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Kodak 1993-1997, Essay Example

Pages: 4

Words: 1169

Essay

Kodak went for China due to its belief that unlike U.S. which had matured, China represented tremendous growth opportunities because it was still an emerging economy and a significant proportion of the population were to become first time camera buyers or more frequent customers of camera accessories such as films. The fallacy in this belief was that Kodak’s management assumed each country follows the same path towards technology adoption. The management believed that Chinese as well as customers in other developing countries would also adopt film photography on a wide scale before eventually moving towards digital photography. Thus, there was still tremendous opportunity outside the U.S. to sell high-margin photography films. The management might also have assumed that digital photography might be too technical for consumers with low education and computer literacy, thus, they would gravitate towards film photography. The management also ignored the fact that consumer technology always become more user-friendly over time and digital photography would be no different, given its commercial potential. Another problem with this assumption was that the company underestimated the attraction of digital photography economics to customers in the developing countries.

Kodak management knew that digital imaging is the future even if they were slow to respond to the emerging challenges. The company had already spent $5 billion on digital imaging R&D by the time of Fisher’s arrival. Despite huge investments in digital imaging R&D, the research efforts produced few things of value. The problem was that the research activities were not centralized and instead shared by different divisions who each pursued their own agenda. They didn’t collaborate with each other and research activities became more a formality rather than means to corporate objectives. In addition, the research probably occurred for intellectual pursuits rather than for commercial purposes which may be why few practical solutions emerged. It also seems research occurred without proper planning or defined goals. Moreover, the divisions often engaged in similar projects which mean duplicated research activities resulted in unnecessary waste of research dollars.

Another problem with Kodak’s imaging business during the period 1993-1997 was that the company had no clear strategy as to how it was going to differentiate itself from the competition; was it going to be product quality, price, or customer service? Instead of trying to be best at one thing, the company tried to do everything and spread itself too thin. As a result, it didn’t have a clear point of differentiation from the competition in the minds of the customers when it came to digital photography. The company tried to do everything including hardware, software, and services. It didn’t even learn from the computer and technology sector which it was trying to emulate that the rule of success was to be either focused on software or hardware but not both.

Another problem with the management was that it didn’t take the efforts to understand the company’s new reality. Even though digital imaging had entirely changed the competitive reality, the management still pursued old strategies such as aggressive sales network. Kodak conquered the market in earlier decades because its production processes and technological capabilities in the film imaging were difficult to duplicate but that had changed with digital imaging which was easy to copy. But the management did nothing to cope with this changing reality and didn’t reassess the organization capabilities that might have warranted a different business scope, maybe, exiting the imaging business altogether. Kodak had always been a film photography company but now it was trying to become a technology company without restructuring the organization that still operated in the old-fashioned manner.

Category Assessment Key Factors
Industry Rivalry High Kodak’s only major rival in film imaging was Fujilfilm but in digital imaging, the number of rivals had suddenly increased by a huge proportion including Sony, Fujifilm, Apple, and Logitech
Barriers to Entry Low The barriers to entry in film imaging were high due to expensive production processes and Kodak’s technological superiority but there were low in digital imaging which was an easy-to-copy technology
Supplier Power High There were many buyers, thus, suppliers were not dependent on any single customer for the bulk of their business.
Buyer Power High Customers had increasingly greater choices. There were two cameras under $1,000 in 1995 and the number had jumped to 25, the following year.
Threat of Substitutes High There were many competitors with similar offerings and each competitor had several products with similar functionality.
Power of Complements Low There were numerous options for processing digital images and unlike film processing, digital processing could be done by customers themselves, also.

Fisher did a great job of divesting unrelated businesses such as the health sciences unit so that the company focuses on its core competencies only. He also improved financial position of the company in order to lower debt financing costs and improve liquidity. Fisher also knew that the company has to embrace digital imaging and view it as an opportunity rather than threat. But Fisher erroneously believed that all countries take the same path to technology adoption and emerging countries would embrace film imaging due to lower digital literacy or out of convenience and underestimated the potential attraction of digital imaging to low-income people in emerging economies. Fisher tried to convert Kodak’s culture to same as Motorola but failed to get rid of the bureaucratic culture. Fisher also made the mistake of being overconfident that Kodak could become the same market leader in digital imaging it was in film imaging and not exploring other business lines as a hedge like Fujifilm did.

One lesson from the 1993-1997 period is that Kodak’s operations were highly inefficient and often poorly managed. Its multi-billion research activities were de-centralized and generated poor returns which mean the assets were severely under-utilized. The organizational structure was bureaucratic and there was lack of cooperation and poor communication between the departments. In addition, the power was based on one’s rank in the organizational hierarchy and not on the basis of one’s performance or contribution to the organization. There were no performance-based incentives, thus, it is no surprise that the firm had poor profit margins as compared to its major rival Fujifilm. Inefficient organizational structure and slow-changing organizational also played a part in the organization’s eventual bankruptcy.

Another mistake during the period 1993-1997 was that Kodak didn’t try to identify its core competencies which would be different in the era of digital imaging as compared to film imaging. Instead of trying to do what it might have been best at, it tried to do everything by itself including software and hardware. As a result, it lost brand prestige in the eyes of the customer because it had no clear point of differentiation and to make matters worse, the competition kept becoming more intensive. The organization stretched itself too thin and lost focus and control of its operations. As a result, the company did average in its operations rather than doing really well in one particular area. The company kept losing market share thereafter, and eventually repeated losses forced it to become bankrupt.

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