2. 2
Table of Contents:
Brief History & Introduction…………………………………………………………………………….......3
External Analysis:
Industry Overview…………………………………………………………………….……………4-6
General Environment……………………………………………………………………………..6-7
The Industry Environment: Porter’s Five Forces………………..….………………...7-8
Competitive Groups………………………………………………………………………….…….8-9
Internal Analysis:
Financial Analysis……………………………………………………………………...…………9-10
Tangible & Intangible Resources…………………………………………………….…...10-11
Core Competencies……………………………………………………………………………….…11
SWOT Analysis………………………………………………………………………...…………12-13
Eastman Kodak’s Current Strategies……...…………………………….………………12-14
Major Problems…………………………………………………………………..…………………..15
Future Strategies………………..…………………………………………..…………………..15-16
Bibliography……………………………………………………………………………………………..............17
3. 3
Brief History & Introduction:
Eastman Kodak Company
At first, photography was a “studio-based activity,” mostly used by
professions, that was transformed by George Eastman into a rapidly growing hobby
that could be consumed by anybody (Grant, 568). The first fully portable camera
and silver halide roll film sparked Kodak to start a company in Rochester, New York
that “offered a full range of products and services for the amateur photographer.
Kodak quickly became a leader in portable photography with “production,
distribution, and processing facilities throughout the world and with one of the
world’s most recognizable brand names” (Grant, 569).
Kodak began to expand its brand by diving into chemicals and healthcare
after the Second World War. The company was aware of emerging technologies and
“as early as 1979 Kodak produced a remarkably accurate forecast of the evolution of
digital imaging and it had been a pioneer of digital cameras” (Grant, 584). In 1980,
Kodak’s R&D launched initiatives which “resulted in products that embodied several
new electronic technologies” (Grant, 569).
From 1993-2012, Kodak has been attempting to transform “from a
traditional photographic company to a leader in the emerging field of digital
imaging” (Grant, 570). During this stretch, Kodak embodied four themes, one of
which most likely being the most detrimental strategy to the business: “harvesting
the traditional photography business” (Grant, 570) and the belief that customers
would be “bewildered by the pace of technological change” (Grant, 572).
Kodak began to analyze their strengths and weaknesses and acknowledged
that other companies had distinct competitive advantages and underwent multiple
mergers and acquisitions to capitalize on their individual capabilities. Currently,
Kodak is a digital imaging company who focuses on mostly imaging for commercial
purposes, for example, 3D printing and motion picture and commercial films but has
entered a bankruptcy plan as of January 2012.
4. 4
External Analysis
Industry Overview
For the purposes of this analysis, Eastman Kodak will be classified under the
Digital Imaging industry, acknowledging that the industry contains sub-industries
that, when combined, place a company in the Digital Imaging industry.
Recent trends have not been friendly to the Digital Imaging industry.
According to Statista.com, digital imaging unit sales in the United States have
incrementally decreased each year since 2010 (Digital Imaging Sales in the United
States 2009-2012 | Statistic).
The sales of digital imaging in the United States parallels this trend, peaking
in 2008 and, like many industries due to the economic crisis of 2008, has been
consistently declining to an eight year low of $6,695 million (Digital Imaging: CE-
Sales in the U.S. 2005-2012 | Statistic).
44
45
46
47
48
49
50
51
52
53
54
2009 2010 2011 2012
Total Unit Sales in Millions
Total Unit Sales in Millions
5. 5
Technology has allowed the Digital Imaging industry to have many fingers
and uses due to the wide array of applications for digital imaging. Uses range from
personal photography to medical to commercial and film.
The industry and sub-industries are full of “many players, low entry barriers,
falling real prices, and commoditization” (Grant, 580). In the healthcare imaging
market, or diagnostic imaging, which includes digital radiology, “is estimated at $9.7
billion in 2012 and expected to reach $13.3 billion by 2018, at a compound annual
growth rate of 5.4 percent from 2012 to 2018.” North America holds the strongest
segment of this market with about 41.9 percent of the market revenue share in
2012. “However, emerging economies, including China, India, Brazil, and Mexico, are
expected to witness high growth rates in the next six years” (Digital Radiology
Global Market to Reach $13.3 Billion by 2018).
Commercial photography did see positive growth in 2012. According to
Statista.com, revenue of commercial photography in the US grew from $1,532
million in 2011 to $1,699 in 2012 and is forecasted to almost reach $2,000 million in
2020 (Forecast: Commercial Photography Revenue United States 2020 | Statistic).
0
2000
4000
6000
8000
10000
12000
2005 2006 2007 2008 2009 2010 2011 2012
Sales in Millions US dollars
Sales in Millions US dollars
6. 6
The General Environment
Economic:
The economic crisis of 2008 has continued to effect domestic and global
markets through 2012.
Technological:
Smartphones are continually increasing putting cameras on phones and
developing the technology for the smartphone cameras. Digital cameras have
become the standard for commercial and personal photography as prices for
cameras continue to fall as technology improves and becomes more available to the
public.
Political/Legal:
Regulations such as the “Toxic substances control act, clean air and water act,
etc. impact the way [the industry] manufactures products and process waste for
proper disposal” (Lan, Tony).
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2008 2009 2010 2011 2012
Revenue of Commercial Photography in
the United States
Revenue in millions US
Dollars
7. 7
Socio-cultural:
Smartphones and cameras in smartphones have caused picture-sharing
social media to boom. Facebook, for example, purchased Instagram, in 2012 for $1
billion (Lan, Tony).
The Industry Environment:
Porter’s Five Forces
Bargaining Power of Buyers:
The bargaining power of buyers is particularly high, especially regarding
consumer electronics in digital imaging. Demand is extremely volatile while
technology changes can cause well-established subsidiaries like GE’s and Kodak’s
healthcare departments to be sold or shut down (Lan, Tony).
Bargaining Power of Suppliers:
Due to suppliers being located numerously around the world, supplier
power is low. Most raw and finished materials needed for products in this industry
can be commonly found, thus “Kodak has several supplier contracts spanning one to
three years” (Lan, Tony).
Threat of New Entrants:
Research and development of new products and technologies to stay ahead
of such a volatile industry would bring trouble to any new, inexperienced player
looking to enter the industry. Not only that, the high capital needed to enter and
succeed in this industry to purchase “printing equipment such as hardware,
software, photographic paper and chemicals is estimated to be 45.7% of purchases
versus wages at 26.8% of revenue, making the threat of new entrants low, but
possible. (Lan, Tony).
Threat from Substitutes:
There is an extremely high threat from substitutes as the technology in
mobile phones develops faster and faster. Cameras in mobile phones and social
8. 8
media sites have almost completely eliminated the need to carry portable cameras
and use image sharing platforms such as Kodak’s Easyshare (Lan, Tony) .
Rivalry from Existing Players:
The rivalry from existing players in the digital imaging industry is also very
high. Just in media sharing, Kodak’s Easyshare, Shutterfly, Snapfish, Walmart.com’s
Photo Center, Fujifilmnet.com Yahoo Photos, and Sears.com all compete with social
media sites like Instagram. Consumables also hold many strong players including
Hewlett-Packard, Xerox, 3M, and Oji (Lan, Tony).
Strategic Groups
One thing that is unique about this industry is the wide variety of strategies
used by the companies under this classification. Ultimately, all companies are
science-focused with the application of the sciences being utilized in many forms.
However, companies like Kodak, Fujifilm, and Hewlett-Packard are all focused on
business solutions and products, rather than intensive scientific research. These
companies do not have the strongest scientific research capabilities and know that
companies such as 3M and Xerox have R&D capabilities that affect other industries.
3M and Xerox are examples of the next strategic group. This group is much
more scientific and research based. Companies in this group focus more on creating
technological solutions and improvements. For example 3M has divisions that work
on creating efficient energy, mining, and automotive solutions as well as many more.
Apple, Samsung, and other smartphone producers are a part of the third
strategic group. These companies do not focus on digital imaging; however, with the
new influx of demand for phone cameras and the popularity of photo-sharing social
media outlets, these companies have essentially taken over the portable camera
market. Digital single-lens reflex cameras (DSLR) are not as commonly seen on the
streets as often as one sees people taking pictures on their phone. These companies
are more focused on computer and software than digital imaging solutions.
The difference between the two groups is recognition of capabilities and
competencies. Kodak, for example, has acknowledged that they are inefficient at
9. 9
solutions such as in healthcare, which is why they closed a majority of that
department except for imaging products.
Internal Analysis
Financial Analysis
On January 19, 2012, Eastman Kodak Company had to declare bankruptcy
(“voluntary Chapter 11 business reorganization”) after being a strong competitor in
its industry (18th biggest company by revenues in 1991 and 34th biggest company by
revenues in 2011). The Chapter 11 bankruptcy filing allowed Kodak the freedom to
cut retiree health benefits. However, because the company had to file for
bankruptcy, it could not escape its pension obligations; the UK pension fund
required an additional $800 million top-up. Under the Chapter 11 protection, the
company could not seek new sources of financing so Kodak would be constrained to
strategic initiatives that required additional capital expenditure. By the end of the
first quarter of 2012, Kodak’s financials showed improvements such as Selling,
General and Administrative expenses down $84 million and investment in
unprofitable business were cut, and Kodak’s cash balance was $1.4 billion, up $500
million from the end of 2011 (Grant, 582). Next, we calculated some profitability
ratios for the company to see how they were performing. The first ratio we
calculated was the company’s return on assets, which we calculated it to be around -
16%. Its negative net earnings and its larger amount of total assets caused such a
calculation. Next, we calculated the company’s net profit margin, which we
calculated it to be almost -13% because of its negative net earnings with high sales.
The main financial comparison we can see is the comparison of Eastman
Kodak and Fujifilm Holdings Corporation. Both companies had strong similarities,
but the main difference was how the two companies responded to the digital
revolution with different strategies that led to different financial performances. The
big difference was Fujifilm’s diversity compared to Kodak’s diversity. Fujifilm was
very successful in their transformation; the financial comparison in 1992 and 2011
10. 10
between Fujifilm and Eastman Kodak represents Fujifilm’s success. In 1992,
Eastman Kodak had $20,577 million in sales, $1,146 million in net income, and
132,000 employees compared to Fujifilm who had $9,126 million in sales, $593
million in net income, and 24,868 employees. However, in 2011 the two companies
saw different financial performances. In 2011, Eastman Kodak had $6,022 million in
sales, $-764 million in net income, and 17,100 employees compared to Fujifilm who
had $27,440 million in sales, $1,412 million in net income, and 35,274 employees.
The comparison between the two companies proves how one company’s
transformation strategy was better than the other.
Tangible & Intangible Resources
When analyzing the Eastman Kodak’s case, the internal analysis part
required that we distinguish between the company’s tangible and intangible
resources. Our first step was to determine its major tangible resources: property,
plant, and equipment. Because of their recent financial performances, Eastman
Kodak had declared bankruptcy and relied on transformational changes in order for
it to regain its competiveness and performance within its industry. Ending 2011,
Eastman Kodak had $895 million in property, plant, and equipment, a decrease from
2009, its lowest included on the balance sheet since 2006. The decrease in property,
plant, and equipment is a result from its past performances where it totaled $3.8
billion in operating losses during the first decade of this century. In order to
compensate for their financial position, Eastman Kodak had to transform its
business and make cuts and changes, so it can reach its performance and gain a
competitive advantage it once had. Since 2003, the CEO Antonio Perez said that it
has “already effectively exited certain traditional operations, closing 13
manufacturing plants and 130 processing labs, and reducing our workforce by
47,000” (Grant, 568). Other raw materials that make up its tangible resources are
lithographic aluminum which is the primary material used in the manufacture of
offset printing plates, Silver is an essential material used in the manufacture of films
and photographic papers, paper base is an essential material in the manufacture of
11. 11
photographic papers, and electronic components that are used in the manufacturing
of commercial printers and other electronic devices (investor.kodak.com).
The next step in our internal analysis of Eastman Kodak was to determine the
intangible resources: technology, skills, brand, and reputation. The original strength
of Kodak’s intangible resources was its brand and global distribution presence.
Kodak’s brand has been its key strength, but the two decades of decline and
technological changes weakened its image. In 2011, MPP Consulting had ranked
Kodak the 77th most valuable US brand. Its distribution presence was unrivalled in
its industry, but it was weakened from decline and technological changes; the
declining demand for printed photographs will weaken its distribution presence.
Another intangible resource is its technology. It maintained being one of the world’s
biggest research efforts in imaging, and, in 2000-2005, Kodak’s research labs in the
US, U.K., France, Japan, China, and Australia had employed over 5,000 engineers and
scientists. Its technological efforts helped issue them 16,760 patents between 1975
and 2011, but the company sought to sell some of the patents in order to help raise
capital (Grant, 581). Lastly, Eastman Kodak’s new product development struggled to
transition into the fast-cycle world of electronics despite its strengths in basic and
applied research and its long history of successful new product launches (Grant,
582).
Core Competencies
Eastman Kodak’s core competencies are fundamental towards their success
and how they promote their business and gain competitive advantages over their
rivals. The main core competency is Kodak’s brand. Even though they took a drastic
financial downturn and had to file bankruptcy, MPP Consulting ranked Eastman
Kodak the 77th most valuable US brand in 2011. The next core competency is its
distribution system for its distribution system was still unrivaled in the industry
(Grant, 581). The use of brand loyalty and its distribution system could have offered
hybrid solutions during the transition period between traditional and digital
imaging (Grant, 581). Lastly, their core competence lies within their R&D for
technology. For two decades, Eastman Kodak had one of the world’s biggest
12. 12
research efforts in imaging, and, during 2000-2005, its labs in the US, U.K., France,
Japan, China, and Australia had employed more than 5,000 engineers and scientist
with more than 600 PhDs (Grant, 581).
SWOT Analysis
Strengths:
Eastman Kodak’s strengths help distinguish what competitive advantages it
has over other competitors within its industry. The main strength the company has
is its strong brand name. Even at Eastman Kodak’s weakened state, they are still
ranked in the top 100 for the most valuable US brand name. Next, their vast
distribution system is unrivalled in its industry, but the declining demand for
printed images can depreciate the asset that once was unrivalled. Kodak also has a
strong R&D by focusing on technology. Its research efforts in imaging brings a lot of
capabilities that Eastman Kodak could capitalize. Lastly, their portfolio of
acquisitions and strategic alliances or joint ventures provided balance sheet
strength that meant it was still one of the strongest firms financially in the industry
(Grant, 576).
Weaknesses:
The key weakness to Eastman Kodak was its decision to transform its
capability base from chemical to digital imaging. This ended up being a major
weakness for Eastman Kodak because it required CEO George Fisher to launch a
major hiring campaign to put in place the executives and specialists required for its
new digital strategy. A major problem with the transformation was that Kodak was
entering a new chain of digital imaging that already included well established
companies (Grant, 575). Another weakness was its emphasis on printed images,
Perez’s major investment to build Kodak’s presence in the market for consumer
inkjet printers. This was most widely criticized of all of Kodak’s digital imaging
initiatives because it was trying to establish itself in a very mature, intense
competitive market, and by 2011, Eastman Kodak held only 6% of the US market
13. 13
compared to Hewlett-Packard’s 60% market share (Grant, 578). Lastly, the switch
from photography film to digital photos was a questionable decision because they
now are placed in a highly competitive and mature market. The main comparison
we can see is by comparing Kodak with Fujifilm. Like Eastman Kodak, Fujifilm made
major changes to adapt to the emerging markets. Unlike Eastman Kodak, Fujifilm
was very successful with its diversity and enabled it to make selective acquisitions
and its technical capabilities resulted in several discoveries (Grant, 585).
Opportunities:
Eastman Kodak’s opportunities provide insight for what it should do for the
future in order to become competitive once again and bounce back from their poor
financial performances. Opportunities such as continuing research for new
technologies can help Eastman Kodak gain a competitive advantage over rivals in
the industry. It can help the company better meet their customers’ needs and
improve new products allowing them to diversify. Another opportunity would be for
the company to tap into new emerging markets such as Brazil and India.
Threats:
Threats can cause Eastman Kodak and the rest of the industry to fail and have poor
financial performances. In times of recession or poor economic times can cause a
reduction in customers and decrease sales and revenues. Another threat is the
intense competition because rivals within the industry can offer superior products
that could attract customers away from Eastman Kodak. Substitute products such as
the new smartphones can hurt the company from gaining sales and revenues.
Because smartphones are becoming more widely available and more enhanced,
people are able to capture quality images with the smartphone. Lastly, the transition
into digital imaging is a huge threat because they entered a market where they did
not strategize properly, and it drastically hurt their performance.
14. 14
Eastman Kodak’s Current Strategies
Eastman Kodak’s strategy took a transformational change into digital
imaging. The company developed a strategy to transform Kodak from a traditional
photographic company into a leader in the emerging market of digital imaging. The
fundamental challenges that they faced was the transformation from analogue
technology to digital technology, long design cycle to rapid prototyping, industrial
manufacturing process to flexible manufacturing process, value based on physical
products to value based on solutions, mass-produced and large inventories to just-
in-time and just-in-place inventories, and the transformation of high margins and
heavy infrastructure to lower margins and a lean organization. Their strategy
included four major themes: “an incremental approach to managing the transition to
digital imaging; different strategies for the consumer market and for the
professional and commercial markets; external sourcing of knowledge through
hiring, alliances, and acquisitions; and emphasis on printed images; [and] harvesting
the traditional photography business” (Grant, 570). The incremental approach
theme was a hybrid approach where “Kodak introduced those aspects of digital
imaging that could offer truly enhanced functionality for users” (Grant, 571). The
consumer market strategy emphasis was to maintain its position as mass-market
leader by providing simplicity, quality, and value. So, Kodak offered a variety of
services that would allow customers to digitize conventional photographs, edit
images, and obtain printed photographs in an array of formats. In 2001, they
launched Kodak’s EasyShare system (Grant, 572-73). The company’s strategy for
professional and commercial markets was very important because “they were lead
customers for many of Kodak’s cutting-edge digital technologies” (Grant, 574). The
company established a strong position in commercial scanning, formatting, and
printing systems because of its proprietary inkjet technologies and its leadership in
variable-data printing. The hiring, alliances, and acquisitions strategy implemented
by George Fisher was intended to put in place executives and specialists needed for
its new digital strategy. Eastman Kodak faced challenged where it can add value, so
it partnered with companies in leading technologies and made acquisitions where it
15. 15
believed was essential to its strategy (Grant, 575-76). Eastman Kodak’s emphasis on
printed images was criticized of all its digital imaging initiatives because it was
entering a highly intense and mature market. Its strategy for harvesting the
traditional photography business was because of its failed future forecasts to
emerging market demand, so it accelerated its withdrawal from the film industry. It
withdrew several film products and other unprofitable markets such as cameras
and its Kodak EasyShare Gallery. Lastly, it had to accelerate its job cutting in order
to accompany its recent financial performances (Grant, 578-79).
Major Problem
The main problem for Eastman Kodak was the transformation to digital
imaging with the growing trend for consumers to view their photographs on screen
rather than in printed form. It had invested heavily in building digital capabilities
and launching new products, but it failed miserably to generate income, posing the
main question of what the future holds for Eastman Kodak (Grant, 569).
Future Strategies
With Eastman Kodak’s recent financial performances being so poor, we hope
our future strategies will help make a turnaround for the company. Our first main
strategy would be to disband the Consumer Digital Imaging Group Segment of
digital capture and devices, but keep its retail systems solutions, consumer inkjet
systems, and consumer imaging services. We recommend they keep these services
around because they have the largest installed base of retail photo kiosks in the
world, their investment in technology provides numerous capabilities for their
inkjet systems, and because they are a leader in online merchandise and photo
sharing service. To go along with their Consumer Group, we recommend they create
an optics division in the Consumables segment. With doing so, we also recommend
they partner with a company such as Ray Ban Sunglasses or Costa del Mar since they
are established as an industry leader in optics and style to help increase consumer
16. 16
awareness and increase sales by providing more diversified products to consumers.
It is unreasonable to think that going into the optics industry against such strong,
established competitors would be smart. However, partnering with an established
brand would present opportunities to give those companies a competitive
advantage and sell more products, thus selling more optic glass, and use the optic
company as a platform for advertisement through partnership. Customers who buy
glasses will notice the advantage of glasses with Kodak lenses and be intrigued to
further look into other Kodak consumer products.
17. 17
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