by Eric Sutherland

Created on: January 15, 2007   Last Updated: February 06, 2008

How companies loose and have to fight back, if they can to establish competitive advantage and examine Kodak in this article.

The History of Kodak

In 1900 a former Bank Clerk, George Eastman produced the $1 Brownie camera that created a mass market for photography over the next century. The company developed into selling cameras and film with high-margin profits [REF1].

To quote the current chief executive "Film was last century". Revenues from film and printing businesses will again fall by 22 per cent. It will only be saved by Hollywood since Directors and film-makers prefer film to use in the cinema [REF1].

After developing Digital photography and gaining patents, its executives under estimated how fast its customers would stop buying film and related cameras. Also low cost competitors forced the company to outsource production to Flextronics in Singapore and stop making low end cameras [REF1].

Investors have not seen their shares this low since the 1980s and reconstruction and takeover cost have resulted in $3.3 billion of debt, but sale of the Health film business will reduce it by $2 billion. Its breakup value is estimated at $12 billion and Private Equity companies will one day mount a bid [REF1].

Argument

The company is operating with Diversification and Acquisition strategies and in response to globalisation an outsourcing strategy to regain "Cost Leadership" as its competitive advantage with high margins [Chapters 7, 12 and 14, REF2]. Its Value Chain proposition will be knowledge management with cost leadership through outsourcing as core elements [Barney, p.175, ref2].

Current Strategy Black Box Model

The inputs are Debt and Shareholders Equity to fund Acquisition and Diversification, which are outputs requiring management time and funding. This is a Risk-seeking strategy, loss of skills through diversification and possible integration problems with management and culture of any Acquisition [Himmelweit, p.215, REF3]

Target Strategy Black Box Model

Inputs are Low Cost of production [Flextronics, REF1] and No debt with strong Cash Flow and Outputs are Cost Leadership and resulting in High Margins, which lead to higher profits and rising share price.

New Kodak Organisation

With, three or more R&D Centers around the world and new Product Designs to outsourced production, also income from licensing the know-how in patents. The Kodak Brand still stands for quality and expertise in photography.

Old Kodak Organisation

In a lot of large organisations new products

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