CORPORATE STRATEGY IN CHANGING TIMESA Case Analysis of Kodak & Fujifilm

Financial Darwinism & Disruptive Innovation

Kodak Overview

Fujifilm Overview

REALIZE Strategy

Financial Overview

Conclusion

Recommendations

Agenda

Enterprises must continuously adapt.

Businesses are composed of interconnected and complex systems, which respond to external and internal environmental mechanisms.

Survival of the Fittest: Financial Darwinism

When external factors begin to shift, enterprises are put at risk of being cannibalized by competitors and fading from the marketplace.

The consumer technology sector is most vulnerable to becoming antiquated following the advent of disruptive new innovations.

Added Value

creation

emerging

Competition

Creativity

Disruptiv

e Innovatio

n

Technology

sustainability

complex

simple

change

displacement

new markets

THREAT OF NEW ENTRANTS: LOW

• Low market capitalization but high competition from established companies

• Difficult to undercut incumbent companies with established supplier relationships

• Real estate acquisitions are a significant entry barrier

• Net profit margins are low

BUYER POWER: LOW

THREAT OF SUBSTITUTION: LOW/MED

SUPPLIER POWER: HIGH

COMPETITIVE RIVALRY: HIGH

• Purchase volume is low; reducing buyer influence on price

• Buyers do not have the ability to integrate backwards by building their own electronics

• Few substitutes that will truly take the place of electronics.

• Today's society is highly dependent on electronics

• There are only a number of suppliers to choose from

• Backwards integration is difficult due to capital requirements and technological expertise

• Retailers are able to mitigate supplier power by bringing sales, as suppliers are highly-dependent on retailers

• Low switching costs

• Differentiated products and services

Porter’s Five Forces: Consumer Electronics

Founded in Rochester, NY in 1888 by George Eastman, incorporated in NJ

Current CEO: Antonio M. Perez

Traded on the NYSE as EKDKQ

Slogan: “You push the button, we do the rest.”

Company Overview• Replaced photographic glass plates with film rolls.• Mass production at a low cost, global distribution, high investment in marketing, R&D, focus on customer demand• Digital camera invented by Kodak engineer Steve Sasson• Peaked in the mid-late 1990s with revenues at $16b and profits of $2.5b• Former Motorola CEO George Fisher joined to restructure the company from 1993-2000• Taken off the S&P 500 list in 2010, and declared Chapter 11 bankruptcy in 2012

Market Segments:• Consumer Imaging Segment

• Kodak Professional Segment

• Health Imaging Segment

• Other (Digital and Applied Imaging) Segment

Eastman Kodak

Kodak in Decline

• Massive job cuts• Hiring freezes• Death in Kodak

company culture

• Decrease in intellectual competencies and new talent within the firm.

Fujifilm Holdings Corporation (富士フイルム株式会社 )

Founded in Tokyo in 1934

Current CEO: Shigetaka Komori

Traded on the TYO as 4901

Slogan: “Everything is Possible”

Company Overview:• Fuji was founded based on a government plan to

create a domestic film manufacturing industry. • Fuji became a sponsor for the 1984 Olympics in

Los Angeles, and gained notice in the US market• In 2008, the company sought new opportunities

to offset the declining sales of the traditional photo-making

Market Segments:• Imaging solutions• Information solutions• Document solutions

“Strategy is making tradeoffs in competing, and choosing what not to do.”

‐ Michael Porter

Comparative Strategic Analysis

Robust strategy

Enablers for change

Approach for change

Leading the change

Individual competencies

Maintaining Zeal

Ensure accountability

ROBUST Strategy

A company must have ROBUST STRATEGY that is…

DISTINCTIVE: The strategy must be different than that of its competitors

COMPELLING: The strategy must be engaging to its customers

ACHIEVABLE: The strategy must be realistic, in terms of what can be achieved and when it can be achieved

SUSTAINABLE: The strategy must stand the test of time

The company defined itself too narrowly as a film company instead of an imaging company

ROBUST Strategy: Kodak

The new product was distinctive, compelling, and achievable, but it was not sustainable

After creating the first digital cameras in 1975, Kodak did not further develop and adapt their business model.

Late to recognize, slow to react, wrong innovations, and complacency

Project timelines were not given or adhered to

ROBUST Strategy: Fujifilm

The company diversified their portfolio to include imaging solutions, information solutions, and document solutions

Fujifilm realized the urgent need for change as the era of digitalization was upon them. As the second mover, their strategy was not immediately distinctive, however; they were compelling, achievable, and most importantly, sustainable

Fujifilm used the M&A model to acquire the technology needed to expand its core business model

Fujifilm also employed a pricing strategy to run a more efficient operation to reduce operation costs

ROBUST Strategy: Kodak Value Chain Analysis

Inbound/outbound logistics: Kodak moved from traditional supply chain model to a demand-driven supply chain model (matching demand to supply in long-term). Kodak modeled its logistics off of Toyota. Kodak changed the way suppliers delivered(they used to deliver directly to Kodak manufacturing plants). Consolidated supplier shipments by geography, and relied on diverse network of distribution channels.

Operations: Kodak operates in the US, China, South Korea, & Japan. Traditional imaging operations were very costly for the company. Operations were entirely internal, with nothing outsourced for majority of company history.

Marketing & sales: Relied on reputation for excellent quality, and invested heavily in its marketing activities. Successful until 1986, when brand began to fade as an American household name. To keep costs down, Kodak adopted a hybrid marketing system, using different channels. It previously used a 'razor-blade' approach to sales, i.e. using a cost strategy for selling cameras & making up the large profit margins on the film.

Porter’s Value Chain Analysis: Kodak

Procurement: Procured goods and services make up Kodak's most expensive division. Kodak leverages purchasing strategy with the goal of purchasing goods at the lowest cost for the highest quality (including delivery to the warehouse).

Technology: Kodak invested in its technology during the 21st Century, and became an industry leader for its product quality and innovation. Kodak used patents in an attempt to keep control of its new innovations

HR management: Kodak made drastic workforce cuts in the 2000s. Employee numbers dropped from 64,000 to 17,000 by 2012. Kodak lost an element to its corporate culture that left employees dissatisfied.

Service: Uses kiosks and mini-labs for customer ease of use and needed with firing spree.

Firm Structure: Kodak was originally vertically integrated in nature, and focused its core business on traditional print imaging.

Margin

Margin

ROBUST Strategy: Fuji Value Chain Analysis

Inbound/outbound logistics: Fujifilm has sought out to develop relationships with competitive carriers which enables them to reduce inventory and commit to extreme flow-through processes.

Operations: The carrier transition has allowed the company to focus on their objectives of streamlining their operations efficiently. Information flows from the company through electronic data interchange (EDI) to provide more accuracy.

Marketing & sales: Fujifilm looks to educate its (potential) customers with its products by allowing them to show off their pictures and write reviews.

Porter’s Value Chain Analysis: Fujifilm

Procurement: Fujifilm is also heavily involved in M&A, with more than 10 acquisitions in a period of 5 years (2007-2012).

Technology: Fujifilm has allocated a portion of its budget to R&D efforts to enhance technological advancements. This includes developments in its IT infrastructure.

HR management: FUJIFILM Business Expert Corporation will provide shared services for administrative and human resource activities for group companies. Started "Slim & Strong" activities which aim to achieve a more muscular and robust corporate constitution, and meticulously streamline manufacturing expenses, selling, general and administrative expenses, R&D expenditures and focus its uses.

Firm Structure: Fuji has a vertically integrated firm structure.

Service: Offers software, firmware, photofinishing, products, and accessories support for its customers. M

arginM

argin

KodakUnwritten Rules: 1. Don’t question the CEO or other Executives2. Always consult with leadership3. External factors, such as competition, are not

threats

Change Barriers: • Fisher, CEO, focused on Kodak’s current successful

sales and not a vision for future sustainability of Kodak

• Employees not supportive of ideas that did not include roll-film products

• Designers did not push for their ideas to be used for new products

• Employees were not able to share their insights on future trends in the market

Change Enablers: • Stimulated an innovative environment • Encouraged collaboration between the different levels in

Fujifilm• Facilitated business expansion at a rapid, sustainable

pace• Created partnerships and alliances with complementary

companies that advanced diversification of the core business

FujifilmUnwritten Rules:

1. Open and fair workplace

2. Opinions welcomed without judgement or criticism

3. Everyone have defined roles and projects they’re responsible for completing

ENABLERS for Change

SpeedLow High

Variety Low

High

Operational Steady-State

Structural Strategic

APPROACH For Change: Flexibility Model

LEADING for change

• Visionary and anticipatory of change

• Clarity and Strategic plan

• Focus on the plan

• Clear communication channels

• Establish sense of urgency and a time plan

• Execution plan in place

• Commitment to the plan

• Refusal to accept external market changes

• Complacency

• Poor marketing strategy

• No execution plan

• No top management support of

innovations

• Lack of commitment

• Poor communication skills

INDIVIDUAL competencies

Kodak Possessed:

• Branding• Innovation• Distribution channels

Required:

• Better marketing• Research and

development• Communication

channels• Pricing advantage

Fuji Possessed:

• Price Advantage• Communication

channels• Research &

development

Required:

• Distribution channels• Innovation• Branding• Marketing• New product

Competencies that will allow firms to remain competitive in the changing marketplace.

CEO

Management

Team Leaders

Teams

Kodak

Kodak communication is bound by a vertical hierarchical structure

Quick win for Kodak

Project Orion/ADVANTiX 1997

An advanced film system that won International Project of the Year from the Project Management Institute. However, stock prices fell 67% despite Kodak’s effort to innovate.

Maintaining ZEAL

CEO

Management

Team LeadersTeam Members

Individuals

Fujifilm

Fujifilm communication plan internally and externally included all stakeholders

Quick wins for Fujifilm

Restructure Project

Implemented a 2 year plan to change the core business and expand

Maintaining ZEAL

Cust

ome

rFi

nanc

ial

Inte

rnal

Themes Initiatives Measurement

Create a customer value proposition

Create shareholder value

Improve core processes

Develop enabling capabilities

• Continue to offer basic products• High investment in product marketing• Use of kiosks and mini-labs

• Customer satisfaction• Customer retention

• Building on revenues•Improve productivity• Reducing costs to improve margins

• Build on revenues from existing products• Measure points of difference

• Identifying source of financial values• Identifying source of customer-facing values• Take advantage of hierarchical structure

• Attainment of patents

• Improve use of human capital• Keep the element of corporate culture

Lear

ning

Ensure accountability: Kodak Balanced Scorecard

•Competencies developed

Cust

omer

Fina

ncia

lIn

tern

alThemes Initiatives Measurement

Enhance product quality and offerings

Financial stewardship

Operational excellence

Improving company culture

• Refocus core business• Develop customer support

• Customer satisfaction• Customer referrals• Customer retention

• Develop strategy for operational resources• Establish cost recovery goals• Increase alternative revenues from other businesses

• Program cost recovery• Product portfolio revenues• Program and facility revenues

• Build efficiencies through streamlining operations and documented standards• Drive innovation• Measure organizational performance

• Number of innovations innovated• Efficiency savings• Assessed improvements

• Improve internal communication• Develop employee competencies

• Percentage of competencies developed• Ideas for improved/new services• Attained objective rateLe

arni

ng

Ensure accountability: Fuji Balanced Scorecard

The liquidity ratios: Reflects ability to cover short term debt obligations

2008 2009 2010 2011 2012 20130

0.5

1

1.5

2

2.5

Quick Ratio

KodakFujifilm

Ratio

2008 2009 2010 2011 2012 20130

0.5

1

1.5

2

2.5

3

Current Ratio

KodakFujifilm

Ratio

The Result: Comparative Financial Highlights 1/5

Reflects ability to cover short term debt obligations

2008 2008.5 2009 2009.5 2010 2010.5 2011 2011.5 2012 2012.5 -

2,000,000,000.00

4,000,000,000.00

6,000,000,000.00

8,000,000,000.00

10,000,000,000.00

12,000,000,000.00

Net Working Capital

Kodak Fujifilm

Dolla

rs

The Result: Comparative Financial Highlights 2/5

2008 2009 2010 2011 2012 2013 -

500,000,000

1,000,000,000

1,500,000,000

2,000,000,000

2,500,000,000

3,000,000,000

3,500,000,000

4,000,000,000

4,500,000,000

Inventory Value

KodakFujifilm

Dolla

rs

The Result: Comparative Financial Highlights 3/5

Profit Levels from 2008 to 2012

2008 2009 2010 2011 2012 2013 -

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

Gross Profit Margin

KodakFujifilm

Ratio

%

2008 2009 2010 2011 2012 2013-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

Operating Profit Margin

KodakFujifilm

Ratio

%The Result: Comparative Financial Highlights 4/5

2008 2009 2010 2011 2012 2013 (40.00)

(30.00)

(20.00)

(10.00)

-

10.00

20.00

30.00

ROA

KodakFujifilm

Ratio

%

2008 2009 2010 2011 2012 2013-100

0

100

200

300

400

500

600

700

ROE

KodakFujifilm

Rati

o %

The Result: Comparative Financial Highlights 5/5

Conclusion

“Market forecast, strategy and internal politics were the same,

why the divergent outcomes?

The big difference was execution...”

‐ The Economist

Disruptive

Innovation

Conclusion: What happened?

Why did Kodak fail where Fuji succeeded?

• Kodak failed in 1975

• Fuji began to take the lead in the 1984 Los Angeles Olympics.

• Firms must be willing to change not only their portfolio but their core business model

• Taking risks is not always negative: do not be afraid to cannibalize your core business for change growth

Keys to success:- Adapt- Focus- Communicate vision- Commitment- Execution

Guidance for the Future

• Recreate company culture

• Communication: Use a feedback loop structure

• Measure complacency

• Develop strategic partnerships

• Conduct market research to identify changing consumer needs and target markets

1. Begin product development process on two registered patents developed (Quick win)

2. Conduct a meeting with internal stakeholders in order to gather insight (Quick win)

Kodak Recommendations

• Focus on honing globalization strategies

• Focus on developing relationships with distributors, and increase distribution networks

• Continue to identify opportunities for further portfolio diversification

• Continue to maximize value chain by developing Fuji in-house expertise

• Continue to engage in strategic M&A to solidify their position as an industry leader

• Focus on strategic alliances and mergers when pursuing their aggressive M&A strategy

Fujifilm Recommendations

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