Kodak's Digital Transition: Strategy, Diversification, and Survival

Introduction: Kodak at a Crossroads

Kodak has been a household name in photography for decades. The infrastructure built around traditional developed-film photography made the company a dominant industry leader. Yet recent technological advances and the emergence of affordable digital photography fundamentally changed the outlook for Kodak. Comparing the prices of early digital technology — when Kodak marketed a camera with limited abilities for just under $1,000 — with the reality a decade later, when consumers could purchase a far more capable system with most technical issues resolved for little over $100, illustrates a dramatic shift. This price compression is notable, especially given that Kodak was involved in digital imaging from the very beginning of the movement and has since worked to answer changing market demands by continuously lowering prices and diversifying its product portfolio to compete in a highly competitive landscape (Rohde, 1996, p. 18).

Kodak is answering consumer demands and managing to transition through this monumental change by quickly utilizing name recognition to sell rapidly produced digital products — including digital photo print paper, digital photo printers and printing systems, and in-store kiosk printing for digital prints. The company has also developed digital cameras and moved them to market rapidly. Additionally, specialized and profitable enterprises that served Kodak well in the past, such as medical imaging, are being upgraded to digital technologies and will continue to support the company despite broader market changes ("Kodak Phils. Pulls Up," 2006, p. NA). This paper examines the ways in which Kodak is changing to meet new consumer needs and remain viable in the new digital economy.

The Decline of Film and the Rise of Digital

Kodak's traditional 135 film and analog camera business declined by 17 percent, while its digital imaging portfolio grew at 36 percent. At some point these two trajectories were expected to intersect, and Kodak's marketing and sales experts identified 2005 as the company's "crossover year" ("Kodak Crosses over from," 2005, p. NA).

Kodak faces the stark choice of immediate and rapid diversification and restructuring or losses comparable to those seen in industries overtaken by technological change — such as the typewriter industry at the advent of word processing and personal computers. Kodak does appear to be showing signs that it has successfully answered the consumer's call for change by expanding its digital offerings and services. As the world's foremost imaging innovator, Kodak reported that its worldwide revenue rose by two percent in the first quarter, led by a 29 percent increase in the sale of digital products and services. The company also reported a first-quarter loss of $298 million, or $1.04 per share, largely stemming from restructuring charges ($197 million after taxes) and rising silver and oil costs ("Kodak Phils. Pulls Up," 2006, p. NA).

Diversification and Restructuring Strategies

Diversification may resolve many of Kodak's potential problems, but the lingering consumer dependence on film development services, early competition in the digital products space, and the lack of existing plants readily adaptable to digital manufacturing will likely continue to affect the company through layoffs and plant closures ("Digital Craze Blamed as," 2006, p. 7). Transforming an entire workforce from one technology to another — even when both are mechanically and technically driven — is difficult. Kodak has needed to explore transitional options, such as locating new plants with entirely different manufacturing processes in regions with lower overhead. This dynamic helps explain why UK plants have been laying off workers or closing while facilities in the Philippines have been growing and expanding ("Kodak Phils. Pulls Up," 2006, p. NA; "Digital Craze Blamed as," 2006, p. 7). Kodak appears to be strategically using this period of restructuring to reduce overhead, and while job losses have occurred in some areas, the overall trajectory for the company appears positive.

The advantages of digital photography over traditional film are considerable. Even with a basic digital camera, consumers can take hundreds of photographs, upload them to a computer, digitally enhance them, remove flaws, or simply delete images that do not meet their needs — all without paying for processing and printing. This ease of use is likely to expand the overall potential customer base in ways that traditional film photography never could. Kodak must find ways to capture this new customer base and maintain loyalty through product upgrades rather than through the repeat dependence that film development services once guaranteed.

Conclusion: Kodak's Future in a Digital World

Though there are clear arguments for and against digital technology that span broad circumstances, it is clear that this highly consumer-driven technology will advance to an even better system than is currently available. Technology continues to drive the consumer, especially in today's global marketplace. The development of better digital technology may eventually render all film-based technology obsolete and push it further to the margins. Yet Kodak intends to remain a prominent player for the foreseeable future, as the examples of change and diversification discussed above demonstrate. There is little doubt that Kodak will continue to answer the call of competition and keep its doors open for a long time to come. Though the company will have evolved significantly from its origins as a film and paper producer, its name will continue to be associated with quality photographic supplies and services — just of a different nature.