A new strategy for Kodak

Kodak

Eastman Kodak was once the dominant player in photography, as a maker of film in particular, but all other ancillary photography products as well. The advent of digital cameras put the nail into the coffin of this business, which had already been challenged by the arrival of new players into the market. Since that point, Kodak has basically been in a death spiral, laying off employees, selling off businesses, and losing market value. The company's most recent successes were lawsuits that it filed in defense of some of its patents. The company is now valued at just $300 million, but it has $2.6 billion in unfunded pension obligations and there are doubts as to whether or not Kodak will survive the year.

Objectives

There are many objectives that Kodak can set for itself. The first operational target is to have a profitable business that does not involve selling patents. Right now, what Kodak needs to do in order to ensure its long-term survival is it needs a hit product. It has tried to build one and failed thus far, but the reality is that without a hit product Kodak will not survive much longer, as its financial position is just not good enough. Another operational objective will be to get the company organized in a way that will encourage more innovation and entrepreneurship. Kodak basically needs to put itself in a position where it is coming up with new business ideas, acting as an incubator of sorts, rather than relying on a series of businesses that as yet are not working.

The first financial objective is that the company needs to establish stable cash flow. This is critical because the company is in a solvency crisis. The second financial objective is to find a way out of those pension obligations, either by funding them or by walking away from them. The pension obligations are going to make it impossible to sell Kodak -- a buyer might just wait for the company to go bankrupt and the pick up a desirable asset at auction for pennies on the dollar. Solving the riddle of the pensions is a critical financial objective.

A human resource objective is to maintain a high level of morale at the company. After successive rounds of layoffs, it would be easy to assume that morale is going to be poor -- and it might well be -- but a little optimism is going to be necessary for this company to survive. The people remaining are the best people at the company, so getting them to feel comfortable and good about their future with Kodak will be essential for the company to rebuild.

I am not sure where cloud services comes into play here, that's rather out of left field. There is nothing in the case to suggest that cloud is the way forward for Kodak. Why does Kodak think cloud services -- which is basically remote data storage -- is the way of the future for the company? But none of this has to do with cloud; these objectives have to do with getting the company into a stable position from which any business can be built. Right now, the company has a solvency crisis, and dealing with that crisis and its ramifications on operations and human resources should be the top priority for Kodak. This has nothing to do with cloud. If I have been hired as a consultant, I'm not going to just randomly accept that management has already made its mind up about strategic direction -- why hire me if that's the case?

Integration

Kodak used to have a reasonable level of vertical integration but now the company has less. It designs products, has their manufactured elsewhere and then sells them, often through third party channels. So the company has reduced its level of integration, and now is integrated in much the same way as its competitors are. Kodak has been pursuing horizontal integration aggressively for many years now, however. The company has rebranded itself as an imaging company, and for a while that strategy had promise. The brand still has value in imaging, and perhaps less value anywhere else, which is why Kodak pursued that strategy. Even today, Kodak tends to look at businesses around cameras and imaging. In that sense, cloud is fairly tangential, and would at least represent an attempt by the company to build a business doing something outside of imaging.

Multibusiness Model

Multibusiness models tend to improve profitability through synergies. First, the different businesses might have a common management, which allows them to build a common brand and management philosophy that is powerful, applying that across all businesses. Virgin Group is a good example of this. Another benefit of the multibusiness model is when the businesses are complementary. Customers of one business can become customers of another. A third reason is that there can be synergies, either in purchasing or distribution, that provide cost savings attributable to the multibusiness model (Monier, 2013).

A fourth reason that the multibusiness model can enhance profits is that it positions the company as dominant in the field, enhancing the brand image. An example of this would be FedEx, which has a number of businesses, but one brand, and this allows it to position itself not as a courier company but as a logistics solution provider. Kodak tried imaging solution provider in the past. A fifth reason why the multibusiness model can enhance profits is that it provides diversified revenue and profit streams. Kodak's past shows the risk of having just one business. If Kodak had diversified in the 1960s and 70s, it might not have seen the collapse that it has had, because it would have had other businesses to fall back on when the film camera market tanked.

Implementation

Eastman Kodak is in a difficult position, facing a solvency crisis while not only trying to keep the business afloat but to try and find growth in there somewhere as well. The reality is that the company bought time with those patent lawsuits and it has not mattered. The multibusiness model is the best organizational design for Kodak, but it works better when the businesses are viable and profitable. The advantages in terms of diversification of earnings are evident, so if Kodak does want to pursue a new business, it should be in context of a multibusiness design.

Strategic control has typically gone through Perez. At this point, it is probably better for the company to have a singular vision running things. Perez has had a reasonable vision for Kodak in the past, but things have not come together with respect to new businesses. As a consequence, Kodak should still maintain control through Perez, but any new business is still a risky venture; they just do not have a better option at this point and have to put faith in Perez' vision.