Final Case analysis

Identification

The case is one of the best examples of the degree of adverse effects on established business of the mismatch of strategy and the structure of a company. Focus of the management of the Kodak was on the diversification in the areas which were not the core competency of the company. It is clearly evident from the case that in 1980s company opted for the multiple accusations in the areas like pharmaceuticals, newspaper software suppliers leading to the exponential increase in the long term debts of the company. Since the businesses acquired by Kodak not of its core competencies and they did not created enough revenues to nullify the impact of cost of debt leading to the servicing the debt from the internal resources of the company at the time when this was not sufficient to help them out they went for the bankruptcy. .

The agony of Kodak further intensified by the fact that it was losing the market share in the business where it was the leader or holding the competencies one time. Before proceeding further I will apply some concepts of strategic management for making a clearer picture of the strategy adopted by the Kodak.

SWOT analysis of the Kodak

STRENTH / WEAKNESS
  • Kodak cameras and photographic film were satisfying the very unique need of customers.
  • Strong financial strength.
  • Wide portfolio base.
  • Power full brand and market leader in the segment.
  • Prominent place of distribution.
  • Camera and photographic films are the complementary products give freedom in pricing.
  • Focus on product innovation and research and development.(company held’s thousands of patents).
  • Good presence in international markets.
/
  • Weak strategic focus.(In 1979 report showing the potential strengths of the digital image capture to replace the existing photographic instruments was circulated among senior executives of Kodak but they do not took positive action on this)
  • High debt.(due to the rapid takeovers in the unrelated businesses)

OPPORTUNITY / THREATS
  • To use the digital technology in the photography products .( the Kodak has first developed the digital camera in 1975)
  • High Potential of digital photography across the world.
  • Proper resource allocation .(Kodak channelizes proper resources to keep its leadership in digital photography segment it would have created great value for the stake holders)
/
  • Change in the form of core need of customers from the existing product. (Picture quality, digital storage electronic transfer).
  • Introduction of new digital technology removing the traditional film photography.
  • Late entry in the digital photography segment.
  • Price war by the closest competitor.
  • Early mover advantage gained by the competitors.

Despite having the all strengths to grab the leader ship in the new developing market of digital photography the Kodak was not able to leverage on the strengths only one strong weakness of overlooking the potential of the digital photography, and less sensitivity in accessing the augmentation in the need of the customers taken Kodak to the situation of bankruptcy. I would like to associate this with the concept of disruptive innovationin the photographic techonology means the digital technology in photography was in the market and slowly it has wiped out the traditional photographic film photography hence in this case the disruptor is digital technologyand the disruptor is the traditional photographic film photography.

The above discussion gives the how strategic focus of the top management is important for the health of the company otherwise only one unnoticed weakness or threat is enough to wipe out a company from the business.

Porter’s five forces model for Kodak

Threat of new entrant
(High ) / The new entrant in any industry brings innovation and new resources which can hamper the profitability of the industry for the existing players, for the aversion of these present players of industry creates the barriers to entry for new entrants and they are following.
  • Economies of scale: The Kodak was enjoying the monopoly at time and if leveraged properly on this could stop SONY to enter in the market.
  • Switching cost:the switching cost is low because of the less costly options was provided by the competitors like Fuji.
  • Distribution:I assume with the help of the very long presence in the market Kodak can make its presence so abundant which can stop the new entrant.

Bargaining power of buyer
(Moderate) /
  • If a buyer has the good financial health and the presence of the cheaper alternative in the market leads to the high bargaining power of buyer. In this case the product is of kind that cannot e purchased in very high quantities hence the bargaining power of buyer is moderate , I am taking it moderate not weak because of the fact that cheaper options are easily available in market.

Bargaining power of supplier
(Generally it is very high for electronics ) /
  • The case is silent about the supplier but in general in the digital electronics item the suppliers have the very high bargaining power.

Threat of substitute product and services
(very strong) /
  • There is very high possibility of availability of the substitutes with new technology.
  • High affinity of consumer towards their augmented needs of capturing the each moment of life.
  • High probability of cheap imitated products.

Intense revelry within the industry
(very strong) /
  • The industry is lucrative since it has potential means the total market of the traditional photography is expected to transfer to the digital photography. Any existing company having capability to launch the product with new technology can grab the whole market share.
  • Prevailing price war.
  • Limited product differentiation only in the quality.

The four out of five forces are very strong hence efficiently operating in this industry is the precondition to the existence of the company, the good performance is very difficult to attain. Efficient operation can only be done if one only focuses on the core competencies but the Kodak has neither focused of the core competencies nor it was able to sense the potential transformation of the market.

Directional strategy adopted by the Kodak

When a company go for adopting the growth strategies and adopts a wrong strategy it has to fo for the retrenchment for recollecting and concentrating the assets to take the business forward.

Evaluation and Analysis

Here I will be finding out the relationship in the numbers provided in the case and the performance of the Kodak.

Years / 2010-2011 / 2009-2010 / 2008-2009 / 2007-2008
Percentage change in net sales
(Year on year basis) / -16.0 / -5.8 / -19.2 / -8.6

There is a steady decline in the net sales of the company from 2007 to 2011.In some years the decline in the revenue id astonishingly very high.

Ratio Analysis

Ratios / 2011 / 2010 / 2009 / 2008 / 2007
Gross profit margin / 0.147 / 0.272 / 0.231 / 0.230 / 0.247
Operating profit margin or return on sales / -0.100 / -0.047 / -0.004 / -0.087 / -0.022
Net profit margins / -0.127 / -0.096 / -0.027 / -0.047 / -0.066

In all above mentioned ratios the higher value pertains to the better financials and the upward trend is favorable, for Kodak the values of all the ratios is low and the trend is downward hence the financial health of the company is bad.

Ratios / 2011 / 2010
Current ratio / 1.257 / 1.343
working capital / 553 / 966
Total debt to Asset Ratio / 0.32 / 0.20
Long term debt to capital ratio / 0.37 / 0.53

The current ratio shows the company is covering its current liability from the changing the assets in the sale and for both the years it is above one which is threshold value and it has declined in 2011 from 2010 that is not a good sign. Working capital is ok but the it is also declining the year on year basis. Increase in the total debt to asset ratio is indicating the company is moving towards the situation of bankruptcy. The values of long term debt to capital ratio more than .25 is showing the high portion of the capital is supplied from the loans. One more thing I would like to highlight that is the steady decline in the expenses on research and development is showing the myopic view of company about the innovation. On net basis we can say the all financial ratios are showing the beleaguered situation of the Kodak.

Recommendation

“Kodak should have to adopt the Concentric Diversification instead of conglomerate diversification it has adopted for growth”.

  • As mentioned in the case the Kodak was enjoying the monopoly in the film and photography industry and was a company focused on the innovation. The cash flow was very good and company was rich in cash reserves. Normally any company which is having the one or two cash cow products and has a powerful positioning in the mind of customers as a credible brand, like is the case of Kodak go for the growth by expanding the company’s activities in the other or related areas. The core issue in the case is the company has gone for the wrong type of the diversification strategy company had gone for the conglomerate diversification in which they have invested in the areas where they were not comfortable and for doing this Kodak has taken loan. Returns from the diversification were not enough even to cover the interest which leads Kodak to the stage of bankruptcy instead of this if Kodak focused on the digital technology as per me it might become market leader of industry.
  • Top management should have high Propensity to diagnose and adopt the technological changes.
  • Focus on market intelligence and preparation of counter for negating the effect of new strategies to be adopted by close competitors.
  • Top managements should be aware of the potential new technologies which can affect the dynamics of industry. They should be vigilant about the disruptive innovation.