Kodak and the Digital Revolution: Case Analysis Since the early 1880’s, Kodak had proven themselves to be great innovators and had worked on building their brand on a domestic and international front. They invested heavily in marketing to establish their image and realized early on that their profits would come from consumables rather than hardware. They sold their equipment at low prices in order to fuel their highly profitable film sales. This use of a razor-blade strategy, coupled with strong relationships with retailers positioned Kodak as an industry leader.Additionally, their heavy investment in R;D allowed Kodak to grow organically, proving fruitful with the advent of color film. Thus, Kodak’s expertise in color film differentiated them from competitors in the marketplace, creating a competitive advantage.
“Their photo-finishing process became an industry standard. ”1 Competitors faced high barriers to enter the market due to Kodak’s strong brand image, customer’s reluctance to bear switching costs, and the reproductive ease for the photo shop when printing.Kodak’s success in the photo printing business was illustrated by increasing sales from $1 billion to $10 billion between 1962 and 1981. The major structural differences between traditional photography and digital imaging include the order of the imaging chain and the roles of the steps in the imaging chain. First, the order of the imaging chain has changed.
Traditional imaging puts printing before storage, whereas; digital imaging allows the user to store all images prior to printing or sharing.The role of the image capture step in the imaging chain has also changed from traditional film and video cameras to include digital cameras. The function of the roll of film from traditional imaging was replaced by digitization. The storage step in the imaging chain was changed from traditional photo albums to digital storage on hard discs, floppy discs, and CDs. The traditional step of printing was replaced by numerous digital options such as: retrieval, transmission, printing, manipulation, and projection.
In traditional imaging, the image chain was as follows: Image Capture ; Roll of Film ; Printing ; Storage. b This was a change from the digital imaging chain which was: Image Capture ; Digitization ; Storage ; Retrieval, Transmission, Printing, Manipulation, and Projection. a See custom attachment for graphical representations of traditional imaging chain and figure A taken from page 9 of Kodak and the Digital Revolution case. Kodak’s response to Sony’s introduction of the Mavica in 1981 was one of trepidation as well as acceptance.Kodak clearly realized that the Mavica had the potential to greatly alter the landscape of its industry. Kodak acknowledged this occurrence as a major paradigm shift; however, due to the escalating commitment and its deep roots in traditional photography, Kodak failed to react accordingly.
Kodak’s CEO at the time, Colby Chandler, outwardly recognized the public’s affinity for color prints – the product that made Kodak a household name. Yet, others at Kodak went as far as to make doomsday predictions.Some managers within Kodak felt that the inception of the Mavica would be the death of traditional photography. It is apparent that Kodak should have invested in research and development as traditional film was reaching its natural limit, thus causing the referenced paradigm shift. Without Kodak’s willingness to outwardly adapt to the change, whether it be through R;D or other channels, Kodak’s ability to recognize the industry’s transformation was rendered useless since there was no plan or arrangement to successfully combat the rise of digital photography.When George Fisher replaced Whitmore as Kodak CEO in 1993, he attempted to implement a new strategy that focused the company on the entire imaging process and not just printing images onto film.
This was a shift from Kodak’s original strategy of selling inexpensive cameras and profiting on the picture film. Fisher wanted to push Kodak into “the five links of the imaging chain: image capture, processing, storage, output, and delivery of images for people and machines everywhere. ”2 Fisher’s attempt to transition Kodak into a technology leader in the digital camera industry failed as competition in this market was intense.Even though Fisher’s Kodak invested heavily into research and development of digital imaging, the company lacked a common goal to focus on when delving into new technologies outside of film.
Furthermore, Fisher was unable to establish the new focus of Kodak with middle managers who actually ran the business. In 1997, 60% of the company’s loses were from products developed following Fisher’s new hardware based strategy. A combination of an overly broad product focus and poor communication of the strategy to middle management prevented Fisher from successfully implementing his new strategy for Kodak.Fisher reversed his strategic thinking for Kodak and then attempted to move towards a “network and consumables”-based business model. Our advice to the current CEO of Kodak is to create Kodak. com, a free digital image services website.
Kodak. com will compete in free online image storage, manipulation and sharing. Kodak should invest in developing web-based, user friendly and “all-in-one” image manipulating software that differentiates itself from its competitors.This option builds on the belief that there is still customer value in a printed photo, while embracing digital photography.
Digital images captured grew by over 34% and digital images printed increased by over 20% from 2000 to 2006, per Exhibit 11 from Kodak and the Digital Revolution. This software platform will promote Kodak. com’s digital image services and eventually lead to online printing where the profit is generated. Printing generated from this software would direct customers to Kodak’s existing printing options such as kiosks, retail photo labs, mail order photos.This strategy allows Kodak to utilize their previous core business of traditional image printing, while allowing the customer to create prints in a new and innovative ways. We are recommending this strategy because traditional photography is approaching its technological natural limit which can lead to a paradigm shift.
“Paradigm shifts occur when new technologies come along that revolutionize the structure of the industry, dramatically alter the nature of competition, and require companies to adopt new strategies to survive. 3 This shift in the imaging market, from traditional to digital photography, will result in consumers buying less traditional photo film and purchasing more digital cameras, which prevents Kodak from being as profitable with their current strategy. By transforming Kodak’s strategy to one that is integrated with digital image processing, Kodak will be able to take advantage of this paradigm shift, command market share, and increase profitability in the image market. Thus, Kodak will be able to be a player in the image producing market without having to create and sell cameras which had proven to be an unprofitable strategy in years past.
