Eastman Kodak : Meeting the Digital Challenges

Group: 1 Anjali Tyagi Gina MatthewsJulie Rocher Nishant 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

International distribution

Extensive advertising

Customer focus

Growth and development

Fair treatment of employees

Reinvesting profits for business growth

Creating a Digital strategy

To emphasize focus on digital imaging business & develop a strategy 3 themes were emphasized:

1) Incremental Approach:

Building a 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.

Hybrid initiatives Kodak launched in the 1990s

‘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 Approach

These products & services had in common that they sought to increase the value of using Kodak’s film

Most 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

Kodak’s Resources & Capabilities

Failure One – A Paradox between Logic & Creativity in Strategy

The most important step in any strategy is the very strategic choice of the initial approach

Issues

How Kodak Missed the Information Age

Failure Two – A Paradox Between Revolution & Evolution in Strategy

Even when a business strategy is formulated and agreed, there are often differences on how best to implement strategic change

Film = Huge profits and market dominance

Digital Imaging = Uncertain, low profits, low volumes at the given time

Stock price

Failure Three – A Paradox Between Markets & Resources in Strategy

What is the true source of competitive advantage?

Failure Four – A Paradox Between Competition & Co-operation in Strategy

How 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 OR

2) 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 business

Potential 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 products

Potential Problems:- Lag behind in the Digital Industry -E-services- Falling Traditional business- Films were becoming outdated

Kodak V FUJIKodak FUJI

Market leader initially Gained considerable market share in US by aggressive marketing

Higher prices Slashed prices to compete

Defensive strategy Offensive strategy

Compatible only with Kodak products

Compatible with Kodak Cameras & Films

Strong distribution network Distribution network is good for Digital Industry

Failed in Japan, lower market share in Japan

Higher market share of FUJI in US in comparison

Stronger Brand value Brand not as strong as Kodak

Better Technology Technology not as good as Kodak

Recommendation:

1) Scrap the $ 3 Billion plan

2) Develop core competency in existing products & markets.

3) Outsource Digital Business & maintain existing Easy Share System

4) 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.

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