Planet of the Apes

In the last post, there were comments on organizational inertia. Putting up this comic snippet shared by a  friend that gives an interesting perspective into organizational inertia - how it is difficult to change the prevailing norms, values, beliefs and accepted patterns of  behaviour.                                                                            
                                                                                   

      

More often than not, people who try to change the existing culture are deemed as misfits within an organization and are pulled down by the others. 

     Organizations that have been successful in doing things in a particular way, often tend to stick to the same way of working even after it becomes obsolete, since they are accustomed to it and so they resist changes that might help them to compete better. 

At times it is perceived to be easier to change employees than to change their culture.

-Contributed by Shalini Verma

Kodak – Image Blurred

On 19th Jan, 2012, investors woke up to the news of Kodak’s filing for Chapter 11 bankruptcy protection in US Bankruptcy Court in Lower Manhattan. This gives the company an automatic stay for 6 months during which it has protection from creditors and the time to reorganise itself.

Founded in 1880, by George Eastman, Kodak became one of America’s most notable companies that established the market for camera film and then dominated the field. Neil Armstrong used a Kodak camera to take pictures on the Moon in 1969. Eighty films that have won Best Picture Oscars were shot on Kodak film and the phrase “Kodak moment” captured people’s imagination.

Analysts feel that the firm's late entry into the digital market is a key factor in its recent troubles. Although Kodak was one of the original inventors of digital photography in the mid 70s, it did not commercially begin to manufacture digital cameras for the next two decades due to the fear of the cannibalisation of film. As a result Kodak failed to keep pace with developments in the market and competitors steadily eroded its share of the market.

Since the late 1990s, the sales of photographic film declined and the revenue from the sale of film started fading. Since 2003, the company took the decision to halt investing in its film product, closed 13 manufacturing plants and reduced its workforce by 47,000.

Kodak adopted a product innovation strategy for digital technology, and came out with model offering consumers top-quality cameras at reasonable prices and other innovative products such as a printer dock. Consumers could insert their cameras into this compact device, press a button, and watch their photos roll out. By 2005, Kodak ranked No. 1 in the U.S. in digital camera sales.

Although Kodak's digital camera business became a roaring sales success, business it could not replicate the rich profits of the film business, as mass-market cameras yield slim profit margins. As other competitors raced into the market, the digital cameras soon became commodities that further eroded the profit margins.

To boost profit margins, Antonio Perez, who became Kodak CEO in 2005, tried a number of turnaround strategies and cost-cutting efforts. He steered Kodak away from its traditional market in cameras to focus on home and commercial printers with the hope it would create a competitive advantage. Kodak turned to patent lawsuits to generate revenue, winning settlements from LG of South Korea. Kodak also attempted to sell its digital imaging patents, but failed to garner enough interest among potential buyers, driven in part by fears of Kodak’s deteriorating financial health.

Since 2004, Kodak has reported only one full year of profit, so the attempts to reinvent the company's core business model have yet to bear fruit. Kodak has secured $950 million in financing from Citigroup to stay afloat during Chapter 11 proceedings. It remains to be seen if the company can emerge from bankruptcy, reorganize its business structure to increase productivity, reduce cost and keep pace with the evolution. Kodak could even be looked at as a takeover target.  

A stubborn culture, refusal to push forward with digital technology after creating one of the first digital cameras, and inability to reinvent the core business model led to Kodak’s failure to remain competitive in a changing world. This also shows that companies, when they are successful with a certain way of working, imbibe a strong culture, which is the company’s strength, but the same culture may also impede the company from adapting to changing needs.

What’s in a name?

"A rose by any other name would smell as sweet" quoted William Shakespeare in Romeo and Juliet; thereby implying that names do not really matter. This could not be farther from truth in the present times, when strategic acquisitions are made with a view to acquire a brand name.

Chatting over a cup of coffee yesterday, a friend brought up the topic of SBC Communication’s acquisition of AT&T in 2005, followed by changing its name to AT&T Inc. SBC CEO Edward Whitacre had mentioned that they had factored the great name of AT&T & its strong worldwide brand in the acquisition decision.

When a company is sold, it seeks to obtain a value over and beyond that of its tangible assets. This is referred to as `goodwill' and can be thought of as a "premium" for buying a business over and above the fair value of the net tangible assets acquired. Firms sometimes pay large premiums for acquiring firms with valuable brand names because they believe that these brand names can be used for expansion into new markets.

Conventionally the value of a brand has been regarded as part of goodwill, which arises only when a business is sold. As a consequence, the value of acquired brands is included in companies’ balance sheets but the value of internally generated brands remains unaccounted for. To do away with this inconsistency, in the recent years some major consumer brands have been capitalised, which means that a value has been put on the brand and included in the balance sheet as an asset of the company.

Like beauty lies in the eyes of the beholder, the value of brands lies in the perception of the people. Building these perceptions can take years but it can be destroyed overnight due to some marketing failure, resulting in the brand worth to fluctuate and erode quickly.

The "Brandz 2011" survey by Millward Brown ranked Apple as the most valued brand at $153bn, up 84 per cent on last year, and Google at $111bn, down two per cent. The McDonald’s brand accounts for more than 70 percent of shareholder value. The Coca-Cola brand alone accounts for 51 percent of the stock market value of the Coca-Cola Company.

Various approaches to measuring brand value have developed, but still the capitalisation of a company's brand value on the balance sheet remains contentious due to problems in a realistic assessment of brand value and the fact that the brand worth can fluctuate quickly.