Early 80s Vertically integrated centralized monolithic hierarchy

1

• Early 80s Vertically integrated centralized
  monolithic hierarchy
• Mid 80s Intense competitive pressures forced
  Kodak to reorganize and restructure
• 1990 Kodak outsources its large in-house IT
  operation.
• 1993 CEO Fisher focuses on core photographic
  business (with a future in digital imaging and
  divests chemical and pharmaceutical businesses)
• 2002 CEO Carp emphasizes imaging (3 main
  segments, photography, health imaging, commercial
  imaging)

Source HBS case
2
Corporate strategy

• Kodaks original strategy
• Large global and vertical scope
• Limited product scope (photographic business)
• Strategy evolution in product and vertical
  (expansion)
• Contribution to business level strategy
• Added value originally, control over production
  process, control over quality, profits reinvested
  in RD contributes to differentiation
  volumes contribute to cost reduction
• Global strategy - taking core skills and
  applying them worldwide

3
Changes

• Growing competition from flexible competitors,
  foreign manufacturers with cheaper costs
• Photographic industry mature stage
• Threat of substitutes - alternative technologies
  for imaging
• Kodaks problems
• Inflexibility due to commitment to silver
  halide technology (downside of vertical
  integration)
• Large market share (protected position) creates
  complacency (vert. integ encourages inefficiency)
• Lack of successful innovation on product front
• Organization structure multiple production
  facilities (high costs)

4
Diversification

• Increasing product range in imaging using JVs
  and alliances
• Reducing dependence on slow growth industry
• Diversification health and information systems
  rationale leveraging competencies in imaging,
  creating economies of scope
• Biotechnology, pharmaceutical, chemicals, floppy
  discs moving further away into industries that
  require different competencies and are very
  competitive
• Have money, will spend does not work for
  diversification

5
Using acquisitions

• Pros
• Speed (lack of time to do internal ventures)
• Required expertise in a broad set of imaging
  technologies (capabilities it did not possess)
• Gaining entry into industries with well
  established competitors

• Cons
• Costs of acquisition (Kodak paid too much
  Sterling Drug)
• Problems in integrating cultures (Atex example)

6
Organization structure and control systems

• Centralized (ivory tower) decision making less
  open to innovative ideas, change
• Conservative culture (from protected position)
• Functional organization (heavy emphasis on
  technical orientation) but lack of cross
  functional integration
• Reward systems promotion geared towards
  seniority

7
Changing structure culture

• Creating profit centers within each group
  accountability (improves efficiency and
  innovation) functional integration
• Delegating decision making to lower levels
  giving emergent strategy a chance
• Internal venturing not so successful
• Control systems for costs and quality
• Pay for performance (link to corporate
  performance, encourages sharing of ideas across
  business groups)
• Doing away with duplicate manufacturing facilities

8
Kodak

• Building networks of alliances to create a
  competitive position in the imaging industry
• DocuCom Imaging Canadas largest provider of
  document imaging hardware
• Adobe on PhotoCD software
• HP on ink-jet printing solutions
• IBM on optical storage products and Internet
  based image networking
• Microsoft on computer imaging software
• Sega on a PhotoCD compatible game system
• Sprint on new network services for image storage
  and exchange
• Wang on document imaging architecture

9
Kodak last year

• Kodak warning on earnings in fourth quarter
  Slowing demand (sluggish film sales), retailer
  inventory reductions (in anticipation of slow
  Christmas season), higher raw material
  costs,increasing investment in digital imaging,
  currency effects (decline in euro).
• Possible job cuts (continuing its restructuring
  efforts in 1997, slashed work force by a fifth)
• Still stands by its strategy of focus on digital
  imaging
• Problems shared by Polaroid and Xerox

Source Financial Times, Wall Street Journal
10
Present

• Currently has three segments - photography,
  health imaging (specialty products for oncology,
  dental fields), commercial imaging (microfilm,
  printers and scanners)
• 2001 sales 13 billion (1991 -19.4 billion)
• Third quarter earning for current yr. beat
  expectations cost cutting and productivity
  improvements
• Long term sustainability still questionable
  sluggish growth in traditional film business
  (still a big contributor to revenues), Income
  from digital products and services has not
  increased substantially (Sony and Canon dominate)

11
Transition to digital

• Kodaks foray into managing transition to digital
  photography
• APS (Advanced Photo System) backed by Canon,
  Fuji, Kodak, Minolta and Nikon
• Better picture quality, product simplicity klutz
  free film loading
• Why didnt it work digital cameras hit the
  market faster and cheaper, higher costs of film
  cartridges, didnt educate consumers about
  benefits, advertising fiasco