Yes, Kodak is still a company, having emerged from a 2013 bankruptcy that was preceded by a decade of selling off intellectual property; failed investments in cameras, printers, and medical devices; and sharp reductions in their workforce. Of the more than 200 buildings that once stood on the 1,300-acre campus in Rochester, NY, more than 80 have been demolished and 59 others have been sold off to other companies.
Eastman Kodak was founded officially in 1881 as the Eastman Dry Plate Company. In 1888 the name “Kodak” was born and the KODAK camera appeared on
the market, with the slogan, “You press the button—we do the rest.” The company grew rapidly on the back of research and patents that set the standards for decades. By 1990 it had sales of $19 billion and employed more than 145,000 employees worldwide.
Kodak actually created digital photography and put the technology into professional cameras in the early 1990s. While they were the founders of what would eventually mean the demise of the company, they did little with it, only dabbling in cameras for consumers. It wasn’t that the company didn’t see the decline in film com- ing; it was just so profitable to keep producing film that everyone assumed the company had time to change.
The end began to become very clear. Starting in 2001 film sales began plummeting by 20%–30% a year. The company poured a fortune into a very unsuccessful attempt to enter the digital printing market. Like so many companies that are unable to adapt to new market conditions, the company suffered through many rounds of layoffs, restructurings, and asset sales as management teams floundered.
In 2013 the company sold off a majority of its remaining valuable patents to a group of companies including Apple, Samsung, and Facebook for just over $500 million. Today the company is owned by a group of Private Equity investors and the CEO lives in San Francisco and is trying to manage the remaining intellectual property and employees to find some areas of growth. The company excels at high-speed printing and digital imaging.
Some Hollywood directors still use film (Quentin Tarantino & J.J. Abrams) which Kodak continues to produce, but the future of the company is murky at best. Kodak, once a brand name that rivaled the greatest in the world may go the way of other legacy companies that failed to change with the environment.
SOURCE: Quentin Hardy, “At Kodak, Clinging to a Future Beyond Film,” The New York Times, March 20, 2015. (http://www.nytimes.com/2015/03/22/business/at-kodak-clinging-to-a-future-beyond-film .html?ref=topics&_r=0); http://www.kodak.com/ek/us/en/corp/aboutus/heritage/milestones/default.htm
A changing environment can help as well as hurt a company. Many pioneering companies have gone out of business because of their failure to adapt to competitive and environmen- tal change or, even worse, because of their failure to create change. For example, Baldwin Locomotive, the major manufacturer of steam locomotives, was very slow in making the switch to diesel locomotives. General Electric and General Motors soon dominated the diesel locomotive business and Baldwin went out of business. The dominant manufacturers of vacuum tubes failed to make the change to transistors and consequently lost this mar- ket. Eastman Kodak, the pioneer and market leader of chemical-based film photography, has been in a long decline as it struggles to find its place in the post-film world. Failure to adapt is, however, only one side of the coin. A changing environment usually creates new opportunities at the same time it destroys old ones. The lesson is simple: To be successful over time, an organization needs to be in tune with its external environment. There must be a strategic fit between what the environment wants and what the corporation has to offer, as well as between what the corporation needs and what the environment can provide.
Current predictions are that the environment for all organizations will become even more uncertain with every passing year. What is environmental uncertainty? It is the degree of complexity plus the degree of change that exists in an organization’s external environment. As more and more markets become global, the number of fac- tors a company must consider in any decision increases in size and difficulty. With new technologies being discovered every year, markets change and products must change with them.
On the one hand, environmental uncertainty is a threat to strategic managers because it hampers their ability to develop long-range plans and to make strategic deci- sions to keep the corporation in equilibrium with its external environment. On the other hand, environmental uncertainty is an opportunity because it creates a new playing field in which creativity and innovation can play a major part in strategic decisions.
Aspects of Environmental Scanning
Before managers can begin strategy formulation, they must understand the context of the environment in which their organization competes. It is virtually impossible for a company to design a strategy without a deep understanding of the external envi- ronment. Once management has framed the aspects of the environment that impact the business, they are in a position to determine the firm’s competitive advantages.
Environmental scanning is an overarching term encompassing the monitoring,
4-1. List the aspects of an organization’s environment that can influence its long- term decisions
evaluation, and dissemination of information relevant to the organizational develop- ment of strategy. A corporation uses this tool to avoid strategic surprise and to ensure its long-term health. Research has found a positive relationship between environmental scanning and profits.1 A 2011 study by McKinsey & Company found that executives ranked macrolevel trends as the most important input to be considered when develop- ing corporate strategy.2
IDENTIFYINg ExTERNAL ENvIRONMENTAL vARIABLES
In undertaking environmental scanning, strategic managers must first be aware of the many variables within a corporation’s natural, societal, and task environments (see Figure 1–3). The natural environment includes physical resources, wildlife, and climate that are an inherent part of existence on Earth. These factors form an ecological system of interrelated life. The societal environment is mankind’s social system that includes general forces that do not directly touch on the short-run activities of the organization, but that can influence its long-term decisions. These factors affect multiple industries and are as follows:
■
■ Economic forces that regulate the exchange of materials, money, energy, and information.
■
■ Technological forces that generate problem-solving inventions.
■
■ Political–legal forces that allocate power and provide constraining and protecting laws and regulations.
■
■ Sociocultural forces that regulate the values, mores, and customs of society.
The task environment includes those elements or groups that directly affect a corpora- tion and, in turn, are affected by it. These are governments, local communities, suppli- ers, competitors, customers, creditors, employees/labor unions, special-interest groups, and trade associations. A corporation’s task environment is typically focused on the industry within which the firm operates. Industry analysis refers to an in-depth exami- nation of key factors within a corporation’s task environment. The natural, societal, and task environments must be monitored to examine the strategic factors that have a strong impact on corporate success or failure. Significant changes in the natural envi- ronment tend to impact the societal environment of the business (resource availability and costs), and finally the task environment because it impacts the growth or decline of whole industries.
Scanning the Natural Environment
The natural environment includes physical resources, wildlife, and climate that are an inherent part of existence on Earth. Until the 20th century, the natural environment was generally perceived by business people to be a given—something to exploit, not con- serve. It was viewed as a free resource, something to be taken or fought over, like arable land, diamond mines, deep water harbors, or fresh water. Once they were controlled by a person or entity, these resources were considered assets and thus valued as part of the general economic system—a resource to be bought, sold, or sometimes shared.
Side effects, such as pollution, were considered to be externalities, costs not included in a business firm’s accounting system, but felt by others. Eventually these externalities were identified by governments, which passed regulations to force business corporations to deal with the side effects of their activities.
The concept of sustainability argues that a firm’s ability to continuously renew itself for long-term success and survival is dependent not only upon the greater economic and social system of which it is a part, but also upon the natural ecosystem in which the firm is embedded.3 For more information on innovative approaches to this issue, see the Sustainability Issue feature.
A business must scan the natural environment for factors that might previously have been taken for granted, such as the availability of fresh water and clean air. Global warming means that aspects of the natural environment, such as sea level, weather, and climate, are becoming increasingly uncertain and difficult to predict. Management must scan not only the natural environment for possible strategic factors, but also include in its strategic decision-making processes the impact of its activities upon the natural environment. In a world concerned with climate change, a company could measure and reduce its carbon footprint—the amount of greenhouse gases it is emitting into the air.
Research reveals that scanning the market for environmental issues is positively related to firm performance because it helps management identify opportunities to fulfill future market demand based upon environmentally friendly products or processes.4 See the Sustainability Issue feature to learn how the high-end car companies saw an opportunity in green cars.
fuel consumption by more than 40%. the price tag is something to see, however. the vehicle will most likely be priced above US$850,000. porsche already has hybrid versions of its Cayenne SUV and panamera four-door cars, clocking in at US$70,000 and US$96,000, respec- tively. In 2015 porsche released the new 918 Spyder sports coupe hybrid with a base price between US$850,000 to US$930,000. even venerable Bentley is planning a plug-in hybrid version of its SUV that will come with a price tag above US$300,000.
all of these vehicles require battery packs that weigh in excess of 1000 pounds and must be disposed of when the vehicle is no longer useful. the increase in sustainability from an environmental approach on one end triggers an environmental issue at the other end of the product’s use- ful life. So what is the right answer for these companies?
and what about the environment?
SOUrCeS: http://www.hybridcars.com/history/history-of-hybrid- vehicles.html (accessed January, 2016); t. ebhardt, “Supercar Makers Seek a Different Shade of Green,” BusinessWeek (May 28, 2012), (www.businessweek.com).
the move to greener cars has finally reached ultra- high-end car companies, including porsche, Ferrari, and Bentley. the push to get car manufacturing companies to increase gas mileage and reduce emissions has come from a combination of regulations, purchasing patterns, and pressure from environmental groups. although some form of hybrid vehicle technology has been around since the beginning of the automobile, the toyota prius, introduced to the Japanese market in 1997, quickly became the standard of economy in the industry.
higher-end car makers have been making hybrid vehi- cles for some time, even though the price of these vehicles has kept their sales relatively modest. BMW offers the 750i, four-door sedan for US$101,000, while the equiva- lent Mercedes sedan (S400) goes for roughly US$92,000.
Despite this, ultra-luxury car makers waited until the 2013 model year to release their hybrid models.
Ferrari announced the F70, which has two electric motors along with a 12-cylinder gasoline engine that cuts
SUSTAINABILITY issue
gREEN SUPERCARS
Strategic Importance of the External Environment
SCANNINg THE SOCIETAL ENvIRONMENT: STEEP ANALYSIS
The number of possible strategic factors in the societal environment is very high. The number becomes enormous when we realize that, generally speaking, each country in the world can be represented by its own unique set of societal forces—some of which are very similar to those of neighboring countries and some of which are very different.
For example, even though Korea and China share Asia’s Pacific Rim area with Thailand, Taiwan, and Hong Kong (sharing many similar cultural values), they have very different views about the role of business in society. It is generally believed in Korea and China (and to a lesser extent in Japan) that the role of business is primarily to contribute to national development. However, in Hong Kong, Taiwan, and Thailand (and to a lesser extent in the Philippines, Indonesia, Singapore, and Malaysia), the role of business is primarily to make profits for the shareholders.5 Such differences may translate into different trade regulations and varying difficulty in the repatriation of profits (the transfer of profits from a foreign subsidiary to a corporation’s headquarters) from one group of Pacific Rim countries to another.
STEEP Analysis: Monitoring Trends in the Societal and Natural Environments
As shown in Table 4–1, large corporations categorize the natural and societal environ- ments in any one geographic region into five areas and focus their scanning in each area on trends that have corporatewide relevance. For ease of remembering the approach,
4-2. Identify the aspects of an organization’s environment that are most strategically important
Sociocultural Technological Economic Ecological Political–Legal Lifestyle changes
Career expectations Consumer activism Rate of family formation Growth rate of population
Age distribution of population
Regional shifts in population Life expectancies Birthrates Pension plans Health care Level of education Living wage Unionization
Total government spending for R&D Total industry spending for R&D
Focus of technological efforts
Patent protection New products New developments in technology transfer from lab to marketplace Productivity improve- ments through automation Internet availability Telecommunication infrastructure Computer hacking activity
GDP trends Interest rates Money supply Inflation rates Unemployment levels
Wage/price controls Devaluation/
revaluation Energy alternatives Energy availability and cost
Disposable and dis- cretionary income Currency markets Global financial system
Environmental protection laws Global warm- ing impacts Non-
governmental organizations Pollution impacts Reuse Triple bottom line
Recycling
Antitrust regulations Environmental pro- tection laws Global warming legislation Immigration laws Tax laws
Special incentives Foreign trade regulations
Attitudes toward for- eign companies Laws on hiring and promotion
Stability of government Outsourcing regulation
Foreign “sweatshops”
TABLE 4–1 Some Important variables in the Societal Environment
this scanning can be called STEEP Analysis, the scanning of Sociocultural, Technologi- cal, Economic, Ecological, and Political–legal environmental forces.6 (It may also be called PESTEL Analysis for Political, Economic, Sociocultural, Technological, Ecologi- cal, and Legal forces.) Obviously, trends in any one area may be very important to firms in one industry but of lesser importance to firms in other industries.
Demographic trends are part of the sociocultural aspect of the societal environment.
Although the world’s population has grown from 3.71 billion people in 1970 to 7.3 billion in 2015 and is expected to increase to between 8.3 and 10.9 billion by 2050, not all regions will grow equally.7 Most of the growth will be in the developing nations. It is predicted that the population of the developed nations will fall from 14% of the total world population in 2000 to only 10% in 2050.8 Around 75% of the world will live in a city by 2050, compared to little more than half in 2008.9 Developing nations will con- tinue to have more young than old people, but it will be the reverse in the industrialized nations. For example, the demographic bulge in the U.S. population caused by the baby boom after WWII continues to affect market demand in many industries. This group of 77 million people now in their 50s and 60s is the largest age group in all developed countries, especially in Europe. (See Table 4–2.) Although the median age in the United States will rise from 35 in 2000 to 40 by 2050, it will increase from 40 to 47 during the same time period in Germany, and it will increase to up to 50 in Italy as soon as 2025.10 By 2050, one in three Italians will be over 65, nearly double the number in 2005.11 With its low birthrate, Japan’s population is expected to fall from 127.6 million in 2004 to around 100 million by 2050.12 China’s stringent birth control policy (which was recently relaxed to allow couples to have two children) is predicted to cause the ratio of workers to retirees to fall from 20 to 1 during the early 1980s to 2.5 to one by 2020.13 Companies with an eye on the future can find many opportunities to offer products and services to the growing number of “woofies” (well-off old folks)—defined as people over 50 with money to spend.14 These people are very likely to purchase recreational vehicles (RVs), take ocean cruises, and enjoy leisure sports, in addition to needing complex financial services and health care. Anticipating the needs of seniors for prescription drugs is one reason Walgreens has grown so fast. It opened its 7000th store in 2009 and by mid-year 2015 had over 8100 stores!15
To attract older customers, retailers will need to place seats in their larger stores so aging shoppers can rest. Washrooms will need to be more handicap-accessible. Signs will need to be larger. Restaurants will need to raise the level of lighting so people can read their menus. Home appliances will require simpler and larger controls. Automobiles will need larger door openings and more comfortable seats. Zimmer Holdings, an innovative
Generation Born Age in 2015 % of Total Adult Population Current U.S.
Generations Greatest WWII / Silent Generation
Before 1928 1928–1945
88–100 70–87
2%
11%
Baby
Boomers 1946–1964 51–69 30%
Generation
X 1965–1980 35–50 27%
Millennials 1980–1996 18–34 30%
SOURCES: Developed from Pew Research Center analysis of census bureau population projections (September 3, 2015), (http://www.people-press.org/2015/09/03/the-whys-and-hows-of-generations-research/generations_2/).
TABLE 4–2 Current U.S.
generations
manufacturer of artificial joints, is looking forward to its market growing rapidly over the next 20 years. According to J. Raymond Elliot, Chair and CEO of Zimmer, “It’s simple math. Our best years are still in front of us.”16
Eight current sociocultural trends are transforming North America and the rest of the world:
1. Increasing environmental awareness: Recycling and conservation are becoming more than slogans. Busch Gardens, for example, has eliminated the use of dispos- able Styrofoam trays in favor of washing and reusing plastic trays.
2. Growing health consciousness: Concerns about personal health fuel the trend toward physical fitness and healthier living. There has been a general move across the planet to attack obesity. The U.S. Centers for Disease Control and Prevention cites that more than two-thirds of American adults and one-third of American youth are now obese or overweight. A number of states have enacted provisions to encourage grocery stores to open in so-called “food deserts” where the population has virtually no access to fresh foods.17 In 2012, Chile decided to ban toys that are included in various fast-food meals aimed at children in order to increase the fight against childhood obesity.18
3. Expanding seniors market: As their numbers increase, people over age 55 will become an even more important market. Already some companies are segmenting the senior population into Young Matures, Older Matures, and the Elderly—each having a different set of attitudes and interests. Both mature segments, for example, are good markets for the health care and tourism industries; whereas, the elderly are the key market for long-term care facilities. The desire for companionship by people whose children are grown is causing the pet care industry to grow by more than 5% annually in the United States. In 2014, for example, 73 million households in the United States spent US$58 billion on their pets. That was up from just above US$41 billion 2007.19
4. Impact of millennials: Born between 1980 and 1996 to the baby boomers and Gen- eration Xers, this cohort is almost as large as the baby boomer generation. In 1957, the peak year of the postwar boom, 4.3 million babies were born. In 1990, there were 4.2 million births; the Millennials’ peak year. By 2000, they were overcrowd- ing elementary and high schools and entering college in numbers not seen since the baby boomers. Now in its 20s and 30s, this cohort is expected to have a strong impact on future products and services.
5. Declining mass market: Niche markets are defining the marketers’ environment.
People want products and services that are adapted more to their personal needs.
For example, Estée Lauder’s “All Skin” and Maybelline’s “Shades of You” lines of cosmetic products are specifically made for African-American women. “Mass customization”—the making and marketing of products tailored to a person’s requirements is replacing the mass production and marketing of the same product in some markets. The past 10 years have seen a real fracturing of the chocolate market with the advent of craft chocolate making and flavored chocolates. These products command significantly higher margins and have become a force in the retailing environment. By 2010, 43% of chocolate sales occurred in nontraditional channels.20 6. Changing pace and location of life: Instant communication via e-mail, cell
phones, and overnight mail enhances efficiency, but it also puts more pressure on people. Merging the personal or tablet computer with the communication and entertainment industries through telephone lines, satellite dishes, and Internet connections increases consumers’ choices and allows workers to telecommute from anywhere.