Kodak and the Digital Revolution (A)：柯达和数字革命（一） .doc

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1、Kodak and the Digital Revolution (A)In February 2003, Daniel A. Carp, Kodaks CEO and chairman, reviewed 2002 sales data with Kodaks senior executives. Film sales had dropped 5% from 2001 and revenues were down 3%. 2003 did not look any brighter: Carp expected revenues to grow only slightly and net i

2、ncome to remain flat or decrease (see exhibit 1 for information on Kodaks financial performance and exhibits 2 and 3 for information on sales of cameras and film rolls in the United States). The film industry was “under pressure unlike ever before.” Carp predicted a “fairly long downturn” BusinessWe

3、ek, “Daniel Carp, Kodak: Not a Pretty Picture,” Feb. 3, 2003. for traditional photography sales as consumers turned to digital cameras, which did not require film. Kodak was moving more of its manufacturing to China, where it could boost film sales, and was planning to slash 2,200 jobs, or 3% of its

4、 work force, especially in the photo-finishing business. Carp had received a masters in business from MIT. He had begun his career at Kodak in 1970 as a statistical analyst. Since then, he had held a variety of positions at Kodak. In 1997, he became president and COO, and was appointed CEO on Januar

5、y 1, 2000. He believed Kodaks current struggle was one of the toughest it had faced. How could he use digital imaging to revitalize Kodak?Kodak, 1880-1983: A brief historyIn 1880, George Eastman invented and patented a dry-plate formula and a machine for preparing large numbers of plates. He also fo

6、unded the Eastman Kodak Company in Rochester, New York. In 1884, he replaced glass photographic plates with a roll of film, believing in “the future of the film business.” A. Swasy (1997), Changing Focus: Kodak and the Battle to Save a Great American Company, Times Business, Random House. Although K

7、odak originally faced severe challenges, it quickly became a household name.Eastman believed success came from a user-friendly product that “was as convenient as the pencil.” Kodak website. Kodak regarded marketing as essential to its success. It first advertised film in 1885. Eastman coined the slo

8、gan “You press the button, we do the rest” when he introduced the first Kodak camera in 1888. He identified Kodaks guiding principles: mass production at low cost, international distribution, extensive advertising, and customer focus, and growth through continuous research. He also articulated Kodak

9、s competitive philosophy: “Nothing is more important than the value of our name and the quality it stands for. We must make quality our fighting argument.” Eastman Kodak (1988), Focus on the future: a guide to Kodaks business units and productsIn the black-and-white film era, Kodaks leadership came

10、from its marketing and its relationships with retailers (for shelf space, and photo-finishing with Kodak paper). Some competitors had better products, but consumers liked Kodaks offerings, and felt no need to pay for an enhanced product. J. Sutton (1999), Technology and Market Structure, The MIT Pre

11、ss, Cambridge, MA. The idea that money came from consumables, not from hardware, emerged early. In selling cameras, Kodak used a razor-blade strategy: it sold cameras for a low cost, and film fueled Kodaks growth and profits. Over time, Kodaks managers paid progressively less attention to equipment.

12、 One executive commented, “No matter what they said, they were a film company. Equipment was ok as long as it drove consumables.” A. Swasy, Changing Focus.With the advent of color film, which required substantial R&D, many firms lagged behind. After the early 1960s, attempts to enter the market were

13、 rare; the film compositions balance of chemical and physical properties and the know-how embedded in manufacturing made creating compatible products expensive and risky.Kodak had worked to develop color film since 1921 and spent over $120 million to do so by 1963. J. Sutton (1999), Technology and M

14、arket Structure, The MIT Press, Cambridge, MA. Its photo-finishing process became the industry standard. Most rival brands, although of excellent quality when properly processed, fared badly in typical photo shops. J. Sutton (1999), Technology and Market Structure, The MIT Press, Cambridge, MA. With

15、in Kodak, corporate power centered on Kodak Parks massive film-making plant. Kodaks CEOs typically came from manufacturing jobs in the Park. They were largely similar; most received the same training, and attended MITs Sloan School of Business as a sort of finishing academy. Since mistakes in the ma

16、nufacturing process were costly, and profitability was high, Kodak avoided anything risky or innovative. It developed “procedures and policies to maintain the status quo.” A. Swasy, Changing Focus.Kodak reached $1 billion in sales in 1962. In the 1960s and 1970s, it introduced new products like the

17、126 and 110 cameras, which moved beyond consumer photography to medical imaging and graphic arts. Most of these products exploited silver-halide technology and were incremental improvements. By 1976, Kodak controlled 90% of the film market and 85% of camera sales in the United States. Its technologi

18、cal strength and speed to market precluded the emergence of serious competitors. Salomon Brothers, Eastman Kodak Company: A Changing Image, Nov. 30, 1994. In 1981, its sales reached $10 billion. In 1981, Sony Corporation announced it would launch Mavica, a filmless digital camera that would display

19、pictures on a television screen. Pictures could then be printed onto paper. Kodak CEO Colby Chandler contended people “liked color prints” and Kodak could introduce its own digital camera, but managers became concerned about the longevity of silver-halide technology. A manager said, “It sent fear th

20、rough the company.” The reaction was, “my goodness, photography is dead.” A. Swasy, Changing Focus. Exploration and Diversification, 1983 - 1993Diversification into other businessesBetween 1983 and 1993, Kodak acquired IBMs copier services business; Clinical Diagnostics, which produced in-vitro bloo

21、d analyzers; Mass Memory, which sold floppy disks; and other bioscience and lab research firms. It also acquired Sterling Drug, a pharmaceutical firm that sold products like Lysol and aspirin, for $5.1 billion. Kodaks managers felt the pharmaceutical industry was related to its core “chemical” busin

22、ess: R&D was pivotal, and margins were high. Between 1987 and 1992, Kodaks share of the film market decreased by 5%. Salomon Brothers, Eastman Kodak Company: A Changing Image, Nov. 30, 1994. Competition in the core imaging business: Fuji Photo Film Co.“We were the imaging company of the world. We li

23、terally had no competition for so long, management hadnt become accustomed to it. Historically, if there was a competitor, Kodak would blow them away.” A former Kodak executive A. Swasy, Changing Focus. Fuji Photo Film Co., headquartered in Tokyo, was founded in 1934 as a comprehensive maker of phot

24、ographic materials. It produced film for movies and other applications, dry plates, and photo printing paper. In the 1960s, Fuji started looking for alternatives to developing and producing silver-halide film and established a joint venture with Rank Xerox (Fuji Xerox). HSBC, Fuji Photo Film, Oct. 2

25、2, 2002.Fuji entered the U.S. market in 1965 as a private brand supplier. It first marketed film under its own name in 1972. In 1976, Fuji was the first to introduce 400-speed color film. Many photo-finishers switched to its photographic paper and supplies, which cost 20% less than Kodaks. Kodaks ma

26、nagers ignored internal analyses of Kodaks eroding market share: “they didnt believe the American public would buy another film.” A. Swasy, Changing Focus. See exhibit 4 for data on film market share.In 1981, Fuji became the official sponsor of film at the 1984 Olympics. Kodak had balked at the cost

27、 of officially sponsoring film supplies. Fuji capitalized on the opportunity and boosted its U.S. market share to 12%, while its market share in Japan was over 70%. Peter Palermo, then senior vice president of imaging, noted, “It was December 7th Pearl Harbor Day at Kodak.” A. Swasy, Changing Focus.

28、 By 1985, other new labels included Konica, Agfa, dozens of private-labels, and Indian, English, and Korean brands. Consumers had learned they could get high-quality pictures with film that cost much less than Kodaks did. Retailers devoted more shelf space to private labels because they could make h

29、igher margins on these products. By the end of 1993, Fuji had 21% market share worldwide. In 1986, Fuji began selling a disposable camera, which became a big hit in Japan. Kodak claimed its labs had developed similar products early in the 1980s, but it had not patented them, some said because of the

30、 inconsistency with the razor-blade model. Kodaks exploration of digital imaging, 1983-1989In 1983, Colby Chandler created a division to explore new technologies such as digital imaging. Kodak hired John White, who had been in the software business, to push Kodak forward. White said:Kodak wanted to

31、get into the digital business, but they wanted to do it in their own way, from Rochester and largely with their own people. That meant it wasnt going to work. The difference between their traditional business and digital is so great. The tempo is different. The kind of skills you need are different.

32、 Kay Whitmore, President and Colby Chandler would tell you they wanted change, but they didnt want to force the pain on the organization. A. Swasy, Changing Focus. Chandler saw a silver-halide-based future, but felt Kodak needed to “blend new technologies” and “anticipate customers needs, create the

33、 products they want, then market those products better and more cost effectively than anyone else in the industry.” Eastman Kodak, Annual Report 1985. He felt Kodak could surmount this challenge by adopting George Eastmans original formula: focus on the customer, extensive advertising, and mass prod

34、uction at low cost. Additionally, he thought the pace of technological change had increased, and Kodak had to act faster.In changing, Kodak abandoned its policy of vertical integration. Kodak president Kay Whitmore said, One of the things weve learned is that one company cant do everything. Were pre

35、pared to acquire if it fits our strategic plan and gets us there sooner, or gives us a technical capacity we dont have in-house, or buys a market share that would be hard to build. Wall Street Journal, “Kodak Facing Big Challenges in Bid to Change,” May 22, 1985. With TDK and Matsushita, Kodak devel

36、oped the 8mm Kodakvision video system. It acquired other firms, like the Datatape division of Bell and Howell, which made high technology analog and digital recording equipment; and it devoted resources to research. Chandler supported “extensive research in chemistry, optics, and increasingly in ele

37、ctronics.” Eastman Kodak, Annual Report 1983. Some executives found it hard to believe in something that was not as profitable as traditional film. One senior vice president and director of Kodak research noted, Were moving into an information-based company,” “but its very hard to find anything with

38、 profit margins like color photography that is legal. Wall Street Journal, “Kodak Facing Big Challenges in Bid to Change,” May 22, 1985. In 1986, Kodak introduced the worlds first electronic image sensor with 1.4 million pixels (or picture elements), and it established an electronic photography divi

39、sion in 1987. By 1989, it had introduced more than 50 products that involved electronic image capture or conversion, including a scanner, a continuous digital tone printer, a professional photography image enhancer, and an HDTV projection system. Within the information sector, it established four ce

40、nters of excellence to develop image acquisition, storage systems, software, and printer products. Chandler declared Kodak would “be the worlds best in chemical and electronic imaging” by “exploring and defining the best ways to manage the convergence of conventional imaging science with electronics

41、.” Eastman Kodak, Annual Report 1989. See exhibit 5 for Kodaks R&D expenditures. “Film-based digital imaging,” 1990-1993Although Kodak had been the first to introduce an image sensor, the heart of the camera, the first widely announced digital product was Photo CD. Kodak wanted to create “film-based

42、 digital imaging.” Eastman Kodak, Annual Report 1991. It believed new products had to rely on a hybrid film/electronic imaging technology because silver-halide technology provided the highest-quality images attainable at the lowest price “for the foreseeable future.” Kay Whitmore, who became CEO in

43、1990, noted, “As this company did with black-and-white and color, we intend to set the standards and lead the way in film-based digital imaging.” Eastman Kodak, Annual Report 1991. Kodak planned to sell new hardware products improved by digital features, to license technology to computer producers,

44、to have more prints from discs at photofinishers, and to apply the knowledge acquired in digital imaging to the motion picture business and commercial products. Money had to come from photographic film and paper, but add “the flexibility offered by electronics.” Eastman Kodak, Annual Report 1991. Ko

45、dak introduced two new products in 1991, the first professional digital camera and the Photo CD, which it touted in its annual report. This product, developed with Phillips, would combine “the best of the photographic medium with the best attributes of electronic imaging.” Eastman Kodak, Annual Repo

46、rt 1991. It started as a blank CD. A roll of film could be taken to a photofinisher, and images, rather than being printed, were stored on the disc. Images could then be viewed on a TV screen with a special Photo CD player or on a computer screen with a CD-ROM. The project was expected to be a $600

47、million business by 1997 with $100 million in operational earnings, but there was little evidence that consumers would pay $500 for a player that plugged into a TV, plus $20 per disc. Fortune, “Getting digital imaging in focus,” May 1, 1995. The Photo CD was targeted at consumers, although its inven

48、tion team had argued its real potential lay in the commercial market. Scott Brownstein, who led the team, said senior managers wanted a quick hit and did not “understand our real vision or strategy.” A. Swasy, Changing Focus. Brownsteins group wanted to make CD-ROMs compatible with the Photo CD, but

49、 when senior executives met with Bill Gates, he remembered Whitmores lack of interest, as she apparently fell asleep. A. Swasy, Changing Focus. Later, when the Photo CD team worked with the computer firms, they had problems explaining the details to Whitmore.In late 1993, Whitmore stepped down. Kodak hired George M.C. Fisher, Motorolas former CEO, to replace her. Fisher, after having received his