2.

0 PESTILE Analysis
Sample Analysis
Variable Factors Impact
1.0 Introduction Political & Legal Cost associated with new environmental, employment and taxation laws and regulations -2
Legal impact/ risk of over reliance on outsourcing manufacturing and other administrative functions -2
Eastman Kodak Company is one of the oldest
Consumer protection laws and other contract laws -3
companies in the world and Kodak is one of the
well known brands that associated with Economic Less customer/ business spending -3

photographic and imaging products and systems. Difficulties in securing lines of credit due to the financial crisis -3
Its reputation was historically based on Impact of forex fluctuations in international markets on prices of raw materials and finished products -3
traditional photographic techniques and the Socio-cultural Increased price sensitivity/ low brand loyalty -2
recent changes of the photographic industry Increased popularity for social networking sites/ need for storing and sharing photos +3
have forced the company to rethink and reinvent
Use of mobile phones for taking casual pictures -3
in order remain competitive.
Decline in the number of holidays taken -3
It has made considerable changes to its product
portfolio over the last few decades and the scope Limited technical awareness of the casual customers -2
of Kodak now includes image capture, Impact of one person households and ageing population -2
reproduction [printing, projection or on screen], Women are more interested in taking digital photos/ Got problems with sharing them with PCs +3
storage and transfer [sharing]. Technological Wide access to broadband services +3
Digital films/ transition from analogue platforms to digital platforms +2
Currently Kodak is the third largest player of the
Sharing photos with mobile devices and social networking sites +2
global image and photographic market and the
present structure of the company consists of Mobile phones with inbuilt sophisticated cameras -3
three main segments Ecological Increasing awareness ethical trading and business operations -1
- Consumer Digital Imaging Group – centres -3 = high negative effect -2 = medium negative effect -1 = low negative effect 0 = Neutral
on B2C activities for digital cameras, +3 = high positive effect. +2 = medium positive effect +1 = low positive effect
printers, online services and photo kiosks.

- Film, Photofinishing and Entertainment
Group- focus in on colour and black and
white negative film for still and moving
pictures
- Graphic Communication Group- centres
on B2B activities for systems and software
and large procession equipments.
Basically Kodak has grown organically and in the
recent past it has acquired some businesses
which gave a strategic importance for the
company’s competitiveness. Also it has sold out
few of its businesses as a response to the
financial challenges it faced due to the financial
crisis.
Figure 1.1 Strategy of Kodak Observation- Most of the macro-
environmental factors have a negative impact
on Kodak. This is a quite similar situation for
Differentiation most of the companies with the current
financial crisis. Increased price sensitivity and
less spending of both B2B and B2C sectors
have compelled Kodak to adopt hybrid
positioning strategy where they have to offer
differentiated innovative products and services
at competitive prices. This is the nature of
technology-driven industries such as digital
imaging and graphic communications. Also it is
noticeable that few socio-cultural and most of
the technological factors have a positive impact
on Kodak while most of the factors with
Focus Cost negative impact have themselves shown certain
Leade opportunities for the company.
rship
 3.0 Industry Analysis 4.0 Industry Life Cycle

Force Factors Impact

Density of Rivalry Competition among existing players because of low margins -
Digital cameras
[Very High] Intense competition in the digital market with global players - & Camcorders
Role films
Motion picture
Bargaining power of Less brand loyalty due to high price sensitivity [end customers] - and
Graphic films traditional
buyers [Very High] Selective/ tight stock management of intermediaries - communications still
[departmental stores and catalogue companies] photos
Bargaining power of Need for diverse input and materials -
suppliers Most of raw materials are easy to obtain +
[Moderate] Silver and specialist aluminum -
Threat of New Need for mass production to cover the development cost +
Entrants High initial investment required + Digital film
industry
[Moderate] High research and developments for continuous innovation +
Threat of new entrants in digital film and photofinishing market -
Threat of substitutes Mobile phones with sophisticated cameras -
[Very High] Use of home entertainment instead for outdoor holidays and -
tours

5.0 Competitor Profile Figure 5.2 Global photographic product market

Key performances in shares-% shares by value 2008.
Main geographical
Company Brand B2C Product range B2B Product range 2007
markets
Canon Canon Cameras Photocopiers Japan Earnings $43,312m
Printers & scanners Printers & Scanners USA Profit margin 10.9%
Papers & Ink Optical equipments Europe 41.3% photographic
Cartridges Paper, Ink product market share
Cartridges & chemicals Asia Pacific 32%
Fujifilm Fujifilm Photo finishing Imaging equipments Operates worldwide Earnings $23,192.5m
Holdings Digital cameras photographic equipments Profit margin 3.4% America 31%
Print films Office equipments 24.6 % photographic Europe 29%
Medical imaging product market share
cameras print films Rest of World 8%
chemicals
Konica Konica Digital cameras Copiers Earnings $9,932m
Minolta Print films Printers Profit margin 7.1%
Photographic papers Photographic papers 8.4% photographic
Orienting services product market share

Observation- Industry Analysis
Photographic and imaging industry is highly competitive. Market is mainly driven by technological
innovations and as a result private consumers are looking for high quality still and moving pictures
which can be used with mobile devices, computers and the internet especially as part of the increased
use of social networking sites.
Mobile phones with increased power and sophistication have become one of the biggest challenges to
the cheaper end of the photo graphic market. This has been backed by customer’s tendency to use
their mobile phones instead of cameras for taking still and moving pictures. Also bargaining power of
both business and private customers has increased dramatically with the wide availability and as a
result of being price sensitive with the less purchasing power.
Observation- ILC and Competitor profile –Demand for role films
and still photos has declined dramatically with the invention of digital
cameras. Further digital cameras, camcorders and motion picture film
markets have reached saturation with demand steady and mainly driven
by the desire for upgrades and replacements. Other sectors are said to be
growing while digital films is still at its introduction stage.
Currently Kodak is the third largest brand of the photographic products
market with a 19.5% market share. Canon is the market leader with
41.3% share followed by Fujifilm with a 24.6% market share. All of these
major players seem to have similar profiles with similar product range.
 06. Internal Analysis Figure 6.2 KSF and CSF

Observation- It’s clear that the company has developed critical success factors to
meet/ match the key success factors of both B2C and B2B markets. Basically both
sectors are driven by similar key success factors and business needs differ from
those of the private consumer needs in terms of quality, volume of pictures and
after sales service. Recently Kodak has slowed its pace of converting innovative
ideas in to actions.

6.1. Value Chain analysis

Infrastructure- Good Corporate Governance and Leadership (+) Profit Margin 2008
Continuous innovation backed by R&D (+) Observation- Current
Acquisitions and divesting non-viable businesses (+)
(-4.7%) financial crisis has compelled
Leaner business models and thin cost structures through redundancy programmes (+) companies to redesign their
Profit Margin 2007
Human Resource Management- Total headcount has fallen to 19,900 through restructuring programme (+) (6.6%) business models and to adapt
Specialist and technical people and crucial and vital for the company’s survival and success (+) ultra thin cost models.
Key personnel rewards- performance related (+) Executive salary cuts & Mandatory unpaid leaves (-)
Profit Margin 2006 Kodak has already taken some
Feelings job insecurity due to financial crisis (-) Service & Support team (+)
(-5.74%) actions to cut its cost structure
Technology Development further down and to focus on
High importance on research and development [dropped by 8.8% in 2008] (-) its core business areas. Also it
Complex inter-connected IT systems for procurements and operations (+)
Wide number of patents for innovative technology (+) Slow process of innovation (-)
has taken some crucial actions
to rationalize its product
Procurement portfolio.
Linked closely with technology development which enables flow of information with key suppliers and manufacturers (+)
Consistency in supply - Kodak is operating in many niche markets being the preferred supplier with protected continuity (+)
More importantly Kodak
continues to add value
through its marketing & sales
Inbound Logistic Operations Outbound Logistics Marketing and Sales (++) Services (++)
Variety of suppliers Greater reliance on Multiple channels (+) Variety of marketing Kodak Service & Support
by adapting variety of
on contract basis & third party Direct and indirect (+) strategies suitable for its 3,000 professionals strategies for varying segments
on demand to manufacturers (-) Continuous changes- different market segments 120 countries it caters. Further top
maintain the Outsourcing modes of delivery (+) and the sectors in which Integrated Services
supply* (+) significant aspects Need for more Kodak operates. Uniquely qualified
management has identified the
Specific suppliers of manufacturing distribution Preferred supplier status* importance of focusing more
for silver and (-) efficiencies- tight through continuity. on value preposition. But
aluminum stock controlling (-) Increased focus on value
proposition
notably company has reduced
its R&D expenditure by 8.8%
in 2008.
 6.3 Financial Analysis
Fig 6.3.1 Revenue Fig 6.3.2 Gross Profit Fig 6.3.3 Net Earnings Fig 6.3.4 Cost of goods sold
2600 800 8200
11,000
2500 600 8000
10,500 400
2400 7800
10,000 200
2300 7600
0
9,500 2200 7400
-200
2100 -400 7200
9,000
2000 -600 7000
8,500 1900 -800 6800
Revenue $(m) Gross Profit $(m) Net Earnings $(m) Cost of Goods $(m)
2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008

Fig 6.3.5 Net sales of different segments ($/m) 6.3.6 R & D Expenditure ($/m) Observation- Kodak’s financial measures have
been challenged by the economic recession. This
5000 300 has started with $1152m sales drop from 2006 to
Digital Imaging
250
2008 coupled with decreased gross profit and net
4000
Digital Imaging earnings. In 2008 company recorded $442
3000 Film & Photofinishing 200 million loss characterised by net sales drop of all
2000 150 Film & four segments. These financial performances
Graphic
Communication 100
Photofinishing have forced Kodak to cut its R&D expenditure
1000
All Other
Graphic down by 16% from 2006 to 2008. But the
50 Communication
0 company has increased its R&D expenditure of
2006 2007 2008 0 graphic communication sector mainly due to its
2006 2007 2008
growth potential.

Ratio 2008 2007 2006 Observation- Basic and diluted EPS have shown a loss figure in all the three years considered here. This
GP- margin 23% 25% 23% is a very bad indication of the company as the figure has further worsened drastically in 2008 compared
NP- margin (4.6%) 6.6% (5.6%) to year 2007.The potential investors will find the company not interesting at all for them to invest. If the
Operational expense as a 32% 27% 24% trend continues, there is a possibility of divesting stakes of the company. Also the goodwill has
percentage of revenue deteriorated by 46% in 2008, compared to 2007. This proves that the lack of market confidence in the
Basic and diluted EPS $(2.58) $(0.71) $(2.8) company.
Good will $896mn $1657mn n/a
Gearing 40.4% 41.3% n/a Gearing is almost same in 2008, compared to 2007 which indicates that the company has not raised debts
Asset turnover 2.25 times 1.35 times n/a in 2008, and also the company has not done any debt based investments either. The level of gearing is in
the upper risk limit, and it is advisable that the company should not exceed from this limit. This is
because this might have cannibalizing effect on the overall WACC of the company. Asset turnover
indicates an improvement compared to 2007. Even in the face of it, it seems that it is good; actually this
has resulted due to the drastic drop in the asset figure of the company. It has come down by 45% in year
2008 compared to 2007. This is almost half of the fixed assets of the company. This seems that the
company has disposed half of the asset in 2008, which creates number of critical issues to consider.
 7.0 Kodak Portfolio and CSR analysis
7.2 BCG Matrix
7.1 TPC

Benefit Kodak’s Approach H

core Changing focus from photographic market to imaging solutions Graphic
communication
for both B2C and B2B customers groups
Actual Innovative solutions

Market Growth
Warranties and favorable credit terms
Kodak service and support team
Easy to use solutions Consumer
digital imaging
Augmented Better integration/ sharing of cameras with other accessories group
Favorable credit terms
Extended warranties and more favorable credit terms
Better integration with B2B market with service and support Film,
Potential Mass customization for photographic tools Photofinishing &
L Entertainment
Utilize market potential for blogs and social networking sites group
Tailor made solutions for graphic communication group
H Market Share L
Observation- It is clear that the company need to revitalize its resources and
competencies to fight back against the economic downturn and increasing
competitor movement. In fact it has all the resources to move ahead with digital
solution which is predicted to be lucrative a market. First and foremost it has to
7.3 CSR Analysis redefine its core benefits so that the company is in a better position to overview the
market and to get the maximum from its portfolio shown in above BCG matrix.

Planet People Profit

Environmental Aspects Social Aspects Economic Aspect
External Environment Internal Environment

Environment Ecology Customers Suppliers Society Corporate Employees Shareholders Costs Revenue
Governance
&
Transparency
Greater focus Need for Honest Long term Greater Good Performance Compliance Sufficient Need for
on CSR better communications contracts and importance corporate related with legal funds backed better
activities (+) mechanisms (-) and safer mutual on ethical governance schemes to requirements by greater revenues with
to protect and products and support (+) trading (+) (+) recruit and (+) focus high margins
enhance the services retain Increase to increase
environment employees (+) shareholder shareholder
value (-) value (-)
 8.0 Market Forecasts 10.0 SWOT Analysis

7000 Strengths Weaknesses

6000 Global Photographic  Kodak heritage and association with  Overall sales drop of 8.6% in 2007/08.
products
5000 (Voulume/m) technical innovations  17.8% decrease in sales in Film &
4000 UK Digital Camera  Acquisitions of strategic importance Photofinishing and entertainment group.
3000 Sales (000units)  Oscar and other awards for technical and  Slow to make a transition from traditional
2000 scientific excellence imaging to digital imaging in certain sectors &
UK Video Camera
1000
sales (000 units)
 Kodak gallery with over 70m subscribers segments
0  Greater focus on CSR  Inflexible business model
2004 2005 2006 2007 2008 2009 2013  Wide distribution channels  Long formal process for innovation
 Kodak service and support team  Revenue and earning issues
 Collaboration with Motorola to  Lack of proper risk management approach
9.0 Risk Identification & Assessment manufacture mobiles with hi-tech cameras for the company

Sources of risk Opportunities Threats

Risk of recent economic trends on financial performance 1  Wider access to broadband services  Impact of world financial crisis
Risk of extended warranties, easy payment schemes on liquidity 2  Increasing popularity of social networking  Intense competition from both establish
Risk of technological changes on business operations 3 sites and photo sharing players and other new entrants specially in
Challenges in attracting and retaining key employees 4  Cameras and camcorders are still new digital markets
Risk of delaying plans for restructuring 5 preferred for quality pictures  Increased bargaining power of buyers and
Risk of disruptions 6  New opportunities in graphic intermediaries
Risk of inability of meeting obligations of credit agreements 7 communications sector backed by recent  Sharp demand falls in both B2B and B2C
acquisition markets
 New opportunities in mobile phone  People’s preference to use mobile phones for
Risk Assessment Matrix Potential severity of harm industry taking pictures
Slightly Harmful Extremely  Expected value and volume fall of global
harmful harmful photo graphic market
Highly Trivial Tolerable Moderate  Lower margins characterised by high price
sensitivity.
unlikely
Likelihood of Unlikely Tolerable Moderate Substantial Observation- Market for digital cameras and camcorders has reached its saturation characterised
harm by intense competition and the demand chiefly driven by the desire for upgrades or replacements.
76, 7 6
At the same time sales in the film, photofinishing and entertainment group have been steadily
occurring Likely Moderate Substantial Intolerable
7 declining. In 2008 these two segments accounted for 65% of total sales and now the time has
2 2,4 3 1 1,4 3, 5 5 arrived for Kodak to rethink its product portfolio in order to remain competitive in the years to
come.
On the other hand financial crisis has impacted adversely on company’s financial performances
Observation- Current financial crisis has increased the importance of leaving the company struggling for survival. As a result company had to undergo some painful
risk-based planning approach and hence companies have been forced to redundancy programmes and divest some of its business operations. Also company has been
plan for contingencies. All most all the risks faced by Kodak are either successful in acquiring some companies that would be strategically important to remain
intolerable or substantial and therefore the management of the company competitive in some lucrative segments.
should take immediate actions to manage these risks. Being in a highly technological driven industry, Kodak should now identify the most appropriate
markets to offer its products while adapting flexible and efficient business models.