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Kodak

By acarolscarvalho Mar 20, 2013 1332 Words
3. What is Kodak's current position in digital imaging? Would Kodak's position be different had the company adopted a different digital imaging strategy in the eights and in the nineties? Evaluate Kodak's strategy starting in the mid-eighties.

Until the 80's photography industry was pretty much based on cameras that used films to capture images. Kodak had 90% market share of film's market and 85% of camera's market by that time. But in 1981 Sony's plans to launch Mavica, world's first digital camera, marked the beginning of a technological industry shock. Kodak's executives where frightened that photography industry would die. To react to this change Kodak went trough seven different restructuring between 1983 and 1993. During that period Kodak developed its strategy based on three main pillars: protect its core business (photography supply, specially films) from Fuji's ascension, explore digital imaging to keep up with market changes, and start to diversify its business trough acquisitions.

Kodak's core business was photography paper, film and others suppliers. Its differentiation was high quality, reputation and learning curving, which until the 80's blocked new competitors in the market - replicating Kodak's process and know-how was very expensive and risky. But in mid-eighties, 20 years after its foundation, Fuji, by adopting a strategy of following Kodak rather than attacking it directly, finally was the first to threaten Kodak's supremacy in US. Fuji's strategy was to offer the same high-quality products as Kodak but 20% cheaper then its rival. After 1984 Olympics, sponsored by Fuji, it had already 12% US market share. Consumers were learning that they could get high-quality pictures with cheaper film. By the end of 1993 Fuji had gained a 21% market share. But instead of developing a focused reaction to Fuji threat, Kodak executives didn't believe American could buy another film. They didn't change their strategy neither reacted to competition, loosing market share. Also, Kodak tried to develop new sources of revenue by diversification and exploration of digital imagining. It acquired IBM's copier services business, a clinical diagnosis company, and other bioscience and lab research companies. The goals in acquisitions were two: horizontalization, acquiring companies that could share R&D with Kodak for example, and diversification to spread risk.

But Kodak put most of its energy on digital imaging development. Their strategy was, as in traditional photography market, to lead the way in digital imaging. But to get there Kodak wanted to do it on their own way, with their own people. The problem is that digital world was a totally new thing and Kodak's team knew nothing about it. Knowledge had to be brought from outside. They tried to do so by building a research lab in Japan in the 80's but were not successful. Another big problem was culture: Kodak's executives were not really convinced that digital imaging could be as profitable as traditional film. They said they wanted change but at the same time didn't believe in it. Last, rather then understanding consumer's aim regarding digital pictures, Kodak executives focused on what they wanted to do, based on the idea of building industry path as they did in traditional market. This mindset led to the unsuccessful launch of Photo CD. At that time, early nineties, Kodak was the first to develop an image sensor, a basic feature to all digital cameras, and had already its first digital camera. But, instead of exploring them, Kodak focused on Photo CD, a product that was developed based on Kodak belief that the future was hybrid film/ electronic imagining technology, a path that would protect its core business. Also, product was too expensive to consumers and would be better off in commercial market. In summary, as an analyst said: "Kodak's strategy for digital imaging was out of focus, product development was uncoordinated and marketing was ineffectual." Company was not doing well in digital imagining.

In 1993 new CEO named Fisher joined the company and changed Kodak's strategy. His goal was to focus on Kodak's core business, taking advantage of company's differentiation on photography market. He sold all companies that were not related to its core business, such as health companies, and ended up with verticalization by spinning off Eastman Chemical, responsible to supply raw material to Kodak. This lead to an instantly improve in Kodak's financial and stock market performances. Another action was to globalize Kodak. Kodak was fearing a lot of competition in US market and emerging markets was a good way to grow. Kodak entered China and by the beginning of 2002 had 63% of Chinese market.

At the digital imaging side Fisher separated digital imaging business from silver-halide photography division in order to bring coordination and focus to each businesses, separately though. The new CEO had a tech background (came from Motorola) and really believed in the future of digital division, devoting a lot of effort to it, even if it still represented at the time a little portion of Kodak's revenue. He stressed that Kodak would focus on profitable participation in all imaging chain, from image capture to delivery of images anywhere. Kodak had ten teams focused on rethinking everything related to digital imaging, including digital cameras, scanners, thermal printers, and other products. But company's culture once again impeded Kodak to move ahead on digital imaging: people just didn't understand digital world and was resistant to learn about it.

By 1997 60% of Kodak's losses were related to digital imaging hardware. Kodak once again changed its strategy and decided not to put as much effort in digital hardware but rather focus on digital imaging delivery services and materials for output, such as inkjet papers. Kodak adopted the horizontalization approach by outsourcing most of its photography equipment and alliances. In the film side Fuji was getting more of Kodak's market share by literally buying presence with low prices. Kodak finally reacted and cut US$1.2 billion in 1999, firing one-fifth of its payroll, in order to react to price war.

In beginning of 2000 Kodak had 25% of digital cameras market share but was still loosing US$60 on every camera sold. At 2002 Kodak once again redefined its strategy based on fours strategic paths: 1) grow its share in worldwide film market 2) drive image output in all forms 3) simplify digital experience to consumers, by offering software and investing on picture maker kiosks 4) grow in emerging markets. By the end of 2003 (last year reported at the case and treated as current position), Kodak had not yet boosted its digital cameras business, having 15% of US digital camera market and 34% of worldwide film market.

Kodak committed mistakes during eighties and nineties that cost its market position and possibly the company's future. First, Kodak took too long to set its strategy in digital imaging market, as a result of a cultural issue: Kodak's organization just have experienced the high success of Kodak's core film business and didn't want to recognize the change that photography market was going through. Also, because Kodak led by far the first innovative wave in photography industry in century 20, Kodak's executives believed that they were going to do the same now. So, rather then turning their energy to understand customer's needs, they focused on finding out by themselves what consumer's wanted. So both resistance to face industry change and fail to look outside lead to a series of not assertive strategies and products, such as Photo CD, and delay to establish a position on digital imaging industry. Also, Kodak should have put more energy on core business. Kodak's executives should have reacted to competitors rather then "believing" their product was better and observing market share going down. Once again, organization was not fast and flexible to face changes on their status quo. A cultural change leveraged by a good understanding of digital imaging consumer and a good organization structure would have helped Kodak to have a better time to market and be more assertive in its strategy.

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