BUSN11082 Influencing Organisational Strategy- Kodaks Case

1. What was Kodak’s digital imaging strategy during 1992-2012?

                                    

2. Why did the strategy fail?

                                   

3. Was there a better alternative to the strategy?

                                      

4. What can other companies facing disruptive change in their core business (e.g. Microsoft, Sony, Walt Disney) learn from the experience of Eastman Kodak?

Answer

Kodak’s Case Study

The paper explores Eastman Kodak’s digital strategy from 1992-2012, lessons from its failures, an alternative strategy for its business, and lessons to be learned by other tech firms like Microsoft, IBM, Sony, and Walt Disney. The traditional photography industry has gone significant revolution from the last decades, which prompted companies to rethink their market strategies. The difference between the modern digital and traditional photography industry lies in the structure and target market (Breyer & Gerlach 2013). The digital strategy revolves around consumers producing their products and selling them to other firms and consumers at a low cost with the aim of making a profit. For decades, Kodak was a market leader, which neared monopoly until Japan owned company Fuji, Sony and others invaded the market (Reiner & McKinley 2012). During its peak days, Eastman Kodak generated high profits from its products and services that it invested in R & D to continue its dominance of the industry. Rival companies feared that attempting to compete with the company would be futile due to its success. However, market forces began to shift from traditional to digital; its profit plummeted and subsequently lost the market share (Tellis 2012).  

Kodak’s History of Innovation

The history Kodak can be traced back to the time of dry plates manufactured in 1879. George Eastman is credited as the founder of Kodak and an entrepreneur who first patented his plate-coating technology in the late 19th century in London. In the following year-1880, he began the manufacture of dry plates and went commercial with the product. His innovation of the technology caught the attention of Henry A. Strong, and a business partnership was unveiled in 1881. Two years later, the firm brought into the market the film in rolls that came with a universal roll holder. The advantage of the holder was that it could be used for every plate at the time (Gustavson 2009).  

Consequently, the company name evolved to Eastman Dry Plate and Film Company in 1883 and later Eastman Company in 1889. The firm’s bussines slogan was “You press the button; we do the rest” which played an instrumental role in the photography market. From 1892, the company was renamed Eastman Kodak Company. Since then, it was identified as the market pioneer and the leader in market innovation. In its product portfolio is the digital cameras in 1975, film cameras, digital camera, and printer paper (Curme & Rand 1997). These revolutionary changes made it a leader and the market share rose to 85 per cent of camera sales in the United States and 90 per cent of market of photographic film. However, as time ticked, other companies began to enter the market but this was not enough to encroach the market and in the 1980s and 1990s, Kodak was a recognizable brand in the world and was rated as one of the valuable brands (Gustavson 2009).

Kodak’s Digital Imaging Strategy During 1992-2012

Kodak was the first company to invest and manufacture a digital camera in the 1970s and continued to invest more resources in the technology. The management was aware that in the coming decades photos would be shared online (Stimson, Thom & Uhl 2014). In fact, Kodak invested massive resources to a tune of billions to develop a range of digital devices for the market. Before the mid-1990s, the company hired a digital-savvy top executive George Fischer who worked for Motorola. John Scully, former CEO of Apple was also recruited into the board to ensure the company had tech-savvy executives who could understand how digital revolution was taking place (Hill 2012).

Hill (2012) adds that Kodak adopted an aggressive digital strategy to penetrate the market and sustain its dominance. From the 1990s through 2000s, ranges of digital devices were introduced like the first Wifi-equipped digital camera and a social site to share photos called Ofoto among others. The company’s digital imaging strategy during 1992-2012 included the hybrid and incremental approaches. In the incremental strategy, there is an increase in the marketing expenditure slowly by slowly and this allows the management to typically break down the marketing budget into short terms like monthly and annually until the milestone is achieved. In this strategy, money is released based on previous objective achievements (Ryan 2016). Additionally, the hybrid strategy is used to give consistency to the firm (Eggert, Thiesbrummel & Deutscher 2015).

Eggert, Thiesbrummel & Deutscher (2015) argues that the company’s model focused more on producing and selling films for other cameras. This was in the face of the digital revolution which made the need for film obsolete. The mistake was that, the management did not notice the forces that propelled them to irrelevance. The fundamental approach adopted by Kodak was hybrid and incremental where digital technology was used to enhance the existing film photography to the commercial and consumer market. Ryan (2016) adds that the hybrid strategy meant that the company would simultaneously manufacture new digital products, penetrate the market and form alliances with other companies.  

Ryan (2016) is the view that the strategy ensured that Kodak provided facilities with digital capabilities such as photo editing, manipulation and enhancing. Examples include Kodak iLab system and copyright station. According to Grant (2016), the company also ensured production of digital cameras capable of using the internet to share photos with the online community (PhotoNet), medical diagnostic imaging (Ekstascan), commercial publishing (NetExpress) and motion pictures. The strategy was used throughout the 1990s, but in the mid-2000s, the company experienced issues in its investment of $ 3 billion dollar investment in digital imaging in the face of stiff competition and revolution from phone cameras.

Besides, the organization operational expenses increased significantly due to the erosion of their core photography business due to digital technology invasion. Further, the hybrid approach to business adopted failed to generate enough revenue to sustain the model. Failure of these strategies indicated that the company has failed to match the competitive forces in the digital market because it did not anticipate dynamism of digital imaging (Grant 2016). For example, substitutes such as digital memory, emails, and digital photos replaced solid albums, films, and snail mail. King  & Baatartogtokh (2015) enunciate that Kodak’s technology in capturing, manipulation, editing, transmission, and retrieval of photos was overpowered by easy ways of doing business in the digital environment. Therefore, the context in which it was operation became so competitive and hostile that recapturing it was hard.

Reasons for Kodak’s Failure

Eastman Kodak is often described as a firm whose top executive did not recognize that digital technology posed a serious threat to the traditional business. The events that led to the company failure are more instructive and more complicated (Curme & Rand 1997). In lights of Koen, Bertels & Elsum (2011) the company is an epitome of a failure to grasp the strength of technological transition and the threat to its business activities in the market. For decades, if not centuries, it was an undisputed global leader in the film photography market. Its first digital camera was invented in 1975, but since then, the management failed to capture the fundamental shift in technology. The transition from analogue to digital was taking place under their watch and no actions were taken until it was too late to recapture the market (Nylén & Holmström 2015).

Kodak failed to adapt to the emerging photography technology hurriedly, and this resulted in dropping of its market share and subsequent decimation of its bussines. In the wake of digital imaging, Kodak and Fujifilm realized traditional business was gradually being replaced, and hence rendered obsolete (Cohan 2017). Also, it failed to act and fill the gap by adopting the new technology sufficiently to contain competition. The management proved its unwillingness to consider change as a way of increasing efficiency and further develop its capability to produce and distribute the film (Nylén & Holmström 2015). This means that Kodak lost the chance to retain its market share and leading position by failing to embrace the developing digital technologies.

Cohan (2017) further argues that the company insiders were unwilling to comply with George Fisher’s initiatives to fundamentally reinvent the firm in readiness to the new digital era and increased competition. Fisher, a former senior executive from Motorola, was capable of transforming the prevailing culture from top to bottom but stiff resistance from top managers who were unaware of the digital revolution rejected the strategy. Beckmezi (2013) argues that, although one cannot conclude that Fisher’s attempt could have been a success, the resistance to change of culture particularly in the top doomed his digital market strategy. The aim was to make the company vibrant like it was decades before and also change some aspects to match the technological changes. The CEO wanted to create another Motorola in Kodak by encouraging debating of ideas openly rather than receiving orders from the superiors.

Disruptive innovation also played a central role Kodak’s failure. The company CEO, from 1993 until 1999 Fisher made a decision to manufacture digital cameras that enabled the customers to share their photos with others and post them online (King & Baatartogtokh 2015). Although the strategy recorded a huge market success due to increased sale of digital cameras leading to a profit of $5.7 billion in 2005, it did not last long. The entry of smart phones in the market disrupted the success because many people embraced phones to do the work of digital cameras (Bereznoi 2015).

In addition, Bereznoi (2015) also views the failure to integrate external and internal knowledge as one of the leading causes of failure in the market. The company made efforts to engage other firms in the manufacturing of its products to fill expertise gap. Further, there was a failure by the senior management to integrate external knowledge with inside knowledge, an essential aspect to further their innovation. As a result, the firm was not capable of competing with the rivals in digital market (Pohle & Chapman 2006). In addition, complacency as argued by Cohan (2017) also contributed to Kodak’s strategy failure. This is despite massive investment in Research & Development and relations with the clients as a result of complacency. The management was aware of rapid technological changes and market forces but failed adequately and promptly attended.

Inconsistent leadership and failure to focus on what was important led to the depreciation of its market share. Kodak’s strategy changed when the company employed many CEOs within a short period. The changes came in the midst of various restructuring occasioned by a change of leadership in the firm. New CEOs came with different approaches and priorities in the pursuit of the market objectives and therefore, there focus also kept evolving over time (Cohan 2017). For example, Antonio Perez who was the company CEO came with his market strategy and his focus was more oriented to the printing business. Ryan (2016) argues that the move was a mistake as Hewlett-Packard (HP) dominated the printer business and its technology was far much superior. The focus instead should have been manufacturing a camera with high capability to match market expectation.

Better Alternative Strategies for Kodak

Tellis (2012) explains that the traditional film market was characterized by the production of cameras and distributing them at low cost. The approach was known as the razor-blade model. The profit emanated from the sale of products and supplies used in the development and printing of pictures. Until the arrival of Fuji, Kodak was a dominant market leader. However, the shift in technology and the emergence of digital imaging make the market different from the traditional film industry (Reiner & McKinley 2012). This means that no company was capable of achieving market domination through sales of a product such as cameras due to the competitive nature of the environment and failure to realize this led to the failure of Kodak in the market.

Compared to the traditional market, the company was able to manufacture the cameras and other products, but this is different to that of the modern market. This is because digital cameras are made in a way that one can procure part in various company and countries. For example, one can buy cameras from Fuji or Kodak and then outsource technology from other nations like China at lower costs (Reiner & McKinley 2012). To conquer the shifting market, Kodak could have used some alternative strategies as explained.

The reason why Kodak faced economic difficulties is failing to cope with the emerging digital technology and taking it a step further. Traditional photography rapidly declined due to the continuous development of digital film technologies that switched the majority of customers to the world of digital photography. Kodak reacted on the market shifts and entered the market but found it very competitive that traditional market (Stimson, Thom & Uhl 2014). The best alternative for the company would have been concentrating all its skills to manufacturing products that pushed its market and profits up. It was necessary for the company to come up with revolutionary business models and new products in extremely short time. These meant differentiating itself from market rivals, strengthening its brand, restructure to save the market and adopt a pricing strategy that ensured thin profit margin to attract the consumers.

Kodak, in the wake of the technological revolution, had an opportunity to thrive in digital imaging market but its reaction to the market was late (Munir & Phillips 2005). The alternative would have been to establish a management team and digital photography professionals who could have continued to produce and design digital cameras and products that satisfy the market needs. It was essential to continually study such needs to drive the market powers out of the competitors while curving the digital path (Nylén & Holmström 2015). Considering the reduction of their sales, Kodak could have adopted cost-effective and cost-cutting strategies to stabilize their market and to move to the next target segment. To further their digital domination, diversification, generation of ideas, which were different to that of the competitors, could have lessened its dependence on traditional photography products (Jones 2010). The move was paramount to focusing on investing in development, innovation, and promotion of digital cameras and related products.

According to Gustavson (2009), the company could shift their focus to compete based on capabilities. This meant the company should have considered proactively exiting its legacy venture promptly. The same was applied successfully by other agencies such as IBM Corp. Bereznoi (2015) is the view that, from the 1990s through the 2000s, the company managed to apply the strategy efficiently. For example, the management exited their traditional markets like flat panel displays, printer manufacturing, disk drives, and personal computers. Such companies planning to exit their legacy market should also see the opportunity and the need to restructure their business and reduce the cost of doing business. Kodak should have maintained their innovation by introducing other services and products to the market while replacing old ones.

Lessons by Other Companies

Grant (2016) argues that when a corporation enters the market, it can succeed or fail based on how the management responds to the market forces. From the last decades, firms that once dominated the market and transformed the sector have being edged out of the market. An example includes Chrysler, General Motors, Circuit City, Blockbuster, Borders and of course Kodak. The company declared bankruptcy some years ago due to inevitable technology revolution that the company was unable to cope. For the case of Kodak, it dominated the photography from the late 19th century with the innovation of its cheap cameras, photographic and film paper. In addition, it was one of the most consumed and recognized brands not only in America but also in the world (Ryan 2016). However, the technological revolution brought it down to its knees. There are various reasons big brand who view themselves as indispensable can learn.

The first lesson for other companies is a brand is meaningless without a good strategy. Kodak’s management was well aware that other companies were competing and reinventing the market (Jones 2010). However, it viewed it as unnecessary to reconsider the business strategy in the evolving market. The company failed to invest in necessary resources to manufacture products that would drive future revenue generation (Bereznoi 2015). Kodak as early as 1987 recognized the competitive force that could be generated by the arrival of digital photography. It had carried researches and the ways in which digital technology would develop and how to reinvent image capture, manipulation, storage, and retrieval, but its strategy remained tethered it to productions of paper and chemicals (Beckmezi 2013). Thus, companies likely to be faced by disruptive technologies should seize their market share by shifting from their revenue generation products and fight to live the future.

Another lesson for companies is that companies should be paranoid to survive in the market. Andy Grove, in his book, Only the Paranoid Survive, argues that strategic measures should be put into place to match increased competition and changes in technology. The occurrence of strategic inflection means the necessity to replace conventional business rules (Grove 1996). Kodak and other tech companies like BlackBerry were not paranoid enough to withstand the market forces. No effort was directed to monitor the intensely increasing competition in different categories or understanding what increased consumer’s brand loyalty or studying the drivers of loyalty to the brand. In the digital realm, Kodak was not aware of how quick innovations developed, improved, and replicated. In the firm's case, the company did study all the perspectives to sustain or differentiate their products in the market (Eggert, Thiesbrummel & Deutscher 2015).

The culture of doing a thing should be open to revolution. Kodak’s culture of decision-making was so much entrenched and the company valued tradition that became a barrier to success in the wake of digital photography. The firm was founded on a manufacturing mindset where the products would be produced, placed in front of consumers, and customers would come to buy (Jones 2010). The strategy was well perfected and believed the same would work for digital photography. However superior their film were, the culture blinded it from moving forward, and the brand did not overcome revolution (Eggert, Thiesbrummel & Deutscher 2015). Big brands need to understand that the modern marketplace is changing at a fast pace and innovation will take place in the presence of large enterprises. For businesses like IBM, Microsoft, Apple, it is necessary to revolutionize the market before other companies fill the gap (King & Baatartogtokh 2015).

Conclusion

Kodak case analysis serves as a revelation to many companies because it provides insights on how to respond to technological changes in the business environment. If the company intended to maintain its market share, the management should have adopted a swift move to develop its digital technology. Thus, the rapid evolution of technologies should serve to encourage and provoke company’s preparedness. Kodak rise and fall is an indication of how the market forces can make or ruin the brand irrespective of how small or big it is. Therefore, for an enterprise to be successful in the film industry, the top executives could have responded to the consumer’s preferences and tastes by providing digital cameras. In case the company fails to meet the demand and further offer innovative products and services, it is very likely that allegiance will be shifted to a better product. In the market, consumers are driven by habits, innovative products that are consistently reviewed as per consumers need. As such, the managers could have revolutionized the technology, come up with new ideas and avoid complacency.

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