Case 13 Teaching Note Kodak at a Crossroad: The Transition from Film-Based to Digital Photography* Overview
In 2003, Eastman Kodak Company faced one of the biggest challenges in its long history: What should the company do now that demand for its traditional film products was rapidly declining. Should the company turn its back on traditional photography (about 70% of company revenues) to embrace new digital photography technologies? Was this strategy too risky for the company given that the digital photography arena was highly competitive and that many competitors had a head start on developing a coherent digital strategy? It was relatively clear to top management that demand for traditional photography products in the U.S. market would continue to decline, but should Kodak, a company whose name was synonymous with film and photographic papers, really exit a market so central to its identity? Since January 1, 2000, when Daniel Carp took over as chief executive of Kodak, the company’s revenues and net income had declined, its shares had dropped by 66%, and Standard & Poor’s had cut Kodak’s credit rating by five grades. Kodak had reduced its workforce by 49% since 1989, cutting 7,300 employees in 2002. Plans were announced to eliminate up to 6,000 jobs in 2003 to stem future losses, cutting Kodak’s traditional photography divisions in Rochester, New York to fewer workers than the firm had employed during the Great Depression. The switch by consumers to digital photography was coming much faster than expected and Kodak’s traditional film, papers and photofinishing businesses were declining. By the end of 2003, analysts expected that digital cameras would begin to outsell film cameras for the first time in the United States. The digital photography industry was fast-paced and more crowded, offering razor thin profit margins. Kodak was clearly at a crossroads. Stockholders and stock analysts were expressing concerns about Kodak’s strategy, questioning whether Kodak was moving rapidly enough into the digital photography market. Management was experiencing pressure to articulate Kodak’s digital photography strategy, but much sooner than they had anticipated. As the price for digital cameras and photo printers declined, consumers were embracing the new technologies much quicker than Kodak executives had expected. Although international photography markets held out some promise for growth in traditional photography, Kodak knew it was only a matter of time before the whole world “went digital.” Despite investing over $4 billion into digital research and related technologies since the early 1990s, Kodak was characterized as a firm struggling to find its footing in the world of digital photography. Analysts gave Kodak only two to three years to find its way or find itself fading into history. Would Kodak be able to come up with new products and new insights that make sense out of digital? Could the company make the transition to digital fast enough? And how would it be able to differentiate itself from rivals?
Suggestions for Using the Case
The Kodak case should prove popular with students because of their familiarity with Kodak film and photography supplies and their probable interest in digital cameras. In addition, the case offers a nice tie into the accompanying GLO-BUS simulation supplement if you’ve adopted that option along with the textbook. The case is suitable for the following purposes and learning objectives: Drilling students in performing an industry analysis, including the identification of dominant industry characteristics, conducting a five-forces analysis, assessing the impact of driving forces, and identifying industry key success factors. Giving students an opportunity to understand how dramatic industry changes present potential strategic inflection points that require changes in vision and strategy. Giving students valuable practice in deciding how to best pursue growth opportunities outside the company’s...
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