QUESTION

For many years, Eastman Kodak had control on the film production industry. The firm had managed to time the release of its new products to meet customer demands. However, in the 1980s, Eastman Kodak's virtual monopoly of the film production industry was rattled by the entry of Fuji Corporation's high quality film.

The new product from Fuji Corporation wore away the big market share of Eastman Kodak. In addition, other generic store brands of film began to emerge in the market, making competition in the film production industry tougher. The entry of new players as well as the improving market share of competitors has eroded Eastman Kodak's virtual monopoly in the film production industry.
The surge in competition motivated Kodak to change its organizational architecture with a view to improve performance and productivity.

Two changes were adopted, namely:

1. From its centralized decision making system where top-level approval was a requirement for most major decisions, Eastman Kodak decided to restructure its decision-making process. This resulted to the creation of 17 new business units with profit-and-loss responsibility. Business-unit managers were given the responsibility to decide on new products, pricing, and other important policy choices.

2. Eastman Kodak brought changes in its company's performance-evaluation and reward system. The purpose of changing the methods of rewarding individuals and structure of systems to evaluate the performance of both individuals and business units was to motivate managers to be more creative, industrious and responsive to customer needs and demands. Eastman Kodak adopted the Management Annual Performance Plan (MAPP) in 1987 which reduced by 10 percent the base salary of management employees. The reduced 10 percent was replaced with a variable bonus ranging from 0 to 20 percent. Bonus was given based on individual, unit, and company objective

(i) You are required to design a Cost Benefit Analysis (CBA) for Eastman Kodak, justifying the elements of cost and benefit over a period of three years.

(ii) Based on the CBA, explain whether the policy decision is desirable.