1. What macroenvironmental, competitive, and industry forces made Kodak initially successful? Are these the same in their demise?

2. How did Kodak achieve related diversification and vertical integration?

3. What might Kodak have done differently to be a leader in technology?

The case describes the rise, the fall, and the turnaround efforts of Eastman Kodak Corporation.

Founded in 1901 to exploit its continuing interest in the photographic industry, Kodak focused on four primary objectives to guide the growth of its business: (1) mass production to lower production costs, (2) maintaining the lead in technological developments, (3) extensive product advertising, and (4) the development of a multinational business to exploit the world market. Kodak became one of the most profitable American corporations, and its return on shareholders' equity averaged 18% for many years.

To maintain its competitive advantage, it continued to invest heavily in research and development in silver halide photography, remaining principally in the photographic business. In this business, as the company used its resources to expand sales and become a global business, the name Kodak became a household word signifying unmatched quality.

By 1990, approximately 40% of Kodak's revenues came from sales outside the United States. However, Kodak's world dominance had begun to be chipped away in the 1970s, by the rise of a Japanese company named Fuji. Fuji invested in huge, low-cost manufacturing plants, using the latest technology to mass-produce film in large volume. Fuji's low production costs and aggressive, competitive price-cutting squeezed Kodak's profit margin. Fuji's success exposed the complacency that had piled up in Kodak after years of domination in world markets. Kodak responded with defensive litigation to protect its market share as with such patent suits with Polaroid. The photographic industry surrounding Kodak had changed dramatically, with the success of 35mm cameras, a market that Kodak believed did not have much potential. Competition had increased in all product areas, including photographic processing, and Kodak, while still the largest producer, faced increasing threats to its profitability as it was forced to reduce prices to match the competition.

As Kodak belatedly try to respond to the new and increased dynamism in an industry that it controlled, it was hit by rapid developments in other industries that led to a swift and paradigmatic shift in image recording: the rise of digital imaging, based on a different technology, and a technology that was superior in many fronts, including overall cost, flexibility, and suitability for the emerging digital media and communication services. Kodak's response was diversification into information systems, health, and chemicals, in addition to its core imaging group that was beefed up with acquisitions of digital imaging companies. In addition, Kodak tried to improve efficiencies and reduce costs and improve productivity in its core photography business. However, Fuji's cost base was lower, and therefore Fuji could match any price cuts that Kodak implemented, and could even go lower without losing money.

These competitive shocks, and Kodak's clumsy responses, also exposed Kodak's laid-back, conservative culture, with an unhurried decision-making style, typical of a company that was used to being a market leader. Successive leaders, Fisher and Carp, had to undo some of the unrelated acquisitions, and continue to stem the loss of profitable market share in the core photography business, and continue to transform the organization to prepare it for the new, competing technologies. It was a difficult balance, and Kodak only achieved temporary and mixed success in these efforts. Further cost cutting measures and a major restructuring plan focused on digital imaging leadership by new CEO, Perez, were still unable to generate enough profits to offset Kodak's losses.

In January 2009 Kodak posted a $137 million loss and announced plans to cut 4500 jobs that brought its workforce down to about 18,000 and in June 2009 it announced it would retire its Kodachrome film-the main source of its incredible past financial success.

Between July 2010-11 profits dropped from $36 million to $2 million and did nothing to help Kodak's bottom line.

In fact, in July 2011 it announced major falls in profits and sales across many of its product groups. Sales of cameras were down by 8%; revenues from its photofinishing operations were down 14%; sales of ink and inkjet printers had increased by over 40%, a bright spot, but nevertheless overall sales had decreased by 10% compared to the previous year and the group had lost $92 million

Since 2007, Kodak's stock has plunged from $24 to around $2.50 in July 2011. It seems that Perez's strategies have done little or nothing to turnaround Kodak whose market value was only around $650 million in July 2011. Some analysts claimed the only reason the company had not been acquired for this low price was that it had $2.6 billion in unfunded pension obligations because of its huge layoffs over the last decade. Given that it had less than $900 million in cash in 2011 many wondered how long the company would be able to survive-and what would push it into bankruptcy.