Eastman Kodak - Diversification Strategy, Resources, and Capabilities - Case Study Example

Eastman Kodak Case Study Introduction The current competition facing companies has forced most organisationsincluding multinationals to adopt a number of strategies, which increases their market presence and the overall profitability (winter, 2000). One of the most commonly adopted strategies in corporate management is diversification strategy, a strategy that increases the overall presence of a company in the market (Hamm & Symonds, 2006). Diversification leads to an increase in the sales volume of the company or the introduction of new products or even entry into new industries (Winter, 2000). In this paper, the diversification approach adopted by Eastman Kodak following the dismal performance of its main line of production will be evaluated. The implementation of a diversification strategy is determined by the resource and capabilities of an organisation. The paper will also discuss the resource and capabilities of Eastman Kodak and how these resources influence its ability to implement its diversification strategy. Antonio Perez, the CEO of the company has been instrumental in the development and implementation of this strategy. This paper will discuss his role and position in the new pursuit of Kodak to increase its market presence and dominance. Question 1: Diversification strategy at Kodak Diversification is considered as part of the growth strategy developed by Ansoff in the product/market mix strategy (Hamm & Symonds, 2006). This mix includes the development of new markets and penetration of existing markets and the development of new and more market responsive products and finally, the process of diversification. Out of these four strategies, diversification remains the most challenging, which compared to the other three requires a company to develop new skills, techniques and build more facilities. Eastman Kodak, simply known as Kodak is an American company specialised in imaging technology and is based in Rochester, New York. Founded in 1888, Kodak has remained a major market force and has grown into a big multinational despite the challenges within the market. Changing technology has been attributed to the woes facing the company as people have shifted from film to digital technology. This reduced the overall sales of the organisation and exposed it to imminent failure at a time when competition had grown beyond the company’s imagination. However, the company has remained afloat despite the turbulent market due to its market strategies including the adoption of diversification strategy. Through diversification, Eastman Kodak has managed to enter into new market and introduce new products that meet the demands of the market (Hamm & Symonds, 2006). Due to the digital transformation that the market previously controlled by Kodak experienced, the company was faced with massive losses that resulted from a decline in their market share and sales from 1980 to 2003. Most companies within the digital sector adopted marketing strategies that depicted Kodak as an old company with old strategies and solutions not fit for the current challenges. To counter this, the company adopted the diversification strategy that enabled it to venture into other sectors of the economy including the medical and commercial sectors. Healthcare and chemical industry have higher potential for success and this attracted Kodak which the company a new lease of life (The Associated, 2011). As a company previously focused within the imaging sector, entering the pharmaceutical industry through acquisition and mergers presented it with new opportunities and challenges, a characteristic of any diversification strategy. Through this approach, the company increased its brand awareness and spread out its risk, thus covering for the losses that were caused by technological changes within the sector. The decision to enter the pharmaceutical and chemical sector however spelt doom for its imaging business as competitors increased their aggressive campaign to eat into the traditional market share of Kodak. Companies like Fuji manufactured low cost imaging products as Kodak was concentrated on ensuring that its new participation within the pharmaceutical industry succeeded. The woes of Kodak after the 2005 loss posted in their financial report led to a change of approach by Perez, the company’s CEO. While attending a consumer electronics show in Las Vegas in 2006, Perez highlighted how the sector of imaging was stifled by lack of revolution and a stuffed space that could not afford change. This statement highlighted the desire of the company to focus its production and marketing to other sectors of the economy apart from imaging technology. The healthcare sector was also a major market for the company’s imaging products and this explains their decision to further their pursuit for increasing their market control within the healthcare sector. Taylor advocated for the use of high levels of management through providing directions and being in control of the routine production and work processes in organisations (Newman, 2012). Though critics argued that the approach contributed to the deskilling of the American labour force, it was however one of the approaches praised for its ability to enhance economic prosperity and development of organisations. Taylor aspect of scientific management was based on the need for organization to improve their processes with an aim of improving the production efficiency. In the golden rule of scientific management, Taylor emphasised on the need for organization to adopt appropriate human behaviour as this will create room for improve organizational performance. The area of organization behaviour has increased in both dominance and application in different areas of organizational management and this has led to the introduction of organization behaviour studies and cases. Through the development of positive organizational behaviour in line with the rules documented in the scientific management approach of Taylor, organisations have a chance of improving their overall performance and productivity. This is due to the development of a common behaviour approach that is binding to all employees in an organization, which increases their ability to identify with the organization’s goals and objectives (Newman, 2012). Management today has changed its focus form processes and the desire to achieve efficiency into the development of approaches that work towards enhancing the wellbeing of the employees. This concept was also developed at a time when most industry players were family owned and made it possible for them to be more focused in production efficiency as compared to the worker welfare. The application of Taylors in today’s management approaches have been attributed to the massive success in different sector though few modifications have been done in line with the technological changes in different sectors. A number of techniques used in management today like the just in time (JIT) and the business process re-engineering (BPR) as some of the approaches that have borrowed heavily from the Taylors management approaches The company increased their digital imaging products in the sector and this enabled them to capture new markets and increase overall sales. Within the commercial sector, the use of imaging in the production of newspapers and magazines also enabled the company to enter new markets and increase overall sales. Journalism, real estate, military surveillance and weather forecasting were the few promising options pursued by the company (The Associated, 2011). Question 2: Eastman Kodak resources and capabilities The evolutionary trend that was witnessed within the digital imaging technology disrupted the operations of many industry participants like Nikon, canon and Olympus. Most of the imaging technology equipment and machines were rendered redundant and useless in the face of the emerging digital technological applications. The transitional phase from traditional digital imagining technology to the new digital imaging technology was important for Kodak and required massive resources to be successful. In this section, the financial and resource capabilities of Kodak will be discussed to demonstrate how this was critical in the successful transition at a time emerging technology rendered their traditional approaches redundant (Newman, 2012). Resource and financial capabilities of an organisation has an important role to play in the process of strategy formulation like the diversification strategy. The competitive advantage a company gains as opposed to the industry attractiveness also plays a primary role in ensuring that entry into a new industry increases the profitability and stability. Resource based view of firms is a model that allows organisations like Kodak to make strategic formulations based on their resource and financial capabilities (Eastman Kodak, 2009). During this process, a number of questions must be answered by the firm which will enable it to assess its readiness to implement the diversification strategy. First, the firm must identify the customers after identifying its new business in order to identify the needs that they seek to serve and the gap they would thus fill. The CEO of Kodak indicated that the challenge of renewing Kodak’s resources and capabilities was not influenced simply by technology but other external factors (The Associated, 2011). First, Kodak’s resource strength lied on its brand equity and distribution presence which was supported by a wide network of outlet shops distributed in different parts of the globe. As a result, the company could easy bring in new products, attract the attention of the customer, and support the distribution of such products through its wide network. This presence was built on Kodak’s entire digital strategy that enabled it to rule the industry for several years before the emerging technological changes affected its progress (Eastman Kodak, 2009). When the technological cold caught up with Kodak, the company already had a well-established technological presence as a result of its research and development investment. The company established one of the largest research labs in the imaging industry, operating them in the United States, United Kingdom, France and Japan. The company also employed highly resourceful engineers and scientists including over 600 PhD graduates. This strengthens the company’s control within the imaging and digital photography sector despite the setbacks that it witnessed after a fall in its income (Sugheir, Phan & Hasan, 2012). Kodak is currently the leader in the production, control, measurement and the visual perception of colours, which plays a major role in the prediction of the performance of image capture devices. The company pioneered in the colorimetric, measuring and quantification sector, which uses light as the stimulus. The company also possess strong image processing capabilities, which is useful in the maximisation of image contents and the compression of data which are stored and transmitted digitally. This technology is applicable in the area of digital photo enhancement and manipulation, a tool that has been extensively used by the US military and NASA. This technology is used in cameras and phones with the camera functionality or even in satellite imaging (Eastman Kodak, 2009). The century of innovation and development at Kodak has given the company insights and intuition that is way above other imaging technologies currently in the market. As highlighted by the business week, the colour management capability of Kodak has given the company leverage over other companies in the sector. The resource strength of the company is also demonstrated by its ability to develop new products within a short time due to its strong research and development capabilities. The company’s product development has remained reflective of the chemistry origins despite the evolution that has been witnessed, thanks to technological developments. Apart from the technological and resource capabilities, the strength of Kodak is also demonstrated in its strong financial capability that has weathered the storm that was created by technological renaissance. As compared to other well-established companies in the sector, the cash flow of Kodak remained secured due to the traditional photographic business. By 2004, Eastman Kodak was considered as one of the strongest companies financially though it had deteriorated as compared to its previous financial powerhouse form of the yesteryears. Though the profitability of the company declined due to the changes in the market, Kodak has remained a strong entity with the financial muscles to venture into new areas and improve its position. This explains the diversification strategy that the company has been attempting to implement in other sectors of the economy including chemical and pharmaceutical industries (The Associated, 2013). The success and failures of Kodak has been attributed to the external environmental factors, which have contributed to the negative financial performance. To bring new life into the company, Antonia introduced a diversification program that enabled the company to venture into other areas such as chemical, pharmaceutical and other technological sectors. Through this approach, the company increased its brand awareness and spread out its risk, thus covering for the losses that were caused by technological changes within the sector. The decision to enter the pharmaceutical and chemical sector however spelt doom for its imaging business as competitors increased their aggressive campaign to eat into the traditional market share of Kodak (Gavett & Levinthal, 2000). Question 5. The role of Antonio Perez at Kodak Eastman Antonio Perez joined Kodak in 2003 as the president and the chief operating officer, a position he was assigned after successfully serving at the helm of Hewlett-Packard, a computer based company in the United States. An electronic engineering and marketing graduate from Spain, Perez was tasked with the uphill task of reviving the fortunes of Kodak and using its financial and resource capabilities to bring the company back to track (Burritt, 2011). Appointed at one of the most challenging moments in the company’s history, Perez was tasked with the role of maintaining the company’s original values and giving back to the employees and increasing the corporate social responsibility culture at the company. While a young high school graduate in Virgo, Spain, Perez learned the how to deal with diversity and the complexity of fulfilling the demand and needs of different people. He worked part time as a fishmonger with his father, a role he attributes to his strong business success and character (Winter, 2000). As the CEO of a global company facing technological challenges, Perez was tasked with the role of serving the global customer and unlocking the potential of Kodak at a time when its performance in the market was sluggish. However, Perez, through his strategic manoeuvres repositioned the company to the digital imaging field away from its traditional silver halide photography. Due to the astuteness of Perez, analysts believe that Kodak was able to reassert its muscle in the imaging sector and eliminate competition from pioneer firms (The Associated, 2013). In one of his press interviews, the CEO indicated the diverse customer guided the company and employee based which led to the need to serve new markets and venture into new industries as part of the diversification plan. Through its program of diversifying the mentality of the employees and the innovation of new products the company has succeeded in the introduction of new products much to the delight of the customers (Veysey, 2014). Most companies within the digital sector adopted marketing strategies that depicted Kodak as an old company with old strategies and solutions not fit for the current challenges. To counter this, the company adopted the diversification strategy that enabled it to venture into other sectors of the economy including the medical and commercial sectors. Healthcare and chemical industry have higher potential for success and this attracted Kodak which the company a new lease of life (The Associated, 2011). As highlighted by Perez himself, his role has remained that of ensuring that every stakeholder to the company not only lives the letter but the diversity spirit of the company. The diversity spirit is attributed to the successful entry into the pharmaceutical and chemistry sector through the funding of research activities in different parts of the globe. As the CEO, Perez established strong and robust metrics that have enabled the company to assess the performance of other global leaders and base their strategies on strong competitive forces within the market (Burritt, 2011). Immediately after taking over the leadership of Kodak, Perez initiated a program that was to trim the workforce of the company and eliminate extreme expenses while at the same time increasing dissatisfaction among the employees. The mass lay-offs that the company initiated affected the morale of the employees and thus reduced the impacts of their strategic plans. While the company intended to gain a slim workforce, the employees felt de-motivated from the mass layoffs, some of which were taken under the leadership of Perez. Though this may be counterproductive to the company, Perez believed that discovering the profits ways should remain the key focus for the company before beginning a recruitment process (Veysey, 2014). The performance of Perez at the helm of Kodak has received mixed reviews, with some attributing the successful reinvention of the company to his strategic management approaches. Other analysts have however remained critical of his role in the success of the company, attributing the challenges that Kodak has continued to face his poor strategic management approaches and inability to understand the dynamics of the imaging market. However, Perez has remained instrumental in reviving a company whose historical dominance in the imaging market has sent shivers to competitors despite its current challenges (The Associated, 2013). Despite the success posted by the company under the leadership of Perez, a number of challenges have affected his ability to discover the full potential of the company. First, handling complaints from employees in the face of the mass layoffs has affected the reputation of Kodak and placed in the lens of the media. For example, African American employees accused Kodak of engaging in inconsistent pay practises targeting the group. This was viewed as racial segregation and forced the company to review its pay for some African American employees despite the financial challenges the company was facing. Other racial discrimination lawsuits against the company leadership has also tainted the image of Perez, a reason as to why he spends most of his time listening to the concerns of the employees and developing person based mitigation measures (Burritt, 2011). Diversification approaches by the company was also inconsistent with the values of some of the employees in different parts of the world as was identified by a panel formed under the leadership of former US attorney general Eric Holder. Based on the recommendation of this report, Kodak should adopt global values in its globalisation program to enable the employees work in line with standard values (Gavetti &Levinthal, 2000). Though the company was working towards maintaining a slim workforce as it moved into digital technology, Holder’s team indicated that the company must focus on recruitment, retention and the development of leadership initiatives to enable its diversification strategy work for the organisation. This would be helpful in fostering internal and external cohesion in the company while pursuing corporate profitability goals and the advances in digital technology. References Veysey, S 2014, Kodak gets creative to preserve benefits, Business Insurance, 48, 7, p. 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