Eastman Kodak Company’s Strategic Management Problem

Abstract

Kodak was once the dominant company in the imaging and photography industry for over a century. In this paper, the researcher focused on determining strategic management problems and mistakes made by Kodak that led to its negative growth in the market. The analysis shows that the company developed the digital camera at a time when the photographic film was its primary source of revenue.

Because of the fear that this new product will cannibalize the firm’s most popular product, the management made the decision not to introduce digital cameras in the market. It was a costly mistake because it offered its rivals an opportunity to introduce this new product. Its fears were realized but in the worst way possible because of the wrong decisions of the management. The firm has an opportunity to regain its lost position in the market. It will need to revolutionize its operations in the market.

Introduction

The Eastman Kodak Company is an American company that operates in the imaging industry. Founded in 1888, the company enjoyed massive market growth before, during, and after the First and Second World Wars (Davis, 2016). It continued its impressive growth during the Cold War and was the dominant global player in the photography industry. Koirala (2018) explains that by the mid-1980s, the firm was controlling over 85% of the market share in the world. It was the most popular brand among filmmakers, tourists, and individuals who owned cameras for various reasons.

The impressive performance that the company had registered for over 100 years of operation changed in the late 1990s when sales of its photographic films started to decline rapidly. The management was slow in making strategic decisions that would have seen its sales increasing. It did not take long for its major rival, Fujifilm, to become the dominant player in the industry. The negative trend continued and by 2012, the company filed for bankruptcy protection in line with Chapter 11 of the United States Constitution. The company was rescued from bankruptcy in 2013 after selling most of its assets around the world (Koirala, 2018). This paper focuses on strategic management problems at the Eastman Kodak Company.

Discussion

Photography and Imaging Industry

The imaging industry has gone through a major transition over the years because of changing technological trends. The need for people to capture important moments in their lives, such as weddings, birthday celebrations, ceremonies in a company or religious institutions, or when one is traveling led to a massive growth of the industry after the Second World War.

As many economies around the world registered impressive growth, the number of people who could afford to own cameras continued. Eastman Kodak was the undisputed market leader in the industry globally (Pitt, 2018). Europe and North America were the most attractive markets for the firm. However, Asia-Pacific was also emerging as another major market.

Eastman Kodak operated in this industry almost unchallenged, until the 1980s when Fujifilm started expanding its market coverage beyond Japan and a few other Asian markets. As the industry evolved from the use of traditional films in imaging to the digital imaging system, many other small players made an entry into the market and grew very fast. Some of the players that made an entry into the industry include Canon, Sony Corporation, Samsung Electronics, Nikon Corporation, Ricoh Imaging Company, and Panasonic Corporation (Davis, 2016).

Kodak found itself suddenly operating in a highly competitive industry and the management found it difficult to cope with the emerging trends in the market and demands of its customers. It was soon overtaken by Fujifilm as the dominant player in the industry. Since then, Kodak has been struggling and the industry has become even more competitive than it was about a decade ago. New players keep emerging keen on curving a share of the global market.

Strategic Business Issue that Eastman Kodak Faced

Eastman Kodak revolutionized the photography and imaging industry when it introduced small portable cameras that used films. The top managers of the company were ambitious and keen on providing unique products that could meet customers’ needs both locally and in the global market. The global economic boom after the Second World War provided a perfect opportunity for the firm to experience rapid market growth (Coulter, 2012).

As it became the dominant player in the global market, the primary focus of the firm was to make its products more affordable to its global customers, including those in developing economies in Africa, South America, and parts of Asia. Its traditional films had become a cash cow for the firm as it was responsible for most of the revenues of the company. As the firm continued with its growth, the management was keen on using emerging technologies to improve its product delivery in the market.

The rivalry between Eastman Kodak and Fujifilm started becoming intense in the late 1980s. By the mid-1990s, Fujifilm had acquired about 17% of the market share in the United States and was making impressive progress in European and Asian markets (Welch & Lamphier, 2019).

The visionary leaders of Eastman Kodak had understood the significance of using emerging technologies as a way of enhancing customer experience. The company was the first to develop the first handheld digital camera in 1975 when its rivals were still struggling to understand how to make their products unique and superior to others in the market. Its team of highly skilled and innovative workers was able to understand the emerging needs and developed a unique product to address them. However, strategic management decisions that were made led to a near-collapse of the firm that controlled the photography industry for over a century.

An Overview of Relevant Strategic Decisions That Led to the Current Position

In 1975, Eastman Kodak developed another revolutionary product, a handheld digital camera. It eliminated the need to use traditional films in photography. It was developed in line with the emerging needs of one of its most important market segments, tourists. Most of these tourists were keen on having a digital camera that would eliminate the need to carry photographic films (Davis, 2016).

However, this invention posed a major challenge for the company. At that time, most of the company’s revenues came from the sale of photographic films, not cameras. As such, introducing the handheld digital camera was going to directly affect sales of its most important product in the market. The management had to make a critical strategic decision at a time when it still enjoyed market dominance but the competition was growing.

The management of Kodak took over 15 years to decide on the right approach that it should take in addressing the dilemma. On the one hand, it had developed a unique product that would meet the expectations of its customers in the best way possible. On the other hand, it was concerned that the new product would affect its revenues in the market.

The concern was legitimate, but as Koirala (2018) observes, it is almost impossible to ignore changes in technology. In the end, the management made a major strategic mistake that would cost it its market leadership in the industry in less than a decade. The firm decided that it will continue protecting its photographic film market. Instead of introducing the digital camera as part of its product portfolio, it partnered with Apple Inc in a deal where the camera was produced by Kodak by the Apple brand.

It did not take long before its arch-rival in the market, Fujifilm, embraced the same technology.

The worst mistake that the management of Eastman Kodak made was its insistence to maintain photographic films as its main product. The market had embraced the digital camera as the most effective tool for taking photographs and cameras. The technology was introduced to the world by Kodak, but the management refused to own it (Pitt, 2018). Apple Inc was more focused on promoting its products in the personal computers market than it was in the digital camera market. It meant that Kodak had no direct influence on the promotional strategies of the new product. Anthony (2016, para. 11) observes that the situation gave Fujifilm a perfect opportunity to own the new technology and promote its digital cameras in the global market.

Because of this reluctance to embrace emerging technologies, the management of Kodak lost an opportunity to replace one of its popular products with another which was even more popular. It handed over its creation to other firms, and they used it to cannibalize the revenues of Kodak (Anthony, 2016, para. 7). By the time this company was taking full ownership of its digital cameras, it was facing stiff competition from numerous other market rivals, including Apple Inc that it had trusted with the new technology. Eastman Kodak has never recovered from that mistake and it is currently a small fraction of what it used to be as it struggles to become a profitable firm again.

Analyzing the External Environment Using PESTEL

It is important to analyze the external environment of the industry within which this company operates. PESTEL model provides a perfect platform for understanding the various forces in the market that this company has had to deal with in its operations (Peteraf & Strickland, 2016). The political environment in the United States has been enabling. According to Johnson et al. (2017), most American politicians always avoid any direct or indirect interference of the business community. As long as a company is operating legally in the country, it is less likely that politicians may jeopardize its activities. The political stability in the country also fosters the security that this firm needs to achieve growth.

The economic environment also defines the ability of a company to achieve sustainable growth. The United States is the world’s largest economy, making it the most attractive market globally because of its high purchasing power. As Kodak seeks to restore its position in the industry, it can take advantage of the flourishing economy in the country (Davis, 2016). It is important to note that the current health problem posed by the ravaging COVID-19 problem may affect the country’s economy.

However, it is expected that the global economy will be restored as soon as the health problem is managed. The social environment in the country is sustainable for the growth of the company. Kodak is considered an American firm that deserves to be supported by Americans. Society still values taking photos and videos, and this company can use the opportunity to achieve growth.

The technological environment continues to be as unpredictable as it was three decades ago when this firm still controlled the global market. Some of the most successful global corporations such as Apple Inc, Microsoft, and Google have used emerging technologies to offer their customers unique products in the market. Kodak must use the same approach to restore its position.

Pitt (2018) explains that handheld digital cameras for individuals, including tourists, have been replaced with smartphones. Instead of owning a camera, people currently use their phones. It means that this company must redefine its approach to product delivery to enable it to recapture the market (Peteraf & Strickland, 2016). It may need to introduce a new product that will rival smartphones to become appealing once more to the largest market.

Environmental concerns also define the operations of companies in the modern-day market. Global warming and climate change have become major ecological issues, and many countries around the world are enacting laws to reduce carbon emissions and industrial effluent. Although there is still a lack of universal agreement on how to deal with the issue of global warming as Wetherly and Otter (p. 213) observe, various countries have enacted laws to address this problem. Kodak must align its operations with these ecological requirements. Its operational activities should not pose major threats to the environment.

The legal environment is another major external environmental factor that should guide the company’s operations. The management of Kodak must ensure that the firm abides by laws and regulations set by respective governments in all the countries where it operates.

Analyzing the Internal Environment Using SWOT

The capacity of Kodak to achieve success in the market is also influenced by internal environmental forces. Analyzing the company’s strengths, weaknesses, opportunities, and threats will help in defining its capacity to regain its position as the market leader in the imaging and photography market. One of the firm’s main strengths is its strong brand. Kodak is known globally as the provider of imaging and photography products (Welch & Lamphier, 2019). It can use this name to expand its market share. The company also enjoys many years of experience in the industry. It can use the knowledge of past industry practices and present trends to determine possible future events. The ease with which the company can get support from corporate entities like it did in 2013 is a sign that it has reliable partners that can help it achieve sustainable growth.

The management should be keen on managing its weaknesses in the market. The main weakness that has put it in the current undesirable position is its inability to swiftly embrace emerging technologies in the market, as Ramanujam and Tacke (2016, p. 34) observe. The firm should ensure that it can identify and embrace emerging trends in the market. The limited revenue flow is another issue and the number of products it offers continues to shrink. Limited revenue reduces its capacity to engage in activities such as market research and the development of new products. Dickinson (2017, para. 9) observes that in 1998, Eastman Kodak had 145,300 employees, but this number has since dropped to less than 5,129.

The market presents opportunities that the company should take advantage of to facilitate growth. The growing size of financially stable customers is a major opportunity for growth. Advanced transport and communication systems also make it easy for the firm to explore the global market. Kodak should also take advantage of the opportunity arising from the growing global film industry, which it is yet to do, as Anthony (2016, para. 6) notes. The management needs to be keen on managing market threats. Competition is still the main concern for the company. Emerging alternative products such as the use of smartphones is another major threat. The company must also find ways of managing disruptive technologies. Table 1 below summarizes these forces that the company has to take advantage of or manage.

Implications and Impact of Strategic Decisions on Competitive Performance

The decision that the top management unit of a company makes on how to address the dilemma it faces directly affects its competitive performance. The management of Eastman Kodak faced a dilemma of whether to introduce the new handheld digital camera or not (Ramanujam & Tacke, 2016, p. 25). The new product was revolutionary and would increase the revenues of the firm.

However, there was the risk that it would lead to a drastic fall in the sale of photographic film, which was Kodak’s main source of revenue. The management made the decision not to introduce the product. The move had a devastating implication on the firm because it enabled rival firms to introduce the new product. The decision tilted the scale in the market against Kodak and its competitiveness significantly dropped (Anthony et al., 2017, p. 36). To this day, Kodak is still struggling with its operations in the market.

Conclusion and Recommendations

The ability of a firm to retain its position in the market as the dominant player depends on various factors, top of which is its ability to understand customers’ needs and continuously offer unique products to meet them. Eastman Kodak enjoyed market dominance in the imaging and photography industry for over one century. However, it failed to embrace change at a time when customers’ expectations were changing, allowing its rivals to expand their market share rapidly at their own expense. The decision of the management to avoid embracing the new technology that it created proved to be the firm’s worst mistake. In 2012, it was almost forced out of the market when it filed for bankruptcy. The company can regain its competitiveness if its management can embrace the following recommendations:

• The company should develop an innovation center to help develop new products that meet emerging needs.
• The management should invest in market research to understand the emerging tastes and preferences of customers and how they can be met.
• The firm should work closely with other corporations that offer complementary products to enhance sales.

Reference

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