Kodak Company - Case Study Example

Kodak – Case Study Kodak is the world leader in imaging and is a profiting global company, earning from the sale of products, technology, solutions and services to consumers, businesses and creative professionals. It is registered as Eastman Kodak Company, incorporated at New Jersey, as stated in Form 10-K. Kodak has three reportable business segments, as stated in “Kodak Operating Model and Reporting Structure.” The Company has been strenuous on its digital growth strategy, as based on leveraging from competitive advantage at the crossroads of materials science and digital imaging science. Besides, the Company has been creating differentiated value offerings in new growth markets, waiting to be revolutionized. The Company’s four selected growth products include consumer inkjet in CDG division, and commercial inkjet, workflow software and services, and packaging solutions in GCG division (Kodak Annual Report, 2010). The Company’s business strategy is aligned with performance-Based compensation. The component of compensation of the Company’s Named Executive Officers’ yearly target overall direct compensation is variable and based on performance and equity price rise, which can go to the limit of 69% to 87% (162) (Kodak Annual Report, 2010). Market competition has been one of the big pressures, creating risky situations on Kodak’s income, total profits, and its market share as well. Market is quite powerful and highly competitive. Market for new products lacks the leverage that old players have from the scale of distributors. Besides, Kodak faces price competition on global front, affecting Kodak’s functional and financial position from product pricing and across the industry pricing pressures. Therefore, Kodak is highly under pressure to reduce prices to remain in the market although it is affecting the company’s overall profit levels and income (Kodak Annual Report, 2010). Kodak business model in 2010 was focused on primary growth strategy, which was negatively impacted because of competitive pricing and increasing commodity costs in relatively mature product categories, such as Prepress Solutions, Digital Capture and Devices, and Entertainment Imaging. Goals for 2011 were aimed at realizing revenue increase from its digital growth products – consumer inkjet, commercial inkjet, workflow software and services, and packaging solutions Cash generation before restructuring payments, which is equal to net cash arranged through operating activities Business model Kodak business model in 2010 was focused on primary growth strategy, which was negatively impacted because of competitive pricing and increasing commodity costs in relatively mature product categories, such as Prepress Solutions, Digital Capture and Devices, and Entertainment Imaging. Goals for 2011 were aimed at realizing revenue increase from its digital growth products – consumer inkjet, commercial inkjet, workflow software and services, and packaging solutions Cash generation before restructuring payments, which is equal to net cash arranged through operating activities (Kodak Annual Report, 2010). The Company has been relying highly on making investments in big growth markets that carry the potential of changing the business model with the new technology, particularly in the consumer inkjet, commercial inkjet, packaging solutions, and workflow software and services. Kodak finds huge business potential by introducing innovative products and wider scales to strengthen these business divisions, which will increase the profit margins and help in attaining financial aims (Kodak Annual Report, 2010). New technology trends need to be identified to attain the first mover advantage in the market. For that products and services need to be launched in a timely fashion, particularly in the consumer electronics by addressing new technology needs so that leverage of the new product launch can be attained, otherwise the Company may suffer losses on the front of traditional products whose market is on the downside, the cost mechanism of which needs to be sliced to maintain earning level (Kodak Annual Report, 2010). Kodak needs to enforce plans to streamline cost structure for specific products whose demand it has anticipated to be shrinking. In the case of non-implementation of the plan, which requires incessant streamlining of the workforce to promote competition in the changing business climate, it may impact negatively on the operations and financial health of Kodak. Manufacturing, logistics, marketing, sales and management resources need to be restructured in view of the decreasing demand for some products and services. Effective control over the restructuring processes needs to be ensured for getting success in increasing sale, timely availability, and better customer attention (Kodak Annual Report, 2010). Kodak has been focusing on emerging markets of Latin America, Asia, and Eastern Europe to increase sales, which is fraught with various political, cultural, workforce, currency fluctuations, changing regulatory adherences, adverse local business practices, supply-chain and distribution-related challenges and risks of working in foreign markets. There can not be advanced surety of getting desired results (Kodak Annual Report, 2010). Kodak market competitors include consumer electronics and printer companies in Consumer Digital Imaging Group (CDG), besides various online services companies in the given market division. Normally, competition is on price, qualities, and technological sophistication. Regarding the marketing strategy under this segment focus is on comfort in using, quality, overall cost of offered value, and on providing a packaged solution from the company products and services. This is relayed via various tools including in-store presentation, a front-foot social media strategy, online marketing, advertising, customer relationship marketing, and effective PR. The marketing initiatives take full leverage of the company logo, trademarks, and trade dress, which are widely acknowledged by one and all in the line of business. In GCG division, competition is from companies doing business in commercial offset and digital printing equipment, consumables and service, besides from document scanning equipment manufacturers, software companies, and other service providers, focusing normally on technology, solutions and cost (Kodak Annual Report, 2010). Marketing in FPEG division is done through retailers and distributors. Competition is primarily on price in various markets. Kodak has restructured this traditional market segment by selling direct to studios, laboratories, independent filmmakers or production companies. Product quality and supply are critical elements for these products to remain in competition. Huge business potential lies in Entertainment Imaging business with the digitization of cinema. Although position vis-à-vis market is quite strong but new competition will be faced from electronics manufacturers and present customers. An analysis indicates that price, promotion, and distribution are leading success factors (Kodak Annual Report, 2010). Kodak’s research and development wing is quite active for the three divisions but an analysis of the data indicates that it has been decreasing from 2008 when it was $478 million to $321 million in 2010, taking all the three divisions. The R&D functions from Rochester, New York. All U.S. and non-U.S. groups function in proximity with manufacturing plants and marketing concerns to develop new products and applications for both present and emerging markets (Kodak Annual Report, 2010). Giving due importance to first mover advantage, Kodak has been on the spree of getting its products patented to remain leading in the market and income through licensing. Kodak’s various portfolios of patents, critical to its leadership include digital cameras and image sensors; network photo sharing and fulfillment; flexographic and lithographic printing plates and systems; digital printing workflow and color management proofing systems; color and black-and-white electro-photographic printing systems; commercial, and consumer inkjet printers; inkjet inks and media; thermal dye transfer and dye sublimation printing systems; digital cinema; and color negative films, processing and papers (Kodak Annual Report, 2010). Strategically, Kodak benefits from not depending on any singular material patent. On the other hand, it has created a stronghold by patenting the technologies with different expiration dates, thus, not affecting the business operations from individual patents’ expiration (Kodak Annual Report, 2010). Kodak has been into incessant restructuring over time to build on its robustness and reduce the weak areas by indulging in rationalization functions, cost of which in the three years from 2008 to 2010 included costs on speedier depreciation and stock write-downs. The other restructuring cost items included cost on severance, exit costs, and long-lived asset of dead stock, which is recorded as restructuring costs, rationalization and other costs (Kodak Annual Report, 2010). The Kodak board of directors provides a mixed skill set and experience over a range of disciplines, which includes all major critical areas, such as strategic planning, organizational management, corporate finance, mergers and acquisitions, marketing, digital technologies, public policy, economics, executive compensation, risk management, international operations, corporate governance and internal controls (Kodak Annual Report, 2010). Diversity is a critical factor in the recruitment of directors. Mr. Richard S. Braddock, the chairman and Chief Executive Officer, has vast experience in strategic planning, corporate finance, mergers and acquisitions, risk management, and executive compensation and operations. His other skills in marketing and product commercialization help the company in taking strategic initiatives, the two critical fields for leading the company through future strategic direction (Kodak Annual Report, 2010). Mr. Herald Y. Chen, director since 2009, brings leverage from his various skill sets and experience, particularly in the line of digital technologies and private equity, advising such business segments in the process of transformation or enforcing a turnaround strategy (Kodak Annual Report, 2010). Mr. Adam H. Clammer, helps the company with his vast experience in corporate finance, mergers and acquisitions, strategic business planning, executive compensation, digital technologies, risk management, and corporate governance. Mr. Timothy M. Donahue, director since 2001, has huge experience in strategic planning, operations, corporate finance, marketing, digital technologies, and mergers and acquisitions, while Mr. Michael J. Hawley enriches with his intangible skill from the areas such as digital media technology which offers leverage to the Company in digital imaging products and in research and development in the area of digital imaging. Mr. William H. Hernandez carries knowledge and experience of accounting, internal controls and economics, which adds to the Company’s efficiency on the Board and its Committees. Mr. Douglas R. Lebda, director since 2007, enriches the Company from his leadership skills in internet based technology business, which is especially desired to attain growth in its portfolio of digital products and marketing of its products and services via the internet (Kodak Annual Report, 2010). All is not positive in the Company, as the common stock of the Company traded on the New York Stock Exchange, indicate. There were in total 51,347 shareholders of the common stock, as on 31 January, 2011. No dividends were provided to the shareholders in the years 2009 and 2010. Market price of the company’s shares was $6.94 on the high side in the 1st quarter of 2010 relatively to $7.66 in 2009, in the 1st quarter. A comparison of Kodak with S&P 500 indicates that share price of Kodak was at its lowest in 2009 to $19.53 against S&P 500 of $97.33 on the basis of $100 invested on 31 December 2005. This data exhibits the poor performance of Kodak in the share market. Even if a comparison of the stock market of company’s shares is made with that of S&P Consumer Discretionary, because this market is more akin to company operations than other stocks, position of Kodak shares vis-à-vis S7P Consumer Discretionary is equally discomforting, considering the performance in Dec. 2010, which was $24.81 in relation to S&P Consumer Discretionary touching $123.53 (21). This once again presents a dismal view of the market for Kodak (Kodak Annual Report, 2010). Revenue streams of the Kodak also present a shaded area; with the sophistication in technology, as the products are becoming complex and commercial, the possibility of malfunctioning has heightened in the new products introduced. Delay in new product initiation because of unwarranted defects in new products carries the possibility of revenue loss due to reduced income, as expenditure increases because of such issues emerging all of a sudden (Kodak Annual Report, 2010). From revenue perspective, sales have been down in 2010 relatively to 2009, mainly because of reduction in volume in the FPEG division, negative by 6%, while the CDG division equaled the revenue increase with GCG division recording equal loss of 2%. Revenue for the Company decreased in all the three segments in 2009 relatively to 2008 because of reduced demand as an outcome of global recession. Sales were equally affected in all the three segments because of foreign exchange loss due to dollar rate increase (Kodak Annual Report, 2010). The challenges before the Company are huge in various divisions but under the guided leadership of the Company, and after the recovery in business from global recession, the risk of bankruptcy can be avoided for sure. Reference Kodak Annual Report. (2010). Read More