Having worked closely with the marketing executives of a
number of technology product manufacturers for more than a decade, I found the
reading on how to design a reconfigurable organization very interesting.
According to Galbraith (2002), “we need to have organization structures and
processes that are easily reconfigured and realigned with a constantly changing
strategy” (p. 75).
The creation of a “reconfigurable organization” (Galbraith,
2002) is critical to the continued survival of technology companies. An
illustration of this is how Eastman Kodak, which was once a leader in film
production, found its products becoming obsolete in the early 2000s with the
mainstream adoption of digital cameras (Lindstrom, 2005).
The “strategic vision for Kodak was as an imaging company”
(Grant, n.d.). Realizing that the organization was becoming obsolete, the CEO
stopped the core business of producing film and made a number of key decisions
that enabled Kodak to become the leading manufacturer of digital cameras by
2004 (Lindstrom, 2005).
Today, the company is made up of four segments: Consumer
Digital Imaging Group, Film and Photofinishing Systems Group, Graphic
Communications Group, and Health Group (Eastman Kodak, 2006). Executives in functional roles in the areas
of accounting, finance, human resources, communications, etc., address specific
issues across the various product groups.
By creating a reconfigurable organization (Galbraith, 2002),
Kodak has created a company that is poised to address the shifting industry
trends and keep itself out of the “obsolete queue” (Lindstrom, 2005).
Galbraith J.R. (2002). Designing
Organizations: An Executive Guide to Strategy, Structure and Process. pp. 73-90.
Lindstrom M. (2005, Aug. 12). Reinvent your brand or join the obsolete queue. p.22.
Grant R. (n.d.). Eastman
Kodak: Meeting the Digital Challenge.
Eastman Kodak Company (2006). Annual Report.
Ken,
ReplyDeleteThe selection of Eastman Kodak is a good illustration of how a once dominant company faced the demands of changing business climate. But, do you think that it may be too late for Kodak?
According to Galbraith (2002), a successful strategy is one where “leaders will be future-oriented and will continuously create capabilities that will lead to customer value“ (p. 75). But has Kodak truly been “future-oriented” (Galbraith, 2002)? Unfortunately, for Kodak, its executives may have acted too late in repositioning itself in the new economy as it filed for Chapter 11 Bankruptcy protection January 2012 (De La Merced, 2012). By doing so, the company may be forced to sell valuable patents to pay creditors (De La Merced, 2012). It is unknown where that will leave Kodak.
Bankruptcy, of course, is not all bad. In Chapter 11 Bankruptcy, Kodak has the ability to eliminate legacy costs such as millions in pensions due to its employees (De La Merced, 2012). While not good for its employees, it can make Kodak more competitive by making debt more manageable (De La Merced, 2012). Having practiced as a bankruptcy attorney, I can say one of the biggest misconceptions is that bankruptcy is the end of the road. Often times, however, companies are able to bounce back and emerge stronger.
However, Kodak is in an extremely competitive market. Apparently, Kodak has already begun the transformation of its business by dividing itself up into different pieces (De La Merced, 2012). But, according to Galbraith (2002), to be a “reconfigurable organization,” (p. 75) Kodak must use a “continuous shifting strategy” allowing it to stay ahead of its competitors (Galbraith, p. 75, 2002). Here, the filing of bankruptcy protection by Kodak leaves its competitive ability in doubt.
Galbraith, J.R. (2002). Designing Organizations: An Executive Guide to Strategy, Structure and Process. pp. 73-90.
De La Merced, M. (2012, January 19). Eastman Kodak Files For Bankruptcy. The New York Times. Retrieved from http://dealbook.nytimes.com/2012/01/19/eastman-kodak-files-for-bankruptcy/
Joshua, definitely some good points that you bring up. Looking at their consumer business alone, including digital cameras, digital picture frames and desktop printers, the competition is fierce. (Eastman Kodak, 2010). With what I'm sure are razor-thin margins in the consumer products, the company has to sell a ton of product to simply break even.
DeleteAccording to the company, "The competitive pressures we face could harm our revenue, gross margins and market share" (2010). They admit in this area that they "haven not achieved the scale of distribution that our competitors have" (2010).
I agree that the future of Kodak is in question. While Kodak's legacy was that it was THE manufacturer of film- and paper-based photography products. With the digital world, much of this technology resides in the digital cameras to capture the photos and in computer software to process them. Kodak is obviously not the brand or technology leader in either of these areas to date.
Eastman Kodak (2010). Annual Report.
Ken, Kodak is a particularly interesting case. As you note, they were able to make a transition into a different sector when they realized that their existing products were becoming obsolete. However, as Joshua notes, Kodak recently filed for Chapter 11 bankruptcy, and they are selling of their digital imaging patents to try to make money. Where do you think they went wrong to end up where they are today? Can you pinpoint in which dimensions of the organization (referring back to the STAR model) their challenges might stem from? If you were called in as a consultant, what sort of recommendations might you make?
ReplyDeleteJessica, personally I believe that Kodak's focus on maintaining the film business as the popularity of digital cameras grew in the mid-1990s allowed other manufacturers to establish their brands and capture market share in the new digital market.
DeleteI remember the argument among avid photographers that film would always be the medium of serious and commercial photography because of the high definition that could only be captured on film. Obviously, hindsight reveals the error behind that thinking. By the time Kodak made the decision to kill the film business and focus on digital, other brands had come in and captured market share in the digital camera market. They now find themselves competing in a very intense consumer segment that has a lot of manufacturers providing good products at low prices. This forces a company to have to sell large quantities of product to break even. In the wireless router market, where many of my clients compete, the companies literally make pennies on each router sold. However, they drive sales to build market share and create a following for their more expensive, early adopter products. (The hope is to capture the early adopters with a new technology and then transition the product to the mainstream consumers, making them the market share and mindshare leaders with a highly profitable product.)
Looking back at Kodak when they could have made some key strategic decisions that would have resulted in a stronger, more timely transition from the film-based to the digital world, I believe that being the "leader" in film, and being highly regarded as a leader in the photography industry, it would have benefitted them to establish a product team (separate business unit) that addressed the needs of the emerging industry. If they could have innovated at the same time as they were working to maintain the film business, they may have been able to stay lock-step with the competition and maintain their brand presence in the new market.
Ken your choice of companies to analyze is great. Kodak made the same mistake that one of the major 3 car companies(I believe it was GM) did in not being forward thinking. The car industry that comes to mind had the technology to build hybrid and electric cars, long before Toyota's Prius. Their strategy was flawed, in my estimation. They mistakenly believed it was an idea that would never gain traction, as it seems Kodak thought with digital imaging, as they were had the technology and sat on it.
ReplyDeleteTo re-gain traction, they will have to take a page out of Apple's "book" and become a built-to-change organization (Worley & Lawler III, 2006). The firm will have to manage their talent pool in a manner that allows them to be the voice of the future of the company; honing in on the latest trends and determining the next biggest thing and more than likely, developing product that is related to imaging, as Apple took their computer technology and turned it on its ear, first with iPod(squashing Sony's Walkman) and then with iPhone and iPad. They may also want to look at incorporating category management (Galbraith, 2002) with say, the entertainment industry. As Avid is the entertainment industry standard for editing television and film, Kodak might do well to find a niche in how film and television images will be consumed by the public. Implementing a reconfigurable organization design, with emphasis on strategy, with reciprocal integration that seems to work in smaller firms like Felipe illustrated, will communicate to staff, that they are key to the companies longevity and their own personal success. All departments are going to have to work in concert to strategize, develop and innovate in an every changing industry of technology.
Galbraith, J.R., (2002). Designing a reconfigurable organization. (new & revised Ed.), Designing Organizations: An executive guide to strategy, structure, and process (pp.73-90). San Francisco, CA: Jossey-Bass.
Worley, C. G., & Lawler, E.E. (2006). Designing organizations that are built to change. (Report No. SMR220). Retrieved from MITSloan Management Review at http://www.hbsp.harvard.edu