Magoosh GRE

Strategic Issues and Challenges of Eastman Kodak

| March 28, 2015

Introduction

In an era when there are only a few companies selling the same or similar products in a given market, with the demands of prospective customers not being sophisticated, strategy may not be regarded as a critical or important element for business success. That was true for most of the first half of the 20th century. Orcullo (2007) states that the notion of strategic management did not became popular in business until 1970s. Before that, many of the businesses operated as independent entities, with each having its own products and markets without much competition or constraints. In those days, all an organization needed was a corporate and business plan and feasibility to initiate and operate a business. Such was the case of Eastman Kodak, a photograph company established in 1889 by George Eastman. However, the ever growing population primes up the demand for a variety of products and services and thus more and more businesses start to take advantage of market demand. Other businesses have to create a demand for their products and services as well which heightens the level of competition in markets aggravating the concerns of all the businesses for outcompeting each other. This renders strategy as the most critical factor for organizations. This essay focuses on the strategic challenges faced by Eastman Kodak throughout the past three decades and critiques upon its viability. It will be preceded by a brief description of ‘strategy’ and Kodak’s company profile.

Definition of Strategy

Despite being one of the most explored phenomenons in business management, it is quite ironic that there is not much agreement for the definition of strategy. The Economist (1993: 106 in Whittinton 2001) observes that: “the consultants and theorists jostling to advice businesses cannot even agree on most basic of all questions: what precisely is corporate strategy.” Various researchers have proposed their own understanding of strategy. According to Johnson, et al. (2008) “strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations.” Michael Porter (2001) mentions that “strategy is likely to concern itself with the survival of the business as the minimum objective and the creation of value-added as a maximum objective.” For hundreds of years, military strategies have existed and similar concepts are now being applied in business management.
Company Profile
Throughout the first three quarters of the 20th century, Kodak remained the market leader in photograph imaging business. The company pioneered the chemical-based film technology and was the first to develop a digital camera in 1975. Kodak simplified the art of photography, enabling the masses to capture images with just a click of a button. The company was guided by its vision “You push the button- we do the rest!” It brought photography to masses. The company enjoyed a phenomenal success. However, after its 131st year in business, much to the disbelief of anyone who owns a camera function, the company that invented the world’s first digital camera had filed for bankruptcy. In 1997, Kodak’s shares stood at $93 whereas just a week after the company filed bankruptcy, its shares stood at just 36 cents (NewsStraightTimes, 2012). The company’s failure cannot be simply attributed to the rapidly changing technologies in digital media. Indeed, as mentioned earlier, the company was the first one to produce a digital camera and many of the technologies used in Apple, HTC and BlackBerry products are allegedly patented by Kodak. Thus its failure is largely due to its strategic management. The following part of the essay applies several management theories and tools to assess the strategic development of Kodak. It and analyses the challenges faced by the company and appropriateness of its responses.
Product life cycle theory
The product life cycle model points out that every product or a service in any industry or sector has its own life cycle. A product’s life cycle can be translated into its market, organization or industry’s life cycle. The central theme of this model is that there is no such product, market or industry that can continue to grow for an infinite period, or that it will never come to maturity, peak and decline (Orcullo, 2007).
The product life cycle model, sometimes referred to as ‘S’ curve indicates that just like human beings, there is a beginning and ending for everything and same is true for products and services. It implies that business managers have to get the best out of the situation when a product’s life cycle is rising. As it reaches its peak, new products should be developed so that when the previous product reaches its maturity, the new product should be ready for launch while the old one moves toward a decline and is eventually retired. Business strategists have to be prepare of the end of every product (Orcullo, 2007). The following figure (fig 1.) details the implication of product life cycle for business strategists.amrSource: Wootton and Horne, 1977 in Orcullo, 2007)
In an era when innovation is being deliberated with much enormity and rapidity, the life cycles of products have been shortened. Moreover, the shortened product life cycles have also reflected upon the life cycles or organizations, their strategies and business models. More and more businesses are being disrupted by extraneous forces such as globalizations, technological shifts and cut throat rivalries. Businesses are forced to innovate frequently to keep the consumers’ mood upbeat and at the same time prepare for radical changes made necessary by major shifts in market trends. Failing to keep up with the pace of the market renders any business as irrelevant and obsolete.

With the beginning of the new 21st century, Kodak was faced with the challenge of reinventing it business model and introducing new products due to the declining life cycle of both its products and its business model. The life cycle of Kodak’s chemical based photographic films, cameras and papers based printing services had gradually proceeded throughout most of the 20th century. At the peak of its life cycle during the 1990s, the company failed to prepare new products that would redefine its business in future. Moreover, the decline of Kodak’s existing products came at a much quicker pace which the company had failed to anticipate. The incursion of digital technologies and the advancement in related information and communication technologies had an overwhelming effect on Kodak. The company was too late and too slow to react to the changing demands of the market.

Ansoff Growth Matrix

The Ansoff growth matrix can be used to decide between four fundamental growth strategies (see exhibit A). An organization usually starts at the box A (at the top left hand) with its existing products in its existing markets. At this point, the organization has a choice of either consolidating upon its existing products and markets or penetrating further within its existing sphere (it would imply staying in ox A). From here, an organization can either move rightwards by developing new products for its existing market (box B) or move downwards towards entering new markets with its existing products (box C). Organization can take a radical step towards diversification, with altogether new products in new markets (Johnson et al, 2008).

b12

(Source: Ansoff, 1988)
Considering the life cycle of Kodak’s core products and its outreach in the global market, the company was faced with the challenge of developing new products and new groups of users within its market. The company could not simply afford to offload its existing products in existing or new markets as the demand for traditional photography was in stark decline. This left the company with the choice of either developing new products for existing markets or diversification. Kodak pursued a mix of both strategies. It tried to develop new products for its existing market. The company realized that digital imaging was gradually replacing the conventional photography and therefore it tried to offer a smooth transition to its customers from traditional to digital imaging. It developed various products that helped digitize photographic images, which could be then edited, stored and shared digitally or printed in various formats. It acquired various companies that had expertise in digital imaging. However, the guiding principle was to prolong the prevalence of traditional photography whereas a gradual shift towards digitization was to be made concurrently. The product development strategy neither had the required pace and nor it was pursued with the scope needed. At the time when the company was still lingering between traditional and digital imaging, numerous other companies had acquired the strategic capabilities in digital imaging in terms of software capabilities, user interfaces and integrated technologies leaving Kodak on the back foot.

In terms of diversification, Kodak ventured into several new products for new customers, namely commercial printing and imaging in health care sector. However, this diversification was pursued not as an organizational strategy but only as a response to Kodak’s declining market share in its core businesses. For instance, Johnson et al (2008) argues that Microsoft’s diversification into gaming consoles through its Xbox, a product whose launch cost the company $500 million for its marketing only, was developed to aleviate the company’s declining revenue due to its sluggish growth in its main software business. Many of Microsoft’s shareholders would have favored this money to be passed over to them while letting Sony and Nintendo attend to the gaming business. In commercial printing, Kodak failed to integrate many of its newly acquired businesses whereas medical imaging was dominated by other big names such as GE and Siemens. Kodak did not allocate all of its corporate resource to pursue its diversification strategy.

Conclusion

There was a time when industries operated using a set of precise technologies at the core of their business. For example, a car manufacturing company was primarily involved in mechanical hardware technologies and a publishing company in printing technologies. However, with the advent of internet and related hardware and other information technologies, that time has gone. The diffusion of these technologies has lead to the transformation of some of the key business processes and has broken off the synergic relationship between businesses and their traditional technologies. Michael Porter (2001 pp.2) contends that information technology is an enabling technology – “a powerful set of tools that can be used, wisely or unwisely, in almost any industry and as part of almost any strategy.”

The synergic relationship between a photographic imaging company and its chemical based technologies was broken by the incursion of digital media where consumers preferred digital images over traditional photographs as they could be easily downloaded and stored onto their computers, edited and enhanced through various tools and transmitted through internet. Although throughout 1990s, this incursion of digital media was selective and gradual, in the midst of 2000s it came as a sudden gush which not only tumbled Kodak’s status as a market leader but indeed put its future into oblivion. The company was too lethargic to recognize and predict the market and consumer patterns and thus too slow to react to its changing environment. The company was following its strict prescribed strategy ignoring all the rapid emergences in the market. It failed to diversify at the right time. Therefore, it did not have the right type of capacities needed to compete within the new digital era. The company’s life cycle was gradually nearing an ultimate cessation which implied that either the company had to reinvent itself in terms of its organizational structure, business model, and products to start a new life cycle or otherwise run out of business.

References
Ansoff, H. I. (1988). New corporate strategy. New York, NY: Wiley.
Johnson G. Scholes K. Whittingham W. 2008. Exploring Corporate Strategy. 8th edition. Prentice Hall
Lynch, R. (1997) Corporate Strategy. Pitman Publishing
Mintzberg, H. (1994) The Rise and Fall of Strategic Planning: Reconceiving Roles for Planning, Plans, Planners. New York: The Free Press.
Mintzberg, H. (1994). The Rise and Fall of Strategic Planning. New York, NY: The Free Press.
Porter, M. (2001) Service Operations Strategy. Harvard Business School
NewStraightsTimes, (2012) Kodak’s Last Days. {online} http://www.nst.com.my/opinion/editorial/kodak-s-last-days-1.42251 (cited on 30th May 2012)
Orcullo, N. (2007) Fundamentals of Strategic Management. Rex Bookstore, Inc.
Whittonton, R. (2001) What is Strategy and Does It Matter? Cengage Learning EMEA
Wootton and Horne, 1977 in Orcullo, (2007) Fundamentals of Strategic Management. Rex Bookstore, Inc.

Appendix
Ansoff growth is a two by two growth vector component matrix. It was first published in Harvard Business Review in 1957 in the article “Strategies for Diversification”. Since then, this matrix has been widely cited by academicians and used by practitioners proving its efficiency in marketing growth strategies. Ansoff growth matrix supposes that it is possible to pursue several growth strategies simultaneously. It entails that the most suitable growth strategy is ordained by the decisions of selling existing or new products in existing or new markets.

The product-market matrix encapsulates four growth strategies. The first one involves penetrating existing product markets. The second option involves expansion through new products in the existing market. It can be done through product improvements or innovation. The next option involves applying same products in new markets which comprise of oversea expansion or new consumer segments in the existing market. The fourth option involves diversification through new products in new markets.

Market Penetration

Through a market penetration strategy, organizations try to take an increased share of their existing markets with their existing products. Market panetration it is the most obvious strategic direction. It consolidates upon an organization’s strategic capabilities without forcing it into uncharted territory. The scope of organization remains the same. However, an organization can gain greater power in terms of Porter’s five forces through its greater market share. This strategy involves defending existing market from rivals’ retaliations.

Product Development

It is when organizations innovate and modify existing products or develop new ones for its existing markets. It extends an organization’s scope to some extent. Although, even market penetration requires product development to some extent, here the focus is more on innovation. It involves developing new strategic capabilities and often requires undertaking large project management risks.
Market Development
If the risks and costs are too high in product development, organizations can alternately choose to develop new markets with their existing products. Again, the scope of extension is limited. It may also require a little modification to the products well. Market development can be done through three ways: new segments, new users, and new geographies. New segments refer to a different group of people within the current target market whereas new users imply a completely new type of customers. New geographies often refer to internationalization.

Diversification

Diversification strategy strictly entails moving away from both existing products and existing markets. Diversification radically increases an organizations scope, According to Johnson; et al (2008) diversification does not necessarily have to be extreme as implied by the closed boxes in the Ansoff matrix. Diversification can be achieved through building upon relationships within existing markets or products.
An important advantage of Ansoff growth matrix is in its simplicity. A major limitation of this model is that it focuses solely on direction on growth using only two factors; products and markets. It does not consider other indexes that determine the efficiency of a company’s functioning such as liquidity, financial stability, profitability, etc. According to Johnson, Scholes and Whittington (2008), growth in itself is rarely a success factor. The argue that public sector companies often grow to an uncontrollable bureaucracies whereas private sector organizations resort to empire building at the expense of shareholders.

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