The Eastman Kodak company, otherwise known as Kodak, provides imaging products and services to the photographic markets. It was founded in 1881 by a man named George Eastman, who created the first dry plate formula which he then patented. Eastman believed that new products should be highly user friendly and should be targeted at reaching regular everyday people, making photography something everybody could do and enjoy.
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By 1884 Kodak had become a popular household name. George Eastman's early success was due to one of his first creations, the roll film, Eastman believed that this creation would be 'as convenient as the pencil'. In 1888 George Eastman put the first simple camera into the hands of the world consumer with the slogan "you press the button, we do the rest" (Eastman, 1988). Eastman developed principles and values in order to make Kodak a success, these guiding principles and values are; low cost mass production, the importance of quality, international distribution and the belief that growth can only be achieved through continuous improvements in research and development. George Eastman also expressed Kodak's competitive philosophy as, "Nothing is more important than the value of our name and the quality it stands for. We must make quality our fighting argument". (Eastman, 1988).
By 1902, Eastman Kodak was producing 80 to 90 percent of the worlds
Celluloid film. By the 1930s, the company operated dozens of huge, specially designed film-making machines at its Kodak Park plant.
The Eastman Kodak company has continued to grow and change with technology, creating new products and processes to make photography simpler and more attractive. Today Kodak is known not only for photography but their images are used in commercial marketing across the world and the entertainment sector, enabling the use of technology, imagery and information to change how people and businesses communicate with each other.
Capabilities.
Organisations are not identical as they have different capabilities. If an organisation is to gain a competitive advantage, it will do so on the basis of capabilities that its rivals do not have, or have difficulty in obtaining.
Strategic capability is the resources and competences of an organisation needed for it to survive and prosper. Kodak is a market leader but to become a market leader Kodak had to adapt and change with the world as new technology became increasingly superior. The biggest problem with an increase in technology was the digital age. Kodak was the market leader in pre-digital age imagery and photography which included film, photo paper and chemical development. The digital age brought the development and increase of technology to which Kodak could not compete.
The Kodak Value Chain Pre-digital Age
The diagram below demonstrates Kodak's strength in almost all areas of the traditional photography process.
film camera
video camera
Image capture
Processing
Storage
Printing
Projection
- Retailer processing
at retail stores
- reprints
(Gavetti, 2005)
To overcome this important stage in the company's life cycle Kodak had to refer back to the initial guiding principles and values George Eastman developed for the company which were low cost mass production, the importance of quality, international distribution and the belief that growth can only be achieved through continuous improvements in research and development. By using these principles and values as a guide to improve the company and push themselves into the digital age, the diagram below shows the changes that needed to be made in order for Kodak to successfully enter the new age digital market.
The Kodak Value Chain Post-digital Age.
- At home: printers inkjet consumables, paper
- Online (paper)
- At retail stores
- Online (email, Internet)
-digital camera
- Video camera
- Film camera
Retrieval
Image capture
Digitalisation
Storage
Transmission
Printing
- Digital Camera's software
- Scanner at home
- Kiosks at retailers
- Digital mini-labs
- Online services
- Hard disk
- Floppy disk / CD
- Removable storage (e.g. Memory stick)
Manipulation
- CPU manipulation
Projection
*coloured box shows Kodak was only partly involved at this stage.
(Gavetti, 2005)
To gain a competitive advantage, organisations must reposition themselves in order to take advantage of a changing market, or in some cases hold on to their normal resource base. There are two different views, the Resource Based View (RBV), otherwise known as the 'inside out perspective' and the Market Based View (MBV), otherwise known as the 'outside-in perspective'.
The resource based view of strategy is the competitive advantage and superior performance of an organisation which is explained by the distinctiveness of its capabilities. In 1959 Dr Edith Penrose developed the idea that firms compete on resources and not their market positioning which supports the resource based view. Another supporter of the resource based view were Prahalad and Hamel who in 1990 suggested that, "resources that are valuable, rare or are in some form difficult to imitate form the core-competencies that enable an organisation to compete successfully".
In 1985 Michael Porter's Competitive Strategy journal suggested that firms should persistently take their environment as the starting point in order to determine an appropriate strategy, thus supporting the market based view.
In 2003 Kodak decided they needed to apply the market based view as a strategy to finally revolutionize into the digital age. Kodak made many alterations and changes in order to successfully gain a share in the new market.
Dynamic capabilities are an organisation's abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment. Dynamic capabilities may take the form major strategic moves such as acquisitions or alliances by which new skills are learned. In 2004 Kodak completed the acquisition of Scitex Digital Printing, and sold its remote sensing systems to ITT Industries. A strategic partnership was formed with Verizon Wireless. The Eastman Kodak's company also acquired voting rights in Chinon Industries, through its Japanese subsidiary. Kodak acquired the image sensor business from National Semiconductor, and also closed its plant in Australia. At the end of 2004 Kodak, Fuji Photo Film and Konica Minolta Photo Imaging formed a picture archiving Kodak and sharing standard group (to enable the preservation of digital photos and motion images on CDs, DVDs and other types of media).
To address the development of the information age in cellular technology Kodak achieved an agreement with Cingular Wireless and Nokia to develop services for mobile phones with cameras.
Resources.
A resource is 'a person, asset, material or capital which can be used to accomplish a goal'. Tangible resources are 'the physical assets of an organisation such as plant, labour and finance'. Intangible resources are 'non-physical assets such as information, innovation and knowledge'. To sustain a competitive advantage a firm must have 'unique' resources.
Kodak has many resources. When the company was founded George Eastman patented the creation of the dry plate formula, this asset was the beginning of the success of Eastman Kodak as a market leader. George Eastman was himself one of the main resources of the company; it was his ideas, innovations and creations that created the company and made it the success it is. He not only created the start of photography but he created a guide for the company, a set of principles and values for the company to follow to be successful. Kodak's company logo is a resource as Kodak was the first to integrate its name and look into a symbol with their red and yellow trade dress colour. Employees such as managers with valuable knowledge are an important resource especially managers that have been hired since the managerial re-structure who have up to date knowledge in the digital age. Of course all the other workers and employees (labour) are just as important to keep the company going, workers with the necessary skills and experience that run the company and plants in a successful and efficient manner. Kodak has a lot of equipment, some of which Kodak has had to change and has had to be updated since the change and increase in technology in the digital age. Finance is also a main resource as without it there are a lot of other resources you cannot have; finance affects the entire running of the business. Innovation is a key resource, not only was it important for the creation of the company but it is vital for the future of it. 'To a greater or lesser degree, innovations either enhance or destroy competencies that a firms already possesses' (Utterback, pg183). An example of innovation by Kodak is the razor blade strategy that George Eastman applied at the beginning of the company. Kodak sold cameras at low prices in order to generate profit from the sales of films for the cameras.
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The digital age shook the Eastman Kodak company. Kodak was stuck in the past not unable but unwilling to change with the rest of the world as technology increased and advanced. Kodak had the ability to take control when the digital market emerged but chose not to because they believed nothing could be as pioneering or as popular and as the film. The beginning of the change into the digital age was in 1981, Sony launched the introduction of the first filmless digital camera called the Mavica. Films were becoming outdated and this was what Kodak needed to realise.
Had Kodak taken control and made the change at the right time, Kodak would be in a completely different situation, however Kodak was too late to recognise the need for change and when they finally realised they needed to change in order to survive they were slow to react which in the end cost them the market leadership.
Competencies.
Competencies are the skills and abilities by which resources are deployed effectively through an organisation's activities and processes. Core competencies are competencies used to achieve competitive advantage in ways that others cannot imitate or obtain.
Competences are created as organisations combine humans and technology. If correlated together perfectly these competences will change over time as both knowledge and technology develops. Chandler worked and developed this theory further in both The Visible Hand (1977) and Scale and Scope (1990). The link between humans and technology can be seen within the Kodak company, for example, recently Kodak have made changes to their managerial structure which has enabled them to gain new managers with knowledge and experience in digital photography and Kodak's continuous networking strategy facilitates business opportunities with like-minded business people. An example of networking for Kodak is when George Eastman marketed the first commercial transparent roll film in 1889, the impact ranged beyond consumer and professional photography. For one thing, it enabled inventor Thomas Edison to develop the first motion picture camera in 1891, and by 1896 Kodak was marketing film specially coated for motion picture use.
Prahalad and Hamel (1990) said, "Resources that are valuable, rare or are in some form difficult to imitate form the core-competencies that enable an organisation to compete successfully."
The knowledge-based view creates a new competence to the organization which is the ability to create and share knowledge which gives the organization a competitive advantage. Grant believes that competencies are created from the incorporation of knowledge. However an important point has to be made, it does not matter how much valuable knowledge you have or how expensive your equipment is worth if you do not know how to use your resources efficiently.
As a common rule, competency-enhancing innovations are just as likely to develop from established firms as from outsiders. Competency-destroying innovations, however, almost always come from outsiders.
The necessity to develop new competencies in anticipation of future developments is an important factor of long-term business success and George Eastman seems to have recognised this requirement which is one of the reasons why Eastman is also recognised as a successful innovator.
Conclusion.
The Eastman Kodak company was described as, 'an example of repeat strategic failure - it was unable to grasp the future of digital quickly enough, and even when it did so, it was implemented too slowly under a continuous change strategy and ultimately it did not fit coherently as a core competency'(Mendez,2005).
It is amazing to think how Eastman became a global market leader instead of the Germans, as the Germans were the leaders in the science of optics, chemicals and design of cameras. However German products were usually expensive and produced in small numbers whereas George Eastman struck a desirable balance between cost and quality. For example, Eastman quickly replaced his original Kodak camera with his No. 1 model because the former shutter system was inherently costly to make. Eastman focused on his financial and HR on an international mass market and large-scale production. There are some similarities with Eastman Kodak and Henry Ford who incorporated the Ford Motor Company in 1903.
"A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors". (Barney, 1992:102)
When Thomas Edison asked Eastman to produce a special film for the newly invented motion picture camera, Eastman already had the competencies needed to develop it, he simply had to lengthen and strengthen his strips of film and add holes to connect the movie camera's sprocket.
The importance in the development of new competencies in anticipation of future developments is a vital factor of long-term business success.
All of George Eastman's early attempts at colour photography failed, and these failures encouraged him to establish R&D in the Eastman Kodak Research Laboratory.
The idea of competency is essential to the survival of all firms as they encounter change. During the time it took for the transformation of the Eastman Kodak company to transform into the market leader it is, many other successful companies disappeared in a time of technological change.
The capabilities, competencies and resources of a company are the key factors that give a company the competitive advantages to enable them to be successful and gain market share. This has been apparent throughout the research taken on the Eastman Kodak company. However even with these capabilities, competencies and resources, no matter if you are a market leader or a small company barely breaking-even, if you do not use these competitive advantages efficiently and do not recognise the need for change your company is going to suffer just as the Eastman Kodak company did.
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