Will Eastman Kodak under the leadership of CEO Perez
Succeed to manage its new environment?
The digital revolution has transformed much business and provides customers with new experience. However, for some traditional companies, the coming age of digital technology also provides threats since the streaming of “0” and “1” digit threatens their existence. The situation exactly occurs in the case of photography where Eastman Kodak that is well-known in traditional photography industry is striving for being exist in digital era.
Under such circumstances, Eastman Kodak has been losing its market, as photography underwent revolutionary technological changes. Concerning the issue, this paper will elaborate and examine how Eastman Kodak has been adapting and even diversifying to other markets by using external analysis tool like Porters Five Force Model.
2. Challenges of Kodak Under CEO Perez
The digital market is the new direction of the film market. Both company should not neglected the potential of the niche. Kodak for instance, has realized that camera phone is the best selling mobile communication device in United States.
Therefore, the company has allocated significant amount of investment in developing new digital cameras as well as providing state of the art photofinishing services. Kodak will develop new and lower-cost business model for the silver halide films and paper products. Managers of the company believe that this will enhance the competitive advantage of the company in the new markets (Kodak, 2004).
3. Porters’ Five Force Models
At the heart of this analysis is the industry analyzing model known as Porter’s five forces (Figure 1) model which details the threat of new entrants, power of buyers, power of suppliers, rivalry among existing competitors, and the threat of substitute products for market place organizer or transaction service provider industry satisfy following diagram:
Figure 1 Diagram of Porter’s Five Forces
Source: Porter, 1998
This factor is characterized by examining the concentration ratio of the industry. An industry with a low concentration suggests that there are lots of players in the markets and competition is in its high level. Industry that has highly concentrated suggest a situation where only a few players within the industry that control significant share of the market (Porter’s, 2004).
In photography industry, their main competitor, Fujifilm has seemed to be some steps ahead of Kodak. Along with its program of targeting foreign markets, Fujifilm has established digital photofinishing services for its foreign consumers a lot faster than Kodak has (Daniels, 1998).
In film industry, Kodak has greatest challenges from their rival, Fuji. The competition between the two companies is intense since the Kodak is considered as lack of passion in maintaining its leadership while at the same time Fuji and other competitors continue gaining their market share.
2.2 Threat of Substitutes
Substitution generally means products of another industry of other segment of an industry that could appeal customers as a replacement to our products. However, the definition expands to include similar products of our competitors also (Porter’s, 2004).
The attractive market in photography industry comes from current trend of digital photography that reduces the need for film in large number. Under such circumstances, the decision to develop and produce camera-phones and digital cameras is very useful to achieve the Carp’s $16 billion revenue target (Kelley, 2006).
However, Kodak must be aware of current trends in digital-still camera since the price is declining due to economy of scale and vast availability in the marketplace. This situation suggests that Kodak must focus on developing value added on their products so customers will have better perceived quality on Kodak’s products (Ganesan and Shahida, 2004).
2.3 Buyer Power
Generally, the customers of photography products come from various regions and economic classes. Therefore, there is a threat that the customer has control over corporate operations. This situation suggests that photography companies need to develop new attractive product like camera in wristwatches, GPS equipments etc.
In foreign market, Kodak experiences severe lose especially regarding the product promotion. The sever defeat occurs in Asian markets where Fuji becomes number one producer of quality films. In camera business, Nikon and Canon lead the market far away from Kodak’s product. This situation suggests that Kodak should reposition their products while enhancing the real and perceived benefits those customers would obtain when buying Kodak’s products.
In order to increase revenue contribution from foreign market, Kodak must strengthen their Digital-still cameras all over the world especially in the Americas and Europe where the annual growth was 50-100% in 2003 (Ganesan and Shahida, 2004).
Assumes that in 2006, the sold Digital-still cameras in the Europe is about 40 million units; and Kodak can gain 10% of the market share, it means that Kodak can gain revenue about $999 millions for Kodak EasyShare DX4530models that costs $249.99 per items. This represent about 50-percent increase from current $500 millions of revenue from Digital-still camera (Ganesan and Shahida, 2004).
2.4 Supplier Power
Suppliers are strong if they have considerable number of customers, they are concentrated in nature and there is a significant cost of changing supplier. Suppliers of the photography industry on the other hand, have no such benefit. Suppliers are considerably many and their buyers are in equal numbers also.
Markets where Kodak competes are considerably intense since there are many strong competitors that are ready to eliminate Kodak from competition. Usually, when facing competition, corporations are taking the easy way by performing price wars. However, this strategy is not appropriate in long term since it will destruct Kodak’s brand image.
Fortunately, Kodak managements assert that they do not have intention to involve in a price war. In fact, to respond to market challenge, Kodak decides to develop customer-oriented products so that they are saleable in the marketplace.
2.5 Barriers to Entry
Generally, the requirement of high capital in the industry provides entry barrier and an exit barrier for photography industry. Other barriers in the industry are brand where there was just one strong brand in traditional photography, Fuji. But, as the digital technology emerges, the barriers to entry is getting disappeared since many companies, especially consumer electronic manufacturers like Sony, Canon, Hewlett-Packard (HP), to name a few, also produce camera digital that eliminate the need for film. Other fact that shows the disappearing barriers to entry is the fact that mobile phone manufacturers like Nokia, Sony Ericsson, and others also develop digital camera for their mobile phone models.
3 Analysis of Kodak’ CEO Perez Strategies
The above external analysis highlight that CEO Perez has several issues to resolve in order to bring Kodak as the leader in photography industry. In order to do so, there should be massive program that bring back the performance of Kodak just like they were in traditional photography industry.
According to Newsweek, CREO Perez when step up as CEO conducted several critical strategies including slashed Kodak’s U.S. manufacturing, announced his plan to streamline their organization by laying off 25,000 employees, most importantly looked for new market by doubled down on consumer electronics, digital printing and health-care imaging (Stone, 2006).
Based on his program, I see that under the leadership of CEO Perez, Kodak succeed by transforming Kodak as multi Services Company that has core competences in developing several products and services including graphic communications, photographic, and healthcare markets. The companies sales in 2003 accounts for $13,317 millions and it seem to continue rising in the following years since the company commits to digital-oriented grow their business (Ganesan and Shahida, 2004)
In addition, the company may encourage their business units to spawn products and services those customers’ needs. For example, in retail consumers segment, Kodak can develop more customer-oriented products that enable consumers to take picture by using Kodak digital camera and share the taken picture easily with friends and relatives. Meanwhile, for business users, Kodak must continue developing business solutions such as document imaging and digital printing (Kodak, 2007).
Daniels, Doug. (1998). US-Japan Fairness Issues in the Kodak-Fuji Case. Retrieved August 3, 2008 from http://internationalecon.com/fairtrade/fairpapers/ddaniels.html
Eastman Kodak Company. (2004). Kodak Announces Milestones in Implementing Growth Strategy Company Plans Three-Year program to Enhance Competitive Position. Retrieved August 4, 2008 from http://www.kodak.com/US/en/corp/pressReleases/pr20040122-02.shtml
Ganesan, Senthil and K, Shahida. (2004). Case 2-4: Kodak. ICFAI Business School
Kelley, Michael. (2006). What’s Kodak’s Strategy. Retrieved August 4, 2008 from http://www.msnbc.msn.com/id/10755434/site/newsweek/
Kodak. (2007). About Us. Retrieved August 4, 2008 from www.kodak.com
Porter, Michael. (1998). Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press
Stone, Brad. (2006). What’s Kodak’s Strategy? (interview with Antonio Perez). Newsweek