Case Review

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Case Review

  1. 1. <ul><li>Early 80s – Vertically integrated centralized monolithic hierarchy </li></ul><ul><li>Mid 80s – Intense competitive pressures forced Kodak to reorganize and restructure </li></ul><ul><li>1990 – Kodak outsources its large in-house IT operation. </li></ul><ul><li>1993 –CEO Fisher focuses on core photographic business (with a future in digital imaging and divests chemical and pharmaceutical businesses) </li></ul><ul><li>2002 – CEO Carp emphasizes imaging (3 main segments, photography, health imaging, commercial imaging) </li></ul>Source: HBS case
  2. 2. Corporate strategy <ul><li>Kodak’s original strategy </li></ul><ul><ul><li>Large global and vertical scope </li></ul></ul><ul><ul><li>Limited product scope (photographic business) </li></ul></ul><ul><li>Strategy evolution in product and vertical (expansion) </li></ul><ul><li>Contribution to business level strategy </li></ul><ul><ul><li>Added value originally, control over production process, control over quality, profits reinvested in R&D – contributes to differentiation; volumes contribute to cost reduction </li></ul></ul><ul><ul><li>Global strategy - taking core skills and applying them worldwide </li></ul></ul>
  3. 3. Changes <ul><li>Growing competition from flexible competitors, foreign manufacturers with cheaper costs </li></ul><ul><li>Photographic industry – mature stage </li></ul><ul><li>Threat of substitutes - alternative technologies for imaging </li></ul><ul><li>Kodak’s problems </li></ul><ul><li>Inflexibility – due to commitment to silver halide technology (downside of vertical integration) </li></ul><ul><li>Large market share (protected position) creates complacency (vert. integ encourages inefficiency) </li></ul><ul><li>Lack of successful innovation on product front </li></ul><ul><li>Organization structure – multiple production facilities (high costs) </li></ul>
  4. 4. Diversification <ul><li>Increasing product range in imaging – using JVs and alliances </li></ul><ul><li>Reducing dependence on slow growth industry </li></ul><ul><li>Diversification health and information systems – rationale leveraging competencies in imaging, creating economies of scope </li></ul><ul><li>Biotechnology, pharmaceutical, chemicals, floppy discs – moving further away into industries that require different competencies and are very competitive </li></ul><ul><li>Have money, will spend – does not work for diversification </li></ul>
  5. 5. Using acquisitions <ul><li>Pros </li></ul><ul><li>Speed (lack of time to do internal ventures) </li></ul><ul><li>Required expertise in a broad set of imaging technologies (capabilities it did not possess) </li></ul><ul><li>Gaining entry into industries with well established competitors </li></ul><ul><li>Cons </li></ul><ul><li>Costs of acquisition (Kodak paid too much – Sterling Drug) </li></ul><ul><li>Problems in integrating cultures (Atex example) </li></ul>
  6. 6. Organization structure and control systems <ul><li>Centralized (ivory tower) decision making – less open to innovative ideas, change </li></ul><ul><li>Conservative culture (from protected position) </li></ul><ul><li>Functional organization (heavy emphasis on technical orientation) but lack of cross functional integration </li></ul><ul><li>Reward systems – promotion geared towards seniority </li></ul>
  7. 7. Changing structure & culture <ul><li>Creating profit centers within each group – accountability (improves efficiency and innovation) functional integration </li></ul><ul><li>Delegating decision making to lower levels – giving emergent strategy a chance </li></ul><ul><li>Internal venturing – not so successful </li></ul><ul><li>Control systems for costs and quality </li></ul><ul><li>Pay for performance (link to corporate performance, encourages sharing of ideas across business groups) </li></ul><ul><li>Doing away with duplicate manufacturing facilities </li></ul>
  8. 8. Kodak <ul><li>Building networks of alliances to create a competitive position in the imaging industry </li></ul><ul><ul><li>DocuCom Imaging – Canada’s largest provider of document imaging hardware </li></ul></ul><ul><ul><li>Adobe on PhotoCD software </li></ul></ul><ul><ul><li>HP on ink-jet printing solutions </li></ul></ul><ul><ul><li>IBM on optical storage products and Internet based image networking </li></ul></ul><ul><ul><li>Microsoft on computer imaging software </li></ul></ul><ul><ul><li>Sega on a PhotoCD compatible game system </li></ul></ul><ul><ul><li>Sprint on new network services for image storage and exchange </li></ul></ul><ul><ul><li>Wang on document imaging architecture </li></ul></ul>
  9. 9. Kodak – last year <ul><li>Kodak warning on earnings in fourth quarter – Slowing demand (sluggish film sales), retailer inventory reductions (in anticipation of slow Christmas season), higher raw material costs,increasing investment in digital imaging, currency effects (decline in euro). </li></ul><ul><li>Possible job cuts (continuing its restructuring efforts – in 1997, slashed work force by a fifth) </li></ul><ul><li>Still stands by its strategy of focus on digital imaging </li></ul><ul><li>Problems shared by Polaroid and Xerox </li></ul>Source: Financial Times, Wall Street Journal
  10. 10. Present <ul><li>Currently has three segments - photography, health imaging (specialty products for oncology, dental fields), commercial imaging (microfilm, printers and scanners) </li></ul><ul><li>2001 sales $13 billion (1991 -$19.4 billion) </li></ul><ul><li>Third quarter earning for current yr. beat expectations – cost cutting and productivity improvements </li></ul><ul><li>Long term sustainability still questionable – sluggish growth in traditional film business (still a big contributor to revenues), Income from digital products and services has not increased substantially (Sony and Canon dominate) </li></ul>
  11. 11. Transition to digital <ul><li>Kodak’s foray into managing transition to digital photography </li></ul><ul><li>APS (Advanced Photo System) – backed by Canon, Fuji, Kodak, Minolta and Nikon </li></ul><ul><li>Better picture quality, product simplicity –klutz free film loading </li></ul><ul><li>Why didn’t it work – digital cameras hit the market faster and cheaper, higher costs of film cartridges, didn’t educate consumers about benefits, advertising fiasco </li></ul>

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