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The Rise and Fall of Eastman Kodak:

Will It Survive Beyond 2012?


History
Eastman Kodak Co. was incorporated in New Jersey on October 24, 1901, as
successor to the Eastman Dry Plate Co., a business originally established by George
Eastman in September 1880. The company led the world in the development of
photographic industry with Eastmans proprietary silver halide paper-based
photographic roll film technology. From the beginning, Kodak focused on four
primary objectives to guide the growth of its business

Mass production to lower production costs;


Maintaining the lead in technological developments;
Extensive product advertising;
The development of a multinational business to exploit the world market.

Kodak's leadership in the development of advanced color film for simple, easy-touse cameras and in quality film processing was maintained by constant research
and development in its many research laboratories. Its huge volume of production
also allowed it to obtain economies of scale. Kodak became one of the most
profitable American corporations, and its return on shareholders equity averaged
18% for many years. To maintain its competitive advantage, it continued to invest
heavily in research and development in silver halide photography, remaining
principally in the photographic business.
However, during the 1970s and 1980s, the return on equity dropped significantly
due to the major changes in the photographic technology and increasing
competition within the industry. Kodak tried to cope up with change and the
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competition but failed to come up with effective strategies which could give them
competitive advantage. Now, after spending billions of dollars to create the digital
competences necessary to give Kodak a competitive advantage and cutting tens of
thousands of jobs, the companys future is still in doubt.

Reasons behind Kodaks Falling Revenue

Fuji Photo Film Company (a Japanese film manufacturer) invested in huge, low
cost manufacturing plants, using the latest technology to mass-produce film
in large volume. Their low production costs and aggressive, competitive price

cutting policy reduced Kodak's market share in the 1970s.


Kodak faced stiff competition from foreign manufacturers of photographic
paper and from new competitors in the film-processing market as film
processors were turning to cheaper sources of paper to reduce the costs of

film processing.
Kodak had done little internally to improve productivity to counteract rising

costs.
Kodak lost its patent suit with Polaroid Corp. and had to settle out of court

with Polaroid Corp. for $925 million.


The introduction of videotape recorders, and later video cameras, gave
consumers an alternative way to use their dollars to produce images,
particularly moving images.

New Strategies Adapted by Kodak


Colby Chandler, the new CEO of Kodak saw the need for dramatic changes in
Kodaks businesses and pioneered 4 changes in strategy
(1) He strove to increase Kodak's control of its existing chemical-based imaging
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businesses;
(2) He aimed to make Kodak the leader in electronic imaging;
(3) He spearheaded attempts by Kodak to diversify into new businesses to
increase profitability;
(4) He began on major efforts to reduce costs and improve productivity.
For implementing these strategies, Kodak acquired many businesses. However,
these strategies did not work and eventually the company started incurring huge
losses.

Porters Five Forces Analysis


Rivalry among Competitors
Rivalry among competitors, in the industry Kodak is operating, is very high. There
are numerous competitors (e.g. Canon, Fuji, HP, Nikon, Sony etc.) active in all
segments of the imaging industry (e.g. - rolled films, traditional photography, digital
photography, traditional printing, and digital printing). Consumers are also adapting
to the technology very fast and since there is no switching cost for the customers,
they are choosing products with low costs and higher qualities. This is causing price
wars among the competitors in the industry.
Threat of Substitute Products
The fast advent of digital technologies led to rapid switching and this new
substitute is proving problematic to handle for Kodak. Kodaks core business
consisted of photo printing which has become obsolete with the development of
digital image capturing and storing products. Now a day, even cell phones can
capture high definition photographs which can be stored and displayed in
computers and digital photo frames. Moreover, several internet based social medias
(e.g. Facebook, Instagram) offer management and display of pictures which makes
the printed photo albums completely obsolete.
Threat of New Entrants
An analysis of the industry using Porters five forces shows that threat of new entry
is moderate. There are high entry barriers present due to development costs,
distribution costs and R&D expenditures. Therefore, significant investment in capital
would be required to enter the digital imaging and photography industry. Moreover,
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new entrants would lack experience and knowledge (technical and business) in key
areas of digital imaging and photography.
Bargaining Power of Buyers
The bargaining power of consumers is high especially for consumer electronics.
Buyers are given a range of differentiated digital camera products from a number of
companies. They expect better offerings and customization of goods and services.
Kodak has to meet these expectations at the same time maintain competitive
pricing.
Bargaining Power of Suppliers
Bargaining power of supplier power is low in this industry. A lot of the suppliers are
located around the world for Kodak to choose from, both locally and internationally.
Moreover, Kodak has their own supply of raw materials for some of its products.

SWOT Analysis
Strengths

Kodak has century-long experience in the traditional photography business.


They were pioneer in this business and held the position of market leader for
almost a century.

Kodak is a household brand name. It has brand recognition not only in the US,

but all over the world. It also has highly valuable brand equity.
Kodak has strong distribution channels in virtually every country of the world.
Even though the company has incurred losses in the past few years, it still
has huge financial resources left.

Weaknesses

Lack of change in business strategies to cope with the changing time and

customer demands.
Company culture of traditional and conservative values hindering strategic

changes.
Inability to translate innovation into marketable products (e.g. instant

cameras and OLED technology).


Lack of digital culture and expertise of the Engineers and the Scientists.
Inability to integrate acquisitions in a profitable manner.

Opportunities

High growth in digital imaging demand (products and services).


Emerging markets are ripe for Kodaks existing product portfolio.

Threats

Digital imaging industry is saturated with other companies such as Sony,

Canon etc.
Kodak has been struggling with a price war between strong competitors such
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as Fuji Photo Film in the industry.


Consumers taste has shifted towards different products such as digital

cameras, online photo sharing etc.


More experienced competition has emerged in the digital field.

Future Strategies for Kodak


In order for Kodak to sustain a competitive advantage, it needs to strategically
transform its entire business model around to capture new and unique growth
opportunities. There are several options which Kodak can explore to achieve this
strategy. The options below focus on structural changes in the industry and
resources (skills and capabilities) in the organization
Decentralization of the Organization
Kodaks current traditional business is vertically integrated, which means decision
making has been centralized at the top of the organization among a clique of senior
managers. The organization can be redesigned from a vertically to a horizontally
integrated organization through process-oriented organizational restructuring,
offering a more low-level flat organizational structure.
This will result in improved efficiency and business simplification for Kodak to
compete effectively in a competitive environment where it needs to quickly deliver
innovative products out to market.
Rebranding
Kodak can change its core operation and start operating in a relative field which is
not declined or saturated. Subsequently, they can change their name to something
different which will emphasize their new core strategic business unit.
This will involve staff in planning for proposed changes and training employees for
changes. However, they have to keep in mind that, any rebrand will impact the
value of the brand and it will involve a lot of communication and stakeholder
involvement. Moreover, poor corporate rebranding can be a high risk for the
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organization where core values may not integrate well into the new brand.
Leadership and Organizational Learning
Kodak will need to train staff, especially managers in weak areas on vision and
strategy. For example, managers can be taught design methods, to generate
growth, evolve, and react as the marketplace and user needs changes so that the
business model can evolve to bypass extinction.
Eliminate Non-profitable Products
Subsequently, Kodak will need to discontinue some of its products, especially in
saturated markets such as digital cameras where profit margins are low and
competition is fierce. It can better utilize its resources and real core competencies
to make it difficult to imitate its products and demonstrate leadership.
Joint ventures and outsourcing
Kodak can form joint ventures with other companies. It can create new emerging
industries or new value propositions, alliances and collaboration to be form by
complementing and adding to its capabilities and resources. It can capitalize heavily
on its existing patent portfolio.
Kodak will need to outsource a lot more of its manufacturing, while part-time and
casual staff can lead to the reduction of labor costs. Extreme care needs to be taken
where processes of high strategic importance should not be outsourced. The result
will allow Kodak, to develop new competencies for future developments and sustain
the importance of long-term success.

Conclusion
To sustain competitive advantage, Kodak needs to strategically transform its entire
business model around to capture new and unique growth opportunities. It is
recommended that Kodak simplify the organization hierarchy to improve efficiency;
impart leadership to communicate and influence vision and change; and capture
new business models and better match user needs and economic value. Though,
developing a coherent strategy is not going to be easy for a digital imaging business
like Kodak, it will be Kodaks last chance to survive in the industry and avoid
bankruptcy.

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