Kodak: The reason for bankruptcy Table of Contents 1. Introduction 2. Kodak Company Overview 2. 1 Descriptive 2. 2 An Analysis of Kodak’s Strategic Strengths 3. Photographic Industry 3. 1 Description of the photographic industry 3. 2 Analysis Using Porter’s Five Competitive Forces Model Rivalry: high pressure Bargaining power of buyers: median to high pressure Bargaining power of suppliers: low pressure Threats of substitutes: high pressure Threats of new entrants: low pressure 4. Kodak’s bankruptcy 5. Recommendation: What could Kodak have done differently? Conclusion List of References 1. Introduction
The main reason leading to failure of Kodak because companies have turned away from their invention in 1970 is the invention of digital camera. They decided to continue their old strategy is photosensitive film, because they fear that the development of digital cameras will be an end to the photosensitive film products have made ?? their names around the world. This paper focuses on the bankruptcy of Kodak and the reasons lead to this problem. This topic is useful for us, the students, and those who want to learn from the failure of Kodak in order to prevent the same problems for their own company in the future.
Moreover, the paper will provide an overview about Kodak’s history and briefly about the growth of this firm. People can compare how different its business went in the past and the present, then get their own lesson to apply in a specific circumstance. Our paper will include the following content: The first part will mainly focus on the overview of Kodak. The second part is about the market of Kodak in general and information about its camera film field – Kodak’s trademark. We will try to apply the Porter’s Five Forces in the case of Kodak to evaluate how effective their strategy was.
The third part we will show some numbers, figures that reflect the problem of Kodak. Next is some of our analysis, result of our research to see where did they do wrong, and how it affect the company’s survival. Lastly, some possible solution will be recommended to help improve the company’s situation. 2. Kodak Company Overview 2. 1 Descriptive Launched in 1881 under the name Eastman Dry Plate Company, George Eastman Company has quickly rich and famous for the production of cameras and photographic film.
Can say thanks to the intelligent minds to develop new cycle, potentially sensitive, good spiritual and willing to take risks have contributed to the tremendous success for Eastman today in which they cannot fail to mention his most powerful brand, it is this: Kodak. Kodak was became one of the leading companies in photographic film products. Since then, Kodak has always been creative and come up with new products to make people at all levels of society can use the product with ease and simplicity.
Kodak has created a photographic movement wherever which so far has been very popular all over the world, even though Kodak now not as strong as they used to be. Photographic film products were one of the most famous products. In most of the 20th century, Kodak always held a dominant position in the film. Especially in 1976, Kodak got 90% market share of photographic film sales in the United States. Some product of Kodak: digital cameras, printer ink, photographic film, document scanners and picture kiosk. The number of employees was 18,000 people.
The following table includes the number of net revenue, net income and total asset of Kodak from 2007 to 2010. (In millions) | 2007| 2008| 2009| 2010| Net revenue| $ 10,301| $ 9,416| $ 7,606| $ 7,187| Net income| $ (676)| $ (442)| $ (209)| $ (687)| Total assets| $ 13,659| $ 9,179| $ 7,691| $ 6,239| (Source: Kodak (2007-2011) – Annual report – www. kodak. com) Table 1: Income, revenue, assets of Kodak 2007 – 2010. This table reflects the decreasing of most of Kodak’s record. The entire number decline has shown a part of Kodak’s problem. Net revenue and total assets of 2010 has fall down dramatically compare to 2007.
The year of 2007 is said to be the last year of Kodak. After that, everything continues to slip out of control. (Source: Historic Stock Lookup (2012) – Kodak – www. kodak. com) Figure 1: Stock price trend of Kodak 2007 – 2011. The figure has shown the decreasing trend of the stock price of Kodak from 2007 to 2011. The price severely falls from $21 to $6, means they lost $15 (equals to 28. 57%) in the market value. Kodak’s stock price continues to fall the following years except 2009 (the price rises a little bit then come back to its own path). This is another proof that Kodak actually encountering a serious problem. 2007| 2008| 2009| 2010| 1st quarter| $27. 8| $22. 03| $7. 66| $6. 94| 2nd quarter| $30. 20| $19. 60| $4. 57| $9. 08| 3rd quarter| $29. 29| $17. 71| $6. 82| $5. 11| 4th quarter| $29. 60| $15. 68| $4. 74| $5. 95| Average| $29. 22| $18. 82| $5. 95| $6. 77| (Source: Market price data (2007-2010) – Annual report (2007-2010) – www. kodak. com) Table 2: Market price data. Obviously, the stock price of Kodak has decreased. The number of 2010 has decreased $12. 05 compare to 2008. This is a big number that most of people have to concern. The Figure below shows a timeline of Kodak.
This timeline is important because we can see the development of Kodak through each period of time in the history. It reflects some of the most important event that Kodak has been through. What makes Kodak become a well-known company, what happened or what changes did they take on. Besides, the reputation of Kodak seems to be created through all of these events. Figure 2: A timeline of Kodak. Source: “Timeline of Kodak History. ” News Headlines. N. p. , n. d. Web. 18 Nov. 2012. <http://rochesterhomepage. net/fulltext? nxd_id=294622> 2. 2 An Analysis of Kodak’s Strategic Strengths
VRIN is a method used to identify a resource that is a source of sustainable competitive advantage or not. Kodak has three resources to create sustainable value for its shareholders. The resource-based view state that only resources or capabilities that are valuable, rare, inimitable, non-substitutable, can create value. This is because only those “unique” resources or capabilities provide a competitive advantage for the company. In Table 3 below we analyze three resources more closely and found that Kodak’s brand is probably the most valuable resource in the company. | Valuable| Rare | Inimitable| Non-substitutable|
Brand| Y| Y| Y| Y| Patents| Y| Y| Y| N| Founder| Y| Y| N| N| Table 3: A VRIN analysis of Kodak In 2010, according to Kantar Media, Kodak had spent 21, 1 million on major advertising media. In addition, according to a survey in February by Brand keys, a research firm for consumer loyalty to the brand, the Kodak’s brand tied Canon’s brand in the first place in the category digital camera. (source: http://www. nytimes. com/2010/04/26/business/media/26adco. html? _r=0) In early of century 21th, Kodak are among the leaders in the digital camera market and it is at the 27th most valuable brand in 2001; Kodak’s brand is worth $10 billion.
In 2009, Kodak got out of Interbrand’s Top 100. (source: http://247wallst. com/2010/09/13/the-brands-that-have-lost-the-most-value-in-the-last-decade/) 3. Photographic Industry 3. 1 Description of the photographic industry Nowadays, the demand photographic products and services to consumers is more and more increasing. Therefore, the photographic industry is a good market for business at leads to fierce competition in the industry. Although Kodak has been the market leader in providing photographic products for commercial worldwide for entertainment (source: http://www. ukessays. om/), memories and information, this is a big challenge for Kodak. Kodak continues to expand and develop for both traditional film and digital camera, at the same time they developing in new field is digital printer. In each field, Kodak must rival other competitors. * Traditional film: FUJIFILM is the main competitor of Kodak in the traditional film. Although Kodak has wrong orientation in the transformation of traditional film to digital, it still has a strong hold on the traditional segment. Kodak is a household name for any photographer, and all lovers of traditional film. Digital camera: Kodak faces stiff competition for the electronics giant in the digital industry as Sony and Canon. Although Kodak invented the digital camera, it was less developed in the efficiency, profitability, absolutely and sales compared with other competitors. Kodak has improved their strategic plan to reduce production costs and increase efficiency, with the goal of market leading digital camera as the same with development traditional film. In 2010, Kodak ranked the sixth and had 7. 4% in Digital camera market share.
Figure 3: Digital camera market share 2012 Figure source: Sony, Nikon Narrow Gap to Canon with New Digital Camera Models. ” Bloomberg. N. p. , n. d. Web. 12 Nov. 2012. Source: <http://www. bloomberg. com/news/2011-04-15/sony-nikon-narrow-gap-to-canon-with-new-digital-camera-models. html> * Digital printer: Kodak involved in the printer industry, which is dominated by two big companies as Hewlett – Packard and Lexmark. It introduced three all – in – one (AIO) printer model, to compete with HP and Lexmark. Kodak showed determination to lead in industry.
Due to the limited launch of new products, Kodak believed that low pricing strategy will succeed in stealing market share from companies leading market. 3. 2 Analysis Using Porter’s Five Competitive Forces Model Porter’s Five Competitive Forces Model shows that the level of benefit and harm in five basic competitive forces as rivalry, power of buyers, power of suppliers, threats of substitutes, and threats of new entrances. The role of this model is known that forces can become a threat or an opportunity for the development of the company.
High force is a threat to reduce profits and a low force can be viewed as opportunity for company earning profits. Analysis Porter’s Five Competitive Force Model of Kodak. Figure 4: An analysis of the photographic industry using Porter’s Five Forces Model Rivalry: high pressure Rivalry for the competitors in the industry can be considered as the biggest threat for Kodak. Technology always evolves quickly, so companies always create new products for rivalry. However, a good product is not enough; it must be consistent with of the demand and suitable price for consumers.
Thus, discounts and promotions strategy are always strong competitive strategy in this industry. In fact, this market extremely competes at lead to make rivalry having high force. Bargaining power of buyers: median to high pressure Customer demand for traditional film is lowdown. The main of competitor, Fujifilm is priced almost 20% lower than Kodak. There are many digital cameras and digital printers in the market. Bargaining power of suppliers: low pressure The components use to produce the camera does not focus, or discrimination. Kodak has a good and long relationship with the supplier.
Threats of substitutes: high pressure There are many digital cameras and digital printers for customers to choose an alternative to Kodak products. Example telephone or webcam in laptop can take a photo. Threats of new entrants: low pressure Entry barriers are relatively high for the photographic industry because of very high capital requirements. Kodak is a brand that has come into customers’ mind; it had a relatively large market share in a long time. Overall, it seems that the photographic industry is not a potential market for every firm anymore. As a matter of fact that most consumers choose igital technology to use because of its convenience makes the camera film industry become blue. Any firms want to join this market must take the decision carefully in order to prevent bankruptcy. However, one suggestion is that they shouldn’t choose this type of business because of the foreseeable threats. 4. Kodak’s bankruptcy Every company has its circle of life just like we, human, do. There is prosperous period when the company’s business going well, however, there also some unstable moment when the CEOs have to make very important decision to keep the business going.
Moreover, the elements of the economy always change influent firm’s business such as taxes, demand of the market, labor force, the policies of the government, etc. Thus, companies, especially the CEOs, should wisely decide which strategy to use or when their companies need some changes to fit the changes of the economy in general and the industry in specific. Many companies couldn’t survive when there is a change in the industry or the economy because of some mistake in the strategy or late reaction to the situation.
Kodak’s bankruptcy is evidence that every firm should be careful even if it owns a successful business with good reputation. The company has been established for more than 100 years with a lot of products sold worldwide along with many patents approved by the U. S government. At the moment, Kodak is no longer an empire in the imaging industry in general and the camera film field in specific. Even though Kodak was popular, it had to face a lot of trouble in the 20th century because of the important changes of the economy happen in this period.
Stock price decline in Figure 1 shows us Kodak has encountered a serious problem that affects its entire company. Kodak has lost a lot of its market share since Fuji film – one of the competitors, came to the US market because of the lower price they set. Moreover, company struggled financially a long time (since 1990s) has led the company to the edge of bankruptcy. They have filed Chapter 11 protection for bankruptcy at the beginning of 2012. 5. Recommendation: What could Kodak have done differently? For Kodak’s customers and prospects, we believe that Kodak’s future would be good if they did not have a huge debt.
Without the debt that is dragging the company down, Kodak has a very strong product and service portfolio. If Kodak could clear its debt situation, Kodak would emerge as one of the core players in the growth of the digital graphic communications market. Kodak is holding an intellectual property for which it currently achieves a great work from licensing. It leads to the revenues in the region of $300 million, and it takes an effort to sell some of this intellectual property. It is counted that this could be worth around of $3 billion.
If it can recognize this sum, it should be able to manage its huge debt and move on that can help it to prevent from bankruptcy as a stronger company with the ranks of growing businesses. The intensive rivalry is very high for Kodak. Many competitors with various ideas and innovation, Kodak should have a change that have a fixed price and apply technology in the right use because customers demand for traditional film is weighed down. There are also a lot of digital cameras, telephones or any high technology that can take photos. It could be strongly chosen alternative to Kodak’s products.
So, Kodak should make an innovation but it is also based on the market, customers demand. About the CEO, Kodak should have to change the person who can lead the company to raise this revenue. The CEO should be wise to choose which strategy to apply. Following the most of the analysis states that Kodak failed to change and it misunderstood about the switch to digital photography without inventing the technology. That is not true because it spent too much time and effort in protecting its still significant film business. CEO is also an important element that makes the company go to the right way.
According to these problems from Kodak, we recommend that Kodak recover its market share that has been lost to competition by choosing wrong strategy. Kodak did have a good range of digital cameras but it should spend enough time to improve it and think about a new way of innovation instead of holding a traditional film business. Kodak should focus on R&D enough to introduce some new products with low cost and the function still the same. Kodak should speed up the reorganization to keep the company’s business going and bring the stock of company back to the stock market. Conclusion
The bankruptcy of Kodak has shown us the importance of management in the survival of a company. Manager’s decision can lead the company to overcome the problems or drag the company down just by a wrong strategy like Kodak did, keep doing Kodak has reached this situation is not that is not trading successfully in selling its products. It is slow down by a huge debt generated in the past by a fundamental change in its business and that leads to a lot of damages such as close down manufacturing plants and processing laboratories around the world and reducing its workforce.
This generated massive redundancy costs and huge pensions liabilities. List of References * Barney, Jay. “Firm Resources and Competitive Advantage. ” Journal of Management 17. 1 (1991): n. page. Print. * Porter, Michael E. Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free, 1985. Print. 2. 1 Descriptive: * “Eastman Kodak. ” Wikipedia. Wikimedia Foundation, 11 Oct. 2012. Web. 18 Nov. 2012. <http://en. wikipedia. org/wiki/Eastman Kodak>. * Figure 2: A timeline of Kodak. Source: “Timeline of Kodak History. ” News Headlines. N. p. , n. . Web. 18 Nov. 2012. <http://rochesterhomepage. net/fulltext? nxd_id=294622>. Table 1. Income, revenue, assets of Kodak 2007 – 2010: * 2007 Annual Report and 2008 Proxy Statement. Rep. N. p. : n. p. , n. d. Detailed Results of Operations. Web. 19 Nov. 2012. <http://ek. client. shareholder. com/annuals. cfm>. * 2008 Annual Report and 2009 Proxy Statement. Rep. N. p. : n. p. , n. d. Detailed Results of Operations. Web. 19 Nov. 2012. <http://ek. client. shareholder. com/annuals. cfm>. * 2009 Annual Report and 2010 Proxy Statement. Rep. N. p. : n. p. , n. d.
Detailed Results of Operations. Web. 19 Nov. 2012. <http://ek. client. shareholder. com/annuals. cfm>. * 2010 Annual Report and 2011 Proxy Statement. Rep. N. p. : n. p. , n. d. Detailed Results of Operations. Web. 19 Nov. 2012. <http://ek. client. shareholder. com/annuals. cfm>. Table 2. Market price data: * 2007 Annual Report and 2008 Proxy Statement. Rep. N. p. : n. p. , n. d. Market Price Data. Web. 19 Nov. 2012. <http://ek. client. shareholder. com/annuals. cfm>. * 2008 Annual Report and 2009 Proxy Statement. Rep. N. p. : n. p. , n. d. Market Price Data.
Web. 19 Nov. 2012. <http://ek. client. shareholder. com/annuals. cfm>. * 2009 Annual Report and 2010 Proxy Statement. Rep. N. p. : n. p. , n. d. Market Price Data. Web. 19 Nov. 2012. <http://ek. client. shareholder. com/annuals. cfm>. * 2010 Annual Report and 2011 Proxy Statement. Rep. N. p. : n. p. , n. d. Market Price Data. Web. 19 Nov. 2012. <http://ek. client. shareholder. com/annuals. cfm>. * “Where Was Kodak’s Board Of Directors? ” 247wallst. com. N. p. , n. d. Web. 05 Nov. 2012. <http://247wallst. com/2011/11/04/where-was-kodaks-board-of-directors/> “Sony, Nikon Narrow Gap to Canon with New Digital Camera Models. ” Bloomberg. N. p. n. d. Web. 12 Nov. 2012. <http://www. bloomberg. com/news/2011-04-15/sony-nikon-narrow-gap-to-canon-with-new-digital-camera-models. html> * “Eastman Kodak Products. ” Eastman Kodak Products. N. p. , n. d. Web. 18 Nov. 2012. <http://www. ukessays. com/essays/management/eastman-kodak-products. php>. * Elliott, Stuart. “ADVERTISING; Modernizing the ‘Kodak Moment’ as Social Sharing. ” The New York Times. The New York Times, 26 Apr. 2010. Web. 18 Nov. 2012. <http://www. nytimes. om/2010/04/26/business/media/26adco. html? _r=0>. 4. Kodak’s bankruptcy * Kodak. Eastman Kodak Company 2007 Annual Report on Form 10-K and Notice of 2008 Annual Meeting and Proxy Statement. Rep. N. p. : n. p. , n. d. 2007 Annual Report and 2008 Proxy Statement. Web. 18 Nov. 2012. <http://files. shareholder. com/downloads/EK/2136648346x0x559914/1F34064F-0AB5-456F-9429-5EABDEAF511B/2007_Annual_Report_and_2008_Proxy_Statement_2_MB_. pdf> * Kodak. Eastman Kodak Company 2008 Annual Report on Form 10-K and Notice of 2009 Annual Meeting and Proxy Statement. Rep. N. p. : n. p. ,
