Financial Analysis and Performance of Eastman Kodak - Case Study Example

Strategic Management Name Institution 1. Financial analysis and performance i. It is important to carryout financial analysis in order to ascertain the current financial performance of Kodak and its going concern as will also be gauged against financial indicators of a going concern business. The sustainability of present Kodak’s course and its ability to finance new initiatives from existing resources is assessed through the following ratios: a) Liquidity ratio This ratio enables us to ascertain whether the company is able to meet its short-term financial obligations. Current ratio= current assets/ current liabilities= 2703/2150= 1.257 Quick/acid test ratio= (2703-607)/2150 = 0.975 From the current ratio of 1.257, it translates to the ability to pay for short-term debts by Kodak but this isn’t enough since the most recommended current ratio is 2.0. Kodak is able to sustain itself by the existing cash and liquid assets that can be used to pay for the short-term debt. However, the ratio still indicates that the company has very little liquid assets. Using the refined current ratio; acid test ratio, it excludes stock/inventories since they are usually based on historical costs and they are assumed to be not easily converted into cash quickly. The acid test ratio of 0.975 indicates that the cash available cannot pay the short-term debts of the company. b) Leverage ratio The leverage ratio tries to help us ascertain the ratio of debt finance to equity or capital structure of Kodak Company. From the financial statement, the equity of Kodak is a negative value and the company has a huge debt from external sources of which limits its ability to secure external funds to finance future initiatives. The company has also been making losses up to the last financial period in 2011, which implies it has been keeping nothing as reserves. The company has no reserves that can be used as a cheap source to finance new initiatives. ii. Consumer Digital imaging group’s product has been experiencing a decreasing sales from 2007 to 2011, with negative earning realized from their sales except for 2010. Film, photofinishing and entertainment group deal in scanning and printing machines has also been experiencing a declining net sale with decreasing earnings from 2007 to 2011. Graphics communication group has been doing well so far in terms of sales but earnings have been negative since 2009. 2. Strategic environment and competition Consumer market segment Kodak has been in the run to transforming their digital product for the dynamic market in a progressive manner. The transition to digital photography has seen Kodak integrate some digital features in their traditional cameral and photographic products. The main focus of Kodak was to provide for simplicity, quality and value for their customers. Kodak used an incremental approach to transit into providing digital products to their customers facilitated by the needs of the customers to not only demand for digital imaging but editing, printing and sharing needs. The demand for Kodak’s products has been increasing despite competition from emerging firms which were embracing digitalization of photography and incorporation of other technologies into their products. The demand for Kodak has been slowly declining owing to the fact that their traditional camera and photography were losing relevancy in the dynamic market. However, their ability to understand the market saw them incorporate new technologies and its main objective was now to be the most mass-market leader in digital imaging. Kodak still maintained its limited market and most of their products were demanded due to the integrated system approach they used to meet their customers’ needs by ensuring that their products appeal to the targeted group. The integrated systems lead to the development of Easyshare system that could enable people to capture, edit, share and print pictures. ‘The system provided consumers with first easy-to-use digital photography experience as echoed by Willy Shih. As a point of no contention, Kodak seemed to be market oriented but lacked market leadership. Professional, commercial and health market i. In health market, Kodak experienced a negative deviation in sales of its digital products such as X-rays and related products. According to sources, Kodak had developed a portfolio of digital products such as X-ray, laser products and communication systems but in the end it ended up selling their Health group to Onex Healthcare holdings at $2.5 billion. In the commercial market segments Kodak was at the fore front in producing digital printing systems with integrated functions such as scanning, formatting and printing. Kodak had two strategies at their disposals which included Kodak’s proprietary inkjet technology and leadership in variable data printing. The demand in the commercial for printing products market was increasing as Kodak integrated more functions in the systems as they hold a strong position to commercialize scanning, editing and printing using printing and scanning capability-systems. In the commercial and professional market, the demand for their digital products was relatively increasing. Their cutting-edge technologies in digital imaging provided and avenue for news photographers, satellite imaging, weather forecasting and surveillance to use digital imaging and integrated information system to meet their commercial needs. Actually, the commercial and professional markets were the main customers for the most of Kodak’s cutting-edge technologies. ii. The main competitors of Kodak are Xerox, Hewlett-Packard, 3M and d Oji among other popular companies. In implementing their strategy of alliances with some of its competitors, Kodak had to forge a web of ventures with its competitors. The products in the values chain that its competitors dealt in the digital imaging chain include Canon that develop and manufacture SL R cameras, Hew-lett Packard dealing with inkjet technologies and digital imaging, Intel develops digital storage media and ASP system for archiving and downloading medical images, Olympus deals with sharing digital technology, Sanyo Electric co. dealing in development of OLED display and IBM developing of CMOS imaging sensors. All these competitors in the digital industry have formed alliances with Kodak and as part of their strategic move towards digital transformation it has seen to create a value chain network. iii. The most appropriate analytical framework that can assist in evaluating the attractiveness of the industry sectors within which Kodak operate is the PESTEL Analysis and the Porter’s five forces framework. The PESTEL analysis takes into account the factors that may change and course an impact on the future operation of a business. Using this model therefore, it is clear that customer preferences is a factor that has dynamically affect the digital imaging market in the photography industry for Kodak’s products. The rapid change in technology also asserts pressure on the need for Kodak to transform. The net revenue for Kodak can well be explained using the PESTEL analysis which tries to analyze on the factors that affect the outcome of its operation. Using the Porter’s five forces of competitive power, it seems that Kodak main problem of lack of competitive advantage over its competitors is due to the fact that most of its technologies are sourced from other companies within the industry through its alliances. This makes its suppliers have power over them. New entrances into the market has not by large been the greatest fear of Kodak since it has been in existence for so many years. iv. Kodak should focus on the need to restructure its operations in terms of number of staffs, need for closure of some segments, corporate governance and financial structure. Kodak should also diversify its operation in terms of products, technical capabilities and market. This will enable Kodak company to engage in a more rational course and become more innovative. 3. Resource and Capabilities i. Resource-based view is a concept of operational management that focuses on the ability of a business to use its available resources to meet the dynamic needs of the market, (Niehaves, 2010). The dynamic capabilities of a business can be gauged against the available resources a business have. Given that now Kodak had valuable resources when it was declared bankrupt, the management of its resources could be the main issue that affects their dynamic capabilities. Kodak’s capabilities in the digital products are as much as of other competing companies but the main problem is that it is competing with companies that had well established micro electric and software engineering capabilities. The resources in terms of finance available could not allow Kodak to meet its capabilities and that is why it alliances, hiring and acquisition became among their strategies. This is due to the fact that Kodak could not be able to get financial assistance. ii. With the capabilities of Kodak, then it is clear that it can actually revive from its situation by investing these capabilities in other industries. However, this may not be as easy as it seems. Therefore, for Kodak’s future profitability, diversification in terms of products can be an important factor. Kodak can engage in production of other consumable and non-consumable products. For instance, I would suggest that it engages in the manufacture of intense pulse light technology owing to its capability of manufacturing image sensors and laser technology capabilities. This will enable Kodak create new markets through diversification as it tries to maintain its current market in digital cameras, printers and digital healthcare devices. 4. Industry Dynamic i. Kodak had set some strategies to meeting the dynamic needs of the industry. An incremental approach was one of their strategies where Kodak believed to progressively transform into digital photography and imaging and not in a rapid manner as this would pose difficulties in their operation. Given that the digital cameras still never took the largest share of the market, Kodak was able to take a hybrid approach of incorporating digital technology in their traditional photography. Kodak opened most of its retail branches where customers could use photo prints to prints to manipulate and print images. This was a brilliant approach to transition as changes take quite a time to be effective. The second strategy was formulating different strategies for different market segment. This strategy was quite considerable since market segments have different needs. For consumers, Kodak aimed for simplicity and ease of use that necessitated the incorporation of integrated system technology. This strategy was good since the needs for consumers are different in each market segment, and therefore, there was a need to consider that. Hiring, alliances and acquisition, is also a brilliant move as with the rising competition and increasing needs of customers, Kodak has to get into alliance with other technology experts and also acquisitions. The emphasis on print image is very important as Kodak has the capabilities. Some consumers prefer printed images for some reasons and owing to this, there’s still a need to maintain print image. ii. The two business model that Kodak could adopt that would be commensurate with current and expected industry condition are the Porter’s five forces model where Kodak is required to analyze the industry carefully, determine whether each force if weak or strong and consider whether the industry is an evolving or a complex industry. The forces include, suppliers’ bargaining power, consumers bargaining powers, substitute products, rivalry among firms and entry of new firms. The other business model is the PESTEL analysis. This model will enable Kodak identify factors that impact their current and future operations. 5. Potential Actions Market-driven products: I would recommend the CEO to focus on products that can easily penetrate the market. Existing products and new products through diversification can be market-driven through intense advertising, quality, design and branding. This can be facilitated by research, creativity and marketing capabilities. Cost leadership: I would recommend the CEO to focus on cost management through outsourcing, financing only profitable plants and controlling overheads and R&D. Controlling cost would be the best course of actions as this will avail surplus finance and result to increased revenues. Reference Niehaves, B., Plattfaut, R., & Becker, J. (2010). Does Your Business Process Management (Still) Fit the Market?-A Dynamic Capability Perspective on BPM Strategy Development. In AMCIS (p. 292). Read More