Practise IB Business Management HL 1.5.4 by evaluating whether small or large scale best fits an organization’s strategy and context.
Kodak
Kodak, after decades as the leading American camera and photography company, went bankrupt in 2012. Despite its large research and development (R\&D) budget, Kodak concentrated on products related to its film-processing business, a market that Kodak had long dominated. However, digital technology had changed photography dramatically, and Kodak, unlike its competitors, failed to innovate.
At least three times, Kodak misunderstood consumer desire to interact with photos and the external environment:
- Digital cameras - In 1975, Kodak invented the first digital camera but did not sufficiently develop this technology. Its cameras were always perceived as satisfactory products, but "nothing special". Competitors innovated with features such as face-and-smile detection. Kodak only followed trends, never led them.
- Photo viewing - In 2002, Kodak entered the market of low growth, small margin products, such as digital photo frames. Kodak's products did not have a unique selling point (USP) and were unsuccessful.
- Photo sharing - In 2005, Kodak developed the first WiFi camera, but sales were disappointing. Shortly thereafter, a new business opened, Eye-Fi, which proved Kodak wrong about WiFi. Eye-Fi created a successful business based on WiFi memory cards for cameras - the concept that Kodak had abandoned and not patented.
The conclusions from Kodak's bankruptcy are clear:
- "Cannibalism" - do not be afraid to develop a new technologically advanced product even if it causes the decline of your existing products.
- Innovation - do not be afraid to take risks. Kodak's inability to give any of its digital products a USP shows its failure to take advantage of inventions. Innovation also requires strategic vision.
- New product design - do not be afraid if sales do not happen immediately. Kodak withdrew its WiFi cameras simply because the first model sold poorly.
As the evidence shows, not taking risks in new inventions will reduce profit margins in the long run. Small, innovative business start-ups such as Canon can often successfully penetrate markets dominated by big companies unless those companies use their resources to keep up-to-date.
With reference to Kodak and one other organization of your choice, evaluate the merits of small versus large organizations.
It appears that Kodak as a relatively large organization has sufficient finance for R\&D as Kodak introduced a number of new products throughout the years. Therefore, greater product range can be seen as an advantage of a large organization. The risk of relying on one or very few market segments is much reduced. Large organizations can benefit from global brand recognition as Kodak did and enjoy different types of economies of scale; purchasing, marketing, managerial and so on. However, it may be argued that Kodak was overly confident perhaps due to its size and its success with the film processing business and did not pay attention to other competitors' new product and marketing strategies until it eventually went bankrupt.
Perhaps being a large organization did not enable Kodak to operate in a niche market like small competitors might do. Small organizations can channel their more limited resources to satisfy the needs of a niche market or a small segment and become extremely customer focused. Customers' needs are likely to be satisfied with perhaps more personalized service and close contact. Perhaps Kodak as a large organization was not aware of the changing needs of the customers.
Kodak lacked the flexibility like a small organization to respond to the changing need of customers and to become innovative like some small startup companies did with their innovative products.
A small start-up company may be more reluctant to take risks with its product as it has to create a USP and compete against large companies like Kodak. The increasing number of start-ups especially in this highly technological industry is evident.
Conclusions/judgment:
It is not expected that a definite verdict is given. It is evident that even larger organization like Apple performed very well, however, there are some current issues with innovation. Many start-up companies become successful after being small but many aim to grow - Facebook, Twitter, Google.
There is no explicit evidence that Kodak failed due to its size. The conclusions in the last part of the stimulus do not refer to size but to strategic vision, to the failure due to new products that were taken off the market too quickly, a failure to patent innovation and being afraid of cannibalism. Perhaps size does not matter but management vision/ attitude to risk and so on does.
Accept any other relevant point for or against a large organization. These points may be theoretical.
Accept any relevant evaluation incorporating any benefits such as those above.
N.B. Flexibility in marking is very important in this case given the different nature of the question. Expect more reference to Kodak rather than specific application to another organization.
Do not penalize if a specific name of a small organization is not given. Expect some comparison between large and small organizations.
A balanced response is one that covers at least two arguments in favour and at least two arguments against.
For one relevant issue that is one-sided, award up to [3 marks]. If the response is a one-sided relevant approach with no analysis/evaluation award a maximum of [4 marks].
Award a maximum of [5 marks] if the answer is of a standard that shows balanced analysis and understanding throughout the response with reference to the stimulus material but there is no judgment/conclusion.
Candidates cannot reach the [5-7] markband if they give judgment/conclusions that are not based on analysis/explanation already given in their answer.
Marks should be allocated according to the markbands on page 4.