Kodak’s Strategic Transformation and Brand Revitalization

2010/12/26By Kevin Nie, China IP,[Comprehensive Reports]

When speaking of Kodak, most people first think of cameras and film. However, for Kodak’s employees, this is both glorious and ironic. Since 2003, when the Company announced that it would “march into the digital world,” it has successfully evolved from being a giant of traditional imaging products to a global powerhouse of digital products. Nevertheless, little has been stated or publicly known about this rebirth.
 
To understand Kodak’s phenomenal success, China IP interviewed Mr. Xu Silin, chief representative of Kodak (China) Investment Company Limited and chief government officer of Kodak Greater China.  
 
In his early years, Mr. Xu was a reporter with the Economic Daily. Later he went abroad to study, worked as financial analyst and investment consultant in New York, and subsequently joined Hill & Knowlton (China) Public Relations as the deputy director of the California and Hong Kong/China offices, responsible for government relations, investment and business development. After leaving Hill & Knowlton, he joined Lucent China as PR Director, in charge of media relations, advertising and government relations. Prior to joining Kodak, he was general manager of Corporate Planning and Communications for IBM’s Greater China Group.
 
From Traditional to Digital – the Success of Strategic Transformation
 
The 130-year history of Kodak is a timeline of patents. As early as 1879, Kodak’s founder George Eastman applied for patent protection for his invention – a plate coating machine in London, and the following year obtained a patent in America. The manufacturing of dry plates based on this patented technology proved to be a great success. The development of Kodak has been achieved by constant technical innovations and intellectual property protection.   
 
Since its founding in 1880, Kodak has lead the global imaging market and been synonymous with cameras and especially film.     
 
“The development of digital technology greatly cornered the traditional film industry. With the continuous slump of the sales of films from 2001, Kodak’s traditional film industry shrank at an annual rate of 8%. Under the perilous situation, Kodak began to look for breakthroughs, for technological improvement and business diversification. Meanwhile, it rolled up sleeves for strategic transformation,” said Mr. Xu. 
 
Regardless of Kodak’s great success in the film business, it became the biggest obstacle on its road to digitalization. “We have experienced from a high-profiting period to such a downturn. Both we and our company have been through struggles to face and accept the reality. Transformation is not something that happens overnight. We will come across all kinds of difficulties in the process: blames from consumers and customers, and challenges from competitors,” stated Xu.     
 
It was in 2003 that this traditional “Mr. Big” began to realize the necessity for a change in its focus . Deng Kaida, then global CEO of Kodak, openly admitted the company’s decision-making blunder in digital products, and launched a major top-to-bottom transformation.
 
The makeover faced extreme difficulties at the beginning. In October 2005, due to the heavy payments brought by restructuring and the continuous decline of revenue from traditional products, Kodak suffered a fourth-quarter economic loss. The net deficiency for the third quarter of 2005 was USD 1.03 billion, a historic new high. Additionally, there were rumors of a purchase by HP.
 
Due to fierce competition in the digital camera market and the enormous cost pressure, moreover in order to further improve profitability and productivity of digital products, Kodak chose in August 2006 to transfer the production, storage and transportation of digital cameras to Flextronics International; and shift a part of the design and development work to the Singapore enterprise. Although Kodak eliminated digital camera production, it took the reins in the high-end system design, contour and appearance design, user experience, and the R&D of digital cameras. In addition, Kodak reserved all intellectual property rights.   
 
After the growing pains, Kodak made substantive advancement in its digital business. “In 2003, the digital business only contributed to 30% of the total sales. But now, more than 75% of the products on our product line are about digital products. Digital cameras, digital picture frames, digital video and such consumption products have been expanding their markets; commercial scanners, computer-to-plate, work flow software, digital printers and such commercial products are also emerging on a large scale. From 2003 to 2009, the company maintained more than 10% annual growth rate in its digital business. Even in 2009 when the whole world was swept by financial recession, Kodak stood out and presented us with a 12% growth rate. These figures show that Kodak’s transformation has successfully passed its initial stage,” Mr. Xu said with pride.      
 
Franchised Stores: an Innovation of Service Pattern
 
“We have initiated a big move at the moment. Formerly, we simply gave the trademark use right to over 6,000 stores; but now, we implement the franchising system,” Mr. Xu told the reporter.
 
In the late 1990s after Kodak made headway in China, it established Kodak Express in an overwhelming way in the country’s tier-1 and tier-2 cities. Within a few years, the number of Kodak Expresses hit 10,000, and its service network claimed to be only second to China’s mail system. However after 2003, the impact of digital imaging forced Kodak to change its focal point The bewildered company had little time or energy to take care of the numerous and scattered Kodak Expresses, which following their parent company, were caught in a dilemma and had to fend by themselves.  
 
Mr. Xu told our reporter: “In the process of digitalization, some personalized and fashionable service needs are gradually surfaced. Some customers like going to the stores to get service. Some would rather stay at home and transmit the photos via the Internet to the stores. And there are still some who want to print the photos by themselves. Kodak is providing all these services.”
 
Mr. Xu further disclosed that after the implementation of the franchising system, Kodak Express will introduce the “central cabinet” idea, where consumers may get personalized service via the Internet or by on-site participation. Moreover, the “convenience store” service pattern will be introduced to provide convenient and diversified services to the residents in the neighborhood.
 
 “We have set up seven or eight flagship stores last year, and the profitability is averaged at 15-25%,” said Mr. Xu.
 
From B2C to B2B – the Rise of Commercial Products
 
According to Mr. Xu, most of Kodak’s products target two groups: the consumer market and commercial market. This is what we usually describe as B2C business and B2B business. Two groups respectively control these two businesses: The Consumer Digital Imaging Group (CDG) and Graphic Communications Group (GCG). In the B2C field, Kodak supplies digital cameras, digital photo frames and digital videos, and provides consumers the special experience of discovering beauty and sharing happiness. In the B2B field, Kodak has developed computer-to-plate (CTP), digital printing, work flow software and the commercial scanner. Besides CDG and GCG, Kodak also has a FPG (Film & Photo Group), which operates the company’s traditional business in the image entertainment area. Additionally Kodak provides professional services to photographers, photojournalists, photographic studios and photo shops.
 
“Digital printing has a very promising growth prospect. In the aspect of laser digital printing (digital xerography), Kodak occupies the high-end market and provides corporate clients one of the best products of the industry. In the field of ink-jet digital printing, Kodak could hardly find a rival. Especially in the printing of variable data, such as invoice and lottery, Kodak owns a majority of market shares. Besides the ordinary black and white ink-jet printers, Kodak has also developed color ink-jet printers used for bill printing by banks and other institutions. Now we are popularizing a Stream digital ink-jet technology, which is a core ink-jet technology exclusively owned by Kodak. stream digital ink-jet printers are applicable to mass and streamline productions, and are completely compatible with variable information. It is expected that owing to the low cost, high efficiency and the offset printing-comparable precision, Stream digital ink-jet printers will finally bring a revolution to the traditional printing industry. In Kodak, we can say that all B2B business under the operation of GCG is about digital,” Mr. Xu said.
 
“Kodak positions its core strategy in ‘gaining sustainable growth based on the superiorities in the crossed section of material science and digital imaging science.’ In fact, Kodak is incomparable in the two fields of technology and intellectual property. This core strategy may be regarded as the continuation of Kodak’s advantages, and the core of this core strategy is to develop commercial products,” said Mr. Xu.   

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