Eastman Kodak : Meeting the Digital ChallengesGroup: 1 Anjali Tyagi Gina MatthewsJulie RocherNishant 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 Reinvesting profits for business growth International distribution Extensive advertising Customer focus Growth and development Fair treatment of employees
Creating a Digital strategyTo emphasize focus on digital imaging business & develop a strategy 3 themes were emphasized:1) Incremental Approach: Buildinga 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.
‘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 ApproachThese products & services had in common that they sought to increase the value of using Kodak’s filmMost 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
Failure Three – A Paradox Between Markets & Resources in StrategyWhat is the true source of competitive advantage?
Failure Four – A Paradox Between Competition & Co-operation in StrategyHow 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 OR2) 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 businessPotential 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 productsPotential Problems:- Lag behind in the Digital Industry-E-services- Falling Traditional business- Films were becoming outdated
Recommendation:1) Scrap the $ 3 Billion plan2) Develop core competency in existing products & markets.3) Outsource Digital Business & maintain existing Easy Share System4) 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.