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CASE 8 . THE RISE AND FALL OF EASTMAN KODAK: HOW LONG WILL lT SURVIVE BEYOND 2011? 463

The Rise and Fall of Eastman Kodak:How Long Wi ll It Survive Beyond 201This case was prepared by Gareth R. Jones, Texas A&M University.

In 201,1, Antonio Perez, CEO of the Eastrnan Kodak Co.,was reflecting on his company's current situation. Since he

had become CEO in 2005 and launched his strategy tomake Kodak a leader in the consumer and business imag-ing markets, progress had been slow. His efforts to cutcosts while investing heavily to develop new digital prod-ucts had resulted in Kodak losing money in most of theprevious years, and Kodak had already cut its profit esti-

mates for 201"1.

After spending billions of dollars to create the digitalcompetences necess ary to give Kodak a competitive ad-vantage, and after cutting tens of thousands of jobs, thecompany's future was stitl in doubt. Could Kodak survivegiven the fact its digital rivals were continually introducingnew and improved products that made its own look out ofdate? Was Kodak's new digital business model reallyworking and did it have the digital products in place to re-build its profitability and fulfill its "You press the button,we do the rest" promise? Or, after ten years of decliningsales and profits, was the company on the verge of bank-ruptcy in the face of intense global competition on allproduct fronts?

Kodak's HistoryEastman Kodak Co. was incorporated in New Jersey onOctob er 24,1901, Bs successor to the Eastman Dry PlateCo., the business originally established by GeorgeEastman in September 1880. The Dry Plate Co. had been

formed to develop a dry photographic plate that was moreportable and easier to use than other plates in the rapidlydeveloping photography field. To mass-produce the dryplates uniformly, Eastman patented a plate-coatingmachine and began to manufacture the plates commer-cially. Eastman's continuing interest in the infant photo-graphic industry ted to his development in 1884 of silverhalide paper-based photographic roll film. Eastmancapped this invention with his introduction of the f,rst

Copyright @ 2011 by Gareth R. Jones. This cose was prep*red by

Gareth R. lones as the basis for class discussion rather than to illus-trate either effective or ineffective handling of an administrative sirua-

tion. Reprinted b"v permission of Gareth R. Jones. All rights reserved.

For the most recent financial results of the compilny disctrssed in thiscase, go to hUp:ffinance.yahoo.com, input the company's stock symbol(EK), and download the latest company report from its homepage.

portable camera in 1,888. This camera used his ownpatented film, which was developed using his own propri-etary method. Thus Eastman had gained control of all the

stages of the photographic process. His breakthroughsmade possible the development of photography as a mass

leisure activity. The popularity of the "recorded images"business was immediate, and sales boomed. Eastman's in-ventions revolutionized the photographic industry, and his

company was uniquely placed to lead the world in the

development of photographic technology.From the beginnitg, Kodak focused on four primary

objectives to guide the growth of its business: (1) mass

production to lower production costs, (2) maintainingthe lead in technological developments, (3) extensiveproduct advertising, and (4) the development of a multi-national business to exploit the world market. Althoughcommon now, those goals wele revolutionary at thetime. In due course, Kodak's yellow boxes could be

found in every country in the world. Preeminent inworld markets, Kodak operated research, manufactur-ing, and distribution networks throughout Europe andthe rest of the world. Kodak's leadership in the develop-ment of advanced color film for simple, easy-to-usecameras and in quality film processing was maintainedby constant research and development in its manyresearch laboratories. Its huge volume of productionallowed it to obtain economies of scale. Kodak was also

its own supplier of the plastics and chemicals needed toproduce film, and it made most of the component partsfor its cameras.

Kodak became one of the most profltable Americancorporations, and its return on shareholders' equity aYer-

aged 18% for many years. To maintain its competitiveadvantage, it continued to invest heavily in research and

development in silver halide photography, remaining prin-cipally in the photographic business. In this business. as the

company used its resources to expand sales and become aglobal business, the name Kodak became a householdword signifying unmatched quality. By L99A. approxi-mately 40Y" of Kodak's revenues came from sales outsidethe United States.

Starting in the early 1"970s, however. and especiall-v inthe 1980s, Kodak ran into major problerns. reflected in the

drop in return on equity. Its preerninence was being increas-ingly threatened as the photographic industry and the indus-

try competition changed. Major innovations were takingplace within the photography business. and new methods of

464 CASE STUDIES

recording images and memories beyond silver halide tech-nology, most noticeably digital imaging, were emerging.

lncreasing CompetitionIn the 1970s Kodak began to face an uncertain environ-ment in all its product markets. First, the color film andpaper market from which Kodak made 75Yo of its profitsexperienced growing competition from Japanese compa-nies, led by Fuji Photo Film Co. Fuji invested in huge, low-cost manufacturing plants, using the latest technology tomass-produce film in large volume. Fuji's low productioncosts and aggressive, competitive price cutting squeezedKodak's profit margin. Finding no apparent differences inquality and obtaining more vivid colors with the Japaneseproduct, consumers began to switch to the cheaperJapanese film, and this shift drastically reduced Kodak'smarket share.

Besides greater industry competition, another liabilityfor Kodak was that it had done little internally to improveproductivity to counteract rising costs. Supremacy in themarketplace had made Kodak complacent, and it hadbeen slow to introduce productivity and quality improve-ments. Furthermore, Kodak (unlike Fuji in Japan) pro-duced film in many different countries in the world ratherthan in a single country and this also gave Kodak a costdisadvantage. Thus the combination of Fuji's efficient pro-duction and Kodak's own management style allowed theJapanese to become the cost leaders-to charge lowerprices and still maintain profit margins.

Another blow on the camera front came when Kodaklost its patent suit with Polaroid Corp. Kodak had forgonethe instant photography business in the 1940s when itturned down Edwin Land's offer to develop his instantphotography process. Polaroid developed it, and instantphotography was wildly successful, capturing a significantshare of the photographic market. In response, Kodak setout in the 1960s to develop its own instant camera to com-pete with Polaroid's. According to testimony in the patenttrial, Kodak spent $g+ million perfecting its system, onlyto scrub it when Polaroid introduced the new SX-70 cam-era in L972. Kodak then rushed to produce a competinginstant camera, hoping to capitalize on the $6.5 billion insales of instant cameras. However, a federal judge or-dered Kodak out of the instant photography business forviolating seven of Polaroid's patents in its rush to producean instant camera. The cost to Kodak for closing its in-stant photography operation and exchanging the 16.5 mil-lion cameras sold to consumers was over $800 million. By1985 Kodak reported that it had exited the industry at acost of $494 million; however, in L99L Kodak also agreedto pay Polaroid $925 million to settle out of court a suitthat Polaroid had brought against Kodak for patent in-fringement.

On its third product front, photographic processing,Kodak also experienced problems. It faced stiff competition

from foreign manufacturers of photographic paper and fromnew competitors in the film-processing market, fncreasingly,film processors were turning to cheaper sources of paper toreduce the costs of film processing. Once again the Japanesehad developed cheaper sources of paper and were erodingKodak's market share. At the same time, many new inde-pendent film-processing companies had emerged and wereprinting fihn at far lower rates than Kodak's own officialdevelopers. These independent laboratories had opened toserve the needs of drugstores and supermarkets, and manyof them offered twenty-four-hour service. They used the less

expensive paper to maintain their cost advantage and werewilling to accept lower profit margins in return for a highervolume of sales. As a result, Kodak lost markets for its chem-ical and paper products-products that had contributedsignificantly to its revenues and profits. The photographicindustry surrounding Kodak had changed dramatically.Competition had increased in all product areas, and Kodak,while still the largest producer, faced increasing threats to itsprofitabitity as it was forced to reduce prices to match thecompetition.

The Emergence of Digital lmagingAnother major problem that Kodak had to confront wasnot because of increased competition in its existing prod-uct markets but because of the emergence af new indus-tries that provided alternative means of producingand recording images. The introduction of videotaperecorders, and later video cameras, gave consumers an al-ternative way to use their dollars to produce images, par-ticularly moving images. Video basically destroyed theold, film-based home movie business on which Kodakhad a virtual monopoly. After Sony's introduction of theBetamax machine in 1975 the video industry grew into amultibillion-dollar business. VCRs and first L6mm andthen compact 8mm video cameras became increasinglyhot-selling items as their prices fell with the growth indemand and the standardization of technology.Then thelater introduction of laser disks, cornpact disks, and, inthe l-990s, DVDs were also significant developments. Thevast amount of data that can be recorded on these disksgave them a great advantage in reproducing imagesthrough electronic means.

It was increasingly apparent that the whole nature ofthe imaging and recording process was changing fromchemical methods of reproduction to electronic, digitalmethods. Kodak's managers should have perceived thistransformation to digital-based methods as a disruptivetechnology because its technical preeminence was basedon silver halide photography. However, as is always thecase with such technologies, the real threat lies in the fu-ture. These changes in the competitive environmentcaused enormous difficulties for Kodak. Betwe en L972 andLg&Z,prof,t margins from sales declined from L6Yo to 1"07o.

Kodak's glossy image lost its luster. It was in this decliningsituation that Colby Chandler took over as chairman inJuly 1983.

Kodak's New StrategyChandler saw the need for drarnatic changes in Kodak'sbusinesses and quickly pioneered four changes in strategy:(1) he strove to increase Kodak's control of its existingchemical-based imaging businesses; (2) he airned to makeKodak the leader in electronic imaging; (3) he spear-headed attempts by Kodak to diversify into new busi-nesses to increase profitability; and (a) he began on majorefforts to reduce costs and improve productivity. Toachieve the first three objectives. he began a huge programof acquisitions, realizing that Kodak did not have the timeto venture new activities internally. Because Kodak wascash rich (it was one of the richest global companies) andhad low debt, financirrg these acquisitions was easy.

For the next six years, Chandler acquired businesses infour main areas. By 1989 Kodak had been restructuredinto four main operating groups: imaging, information sys-tems, health, and chemicals. At its annual rneeting in 1988Chandler announced that with the recent acquisition ofSterling Drug for $5 billion the company had achieved itsobjective: "With a sharp focus on these four sectors, we areserving diversified markets from a unified base of scienceand manufacturing technology. The logical synergy of theKodak growth strategy means that we are neither diversi-fied as a conglomerate nor a company with a one-productfamily."

The way these operating groups developed underChandler's leadership is described in the following text.

The lmaging GroupImaging comprised Kodak's original businesses, includingconsumer products, motion picture and audiovisual prod-ucts, photo finishing, and consumer electronics. The unitwas charged with strengthening Kodak's position in its ex-isting businesses. Kodak's strategy in its photographic im-aging business has been to fill gaps in its product line byintroducing new products either made by Kodak orbought from Japanese manufacturers and sold under theKodak name. For example, to maintain market share in thecamera business Kodak introduced a new line of disk cam-eras to replace the Instamatic lines. Kodak also bought aminority stake and entered into a joint venture withChinon of Japan to produce a range of 35mm automaticfilm cameras that would be sold under the Kodak name.This arrangement would capitaltze on Kodak's strongbrand image and give Kodak a presence in this market tomaintain its camera and film sales. Kodak sold 500,000cameras and gained LSY, of the declining film camera mar-ket. In addition, Kodak invested heavily in developing newand advanced film such as a new range of "I)X" coded fllmto match the new 35mm camera market that possesses thevivid color qualities of Fuji film. Kodak had not developedvivid film color earlier because of its belief that consumerswanted "realistic" color-its managers were still fixated onimproving core declining fllm business.

Kodak also made major moves to solidify its hold onthe film-processing market. It attempted to stem the in-flow of foreign low-cost photographic paper by gainingcontrol over the processing market. In 1986 it acquiredFox Photo Inc. for $90 million and became the largest na-tional wholesale photograph finisher. fn 1987 it acquiredthe American Photographic Group and in 1989 it solidi-fied its hold on the photo-finishing market by forming ajoint venture, Qualex, with the photo-finishing opera-tions of Fuqua industries. These acquisitions providedKodak with a large, captive customer for its chemical andpaper products as well as control over the photofinishingmarket. Also, in 1986 Kodak introduced new improvedone-hour fllm-processing labs to compete with otherphotographic developers. To accompany the new labs,Kodak popularized the Kodak "Color Watch" systemthat requires these labs to use only Kodak paper andchemicals. Kodak's strat egy was to stem the flow of busi-ness to one-hour mini-labs and also establish the industrystandard for quality processing. It succeeded, but thepace of change to the digital world was accelerating andby the end of the 1980s, given the soaring popularity ofdigital PCs, Kodak's managers should have recogntzedthey were on the wrong track.

Kodak's rapidly declining profitability forced it toengage in a massive internal cost-cutting effort to im-prove the efficiency of the photographic products group.Beginning in L984 it introduced more and more stringentefflciency targets aimed at reducing waste while increas-ing productivity. In 1986, it established a baseline formeasuring the total cost of waste incurred in the manu-facture of film and papff throughout its worldwide oper-ations. By L987 it had cut that waste by 15o/o,ond by 1989it announced total cost savings rvorth $500 million annu-ally. This was peanuts given the rapidly changing compet-itive situation-Kodak's managers did not want to shrinktheir large, bureaucratic company that had become con-servative and paternalistic over time. As a result, Kodak'sprofits dropped dramatically in 1989 as all fllm makerswoke up to the new competitive reality and Polaroid andFuji also aggressively tried to capture market share byengaging in price cutting and increased advertising to in-crease market share. The result was even further majordeclines in profitability. These rising expenditures offsetmost of the benefits of Kodak's cost-cutting effort andthere was little prospect of increasing profltability be-cause Kodak's core photographic imaging business wasin decline-Kodak already had 80% of the market; it wastied to the fortunes of one industry. This fact, plus the in-creasing use and growing applications of digital imagingtechniques, led to Chandler's second strategic thrust: animmediate policy of acquisition and diversification intonew industries, including the electronic imaging businesswith the stated goal of being "first in fllm imaging anddigital. He thought the two could still co-exist. He couldnot understand that digital imaging was a disruptivetechnology.

466 CASE STUDIES

The lnformation SYstems GrouP

In 1988 Sony introduced a digital electronic camera that

could take riitt pictures and then transrnit them back to a

television ,rrrrr. This was an obvious signal that the

threat to Kodak from new digital imaging techniques was

going to accelerate. However, at that time the pictures

taken with video fi[m could not match the quality achieved

with chemical reproduction but technology always ad-

vances, and the introduction of CDs was also a sign that

new forms of digital storage media were on the horizon-the silver halide film media was already out of date as de-

clining sales showed. For Kodak to survive in the imaging

business its managers woke up to the fact that it required

expertise in a broad range of new technologies to satisfy

customers' recording und imaging needs-they began to

see the threat posed UV the disruptive technology'Kodak's

managers saw in alt its nm markets different types of digi-

tal products were emerging as strong competitors' For

example, electronic imaging had become important-in the

medical sciences and in all business, technical, and

research applications driven by introduction of ever more

powerful servers and PCs.

However, Kodak's managers did not choose to focus

on imaging products and markets close to "photographs'"

For "*u*[t",

Kodak could have bought Sony or Apple'

Instead, they began to target any kind of imaging applica-

tions in communi.utions, computer science. and So on, that

they believed would be important in digital imaging mar-

kets of the future. Since I(oOat< had no expertise in digital

imaging, its managers decided to acquire companies they

perceived did have these skills and then market these

io*punies' products under its own famous brand name-

for example, a Kodak electronic publishing system for

business documents, and a Kodak imaging record keeping

system. a , .

Kodak thus began its disastrous strategy of acquisi-

tions and joint ,*rrtutes that wasted much of its huge re-

tained eainings in new imagining technologies that its

managers hop;d, somehow, would increase its future prof-

itabitity. In ttte new information systems group, acquisi-

tions included Atex Inc., Eikonix CorP., and Disconix Inc'

Atex made newspaper and rnagazine electronic publishing

and text-editing-systems for newspapers and magazines

worldwide as well as to government agencies and law

firms. Eikonix Corp. was a- leader in the design' develop-

ment, and productiron of precision digital imaging systems'

Further giowth within the information systems group

came with the development of the Ektaprint line of

copier-duplicators that did achieve some success in the

,o*p.titive high-volume segment of the copier market' In

1988, Kodak made another major move into the copier

service business when it purchased IBM's copier service

business and announced that it would market copiers

manufactured by IBM as well as its own Ektaprint copiers.

But these copieis were not based on digital imaging-even

though they used digital technology they were still basedr.rr^rr.c lfinAek extended its

activities into the electronic areas of artificial intelligence.

computersystems,conSumeIelectronics,periphera1s.telecommunications, and test and measuring equipment'

Kodak was hoping to gain a strong foothold in these new

businesses to make up tor losses in its traditional business.

butitwasstil1nottryingtostream1ineandshrinkitscorebusiness to reduce its cost structure fast enough, and obvi-

ously these acquisitions raised its cost structure.

it, additiorr, top managers, now terrified by how far

Kodak was behind, decided to purchase imaging compa-

nies that made products as diverse as computer worksta-

tions and floppy disksl Kodak aggressively acquired u1]-

IT companiei ir,ut might fill in its product lines and obtain

technical expertise in?igital technology that might help it

in its core imaging business. After taking more than a

decade to make its first four acquisitions, Kodak com-

pleted seven acquisitions in 1985 and more than ten ia

].986.Amongthe1985acquisitionswaSVerbatimCorp..arnajorproduceroffloppydisks.ThisacquisitionmadeKodakoneofthethreeuieproducerSinthefloppydiskindustry-an industry in which it had no expertise.

" In entering offlc" ittfotmation systems, Kodak entered

new markets where it faced strong competition frorn es-

tablished companies such as IBM, Appie, and Sun' m.e

verbatim arquisition brought Kodak into direct compett-

tion with 3M. Entering tht copier market brought Kodak

intodirectcompetitionwithJapanesefirrnssuchasCanonthatwaSthe1eaderinmarketingadvanced,new1ow-costcopiers-and Canon still is today.

,In briel Kodak was entering new businesses where it

had littte expertise, where it was unfamiliar with the corn-

petitive forces, and where there was already strong competi-

iiorr. Soon, Kodak was forced to retreat from many of thes*

markets. In 1990, it announced that it would sell Verbatim tc

Mitsubishi. (Japanese investors immediately criticized

Mitsubishi f* |uying a company with an old, outdated

product linel) Kodak was forced to withdraw from man\.

other areas of business simpty by selling assets, closing oper-

ations, and taking write-offs such as its nondigital videocas-

sette operations. rrre fast-declining performance of its infor-

mation systems group, which Kodak attributed to increased

competiiion and delays in bringing out new products

reduced earnings from tperations lrom a profit of $311 mii-

lion in 1.988 to a loss of $360 million in 1989' This was &

major wake-up calt to investors, who now realized that

Kodak,s top managers had no viable business model for th*

company and were simply wasting its capital.

The Health GrouP '

Kodak's interest in health products emerged from its ix-

volvement in the design ut d production of fllm for medicsi

and dental X-rays. Tft groouth of digital imaging in menJ-

ical sciences seemed another opportunity for Kodak t*apply its "skills" in new markets, inO it began to develop

,u.rrproducts as Kodak Ektachem*clinical blood analyt'

ers. It developed other products-Ektascan laser imaging

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f,lms, printers, and accessories-for improving the display,storage, processing, and retrieval of diagnostic images. Thisseemed more related to its core business imaging mission.

However, Kodak did not confine its interests in med-ical and health markets to imaging-based products. In1984, it established within the health group a life sciencesdivision to develop and comrnercialize new products de-riving from Kodak's distinctive competences in its stillprofitable chemical division. Kodak had about 500,000chemical formulations on which it could base new prod-ucts, and top rnanagers decided that they could use theseresources to enter newly developing biotechnology rnar-ket and grow its "life sciences" division, which soonengaged in joint ventures with major biotechnology corn-panies such as Amgen and Immunex. However' theseadvances into biotechnology proved highly expensive andagain Kodak had no expertise in this complex industry!Soon even its own rnanagers realized this, and in 1988Kodak quietly exited the industry. What remained of thelife sciences division was then folded into the health groupin L988, when Chandler completed Kodak's biggest andmost useless acquisition, the purchase of Sterling Drug, formore than $5 billion.

The Sterling acquisition once again had no relevance toKodak's business model. Sterling Drug was a global makerof prescription drugs, over-the-counter medicine, and con-sumer products with familiar brand names such as Bayer as-pirin, Phillips' Milk of Magnesia, and Panadol. Chandlerthought this merger would allow Kodak to become a majorplayer in the pharmaceuticals industry. With this acquisi-tion, Kodak's health group became pharmaceutically ori-ented, its mission being to develop a full pipeline of majorprescription drugs and a world-class portfolio of over-the-counter medicine-something that is an enormouslycomplex, uncertain, and expensive process. Analysts imme-diately questioned the acquisition because once againChandler was taking Kodak into a new industry where com-petition was intense and was consolidating because of themassive costs of drug development. Some analysts claimedthat the acquisition was aimed at deterring a possibletakeover of Kodak-because it was still cash rich and itscapital was being wasted. The acquisition of Sterting also re-sulted in a major decline in proflts in 19g9; this was growthwithout profitability.

The Chemical DivisionEstablished almost a hundred years ago to be the high-quality supplier of raw materials for Kodak,s film and pro-cessing businesses, the Eastman Chemical division wasresponsible for developing many of the chemicals andplastics that made Kodak the leader in silver-halide filmmaking. The chemical division was also a major supplier ofchemicals, flbers, and plastics to thousands of customersworldwide and Kodak had benefited from the profits fromits plastic material and resins unit because of the success ofKodak PET (polyethylene terephthalate), today the majorpolymer used in soft-drink bottles.

However,in its chemical division Kodak also ran intothe same kinds of problems experienced by its other oper-ating groups. There is intense competition in the plasticsindustry, not only from U.S. firms like I)uPont but alsofrom large Japanese and European companies. In specialtyplastics and PET, for example, increased competitionforced Kodak to reduce prices by 5"/o and this also led tothe plunge in its earnings in L989. The chemical division,however, had excellent resources and competences-butnot now that they were still controlled by a declining filmgiant.

Kodak's Failing Business ModelResults in Massive Cost CuttingWith the huge profit reversal in 1989 after all the years ofacquisition and "internal developmert," analysts were ques-tioning the existence of the "logical synerg$" or economiesof scope that Chandler claimed for Kodak's new acquisi-tions. Certainly, Kodak had new sources of revenue-butwas this profitable growth? Was Kodak positioned to com-pete successfully in the future? What were the synergiesthat Chandler was talking about and wasn't any increase inprofit due to its attempts to reduce costs?

Indeed, as Chandler made his acquisitions he also real-:zed the increasing need to change Kodak's managementstyle and or9aflizational structure to reduce costs and allowit to respond more quickly to changes in the competitiveenvironment. Because of its dominance in the industry, inthe past, Kodak had not worried about outside competi-tion. As a result, the organizational, culture at Kodakemphasized traditional, conservative values rather than en-trepreneurial values. Kodak was often described as a con-servative, plodding monolith because all decision makinghad been centralized at the top of the organization amonga clique of senior managers. Furthermore, the companyhad been operating along functional lines. Research, pro-duction, and sales and marketing had operated separatelyin different units at corporate headquarters and dispersedto many different global locations. Kodak's different prod-uct groups also operated separately. The result of thesefactors was a lack of communication and slorv, inflexibledecision making that led to delays in making new productdecisions. when the company attempted to transfer re-sources between product groups, conflict often resulted,and the separate functional operations also led to poorproduct group relations, for managers protected their ownturf at the expense of corporate goals. Moreover, there wasa lack of attention to the bottom line, and managementfailed to institute measures to control waste.

Another factor encouraging Kodak's conservative orien-tation was its promotion policy. Seniority and loyalty to"mother Kodak" counted nearly as much as ability wtren itcame to promotions. OnIy twelve presidents had led the com-pany since its beginnings in the 1880s. Long after GeorgeEastman's suicide :rrr1932, the company follo**O his cautiousways: "If George didn't do it, his successors didn,t either.,,

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468 CASE STUDIE5

Kodak,s technical orientation also contributed to its acquisitions and laying off tens of thousands more em-

problems. Tiaditionally, its engineers and scientists had ployees to reduce tostq Whitmore resisted; he too was

dominated decision making, and marketing had been neg- entrenched in the old Kodak culture. Kodak's board of di- :

lected. The engine"r, und- scientists were perfectionists rectors ousted whitmore as cEo and in 1993 George l

who spent enormous u*o*t. of time a"n"rJpiog, "":tl:- Fisher left his job as cEo of Motorola to become Kodak's

ing, testing, assessing, and retesting new proauitr. tiitt" new CEO'At ldotorola' he had been credited with leading

time, however, was ,p"* A"r"r*inlng whether the prod- that company into the digital age'

ucts satisfied consumer needs As a result of this technical Fisher's itrutegy was to reverse chandler's diversifica-

orientation, management passed up the irrr"rrtion of xe- tion into any inJustry outside digital imaging and to

rography,leaving tt "

n"* i"t rrotoiy to b-e developed by a strengthen its competences in this industry' Given that

sman Rochester, New york, firm named Haloid ct-ra'ter rooat had spent so much money on making useless acqui-

Xerox. Simlarly, Kodak had passed up the i".t""t camera sitions, and the company was now burdened with huge debt

business. aK nao Pau'Eu uP r.e ' f.o* iia acquisitioni and

^because of falling profits, Fisher's

with its monopoly in the photographicfilm and pape-ol*tio, was dramatic. strategizing about Kodak's four

industry gone, Kodak'*u, in t*oute]crranat"r had to alier business groups' Fisher decided that the over-the-counter

Kodak,s management orientation. ff" Uegan-with some gug1c9;go""1t "1.11' health products group was reduc-

radical changes in the company,s culture'and structure. ingifuoutb profitability and he decided to divest it and use

Forced to cut costs, chandler began u *urri* aownsizing tn"lro"""ar t9 p1y- o.ff debt. Soon, all that was left of this

of the work force to eliminate the fat that had accumu- gto"p *ut ttre heatttr. imaging business' Fisher also decided

rated during Kodak,s prosperous p"*t. roiJt poricy of It ut tu" chemicals division, despite its expertise in the in-

lifetime emproyment was swept out the door when oectin- vention and manufacture of chemicals, no longer fitted

ingprofitabilityledto"onti',uiog"*ploy""ruyott.u,awithhisnewdigitalstrategy.Kodakwouldnowbuyitscost reductions. Between Lgg5 and 1gg0 K;dak laid off chemieals in thJ open market and in 1995 he spun the

over 10,000 of its former 136,000 "*proy"o,

iess -trran chemicals division ott ut o gave each Kodak shareholder a

L0o/o of its workforce and a tiny percentug" thui would do share in the new company.This was a very profitable move

nothing to prevent its declining performance. Kodak was for shareholders who kept their shares in Eastman

now a company ttrat hal come instuck; it coutO not recog- Chemicals-its price has soared'

nize that it had lost its competitive advantage and that all The information systems group with its diverse busi-

its new strategies were just accererating its iecline. It was nesses was a more diffieutt Jtratenge. which new busi-

burning money but its top managers did not want to dam- ,"*"r would promote Kodak's new digitar strategy, and

age the company or itJ emproyees. rt was ouviously a which did noi and shourd be sold off? Fisher decided

dinosaur. rts *,ruPr,vEeD' * w

Kodak should focus on building its strengths in document

Every move top managers made- failed. Kodak at- i*ug;g and focus.on photocopiers, business imaging' and

tempted to create i .tr*,,i" and culture ,o "n

oorug" r"tizi firinters and exited all its business thar did not fit

internal venturing. ritor*ea a.,venture board" to help un- this theme.

derwrite projects imitating 3M and cleapd an .,offrie of After two years Fisher had reduced Kodak's debt by

submitted ideas,, to screen projects. rooul'.-"tt"*itr ui $7 billion and boosted Kodak's stock price' Fisher still had

new venturing were uo.o.,",,tot; of the fourteen ventures to confront the problems inside Kodak,s core photo.

thatKodakcreatedsixwereshutdown,threeweresold,and graphic imaglng--gf9u.P and here the solution was neither

four were merged irrto otrr", divisions one reason was "*| ro, q"i*Icoouk was stilt plagued by high operating

Kodak,s management style, which also affected its new cosis that^were over 27% of- annual revenue, and Fisher

businesses Kodak,s top manager, ,"n"r'*giu;6;r"ti"g knew he needed to reduce these costs by half to comPete

executivesrearauthorityorabandoneatn""zrt aired,con-- efiectivety in th3 d1cltf world. Kodak's workforce had

servative approach of ihe past. Kodak-ahJt"otg*ir"a itt shrunk Uy +O,OOo to 95,000 by 1993 and the only means to

worldwide facilities to increase productivity ind lower eyickly slash costs was to implement,more layoffs and

costs, For exampte, Kldut ,t "u*tin"d

E;;;i;;;t"d*- "lot" do*o its operations' However' Kodak's top man-

tion by closing aupri*t" *anufacturing facilities aod c"n- ajers fought trim atl the way because they wanted to keep

tralizing proAu"tion o:na *urketing op"iution, ura in doing tfr"iipo#t, arguilg that it was better to find ways to raise

so rhousands more;ilt;;;;; uio oa. ,eu"r,r" that lay off a royal workforce to reduce costs'

Kodak put off the need to take the hard steps neces-

Georse risher rries to chanee Kodak ;#",fffff:dl,:i:"':i*,,&:i.;i{L:lii?i:*:;ffi#S:chandler rerked as cEo in lggg aod *u* r"placed by lris it. aectini"g.uf,itut in R&D to uuita competences in digi'

COO, Kay Whitmore, another Kodak veterun. R. Kodak's '"f

itt"giti ftig+ still had no particular competence in

performanc" "on

irrirJio prrrrg", whitmore hired new mat<ing-"itler digital cameras or the software necessary to

top manage* t o* orraioe icoait to help re_slructure the alow ihem to operate efflciently. over the next flve years

company. when they proposed seuing 6ff Koduk', ,r"* ioa* .p"rt ou", four billion dollars on digital projects'