External Analysis of Eastman Kodak - Case Study Example

 Strategic Management - Eastman Kodak Co. - Introduction Having manufactured the first basic camera, Eastman Kodak Co. was established by George Eastman back in 1888. (Kodak, 2008) Since the company has been experiencing market share decline in the sales of traditional cameras, the company had to diversify its product line by producing consumer products like digital cameras, accessories, pocket video cameras, media players, digital picture frames, printers, and software. (Kodak, 2008) Today, it is a challenge on the part of CEO Antonio M. Perez to increase the company’s profitability and stability in the industry. (Hamm, Lee, & Ante, 2007) For this study, the mission statement of Kodak will be examined followed by discussing the external factors that significantly affects the business. In the process, Porter’s five forces model and macro-environment analysis through the use of PESTLE and Opportunity and Threats analysis will be applied. Whether or not Kodak, under the leadership of CEO Perez, will succeed in managing the challenges associated with the new environment. Prior to conclusion, recommended solutions will be provided. Mission Statement of Kodak The mission statement of Kodak is to “provide our customers and consumers with solutions to capture, store, process, output, and communicate their images to people and machines anywhere, anytime.” (Kodak, 2008b) Therefore, Kodak continuously innovate new technology on photography in order to satisfy the needs and wants of its target consumers. External Factors that Significantly Affects the Business Porter’s Five Forces Model Although it is possible for new entrants to penetrate the market, the threat of potential new entrants is considered as medium because of the high costs of capital needed in the development and manufacturing of digital cameras, accessories, pocket video cameras, media players, digital picture frames, printers, and software. Because of globalization, there is an increase in the availability of substitutes to the products offered by Kodak coming from different electronic and non-electronic manufacturers around the world including Hewlett-Packard, Dell, Epson, IBM, Xerox Corp., Compact, Canon, Sony, Fuji, Nikon, and Lyca among others. (C/Net Reviews, 2008; Digital Photography Review, 2008; Symonds, 2006) For this reason, the threat of substitute to Kodak product lines is medium-high. Since there are quite a number of available similar products in the market, the bargaining power of Kodak’s target consumers is high. It means that Kodak consumers could easy shift to other brands who offer similar or higher quality digital cameras, accessories, pocket video cameras, media players, digital picture frames, printers, and software at a cheaper price. On the other hand, the bargaining power of suppliers is low due to globalization. In line with an easy access to international suppliers, Kodak could easily implement bidding prior to awarding a huge contract with qualified suppliers/manufacturers. By doing so, Kodak is able to purchase its needed raw materials at a relatively lower price. PESTLE Analysis Kodak publicly announced a massive lay-off due to significant decline in sales of traditional cameras. (USA Jobs, 2005) For this reason, the company aimed to remove roughlt 12,000 to 15,000 employees from the company. Since Kodak made an additional $1.4 billion in debt because of funding the digital acquisitions (Symonds & Burrows, 2005), the IRS settled a tax dispute with Kodak which aims to refund $15 to 25 million to the company. (Duprey, 2005) Such political support will enable the company to has a better competitive advantage over its existing competitors despite the sudden decline in the company’s sales and profitability in the global market. Over the past few years, the US economy has been experiencing slow growth. (People's Daily Online, 2008) As a result, there has been a significant increase in US’s unemployment rate to 5.7%. (U.S. Depratment of Labor, 2008) In general, the higher the unemployment rate in the country could significantly affect the total expected sales of Kodak since a larger portion of the population will not be able to afford the high cost of digital cameras and other related technologies that the company is selling in the market. This is actually one of the few reasons that explains why Kodak was not able to meet its earnings targets and has reported $142 million loss. (Symonds & Burrows, 2005) Each year, the US population grows by as much as 2.5 million a year. (NPG Facts and Figures, 2008) Since the consumers have already shifted from the use of traditional filmed cameras to the use of digital cameras (Wildstrom, 2007), the prospective market for Kodak products also increases. The trend in photography has gradually shifted from traditional film cameras to the use of digital cameras. Aiming to grade a bigger market share, Kodak invested a large sum of money on the development of high resolution inkjet printer as well as digital cameras and other electronic gadgets. (Hamm, Lee, & Ante, 2007; Olivier, 2004) Application of Patents and other intellectual property rights protect the company from its competitors from copying its invention. (Arner & Tiplady, 2004) For this reason, Kodak should immediately finalize the technicalities behind its innovation. Among the environmental concerns in US includes: acid rain, smog, and climate change. (U.S. Environmental Protection Agency, 2008) (See Table I – PESTLE Analysis on page 7) Opportunity and Threats Analysis Kodak’s decision to enter the consumer Ink-jet printer specially designed to give high-quality printing photos open an entirely new business opportunity on the part of the company since the company’s decision to become digital enables the company to have the ability to compete in the global markets. (Symonds & Burrows, 2005; Hamm, Lee, & Ante, 2007) The fact that Kodak printers were designed to print fast aside from having a higher resolution that give consumers the opportunity to have their pictures printed vibrantly that lasts for at least 100 years enables the company to have a competitive edge over other printers manufactured by other companies. As soon as Kodak has perfected the new inkjet printer technology, the company may start taking advantage of intellectual property rights could protect the company from copying its newly innovated inkjet printing technology. (Arner & Tiplady, 2004) Considering that Kodak’s inkjet technology is not yet proven in the market (Symonds, 2006), there is a serious threat that the company may not be able to increase its sales and profitability which will make the company not able to pay back its debt. In case the company failed to protect the new technology with intellectual property rights, other companies could end up offering a similar high-quality digital printer at a much lesser costs. (See Table II – Opportunity and Threats Analysis on page 8) Strategic Ways on How the Company Manages Its Existing External Environment Kodak managed to consider the significant shift in from the traditional filmed cameras to digital cameras. Aiming to capture more profit, the company decided to diversify or expand its product to other electronic gadgets needed in photography. Recommended Solutions CEO Perez should immediately act on the rapidly changing technological gadgets available in the market. In line with this matter, the CEO should push the development of its newly innovated inkjet printer. It is also advisable for the company to take advantage of intellectual property rights to protect the company’s huge investment on its new invention. Conclusion The application of external analysis on the case of Eastman Kodak enables the managers to easily understand the external factors that may significantly affect the success and profitability of the business. It also enables us to develop strategic ways on how the company could protect itself from the negative impact of tight market competition. Table I – PESTLE Analysis Political Economic Social IRS settled a tax dispute with Kodak which aims to refund $15 to 25 million to the company. (Duprey, 2005) US economy has been experiencing slow growth over the past few years. (People's Daily Online, 2008) Consumers have shifted from the use of traditional filmed cameras to the use of digital cameras. (Wildstrom, 2007) Kodak implemented a massive lay-off (12,000 – 15,000) due to significant decline in sales. (USA Jobs, 2005) There is a significant increase in US’s unemployment rate to 5.7%. (U.S. Depratment of Labor, 2008) US population grows by 2.5 million a year. (NPG Facts and Figures, 2008) Technological Legal Environmental Invested in the development of high resolution inkjet printer. (Hamm, Lee, & Ante, 2007) Application of Patents and other intellectual property rights protect the company from its competitors from copying its invention. (Arner & Tiplady, 2004) Among the environmental concerns in US includes: acid rain, smog, and climate change. (U.S. Environmental Protection Agency, 2008) Table II – Opportunity and Threats Analysis Opportunities Threats Entering the consumer Ink-jet printer business. (Hamm, Lee, & Ante, 2007) Kodak’s inkjet technology is not yet proven in the market. (Symonds, 2006) Taking advantage of intellectual property rights could protect the company from copying its newly innovated inkjet printing technology. (Arner & Tiplady, 2004) In case other companies begin offering similar high-quality digital printer at a much lesser costs. Kodak’s decision to become digital gives the company the ability to compete in the global markets. (Symonds & Burrows, BusinessWeek, 2005) References: Arner, F., & Tiplady, R. (2004, May 10). BusinessWeek. Retrieved August 3, 2008, from "No Excuse Not To Succeed" How COO Antonio Perez is hustling Kodak into the Digital Age : http://www.businessweek.com/magazine/content/04_19/b3882097.htm C/Net Reviews. (2008). Retrieved August 3, 2008, from Printers: http://reviews.cnet.com/printers/ Digital Photography Review. (2008). Retrieved August 3, 2008, from Latest Digital Camera Reviews / Previews: http://www.dpreview.com/ Duprey, R. (2005, November 28). The Motley Fool. Retrieved August 3, 2008, from Kodak's Tax Relief: http://www.fool.com/investing/general/2005/11/28/kodaks-tax-relief.aspx Hamm, S., Lee, L., & Ante, S. E. (2007, February 19). BusinessWeek. Retrieved August 3, 2008, from Kodak's Moment Of Truth: How the ailing film giant, led by a refugee from HP, embarked on a risky strategy to reinvent the inkjet printer: http://www.businessweek.com/magazine/content/07_08/b4022048.htm?chan=search Kodak. (2008). Retrieved August 3, 2008, from About Kodak: History: http://www.kodak.com/global/en/corp/historyOfKodak/historyIntro.jhtml?pq-path=2217/2687 Kodak. (2008b). Retrieved August 3, 2008, from KODAK Digital Images Offering: http://www.kodak.com/digitalImages/samples/imageIntro.shtml NPG Facts and Figures. (2008). Retrieved August 3, 2008, from Fast Facts About U.S. Population Growth: http://www.npg.org/facts/uspopfax.htm Olivier, C. (2004, January 14). Retrieved August 3, 2008, from Kodak to End Traditional Film Camera Sales in U.S.: http://photo.net/leica-rangefinders-forum/0073qJ People's Daily Online. (2008, January 28). Retrieved August 3, 2008, from Being vigilant of infectious US economic 'slow down': http://english.people.com.cn/90001/90780/91344/6346524.html Symonds, W. C. (2006, September 4). BusinessWeek. Retrieved August 3, 2008, from Kodak Rewrites The Book On Printing: Its new inkjet technology could revolutionize the industry -- and revive the flagging icon : http://www.businessweek.com/magazine/content/06_36/b3999087.htm Symonds, W. C., & Burrows, P. (2005, May 23). BusinessWeek. Retrieved August 3, 2008, from A Digital Warrior For Kodak: New CEO Perez vows to boost digital profits to offset the shrinking film biz : http://www.businessweek.com/magazine/content/05_21/b3934056_mz011.htm U.S. Depratment of Labor. (2008, August 1). Retrieved August 3, 2008, from Employment Situation: http://www.bls.gov/ U.S. Environmental Protection Agency. (2008). Retrieved August 3, 2008, from Environmental Issues: http://www.epa.gov/airmarkets/envissues/index.html USA Jobs. (2005, July 21). Retrieved August 3, 2008, from Kodak Says It Will Lay Off 10,000 More Employees: http://www.usajobs.org/viewarticle.jsp?articleuid=11231868605621991142134 Wildstrom, S. H. (2007, May 14). BusinessWeek. Retrieved August 3, 2008, from Kodak Moments For Less: It's new printers can crank out 4x6s for 15¢ apiece : http://www.businessweek.com/magazine/content/07_20/b4034030.htm Read More