Case Study on Kodak

 

Porter’s Competitive model – Calvin iv. Kodak’s Strategy – Tiffany v. Internal strengths and Internal weakness – Yvette b. Coordinator for written report i. Jessica c. Coordinator for presentation i. Calvin d. Audio-visual aids for presentation i. Powerpoint KODAK Kodak, founded by George Eastman, was officially established by 1889. The name “Kodak” came from Eastman’s interest in the letter K. He wanted the company name to begin and end with the letter K. 1 Eastman’s vision became reality. “Thanks to Eastman’s inventive genius, anyone could now take pictures with a handheld camera simply by pressing a button.

He made photographers of us all. “2 Today, Kodak is an American icon. However, the company has been struggling due to financial difficulties and new innovations in the photography market. Our research includes the company background, current status, SWOT analysis, Porter’s Model, and competitive strategies. Kodak’s History The story of the Kodak began in 1879. George Eastman, the founder of Kodak, received a patent for his plate-coating machine in London, England and in the United States a year later. 3 His successful venture in manufacturing dry plates caught the eye of Henry A.

Strong. Strong decided to invest during the infancy stage of the company. A partnership between Eastman and Strong was formed in 1881. 4 They named their investment the Eastman Dry Plate Company. In 1883, Eastman introduced film in rolls with a universal roll holder that would fit nearly every plate camera available at the time. 5 In 1888, the world’s first Kodak camera was born. The company name was changed to the Eastman Dry Plate Film Company in 1884, and changed again to the Eastman Company in 1889. The formation of the Eastman Kodak Company of New

York in 1892 led to the firm’s final name change in 1901, the Eastman Kodak Company of New Jersey. 6 George Eastman’s vision was to make photography easy to use and accessible to everyone. The slogan, “You press the button, we do the rest” came to be. 7 Eastman’s very first Kodak camera was handheld and came pre-loaded with 100 exposures of film. It cost $25. 8 Once the exposures were used, the entire camera was sent to Rochester, New York for film developing. Then, prints were made and the camera was loaded with new film. This service cost $10. 9 This was the beginning of Kodak’s growth stage.

Eastman had built his company using four basic business principles: mass production at low cost, international distribution, extensive advertising, and focus on the customer. 10 In addition, Eastman had three policies: foster growth and development through continuing research, treat employees fairly and with respect, and reinvest profits to build and extend the business. 11 By 1884, the company had 14 shareholders. 12 Today, Kodak is in its maturation stage. In 2001, Kodak launched a new line of cameras under the slogan, “Share moments. Share life. ”13 Kodak EasyShare digital cameras were introduced to the world.

Digital cameras are film-less. Instead, they are equipped with a sensor that converts light into electrical charges. The electrical charges, or electrons, are then converted into a digital value by an analog-digital converter. 14 The resolution of a camera refers to the amount of detail that can be captured in a picture. Resolution is measured in pixels. The more pixels a camera has, the less grainy its images will appear. Digital images can be stored in a number of ways including both primary and secondary storage units. Some cameras come equipped with built-in memory. Others use memory cards to store the images.

Images can be viewed from the LCD screen located on the camera, or on your computer via the USB cable. Once on a computer, the images can be stored on the hard drive or secondary storage like a floppy disk or CD. Images can also be sent or posted on the Internet. The very first digital camera was out on the market in 1991. The Dycam digital camera had a 176×240 pixel resolution in a gray scale. 15 Digital cameras have come a long way since then. Today, cameras with very high resolutions of 1600×1200 pixels are available, which is about 2 million total pixels. 16 Some cameras have even more than 10 million total pixels. Current Status of Kodak

Comparing Kodak’s financial highlights for the last two years reveal trends both good and bad. Kodak had an increase in net sales from $12,835 million in 2002 to $13,317 million in 2003. Although they experienced a $482 million increase in net sales, they also had a decrease in net earnings. In 2002, Kodak’s net earnings were $770 million. In 2003, this decreased to a net loss of $265 million. Three main contributors to the major decrease in net earnings were the $557 million in reconstruction charges, $32 million in earnings from discontinued operations related to environmental and tax reserve reversals, and $31 million in R&D.

Kodak had an after-tax impact of $17 million in 2002, but had an impact of $396 million in 2003. There were also more shareholders at the end of 2002 compared to 2003. In 2002, Kodak had 89,988 million shareholders, but only 85,712 million in 2003. This was a decrease of 4,276 million shareholders. Currently, Kodak is selling their stock at a rate of $25. 35 per share. The stock price has raised $0. 40 from the previous close. (See Figure 1, Stock Price) Figure 1 Stock Price Source: Yahoo Finance 17 Apr. 2004 (http://finance. yahoo. com/q/co? s=EK) In terms of competitors, Kodak remains very busy.

Many other companies have entered the market and compete for space to sell digital cameras and printers that put pixel onto paper. The following chart shows the market share of the leading competitors in still digital cameras and single-use cameras. It also shows where the products are sold in the United States. (See Figure 2, Digital Still Cameras in 2002 and 2003). MARKET SHARE FOR: DIGITAL STILL CAMERAS (2002) DIGITAL STILL CAMERAS (2003) Figure 2, Digital Still Cameras in 2002 and 2003 Source: Julie Xiong 17 Apr. 2004 and Ben Gottesman,. “Reader Survey: Digital Cameras. PC Magazine 2 Sept. 2003 Kodak’s market share has dropped 7% in the digital still camera market. Canon had the biggest jump in market share for digital still cameras leaping from a mere 13% to a whopping 20%. This was a total increase of 7%.

However, Kodak dominated the single-use camera market. In 2001, Kodak had 51% of the market, which attracted many shareholders. Nevertheless, Kodak has been plummeting in terms of net earnings. SINGLE-USE CAMERAS (2001) Figure 3, Single-Use Cameras in 2001 Source: Julie Xiong 17 Apr. 2004 and Claudia H. Deutsch “Kodak’s Competitors. New York Times 23 Apr. 2001 Page. C-12 Currently, Kodak can be found all over the world. They have international service locations in the Americas, Asia, Europe, the Middle East and Africa. In addition, Kodak is located in all of the major cities within these regions. In the United States, Kodak has most of their service operations located in New York, Florida, and Texas. Kodak provides services for these cities as well as many other areas upon request. Four headquarters operations are located in Windsor, Colorado, Atlanta, Georgia, Oakdale, Michigan and Toronto, Ontario.

Kodak offers many company positions. They promote diversity in their staff and a challenging occupation. Employment positions vary depending on functional area. Within each category there are numerous subcategories. Kodak also offers internship, on-call conditional, and regular employee positions. Kodak even offers positions in the fields of aviation, engineering, and public relations. Kodak has 26 suppliers from all over the world. These suppliers provide Kodak with “keykode equipment and software. ” Kodak’s main suppliers are located here in the United States. Abel Cine Tech Inc. s located in Burbank, California and Bremson Data Systems, Inc. is in Lenexa, Kansas. Kodak purchases many other materials such as imaging material manufacturing, equipment manufacturing, and non-manufacturing goods and services. Imaging material manufacturing includes items like chemicals, packaging supply, and fuel and energy. Equipment manufacturing includes circuit boards, plastics, and electric components. Lastly, non-manufacturing goods and services include advertising, IT-services, and travel or fleet. Kodak’s IT department is booming with technological advancements.

They are striving to make operations easier and more useful. Like their slogan “You press the button, we do the rest,” Kodak is trying to make access to their database just as easy. There is a demo on the company website which explains to customers how easy their “reference archive system works with your enterprise database, core IT technology, and your network to deliver archived documents quickly to anyone who needs them. “17 If a user needs to retrieve a document, the Kodak i7300 Scanner, 2400 DSV, or 3000 DSV digital scanner/printer sends it to him or her immediately.

The document is “visually accurate. ” Even if IT is offline, it is able to search the enterprise, request pass over the network, and retrieve the document. In addition, Kodak is enlarging its IT field and reducing cost by buying directly from IBM. The company is “standardizing all of Kodak’s hardware and installing a set of preinstalled software on all PCs. “18 Now, Kodak doesn’t need to go on-site to fix a customer’s problem. Their help desk is exceeding in customer service and saving money at the same time. Today, Kodak saves nearly $200 per customer. Strengths

Kodak has many strengths. The first tangible strength is their website. The Kodak website is customer friendly. One valuable aspect the website offers is the number of ways available to find information about Kodak products. The information is very detailed and includes features showing what the product has to offer. This allows consumers to compare and analyze features with other products. Consumers no longer need to buy the product to see if it fits their needs. Thus, the Kodak website is very cost effective for customers. Another internal strength is the variety of products offered.

For example, dentists and doctors can purchase imaging equipment. Also, professional photographers and hobbyists can choose from numerous types of cameras to find one suitable for their needs. This wide product offering allows Kodak to occupy multiple markets at one time. The ability to enter new markets shows Kodak is pushing the envelope. 19 They are willing to new things and are innovative. Like other major image-product companies, Kodak has been keeping up with the latest in digital technology. They have been busy perfecting their digital product offering to maintain their competitiveness in the market.

Keeping their products technically in tune and up to date will prove to be a major advantage for Kodak. Not all of Kodak’s strengths are tangible. The Kodak name alone is a tremendous asset to this company. Everyone knows the Kodak name and their company slogan, “You press the button, we do the rest”. The brand recognition for Kodak has reached global proportions. Kodak has manufacturing plants in the Americas, Europe, and the Pacific Rim. Being a global manufacturing company allows Kodak to keep its brand recognition worldwide. Lastly, Kodak strives to maintain is its image. The company is environmentally and socially conscious.

Kodak also contributes to the reduction of greenhouse gases and emissions. Over the years, their efforts have been recognized and awarded by many environmental organizations and agencies. In March of 2004, they were recently named “Energy Star Partner of the Year” by the Environmental Protection Agency. 20 In addition, Kodak contributes to numerous communities and social organizations. Consumers can feel good about purchasing Kodak products because they know Kodak gives back to the community. Weaknesses However, where there are strengths, there are weaknesses. For example, there is no virtual store.

Users are unable to purchase directly from the website. Kodak should consider incorporating e-commerce into their businesses plan. Since Kodak offers plenty of information regarding their products on their website, it would make sense for visitors to be able to make purchases. Consumers would appreciate the convenience of a one-stop shop. Also, the website is a bit cluttered. This may be overwhelming and confusing for users. However, this isn’t a major concern and can be easily redesigned. Another weakness is Kodak’s customer service. There are many reviews stating their customer service was unsatisfactory.

For example, if a customer experienced a problem with their purchased product, they found customer service was not helpful. Most complaints were regarding timeliness and warranties. Kodak should consider providing better customer service to maintain customer loyalty. Finally, Kodak may need to focus its efforts on to fewer areas. They have expanded from consumer photography to professional photography, lab equipment, cinematography, medical and dental imagining, and business and government products. Despite entering these markets, Kodak has not seen an increase in profits. Recently, Kodak’s market share has fallen to Canon, Sony, and Fujitsu. 1 Are they creating value through acquisitions or merely pursuing growth without profitability? Kodak’s External Opportunities and Threats Kodak is taking advantage of existing opportunities by spreading its brand name in to other markets such as camera phones, cinema, digital technologies, health care, and infoimaging. Kodak is entering the camera phone industry through partnerships with Cingular Wireless and Nokia. Kodak will soon equip 24,000 Kodak Picture Maker kiosks in the United States with Bluethooth and infrared technology. This will enable camera phone users to send pictures from their phones to the kiosks for printing.

The kiosk service will be available to camera phone users for a monthly fee of $2. 99. Cingular and Nokia subscribers can use the kiosk service for free for 90 days. After the trial period, they will be charged on their monthly wireless bill. 22 The health care industry takes numerous x-ray photographs and digital images of their patients on a regular basis. Thus, Kodak wants to expand its current position in this industry by providing its products to the large hospitals, small clinics, and other professions that require special films, imaging systems, or imaging programs.

Also, Kodak will provide customers with the networking and integration capability to make the products work together. 23 The cinema industry in India is poor compared to international standards. “We see India as an opportunity for Kodak to invest in multiplexes and raise the quality bar of cinema in the country by creating state-of-the-art cinemas and taking further the long-term partnership between Kodak and the movie industry. ” By investing in India’s cinema, Kodak’s may be able to penetrate the entertainment industry. 24 To conquer the digital world, Kodak is reducing its $1. 80 annual dividend to $0. 50 per share.

This strategy will boost digital investments up to $3 billion over a three-year period. Kodak acknowledges the movement from chemical based film to digital technology. Thus, the company expects to loose a fair share of the chemical based film market and expects to gain from the digital industry. 25 Another opportunity for Kodak is multicultural marketing. According to the Census Bureau, ethnic populations in the United States will increase greatly over the next 50 years. The Asian American population will more than triple, the Hispanic American population will almost triple, and the African American population will increase by 62 %. Multicultural marketing is a huge opportunity for Kodak…the values associated with the Kodak brand – family, quality, trust – are exactly those cherished by ethnic communities. ” If proper research and development is done, Kodak will stabilize a role as a leader in the film industry. 26 A major threat to Kodak was the replacement of traditional chemical-based film by digital technology. At its peek, the chemical-based film brought in 70% of the company’s revenue. However, Kodak predicted chemical-based film would bring in no more than 30% of total revenue by 2006. Therefore, there will be a decrease of 40%.

To fight this decrease in revenue, Kodak will be forced to down size. Numerous employees will loose their jobs to outsourcing. “Workers in the film finishing operation at Kodak Park were told the majority of their division would be dismantled and moved to Mexico. ”27 The growing digital industry brought in new competitors to the photography market. SanDisk, a 15-year-old digital memory company, took off at an alarming rate. They posted net income of $41 million in the second quarter, which was a 357% increase from the previous year. Other companies also increased their sales. OmniVision and Zoran, both sensor producers, are up 220% and 70%.

Concord Camera increased 40% in total revenue from digital cameras selling lenses. 28 Current threats can jeopardize the Kodak’s future, unless the company seizes every opportunity available. Porter’s Model Kodak can be placed in both fragmented and consolidated industries because of the wide variety of products and services it offers. A handful of industry giants dictate prices of digital cameras and accessories, which makes digital camera manufacturing a consolidated industry. 29 On the other hand, there are more than 400 establishments manufacturing traditional photography equipment and suppliers, which make it a fragmented industry. 0 For decades Kodak has been the market leader in traditional film photography. Since the advent of digital cameras and photo-processing equipment, traditional film photography has seen a global decline with demand falling sharply in recent years. This forced companies in the imaging industry to switch their focus from traditional film to digital photography. Moreover, it expanded the boundaries of the photo imaging industry and allowed companies from the consumer electronics sector, such as Sony and Hewlett-Packard, to join the race.

This gave rise to essentially two strategic groups within the industry: companies that primarily focus on manufacturing digital imaging equipment, such as cameras and storage media, and those that focus on manufacturing digital imaging equipment, as well as photo processing services and equipment. Kodak currently focuses on manufacturing digital imaging equipment, and photo processing services and equipment. Since the shift in paradigm from traditional to digital imaging, they have spent billions of dollars funding research and development toward digital photo capturing along with processing equipment and services.

Until recently, Agfa, Konica, and Fujitsu were their main competitors. However Agfa and Konica, informally signaled they are pulling out of consumer businesses. Thus, Fujitsu is left as Kodak’s front line competitor in all three segments. 31 While they continue to compete neck-and-neck in the global market, Kodak has a clear lead in the U. S. market. Kodak has an advantage in photo processing over Fujitsu due to “complementors” such as Ofoto and Shutterfly endorsing the online photo-processing segment. Also, Kodak has already laid out strategic plans to ride the digitization wave.

The imaging industry is very dynamic. Kiosks, scanning systems, digital media for image storage, and transmitting networks, are replacing film and traditional photography equipment. Kodak is shifting its outlook towards advanced amateur photographers and the entertainment industry through acquisitions and research and development. This movement is necessary in order to beat out competitors like Ansco, Agfa, Canon, Seneca, and Conley. However, this has not taken Kodak’s focus completely away from traditional photography equipment. Single-use camera sales, for example, have doubled in number since 1998.

Convenience and lower prices still have consumers opting for single use cameras over traditional ones. Both Kodak and number one competitor Fuji Film look to markets such as China to support the single-use camera sector of business. Adding to industry novelty is the launch of Kodak’s self-service kiosk, which is able to convert a roll of 35 mm film into prints within seven minutes. The Picture Maker Station is a response to the decline in traditional film sales. The 150+ new patents on this device will make it difficult for competition to contend with Kodak, at least temporarily.

However, there are many barriers for entry into the photo-imaging industry for new companies. As reflected by the market share in photography equipment sales, consumers trust brand names like Sony, Kodak, Olympus, Fuji, and Hewlett-Packard. These established companies have absolute advantages through knowledge gained via research and development and years of experience. 32 These companies also have an advantage of economies of scale. There are approximately 2500 companies that supply products and services to Kodak. 3 It is evident established companies have access to a large volume of suppliers, which allows them to fish for better prices. Traditional cameras do not have a high customer switching cost, but digital cameras do. Once a consumer purchases memory cards and other accessories for a certain digital camera and installs their photo downloading software, they may find it costly and time consuming to switch to a new camera. There is a high level of industry demand for digital imaging equipment and services. InfoTrends Research Group predicts that global sales of low-end digital cameras (priced less than $1,000) will reach $11. billion in 2007. 34 Growing demand tends to reduce rivalry because companies can sell more without taking market share away from competitors. 35 Therefore, most established companies are continually improving their products to win over the market and become the industry leader. In contrast, traditional photography equipment is losing demand. This gives rise to fierce competition among companies. In terms of buyer’s bargaining power, consumers generally have more room to bargain for lower prices. On the other hand, digital photography is still a rapidly evolving technology and customers tend to trust the well-known brand names.

Fewer choices of high quality products make consumers more vulnerable to paying high prices. As mentioned before, Kodak does business with over 2,500 suppliers. This places suppliers on the losing end of bargaining for higher prices for components they supply to Kodak. There are relatively few substitute products in Kodak’s industry. Although they are a minimal threat, traditional cameras and single-use cameras can be considered substitute products for digital cameras. Kodak and the photography industry face many changes in the macro environment that both benefit and hinder business in the short and long run.

There are various economic forces, technological forces, and demographic forces that continue to alter the photography industry and Kodak. Kodak’s Strategy Kodak has used many different competitive strategies throughout its existence. It has used a combination of three competitive strategies to maintain its competitive position. These strategies include: cost leadership, growth, and differentiation. When Kodak was first established, it used a cost leadership strategy. “In the very early years of the company, Eastman was devoted to the idea of supplying the tools of photography at the lowest possible price to the greatest number of people. 36 Kodak found ways to produce its products and services at a low cost giving the company a cost advantage over its competitors. This cost leadership strategy helped Kodak reach a large number of people making it a successful business endeavor. Today, Kodak continues to use the cost leadership strategy. For the past few years, the company has been working towards providing its products and services at a lower cost while being competitive in its traditional film and digital markets. Although the cost leadership strategy has been a success, Kodak has found other ways to stay competitive within its industry.

Another competitive strategy Kodak has tried is differentiation strategy. Kodak found ways to differentiate itself from its competitors through new technologies like infoimaging. Infoimaging has given Kodak an advantage in image science and information technology. Infoimaging is composed of three divisions: devices, infrastructure, and services and media. Each of these divisions has provided Kodak with a tool specifically used for developing new and unique products, services, and systems. Information technology has been a large part of the differentiation strategy. Information technology makes up infoimaging. Infoimaging uses images and technology to improve communication and commerce, creating significant new revenue and market opportunities for businesses around the world. “37 Through infoimaging’s $385 billion industry and information technology, Kodak has been able to grow and stay competitive. Kodak has also used the differentiation strategy to expand its products and services into several industries. These industries are composed of photography, health, entertainment, printing and publishing, document imaging, space exploration, and the consumer and professional industry.

Expansion into these multiple industries has made Kodak a diverse primary manufacturer and provider of products and services. It has also made Kodak more competitive because it has opened up a range of markets for them to dominate. Continuous investment in Kodak’s research and development department is another part of the company’s differentiation strategy. Research and development allows Kodak to be original, creative, and innovative with the products and services they introduce to the market. The research and development team is responsible for product development, technology research, and imaging research.

The company website mentions their commitment and dedication to the expert research and development team that helps the “company constantly seek and find new ideas and better solutions. ”38 Though research and development, technology, and information systems, Kodak can continue to meet the customer and market demand. Their main competitive strategy is the growth strategy. In 2003, Kodak introduced a new strategy of growth aimed at switching from a traditional film business to a digital imaging and technology one.

Kodak’s growth strategy, also known as its digital strategy, will help make them more competitive in other markets like health care, consumer photography, and commercial-printing. The new strategy was incorporated to increase profits in digital imaging and expand growth into new markets. In order to expand, Kodak acquired well-known, leading companies to reach a larger segment of the market. The new digital strategy enabled them to compete in innovative ways. This strategy is comprised of two objectives: earnings growth and acquisition and planned investment.

The earnings growth portion allowed Kodak to cut costs and dividends, increase productivity, price aggressively, and generate cash. Kodak’s earnings growth objective hasn’t been as successful as its acquisition objective. Acquisition allowed the company to expand its growth and enter into new markets. “Kodak outlined a $2-3 billion acquisition strategy to grow its existing businesses. “39 They have acquired companies that have been leaders within their industries. Kodak acquired ENCAD Inc. , one of the leading producers of printing technology and inkjet printers. This acquisition made Kodak one of the top three sellers of wide-format inkjet products. “40 Kodak also acquired Scitex Digital Printing, NexPress, Heidelberg Digital, PracticeWorks, Algotec Systems and a few other leading companies as part of its digital growth strategy. Each of these companies was a leader in printing systems, technology, communication systems, digital printing, or digital technology. Kodak’s investment in these companies has made it very competitive within several industries. Information technology and information systems have been significant in helping Kodak to maintain and improve its competitive strategy.

Information technology has played a major role in Kodak’s differentiation strategy through its contributions to infoimaging and research and development. Kodak’s information systems have made contributions to the healthcare division through healthcare information systems and radiology information systems. These systems, in conjunction with research and development, are used to help develop new products and technology. Information systems have also provided Kodak with assistance in determining market and consumer demand, acquisitions, and investment. They also help Kodak to maintain its cost leadership and growth strategies.

Kodak dominated half of the single-use camera market. However, when many consumers shifted to digital cameras in 2003, Kodak had to change their strategy. This change resulted in grasping about 14. 4% of the digital camera market. Kodak has changed strategies from being a price leader to a growth strategy. This resulted in abandoning the 35mm camera market and entering into a new market. Kodak introduced a single-use digital camera. Their main strength is being an American icon. Likewise, their main weakness is entering new markets with no sign of being profitable because of initial costs.

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