Group: 4

Eastman Kodak : Meeting the Digital Challenges

Sep 2003 : CEO, Dan Carp, presented a Digital Imaging Strategy involving $ 3 billion of new investment.

Financing: Partly by cutting dividend, hence opposition from Shareholders.

Skepticism whether investment would generate returns.

The strategy called for rapid acceleration in technological & market development.

Overview :

Kodak’s growth was declining & net income was by down by two-third’s and profit margins reduced.

Aggressive Competition in the consumer electronics segment and lack of experience in the hardware business .

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.• Diversification from 1983 – 1993 mainly in 2 areas ‘Imaging’ and

‘Life Sciences’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

THE DIGITAL STRATEGY3 Themes were emphasized:

1) Incremental Approach: 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: 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.

Incremental Approach

Hybrid cameras offering mix of digital & traditional photography.

In 1994 Kodak launched its “picture maker”.

In 1996 Kodak launched its Advantix advanced photo system.

In 1994 Kodak launched a Professional digital camera and Apple quicktake computer camera.

In 1997 Kodak introduced its own picture network.

Kodak partnered with AOL to offer” you have got pictures”.

Consumer Market - Easy Share System

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’s 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).

Evaluation

Commercial Sector :

1.) Health Imaging : Kodak’s potential to carve out a strong niche in medical imaging products using both digital and chemical technologies

2.) Commercial Imaging : Leadership in certain types of hardware and ability to supply integrated document management system.

3.) Commercial Printing : Kodak was able to offer a comprehensive range of hardware consumables and customer support.

Kodak’s Major Acquisitions

1994 – Qualex, Inc. – Key link in online photofinishing service

1999 – Imation – Kodak acquired Imation’s medical imaging business

2000 – Lumisys, Inc – Leading provider of desktop computed

radiography systems and x- ray film digitizers.

Kodak’s Resources & Capabilities

•Superior Brand

•Uncertainty of the same image in the digital business

Brand

•Retail networks were depreciating Assets

•Consumers owned PC’s and print capabilities

Distribution

•World leader in sensors, color management software

•Lacked in digital imaging market

Technology

•Weak at bringing new products in the market

•Went into collaborations to for launches.

•Less knowledge about the digital world

New Product Development

•Declining Profits

•High Debts

•Strong Cash Flows from traditional business and corporate relations

Finances

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

1. ) Most of the picture editing software and the digital chain was in the hands of computer hardware and software companies.

2.) Kodak lacked the electronic imaging capabilities of Canon, Sony and HP

3.) Supporting finances for Digital development was difficult.

Issues

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

Plan A : - Better quality of products & services in digital business -Future potential of Digital industry -Technological know-how -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 in Health Imaging & Commercial Imaging

Potential Problems:- Lag behind in the Digital Industry

Recommendation:

1) Drop the $ 3 Billion plan

2) Continue to be the leader in Commercial and medical imaging 3) Outsource Digital Business & maintain existing Easy Share System

4) Focus traditional photography & films in current & emerging markets & reap the maximum cash.

5.) Target , markets like China India and Russia where there was growing demand for traditional cameras.

6.) Pay dividends to the shareholders.

Thank you