2005) and new products (Deutsch, 2004).
However, Kodak will suffer long term threats to its core franchise in the film business if it does not extend its brand name to digital (Smith, 1999). IBISWorld forecasts the demand for physical photographs would fall due to improvements in digital technology (IBISWorld, 2011). Kodak has been in battles with other competitors such as Sony over patent infringements (Deutsch, 2004; Associated Press, 2011a). It has been struggling with a price war between strong competitors such as Fuji Photo Film (Smith, 1999) in the photographic film industry.