Essay on Kodak Strategic Analysis

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Changes from Traditional Photography Industry to Digital Imaging Industry
The industry transformation from traditional photography to digital imaging was a full-scale paradigm shift. Digital technologies not only completely changed the value chain, but also changed the resources and capabilities required for firms to compete at each level. In traditional photography, photos and videos are captured on film cameras. The unprocessed films are sent to processing center to produce negatives. Then prints are made directly from the negatives, which are then stored for future prints. The new value chain of digital imaging starts with digital cameras that can directly digitize photos and scanners that can convert film or older photos to digital format. The digital version of photos and videos are stored on a variety of media types. These digital images can be manipulated by software to enhance quality. Finally the digital images are printed by printers. The only overlapping resources between the two paradigms are optical lens and photo papers.
Competition in traditional photography was dominated by Kodak but Fujifilm had enough cash inflow from Japan market and took away a significant premium market share. In the mid 80s, quality film processing became commoditized and private label started taking market shares. As the market for digital photography matured, major players have developed competitive strength and established a unique position along different segments and different parts of the value chain. The digital camera market is characterized by intense competition among a dozen major players with little profit margin. Printers have adopted a razor blade model and HP dominated the inkjet consumables. The photo finishing business and software business have loomed but due to the low barrier to entry and rapid changing technology, there are hundreds new competitors and revenue models varied. Finally the retail kiosk and minilabs that specialize in printing and print digitization are dominated by Fujifilm.
Supplier in the traditional photography world included basic industrial materials for film and chemicals for negatives and processing. Due to the high availability of the raw materials, supplier did not wield considerable power. In the digital imaging era, two key technologies – optical lens and image sensors – determine the majority of the cost of a digital camera. Therefore companies that do not have internal capabilities to produce lens and sensors are at considerable disadvantage because they need to purchase from others.
Barrier to entry was a significant reason for Kodak’s dominance in film photography. Producing films and processing films need precise mix of chemicals and consistent operation. To achieve such high level of precision and consistency, there is significant economy of scale. Kodak’s ubiquitous photo processing retail locations also added to its consistency and brand equity. The high profitability and commoditization of chemical industry eventually caught up to the film business. On the flip side, barrier to entry for digital camera market is mainly due to the unprofitability of being a new player. All existing competitors have established reputation as quality lens crafter, semiconductor maker or consumer electronics manufacturers. Intellectual properties are frequently sources of temporary cost advantage because licensing and workarounds can be expensive. Similarly, the paper and kiosk business all have low margins due to intense competition. The printer market has some positive externality because of the accessibility of ink. Lastly, despite a large market for digital photo finishing and processing, the barrier to entry is extremely low for creating and distributing software, leading to a highly fragmented market.
The end users benefitted most from the competition of digital age. In traditional photography, one dominant player, Kodak, can set price premium and reap the margins. In digital imagine, not only
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