What Went Wrong for eastman Kodak - Essay Example

?What went wrong for Eastman Kodak? According to Mendes  Kodak’s demise is an example of repeat strategic failure in the three ways. To beginwith, the company was slow in understanding the future of digital imaging. Secondly, when it did get to grasp the importance of digital imaging the company opted for the much slower evolutionary strategy approach rather than the rapid revolutionary strategy approach. Thirdly, Kodak was unable to make the new digital technology to fit coherently with its other capabilities as a core competency. In the subsequent paragraphs in this discussion, Kodak’s approach in these three strategies is compared with IBM’s in order to highlight the ultimate failure of the former and the success of the latter. Kodak rise to dominance in the imaging industry was characterised by it use of a razor-edged strategy. This strategy was implemented by selling cameras at a very low cost, and earning profits from the sale of expensive films. The high margins on film fuelled the company’s profitability and growth to the extent that the company became too dependent on its film business. The problem with this is that the company concentrated on acquiring core competencies on film technologies while it continued to pay less attention to equipment. In spite of pioneering in the field of digital cameras, the company discarded the idea of pursuing future competitive advantages in that field because of the fear that this would cannibalise its film business (Nate, 2012). According to the resource-based view of strategy, firms that have superior systems and structures are profitable not because they engage in strategic investments that may deter entry and raise prices above long-run costs, but because they have markedly lower costs, or offer markedly higher quality or product performance. However, this strategy is often not enough to sustain significant competitive advantage for long. According to Teece, Pisano and Shuen (1997), winners in the global marketplace have been firms that can demonstrate timely responsiveness and rapid and flexible product innovation, coupled with the management capability to effectively coordinate and redeploy internal and external competences. Kodak’s failure arose from its management’s comfort with its present huge resources and core competencies which prevented them from developing dynamic capabilities. In 2011 IBM marked its 100 year milestone. As two centenarians, it would be appropriate to compare IBM’s continued success against Kodak’s demise. IBM, like Kodak, has faced the full force of disruptive change on its core business as faster, cheaper and nimbler competitors rapidly ate away its market leadership. In the early 80s IBM introduced the IBM PC that created the first truly mass market for the personal computer (Koehn, 2011). However, within a decade IBM had fallen behind in this market that it had created so much that in the 1992 financial year the company recorded a US$8.10 billion loss (Denning, 2011). Knowing customers intimately In the early 90s when IBM was performing its worst the financial analysts believed the company’s best bet for survival was to break it up and sell it. However, the newly appointed CEO Lou Gerstner overcame that pressure and instead focused on interacting with customers and industry experts in order to understand IBM’s value-proposition from the customer/market perspective. This exercise enabled the new CEO to identify IBM’s greatest strength to be its ability to provide customer with integrated solutions. As such the organization dropped the earlier desire to split the company. Splitting IBM would have destroyed its unique competitive advantage. Armed with this knowledge Lou Gestner changed IBM strategy to be an enterprise that could understand and provide its customers wide-ranging IT needs. Today, IBM’s Global Services provides the largest share of the company’s revenue (Koehn, 2011). On the other hand, Kodak acted as if it were not affected when Sony introduced the Mavica digital camera. The company’s management did not go out to find out the photography consumers’ reactions to this new form of digital imaging. Kodak’ cultural ties to film barred it from not only reaching out to consumers to find out what they wanted in future but also from visualizing how the imaging industry would change in future. Kodak therefore failed to know its customer’s intimately. Evolutionary versus revolutionary strategic change According to Teece, Pisano and Shuen (1997) organisations follow a certain path of competence development and this path defines what choices will be open to that organisation now and also puts bounds around what its internal makeup will likely be in the future. For this this reason most organizations pursue evolutionary change to their strategy. However in the face of disruptive change in the industry, organizations may need to take revolutionary change in its strategy in order to adequately prepare itself to face new market forces and competition that have resulted from the disruptive change. IBM made a revolutionary change in its strategy to change from being a leading tabulating company to a global leader in IT solutions and consulting. This is a big change from a predominantly manufacturing company to a predominantly service company. On the converse, Eastman Kodak pursued evolutionary change in the face of the disruption caused by digital imaging. Instead of focusing on the challenge posed by digital imaging, Kodak persisted in its silver-halide based film imaging industry and tried to blend film imaging with digital imaging. At this same time Kodak engaged in a diversification strategy which in hindsight could be seen as a distraction that prevented the company from fully appreciating the potential of digital imaging. Core competencies In identifying core competencies Prahalad and Hamel (1990) stated that an organisation needs to ask itself four important questions. First, how long can the organisation dominate the industry without this competence? Second, what future opportunities does the organisation stand to lose without that competence? Third, does this competence provide access to multiple markets? And lastly, do customer’s benefits revolve around that competence? Kodak pioneered in the field of digital imaging. This means that the organisation built competencies in this new field before any of its competitors. However, Kodak’s management were too absorbed in their market leadership in the film area that they failed to ask themselves the four questions mentioned above. With its dominance in film imaging, competitors such as Sony quickly jumped onto the new digital field where Kodak did not have market leadership and exploited it to eat into Kodak’s market share when customer’s discovered the benefits of digital imaging over film imaging. In the pre-digital era, Kodak had strengths in all areas of the traditional photography process – image capture, processing, storage, printing and projection. In the post-digital era Kodak’s competencies were only in three (image capture, printing and projection) out of eight stages – image capture, digitisation, storage, retrieval, transmission, printing, manipulation and projection. This means that in the post-digital era, Kodak has limited opportunity to offer value to customers. This translates to lower revenues. In contrast, when IBM realised that it was losing out market share in the PC business to faster, cheaper and more nimble competitors it pulled out of the PC industry and decided to utilise its know-how by providing IT consultancy to businesses. The company still retained its mainframe and server business where it still commanded leadership. By synthesizing its competencies in server technology and IT services IBM is able to offer large and middle sized business integrated solutions that very few rivals can match. Conclusion This discussion has brought to the fore three areas of strategy where Kodak got it wrong while IBM got it right, which explains the different fortunes of these two centenarians. Kodak’s ultimate error appears to be its decision to forgo opportunities to establish core competencies that were evolving in its existing business. The organisation could have predicted the evolution of the imaging industry if it paid more attention to its customers than to its established business. References Denning, S. (2011, July 10). Why Did IBM Survive? Forbes.com. Retrieved April 27, 2012, from http://www.forbes.com/sites/stevedenning/2011/07/10/why-did-ibm-survive/ Koehn, N. (2011, August 8). IBM at 100: How to Outlast Depression, War, and Competition. HBR Blog Network. Retrieved from http://blogs.hbr.org/hbsfaculty/2011/08/ibm-at-100-how-to-outlast-depr.html Mendes, G. (2012). What Went Wrong at Eastman Kodak? The Strategy Tank. Retrieved from http://strategytank.awardspace.com/articles/What%20went%20wrong%20at%20Eastman%20Kodak.pdf Nate, R. (2012, January 19). Kodak falls in the “creative destruction of the digital age.” The Guardian. Prahalad, C. K., & Hamel, G. (1990). The Core competence of the corporation. Harvard Business Review, (May-June), 79 – 91. Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic Capabilities and Strategic Management. Strategic Management Journal, 18(7), 509–533.  Read More