Case Study Analysis: Strategy
Please study the attached Case Study
and analyse it in essay style
Case Study – Fujifilm
MKT 6405 – Marketing Planning and Strategy
Fujifilm was founded in 1934, based on the Japanese government plan to establish a photographic film manufacturing industry in the country. Over the following 10 years, the company produced photographic films, motion-picture films and X-ray films. In the 1940s, Fuji Photo entered the optical glasses, lenses and equipment markets. After the Second World War, Fuji Photo diversified, penetrating the medical (X-ray diagnosis), printing, electronic imaging and magnetic materials fields. In 1962, Fuji Photo and U.K.-based Rank Xerox Limited launched Fuji Xerox Co., Ltd. through a joint venture.
In the 1980s, Fuji Photo expanded its production and other bases overseas, stepping up the pace of its business globalization. Meanwhile, Fuji Photo developed digital technologies for its photo-related, medical and printing businesses. Like its rival Eastman Kodak, which dominated in the US, Fuji Photo enjoyed a long-time near-monopoly on camera film in Japan.
The new millennium witnessed the rapid spread of digital technology in cameras. Demand for photographic films plunged in line with the growing popularity of digital cameras. In response, Fuji Photo implemented management reforms aimed at a drastic transformation of its business structures. As early as the 1980s, the company had foreseen the switch from film to digital, so “it developed a three-pronged strategy: to squeeze as much money out of the film business as possible, to prepare for the switch to digital and to develop new business lines.” While both film manufacturers recognized this fundamental change, Fuji Photo adapted to this shift much more successfully than Eastman Kodak (which filed for bankruptcy in January 2012). Fuji Photo’s diversification efforts also succeeded while Kodak’s had failed; furthermore Kodak built up a large but barely profitable digital camera business that was undone quickly by smartphone cameras.
How Fujifilm survived
An article by The Economist (2012) contrasted the paths of Fujifilm with Kodak and stated that ‘Kodak acted like a stereotypical change-resistant Japanese firm, while Fujifilm acted like a flexible American one’. A closer examination of Fujifilm is also warranted to understand how it made the transition away from film. Where Kodak tried to monetize its R&D in its core business (photography), the digital imaging sector accounts for only about one-fifth of Fujifilm’s revenue.
Shigetaka Komori (Fujifilm CEO) expressed admiration for Kodak in the past calling it ‘the strongest company I ever saw’. However, this was previous to the 1963 lawsuit that Kodak ensued against the Japanese company.
Like Kodak, Fujifilm, realized in 1980s that photography was going digital. Like Kodak, it continued to milk profits from film sales, invested in digital technologies, and tried to diversify into new areas. Like Kodak, the film division was core to the business and it took a very long time until Fujifilm admitted that the film business was in decline. One can ask, if both the companies had similar market forecasts, strategy and internal politics why the outcomes are divergent? The difference was in the execution of strategy.
Fujifilm realized it needed to develop in-house expertise in new businesses. In contrast, Kodak believed their core strength was in brand and marketing and that it could simply partner or buy its way in new industries. When sales from film developing and printing were dwindling some revenue could be gained by installing kiosks to print digital photos. Whereas Fujifilm has their own system, Kodak needed to partner with another firm. Moreover, Fujifilm learnt that it could apply the kiosk technology to other businesses in its digital-imaging division while Kodak couldn’t because it didn’t own the technology. The Japanese company was also able to strike a deal to place it kiosks in Wal-Mart stores. Today, Fujifilm controls nearly 40% of the photofinishing market in America.
Fujifilm’s success depends in part from a decision in 2000 to spend around £1.6 billion for an additional 25% stake in Fugi Xerox Co. This allowed Fujifilm to control the joint venture’s strategy and to consolidate earnings. When film revenue began to decline, the company had a cushion of earnings.
Fujifilm also focused on applying its technology in new areas. Fujifilm’s expertise in nanotechnology for placing chemicals onto film, for instance, was carried over to applying cosmetics to facial skin. Experience with photosensitive materials helped with fine chemicals and industrial materials. Today, Fujifilm’s medical-imaging equipment business is growing quickly and it has acquired many firms in the sector.
As a result Fujifilm became a much more diversified company than Kodak. Komori realised that having a longer-term vision, was damaging to the firm’s short-term profitability, but it paid off in the long run. As Komori states ‘we have more pockets and drawers in our company’.
And Kodak? There was completely and utter denial about competition from Fujifilm. Kodak’s monopoly was the problem. It believed it was a God-given right to have 100% of the market. It never bothered to look over its shoulder at what was coming up from behind. Instead, Kodak relied on its brand.
Fujifilm develops a new focus
Over the last decade, Komori diversified into new businesses as demand for the company’s trademark green photo-film boxes plummeted and arch-rival Eastman Kodak Co. went bankrupt. As a result, Fujifilm reported in 2014 a record profit of £950 million.
Now, the 75-year-old CEO is venturing further into uncharted territory, with plans to spend more than £400 billion on acquisitions by 2017, add new product lines and make a more aggressive push into health care. Komori’s ambitions for the next stage of the company’s makeover include plans to double health-care revenue to £1 trillion by 2018. A part of that mission will be driven by regenerative medicine, which uses cells and other methods to repair damaged body organs. While the science is nascent, Japan’s regulatory climate has just turned more favourable. Prime Minister Shinzo Abe’s government recently eased approval rules, making Japan one of the world’s fastest places to get a regenerative medical product on the market.
In March, Fujifilm agreed to pay £307 million for U.S.- based Cellular Dynamics International Inc., a producer of iPS cells, types of stem cells capable of morphing into any body part. Another Fujifilm unit called Japan Tissue Engineering Co. already has regenerated cartilage and skin products on the market, used by burn victims and others. The hope is that these businesses could someday create cells to help damaged organs like the liver or pancreas to grow again. Komori’s efforts began a decade ago, when the ascent of digital cameras and smartphones began cannibalizing film sales. That led him to push the company’s engineers and executives to take a long, close look at the technology that helps perfect the dozens of layers and compounds in photographic film. Fujifilm went on to reapply that expertise to new businesses, including skin care and film that holds LCD screens together.
The company made deals, including the acquisition of drug maker Toyama Chemical Co., maker of an antiviral drug that was used by some Ebola patients. Photocopier machines and printers became its largest source of revenue after the slump in film. While these are likely to remain the biggest businesses, Komori sees the newer biotechnology and pharmaceutical operations as future drivers of growth. Investors have so far applauded the strategic shift, pushing the stock up about 70% over the past year.
With his investments in unproven new areas, Komori faces risks: the possibility of unsuccessful products and a long wait for any pay out. A lifelong Fujifilm employee who took over as CEO in 2003, Komori has sometimes likened his role to that of a general going into battle. He talks about taking calculated risks, and in his memoir “Innovating Out of Crisis” mentions reading Winston Churchill’s World War II account several times. Yuuki, the Japanese word for courage, is framed on a conference room wall where he receives guests. He speaks regularly to employees — in videos, newsletters and company addresses. ‘It’s like in the military,’ Komori said. ‘Leaders need to be briefing their men every day on what is going on and what needs to be done, and make sure everyone acts all the way down.’
Part of the challenge is to create research teams willing to try new ideas. Scientist Tomoko Tashiro, who had been developing molecules for preserving photographs, came back from maternity leave in 2005 to find that she had been reassigned. She was asked to look into applying the same technology to skin. ‘It was bewildering at first, but soon after I could see how much value we could add.’ Collagen is a shared ingredient in both photographic film and human skin. Within two years, Tashiro had helped develop a beauty line called Astalift out of molecules she had been studying to prevent photo-printing paper from fading. Now sales from the skin-care brand are more than £10 billion.
Across the world in Tilburg, the Netherlands, Akira Kase, who now heads Fujifilm’s biopharmaceutical initiatives, remembers many brainstorming sessions with Dutch colleagues. A decade later, one of their ideas, a filter for the natural gas purification process to reduce energy costs, will soon come on the market.
Even photo sales which bottomed out in 2011 are beginning to pick up again, driven by the growing popularity of Fujifilm’s instant cameras and printers, which have become ubiquitous at weddings the world over. What you’re seeing right now is just the tip of the iceberg,’ said Toda, who was promoted to executive vice president in June. ‘We have decades of technology and know-how backing us, and now that we’ve opened up these possibilities: expect much more to come.’
FugiFilm Global, Corporate History, Available at: http://www.fujifilm.com/about/history/
Schumpeter, The Economist, January 2012, How Fujifilm survived: sharper focus, The Economist, Available at: http://www.economist.com/blogs/schumpeter/2012/01/how-fujifilm-survived
Khan, N., and Matsuda, K., August 2015, Fujifilm develops new focus, Bloomberg Business Week, Available at: http://www.bloomberg.com/news/articles/2015-08-17/pivoting-from-photos-to-stem-cells-fujifilm-finds-a-second-life