files. web viewkodak attempted to enter the instant photography market but in 1975 it was denied...

COMPREHENSIVE STRATEGIC PLAN FOR EASTMAN KODAK

Table of contents

Executive Summary……………………………………………………..……………………….3

Analysis of competitive Environment….……………………………………………..………...3

Evaluation of Core Business Functions………………………………………………………...6

Comprehensive Strategic Plan...……………………………………………..…………………8

Corporate Value and Mission Statement.…………………….……….……………....8

Long term and short term objectives.…..…………………………………………..…9

Strategic alternatives…………………….……………………………………………10

Recommended Strategy………………………………………………………………12

Implementation………………………………………………………………………..12

Evaluation and Control……………………………………………………………….14

Conclusion.…………………………………………………………………………………….14

Appendix……………………………………………………………………………………….16

References……………………………………………………………………………………..17

COMPREHENSIVE STRATEGIC PLAN FOR EASTMAN KODAK 2

Executive Summary

The objective of this report is to develop a comprehensive strategic plan for Eastman

Kodak. This report will assess the company’s value and mission that will assist in gaining a

better idea of the overall operations and strategy. The identification of strategic alternatives is

based on the findings from the analysis of Kodak’s competitive environment, and the evaluation

of its core business functions. In addition, this report will provide recommendations on how

Kodak can be leveraged its resources to create capabilities that drive a sustainable competitive

advantage, and realign its organizational structure and management system. Finally, this report

will provide additional recommendations regarding needed changes to Eastman Kodak’s

approach to competitive advantage and corporate strategy.

Analysis of Competitive Environment

Porter’s five forces model is used to identify the forces that shape every industry which

determine the intensity and direction of competition and therefore the profitability of an industry.

The objective of strategic planning is to modify these competitive forces such that the company’s

position is improved. The five forces are competitive rivalry, the threat of new entrant, the threat

posed by substitute goods, the bargaining power of both supplier and buyers (Porter, 1979).

According to Porter’s five forces analysis, rivalry among competitors could be significant

in Eastman Kodak. The industry is full of active competitor ranging from digital printing,

traditional photography and the digital photography system. The number of firms is increasing,

especially with the proliferation of mobile phones for digital photography. In addition, the

industry has high fixed costs but the market growth is slow. Consumers in the industry have

faster adoption rate for new technology and as such promoting new entrants. The industry

experiences decrease in sales volume for traditional products and this has encouraged adoption

of the digital solutions. There are relatively low switching costs; companies like Canon and Sony


have been able to make inroads into the digital photography market. The product differentiation

is low and the strategic stakes are high. For instance, Kodak needs to maintain its leadership to

survive. Most, importantly, as the exit barriers are high the intensity of rivalry in the industry is

at a high level. Kodak broadened their product line by entering the printer industry where it also

faces some major competition with Hewlett-Packard and Lexmark International controlling the

market.

The digital imaging industry is characterized by high entry barrier since the financial

resource base requirement for development, distribution or in Research and Development is

significantly high. Marketing costs are also high for these entrants for it to be able to topple

down existing players or even penetrate the market. In addition, the substantial barrier to entry

in the imaging technology market is brand recognition. Consumers are unlikely to try new

brands of a relatively expensive product without some knowledge of the company’s reputation.

Current player in the market - Kodak, Nikon, Canon, Olympus, Sony, etc. are highly

recognizable and have established quality products (Highbeam Business, 2012). This strong

brand recognition and loyalty make it unlikely that new entrants could rapidly gain market share.

The threat of new entrants that is threatening Kodak is the spate of camera phones. The

technology has so been perfected that these “entrants” pose a severe threat to the digital imaging

industry and Kodak in particular. Kodak attempted to enter the instant photography market but

in 1975 it was denied entry into the market by Polaroid that used patents and proprietary

knowledge to keep out Kodak.

Buyer power in the industry is high. Buyers have a high degree of power because they

have a higher choice and quality products are available at lower prices. For instance, D-SLRs

with excellent performance are flooding the market making it difficult to sell high performance

cameras. The industry have many players at wholesale or retail level and based on their choice,


they can decide on which brand to promote depending on margin and business terms. Buyers on

the other hand have variety of brands but have lower leverage on their side. However, through

word of mouth they can easily influence behavior of other potential buyers thus should be taken

into consideration. With these forces in place, the industry is characterized by lower profit

margin.

Kodak does not likely face significant risk from suppliers of materials to its industry.

The raw materials for digital cameras include plastic, metal, microchips, etc. Companies

providing these materials have become specialized in their production and distribution. Any

forward integration on the part of suppliers would involve a substantial change in business focus.

The imaging technology industry changes rapidly and requires extensive research and

development – an area that would represent a stark change for Kodak’s raw material suppliers.

In the imaging market, the threat of substitute products is high. Nearly all major

consumer electronics companies manufacture digital cameras. Kodak is not really differentiated

from its competition and price and features are the primary selling factors for low end digital

cameras. Moreover, the high end of the spectrum is beholden to Canon and Nikon, followed by

Olympus, Pentax and Sony. Kodak would be hard pressed to enter this market due to the huge

brand loyalty. Additionally, Kodak may not have the expertise to compete in the high end market

due to its lack of expertise in manufacturing lenses. As mentioned, new competitors are abundant

with every consumer electronics company from Casio to Samsung having digital cameras, not to

mention the ubiquitous camera phone.

In terms of an analysis of the macro environment, it is clear that technological factors are

the most important considerations to be taken into account. The increasing rate of innovation has

made Kodak's research and development react and adjust rather fast. Consequently, Kodak is

now faced with a fear that its digital technologies might begin to present fundamental threats to


its core business. The technological transformation has begun to force changes within Kodak's

enterprise. At this point, competitive and innovative breakthroughs can generate new entrants;

proving to be very risky for Kodak, if at any time its services or products are rendered

superfluous.

Evaluation of Core Business Functions

Eastman Kodak offers digital photography and printing product and service portfolio

across fifty countries worldwide. The company operates three business activities with Graphics

communication segment accounting for 45% (2009: 35.7%) of group revenues in 2011. Graphics

communication segment is one of the leading and fastest emerging business activities for Kodak

encompassing digital printing, commercial inkjet printer and electro photographic product

portfolio. In recent 18-24 months, the company has witnessed downturn in its flagship

“consumer digital imaging group” (i.e. digital cameras etc) constituting 29% (2009: 34.4%) of

group revenues in 2011. It could be seen that declining business environment for flagship

business segments i.e. consumer digital imaging and film & photo finishing is hampering

competitive advantage for the company on long-term basis (Annual Report, 2011).

Kodak focused on film technology and became a world leader in film and film camera

sales. Kodak captures majority of the market share in the global arena. The company’s presence

in major cities around the world demonstrates its broad market coverage. Any observer can

quickly affirm Kodak’s dominance in the industry because of its strong brand name. It should be

mentioned that the company uses this strength very well to fight competition. However, with the

advent of and increasing demand for digital imaging technology throughout the 1990s and early

2000s, Kodak faced declining demand for its film products and decreasing market share in the

overall camera market. The quick evolution of the technology and the slow reaction of Kodak to

follow the new trend were the major causes of the bad performance of Kodak Company.


Kodak had achieved strong brand recognition and a global distribution network. They

have the capabilities of initiating a new product and supporting them until they are known

worldwide. The massive distribution network is achieved by professional photographers, film

processors and photography stores. Another key strength of Kodak is its formation of strategic

alliances with other companies and its role in establishing the de-facto industry standards to suit

their products. Kodak formed strategic joint ventures with companies like Sanofi, AOL online,

and in 2007 Cinelabs (Beijing) Ltd (Grant, 2010). It has tried to acquire several smaller

successful companies such as Ofoto and Practice works to fill in the missing pieces of

technology and markets that it did not have capabilities in. To enter into the consumer inkjet

print business, Kodak formed a partnership with chip-design specialist SigmaTellInc (Hamm et

al., 2007). This allows the company to go to the market quickly with its new product.

Kodak has been leveraging competencies in film and paper media, color management. It

has been known for the best quality films and cameras worldwide. The company’s research and

development skill is commendable. Kodak has pioneered in introducing several innovations in

the market (eg. PhotoCD, scanners, among others). This aggressive research and development

facility is but appropriate for a company that has grown competitive because of the many

technological breakthroughs. This skill of the company has enabled it to further expand its

product lines. The company was a highly integrated company that did its own R&D and

manufactured its own parts.

Kodak had ventured into digital imaging because of their strength in term of huge

investment in research and development. They have invested heavily while doing research on

imaging. They have research labs based in Australia, United States, China, France, UK and

Japan. The technical human resource base is huge- 5000 scientific and engineering workforce out

of which 600 have PhDs. They have strong capabilities in color science, image processing,


sensor, ink technology, analysis of imaging systems, micro-fluidic, Inkjet, print media, software

and electronic displays and these are vital in enhancing technological operations (Grant, 2010).

With regard to its management, Kodak’s human resource can be described as capable. Its

corporate management is currently expected to propel the company to greater heights. One of the

serious problems inside the Kodak Company was that over the all last decade all chairman hasn’t

been able to change the huge mass of middle managers, and they just don’t understand this

“digital” world. Kodak’s failure is due to the culture of the company and employees’ strong

belief that Kodak meant film.

Comprehensive Strategic Plan

Kodak’s Mission & Values

Eastman Kodak’s vision “is to be a world class company and a leading imaging company

in protecting the quality of environment and the health and safety of customers, employees and

communities in which company operates its business” (Kodak, 2011). The vision statement of

Eastman Kodak Company also emphasizes on “capture pleasant movement with more energy

and technical advancement & innovation” (Kodak, 2011). Kodak’s long term goal is to grow in

the market and create competitive advantage over its competitors by providing best customers

solutions, which help them to capture, store, process output and communicate images anywhere

and anytime in the world (Kodak, 2011).

The mission statement of Eastman Kodak states that “At Kodak, we believe that by doing

well by shareholders also means doing right by customers, employees, neighbors, and suppliers.

With that in mind, Kodak operates its facilities, and designs and markets its products and

services, not only to increase shareholder value, but also to promote development of the

individual, the well being of the community, and respect for the environment" (Kodak, 2011).

Based on the current scenario that Kodak is facing, it is evident that the company failed to


maximize the value for shareholders by failing to adapting to changes occurring in the industry.

It failed to create sustainable value for the shareholders by failing to catch up with competition.

Kodak's core values revolve around six categories- Respect for the Dignity of the

Individual, Uncompromising Integrity, trust, Credibility, continuous improvement and personal

renewal, and recognition and celebration (Kodak, 2011). The company was considered a pioneer

and leader in the photography and imaging industry and the historical success certainly proves

that the company's operations and strategy was perfectly aligned to these core values. However,

the current scenario does reflect that the company failed to align its operations and strategy to the

values. The company was too slow in responding to the changes occurring in the photography in

industry and thus, failed to adhere to the core values pertaining to continuous improvement. Even

though other core values such as trust and integrity was present, failure to recognize the changes

and continuously innovate towards offering new and better products in the recent times led to the

failure of the company.

Long term and short term objectives

The objectives for Kodak is to increase profitability, quality and features of its products,

to gain competitive position and sustain itself in good position for long period of time. It is also

recommended that company should achieve these objectives within 5 to7 years. It will be

appropriate as long term objectives for the firm, as they will support the firm to increase its

strength and overcome on its weakness along with capturing opportunity in the marketplace.

Through these objectives, the firm can increase value of its products and stakeholders in the

competitive marketplace. The short term objective should be more focus on management action

plans. It will be helpful for Kodak to improve their management activities. More focuses on

management action plan will be helpful to improve internal communication channels to create

effective relationship with the workers of the company. When there is an effective


communication channel, the company will also improve its efficiency and productivity in the

market and provide effective products and services to the customers.

Strategic Alternatives

There are diverse strategic alternatives that are available for Kodak to run its business

successfully in the competitive market in future. These can be discussed as follow:

Innovation: Innovation through technological advancement is a great strategic alternative

for Kodak. If the innovation strategy is used by the management of Kodak to produce the

products, it can help the firm to attain competitive advantage. Competition in digital

photographic sector is high that indicates the requirement of different features for the digital

cameras. According to the external environment, high picture quality and extra features of the

camera offered by the rival firms are enhancing threat for the company. Technological

advancement in the industry also indicates the benefits and dangers to the business. So, if the

company wants to stay in a competitive position in the global market, it is necessary for the firm

to adopt and follow innovative approach to run business successfully. The firm should introduce

advanced features in the cameras to retain existing customers and acquire new customers. In

concern of this, the firm should also invest money on innovation to produce more attractive and

qualitative digital cameras. It will be beneficial for the firm to attain competitive position and

advantage in the overall market. It will also assist the firm to enhance productivity of the

business.

Market Expansion: Market expansion is another strategic alternative for Kodak. In this

strategic alternative, the firm can invest its resources and money to develop its market as well as

product features in the global market. To leverage the market opportunity in terms of

diversifying the products in the competitive market, the firm should invest its resource.


To attain the economic, social and political environmental benefits and face the

challenges, the firm should adopt new paths in terms of expanding market of digital camera.

Through developing the features and quality of the product, the firm can expand its market on

the international level. Through expanding business in an economically developed country, the

firm can get tremendous results in terms of enhanced sales and attaining competitive advantage.

Business Process Re-engineering (BPR): Kodak can reconstruct the organization using

business process re-engineering practices. Its current traditional photographic business is

vertically integrated (Grant, 2010). The organization can be redesigned from a vertically to a

horizontally integrated organization through process-oriented organizational restructuring,

offering a more low-level flat organizational structure (Wu & Li, 2011). The result gives

improved efficiency and business simplification for Kodak to compete effectively in a tough

competitive environment where it needs to quickly deliver innovative products out to market.

BPR gives obvious benefits such as the reduction in complex bureaucracy in the organization

(Wu & Li, 2011). However, there are limitations in BPR such as resistance to change, lack of

management support etc. (Schniederjans & Kim, 2003).

Leadership and organizational learning: Kodak will need to train staff, especially

managers in weak areas on vision and strategy. For example, managers can be taught ‘design

methods’, to generate growth, evolve, and react as the marketplace and user needs changes so

that the business model can evolve to bypass extinction (Fraser, 2007). Subsequently, Kodak will

need to discontinue some of its products, especially in saturated markets such as digital cameras

where profit margins are low and competition is fierce. It can better utilize its resources and real

core competencies to make it difficult to imitate its products and demonstrate leadership.

However, leaders would need to be able to influence teams indirectly through climate and culture

in the organization. Technology enabled transformations will affect the importance of


organizational culture where hierarchy and standards provides resistance to disruptive

technologies (Lucus & Goh, 2009).

Recommended Strategy

To sustain competitive advantage, Kodak needs to strategically transform its entire

business model around to capture new and unique growth opportunities. It is recommended that

Kodak, take the BPR and organizational learning approach, to improve efficiency and simplify

the organization; leadership to communicate and influence vision and change to capture new

business models and better match user needs and economic value. It is also important for Kodak

to focus on innovation or advanced technology driven strategy. In the global market, due to

additional features and picture quality, the firm is facing high competition, so to deal with these

issues; innovation and advanced technology will be beneficial strategy for Kodak. If the firm

wants to attain competitive advantage and maintain its good position in the market, it is

recommended to follow this strategy. It will support the probability of the success of the

organization’s product through exploring new sources.

Implementation in Eastman Kodak

To implement an innovation driven strategy, Eastman Kodak management needs to adopt

high commitment, leadership, and higher managerial skills. Strategy must be communicated into

actions that can be attained on a daily basis. For a successful implementation of selected strategy,

it is vital that the strategy is communicated to all employees and their responsibilities and duties

are clearly defined to them. In addition to this, for a successful implementation, adequate amount

of research is also essential, so that consumers’ altering needs are defined and understood

clearly. It will assist in developing products that will be according to the consumers needs.

Therefore, the management has to ensure that it is targeting the right target segment, and the


company’s spending has to be carefully aimed at the target market in order to ensure that its

products and services maintain high awareness.

Given the current reliance on the traditional film business, the company needs a

fundamental change in its organizational culture. Employees are the most important assets in an

organization and therefore when it comes to managing change, the management should give

employee involvement the top priority. The top management has to be in constant

communications with the employees in order to address the issues of employee morale. The

process of training and development is also a critical success factor in terms of enabling

employees to make the connection between their work and the strategic focus of the company.

The organizational culture at Kodak is changing fundamentally in order to facilitate entry

into the digital revolution. Therefore this is an issue of business process reengineering that the

company has to deal with at the moment. In this respect, the management must ensure that the

strategic alignment process is maintained. This alignment process takes place between four

areas: IT strategy, business strategy, organizational issues, and information systems issues (Hitt

et al., 2007). IT strategy is the process of selecting the best hardware platform and software

solutions. Business strategy is the process of justifying the expenditures that must be made in

order to finance IT strategy. Organizational issues refer the current skills sets of the employees.

The organizational issues are attended to in order to ensure that the employees have the

necessary skills with which to operate the new system. Information systems issues refer to the

knowledge management system that facilitates the process of informal learning.

The organizational structure at Kodak is undergoing fundamental change in order to

facilitate access to the digital revolution. This change must be managed under the framework of

the strategic alignment process as described earlier. This will ensure that regardless of the


degree of change that is initiated in order to maintain the company’s competitive advantage,

alignment with the strategic focus is maintained.

Evaluation & Control

Strategic control monitors the progress needed in achieving Kodak's strategic goals. This

is extremely significant to Kodak; without it, results could be devastating. Kodak will need to

develop its operational performance on a regular basis through evaluation and control

mechanisms.

Kodak should utilize balance scorecards as its evaluating and control method. The

balanced scorecard is a strategic measurement tool that aligns business objectives with the vision

and strategy of the organization. Apart from measuring the financial performance, the balanced

scorecard would give Kodak a more “balanced” view of the organization. The scorecard retains

the traditional financial measures, but these measures are not enough for guiding and evaluating

the journey that the company would make to create future value through investment in

technology. The balanced scorecard enables Kodak to view the organization from the

perspectives of financial, customers, internal business processes, learning, and growth, “By

balancing a set of strategic and financial goals, the scorecard methodology allows the strategy of

the business to be linked with the creation of shareholder value while providing a set of

measurable target to guide this process” (Grant, 2010, p. 51).

Conclusion

On the basis of above discussion, it is concluded that Kodak is operating in a high

competitive environment. To gain the market share, the most essential thing that the company

should do is repetitively appraising their actions and procedures to make sure that they are on the

right way. With the help of values and commitment, the firm has gained a strong position in the

global market. Many aspects like, political, economical, technological and cultural factors acts as


a threat and challenges for the organization. So, it is important for Kodak to adopt strategies

according to the market trends. It is also necessary that the strategies are timely formulated,

implemented and processed forward with research, development, and implementation of new

products.


Appendix

Eastman Kodak Co Financial Performance (2007-2011)US$ in million 2007 2008 2009 2010 2011 CAGR

Revenue 10,301 9,416 7,606 7,167 6,022 -12.56%% Change -8.59% -19.22% -5.77% -15.98% Net Profit

(Loss) 676 (442) (210) (687) (764) n.d% Change -165.38% -52.49% 227.14% 11.21% Long-term

debt 1,289 1,252 1,129 1,195 1,363 1.41%% Change -2.87% -9.82% 5.85% 14.06%

Total Assets 13,659 9,179 7,682 6,226 4,678 -23.50%% Change -32.80% -16.31% -18.95% -24.86% Employees 26,900 24,400 20,250 18,800 17,100 -10.71%% Change -9.29% -17.01% -7.16% -9.04% R&D % of revenues 5.10% 5.08% 4.61% 4.44% 4.55%

Net Margin (Loss) 6.56% (4.69%) (2.76%) (9.59%) (12.69%)

Sources: Eastman Kodak Co Annual Reports (2011 & 2009)

Sources: Techcrunch.com (2012)


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