Kodak's Digital Journey

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Case Details:

Case Code : BSTR190
Case Length : 16 Pages
Pages Period : 1995-2005
Organization : Kodak
Pub Date : 2005
Teaching Note :Not Available
Themes: Adaptation to Market Changes | Transformation
Countries : US
Industry : Consumer Electronics

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"People think our challenge in becoming digital is that we don't understand the technology. They're absolutely, terribly wrong. We have technology coming out of our ears. What the company didn't have was focus."¹

- Antonio Perez, Chief Executive Officer, Eastman Kodak in February 2005.

"'To win at this game will require speed and flexibility - and that's not what I think of when I think of Kodak."²

- Robert I. Krinsky, Principal at IdeaScope, Consulting Firm in Cambridge.

Introduction

According to IDC,³ during the second quarter that ended in June 2005, the highest number of digital camera shipments to retailers in the US came from Eastman Kodak (Kodak). This was the third consecutive quarter that the US-based photographic equipment giant had topped the list.

Kodak shipped about 1.25 million digital cameras to the US retailers -- 51% more than in the corresponding quarter of 2004 -- while Canon and Sony shipped 1.15 million and 980,000 digital cameras respectively. However, Kodak remained third in worldwide digital camera sales behind Sony⁴ and Canon.⁵ For the quarter ended June 2005, Kodak's worldwide revenues grew by 6% to US$ 3.686 billion and revenues from digital products⁶ increased to US$ 1.843 billion, a 43%⁷ increase over the corresponding quarter of 2004. However, Kodak posted a net loss of US$ 146 million or 51 cents per share as against a profit of US$ 136 million or 46 cents per share, during the corresponding quarter in 2004.

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The primary reason for the losses was the falling demand for the company's traditional photographic film business, which showed a 15% decline in sales to US$ 1.843 billion. The demand for photographic film and paper was expected to decline even further.

Soon after the quarterly results were out, Kodak announced plans to cut 10,000 jobs -- 7,000 of them at its Kodak Park⁸ in Rochester, New York. These lay-offs were in addition to the 15,000 lay-offs announced in January 2004 along with the proposed reduction in manufacturing assets for consumer film and film cameras from US$ 2.9 billion to around US$ 1 billion by mid-2007. According to analysts, the company's business had been significantly affected by the quicker than expected shift of consumers to the filmless digital cameras and Kodak's unwillingness to phase out its traditional cash cow - the celluloid film business. They felt that the situation could only worsen for Kodak as consumers across the world shifted to digital products.

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1] Terry L. Heaton, "Searching for the Bottom," www.english.ohmynews.com, February 20, 2005.

2] "Can George Fisher Fix Kodak?" www.businessweek.com, October 20, 1997.

3] IDC is a subsidiary of International Data Group (IDG) founded in 1964. It provides market intelligence and advisory services to firms in IT and telecommunications industries. By 2005, it had about 775 analysts in 50 countries across the world.

4] Sony Corporation, headquartered in Tokyo, Japan, is one of the world's largest producers of consumer electronics. For the financial year ended March 31, 2005, the company reported revenues of US$ 66,912 million and net income was US$ 1,531 million.

5] Canon Inc., headquartered in Tokyo, Japan, is one of the world's leading imaging and optical products company. It manufactured computer printers, digital cameras and photocopiers. For the year that ended on December 31, 2004, the company's net sales were US$ 33,344.7 million and its net income was US$ 3,301.4 million.

6] Kodak's digital products include digital cameras, home printers, and picture maker kiosks.

7] www.kodak.com

8] Kodak Park, spread over 200 acres, is the manufacturing hub of Kodak. Kodak has been operating in this park since 1891. The park produces nearly one thousand varieties of photographic film and nearly 300 kinds of photographic paper. During the early 1980s, the park employed more than 60,000 people. By the end of 2004, there were only 19,000 employees.