MNG3702 Exam Prep.

Case Study per TL102/1/2018 1. APPENDIX A: EXAMINATION CASE STUDY-Kodak is at death’s door; Fujifilm, its old rival, is thriving. Why? The Eastman Kodak Company (referred to simply as Kodak) is an American technology company founded in 1888 when it was known for its pioneering technology and innovative marketing. “You press the button, we do the rest,” was its slogan in 1988. By 1976 Kodak accounted for 90% of film and 85% of camera sales in America. Until the 1990s it was regularly rated as one of the world’s five most valuable brands. The company’s ubiquity was such that its “Kodak moment” tagline entered the common lexicon to describe a personal event that was demanded to be recorded for posterity. The company build one of the world’s first digital cameras in 1975. Then came digital photography to replace film, and smartphones replace cameras. Kodak’s revenues peaked at nearly US$16 billion in 1996 and its profits at US$2.5 billion in 1999. Then Kodak’s financial struggle began as a result in the decline in sales of photographic film and its inability to adapt to a world in which digital photography had become pervasive and available in just about every cellular telephone. Fujifilm Holdings Corporation, better known as Fujifilm, is a Japanese company and one of Kodak’s competitors. Fujifilm is very similar to Kodak in many aspects, but has been faring much better in the age of pervasive digital photography. Both companies have seen their traditional business being rendered obsolete and both companies have been aware of the advent of digital photography. Whereas Kodak has been unable to adapt to this new environment, Fujifilm has successfully weathered the storm and is still today a profitable and sustainable company. Observers point to a number of key differences that led to Fujifilm adapting more successfully to its changing environment than Kodak. The first difference can be found in corporate culture. Kodak had a culture of complacency, ironically cultivated by its massive success and near monopoly in instant film photography in the USA. Despite its strengths – hefty investment in research, a rigorous approach to manufacturing and good relations with its local community –Kodak has become a complacent monopolist. Fujifilm was also aware of the threat of digital photography surging towards it like a tsunami by the 1980s, but in response, it developed a three-pronged strategy. First, Fujifilm squeezed as much money out of the film business for as long as possible. Second, Fuji prepared for the switch to digital photography. Lastly, Fuji diversified into new lines of business. The second difference between Kodak and Fuji can be found in the inconsistency in the Kodak leadership, which meant that Kodak’s strategies changed with every new CEO. As a result, the company was never able to diversify successfully. For example, George Fisher, CEO from 1993 until 1999, focused on Kodak’s expertise in digital imaging rather than in chemicals, and mass-produced digital cameras until camera phones destroyed that business. The latest CEO, Antonio Perez, who took charge in 2005, insisted that digital printing would save Kodak. At Fuji, technological change sparked an internal power struggle. At first, participants in the consumer film business, who refused to see the looming crises, prevailed. But the eventual winner was Shigetaka Komori, who chided them as “lazy” and “irresponsible” for not preparing better for the digital onslaught. Named boss incrementally between 2000 and 2003, he set about overhauling the company. He spent around US$9 billion on 40 companies since 2000. He slashed costs and jobs. In one 19-month period, he booked more than ¥250 billion in restructuring costs for depreciation and to shed superfluous distributors, development labs, MNG3702 Exam Prep. managers and researchers. “It was a painful experience”, says Mr Komori. “But to see the situation as it was, nobody could survive. So we had to reconstruct the business model” The third difference between the Kodak and Fujifilm companies can be found in its ability compete in a changing market environment. Kodak executives were not used to competing in a high-technology world in which speed-to-market is critical to success. Hence, they were more committed to making perfect products than to getting products into the market as quickly as possible and fixing the shortcomings in later models. Even when Kodak decided to diversify, it took years to make its first acquisition. It created a widely admired venture-capital arm, but never made big enough bets to create breakthroughs. By contrast, rather than simply trying to convert its film camera business to a digital camera business, Fujifilm tapped its chemical expertise for other uses. Film is a bit like skin – both contain collagen. Just as photos fade because of oxidation, cosmetic firms would like you to think that skin is preserved with anti-oxidants. In Fuji’s library of 200 000 chemical compounds, 4 000 are related to anti-oxidants. Therefore the company launched a line of cosmetics which is sold in Asia and Europe. Fuji also successfully branched out into other pharmaceuticals, liquid-crystal display (LCD) panels for television sets and other electronic devices. Today, Fujifilm makes only 1% of its revenue from photographic film. The fourth difference between the companies can be found in its ability to identify target markets for the future. While many high technology companies were achieving great success in emerging markets, Kodak’s failure to read the emerging markets correctly cost the company dearly. Emerging markets generally switched early on from analogue to digital, many emerging markets leapfrogging from having no cameras straight to using digital on the back of the rapid adoption of cellular telephone technology. Whereas Fujifilm has mastered new tactics and survived, Kodak, like so many great companies before it, seems to have run its course and is on the brink of simply fading away. Source: Available online: 2. Study Unit 3 Discussion Questions-Organisational Learning (1) Explain why dynamic capabilities are necessary in strategic change. Dynamic capabilities are those capabilities that help organisations to learn new capabilities they require to adapt to environmental changes. Organisations cannot only depend on what they are good at today; they also have to change and acquire new capabilities that will ensure their future success. Whether or not an organisation possesses dynamic capabilities essentially determines its ability to learn and to change. Without dynamic capabilities, organisations will not be able to adapt to drastic changes in their environment, or be able to benefit from innovation. Organisations differ in their ability to acquire new capabilities. Organisations that can learn and adapt will be capable of dealing with change, and will accordingly be better able to survive and prosper in the long term. Only sustainable competitive advantage over the long term is the ability to learn and adapt. In considering the case study above, how did the dynamic capabilities of Kodak and Fujifilm differ? Try to identify at least three key differences. In considering the dynamic capabilities of the two companies, it becomes clear that Kodak and Fujifilm differed fundamentally in at least three key respects • Culture. While Fujifilm was initially slow to change due to the influence of the old school, it was eventually able to overhaul itself. By contrast, Kodak was never really able to escape its culture of complacency. • The mental models of the executives. While Kodak continued to see itself as primarily a camera company, Fujifilm defined its expertise more broadly and, as a result, was able to diversify more successfully. • A lack of market knowledge. The lack of market knowledge, for example about emerging markets, meant that Kodak was not able to develop appropriate strategies for dealing with potential new markets. (2) Explain the relationship between individual learning and organisational learning. The learning process can be seen as a cycle with four different activities as follows:  Concrete experience – this occurs when a person acts in a certain way. The concrete experience is followed by a process of thinking and reflecting on the experience.  Abstract conceptualisation – this occurs when certain ideas or theories are extrapolated from the reflection.  Active experimentation – this occurs when the new ideas or concepts are deliberately tried in other similar settings to see what the results are.  Individual learning is the key to organisational learning. Organisations do not learn, individuals learn. The process of organisational learning thus starts with individual learning. The second phase of the process is where learning is shared with other members of the organisation until it becomes commonly accepted practice or knowledge. Organisational learning is continuous and experimental, because the acquisition of knowledge is not a guarantee that mistakes will not be made. Making mistakes of figuring out what works or what does not work in different situations is an important part of learning. However learning takes place in an organisation, it is the transfer of knowledge to other individuals that will ultimately lead to organisational learning. There are mechanisms that organisations can use to encourage organisational learning. The organisation should be a supportive learning environment for example mistakes and experimentation are tolerated. It should have a concrete learning process and practice. It should promote learning and reinforce learning behaviours. The organisation should pay attention to barriers of organisational learning. The organisation should ensure that a proper knowledge management system is in place and that all organisational members follow the system. The organisation should reward and motivate individuals who transfer knowledge. Staff members who have benefited from learning investments should share newly learned knowledge at staff meetings. (3) Identify the barriers to organisational learning. Organisational learning can be defined as the organisational processes of learning and adapting. There are three major barriers to organisational learning:  Constrained thinking / dominant general management logic – this stems from the way managers conceptualise their business. It is a set of broad assumptions that can be thought of as structures. Managers make critical decisions about the strategy and allocation of resources based on this and the more dominant the logic, the more it acts as a barrier to learning and change.  Management ignorance – managers often assume that they know all about their business and their industry and that there is no need to learn any more. In this instance, ignorance and arrogance present a barrier to learning.  Absorptive capacity - it refers to the ability of an organisation to recognise the value of new, external information, to assimilate it and to use it to address business problems. It is a strategic capability and differs from organisations, therefore some will be able to learn, adapt and innovate quicker than others. Let us revisit the Kodak case study and consider the definition provided by Garvin in the context of Kodak versus Fujifilm. Would you say that the definition is complete? What else would you add to the definition? The one element that Garvin did not consider explicitly in his definition is the element of managerial sense-making. If we consider again the case of Fujifilm and Kodak, both