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The Future of Eastman Kodak

By: Lindsey SteedlySouthern Wesleyan University

Masters of Business AdministrationManagement 5053, Organizational Behavior

Professor PHD.3/11/2012



Overview:

The last few years have been particularly tough for Eastman Kodak, an almost-130-

year-old photographic company based in Rochester, New York. As they entered the 21st

century, Kodak employed some 50,000 people around the world and turned a healthy profit

— today, there are just 19,000 employees, hundreds of millions of dollars are being lost

every year, and it is speculated that Kodak might soon file for bankruptcy. What a fall from

grace! Kodak, the company that created mass-market amateur photography, enabled

Hollywood movies and home videos, and invented digital photography, is now on the

verge of dissolution.



TABLE OF CONTENTS

Opening 1

Company Overview



Eastman Kodak Company is one of the leading imaging solutions providers

worldwide. The company offers imaging technology products and services to the

photographic and graphic communication markets. For Kodak, their core business has been

disrupted by globalization, technology shifts, and new competitors. As a collective

company, they failed to react to the ever changing environment, now they must rebuild and

reinvent the entire business. The question remains to the consumers as well as

stockholders, can this company reposition themselves quickly enough to bounce back from

this downward spiral path the company is currently victim of.

Company History:

In 1880, after inventing and patenting a dry –plate formula and machine for

preparing large number of plates, George Eastman founded the Eastman Kodak Company.

By 1884 Kodak had become a household name after he replaced glass photographic plates

with a roll of film that Eastman believed was successful because it was a user-friendly

product that would be “as convenient as a pencil” (Kodak), emphasized by the first

marketing campaign that used the slogan; “You press the button, and we do the rest”

(Kodak).

Eastman later identified Kodak’s guiding principles as; mass production at low

cost, international distribution, extensive advertising, customer focus, and growth through

continuous research. Furthermore, he also articulated Kodak’s competitive philosophy;

“Nothing is more important the value of our name and the quality it stands for. We must

make quality our fighting argument.” (Kodak)

With the advertisement of color technology, the success story continued as the

company invested heavily in research and development and by 1963 Kodak had become



the industry standard. Sales topped $1 billion USD by launching into new product lines

such as cameras and medical imaging and graphical arts and quickly rose to $10 billion

USD by 1981.

Today, Eastman Kodak’s principal activities center on the development,

manufacturing and marketing of consumer, professional, health and other imaging products

and services. The company operates through three segments: The Digital & Film imaging

segment provides consumer oriented traditional and digital products and photographic

services such as film, photofinishing services and supplies, and digital cameras. The Health

Group segment provides analogue products that include medical films, chemicals and

processing equipment, and services and digital products including PACs, RIS, digital x-ray

& output hardware supplies. The Graphic Communications segment proves inkjet printers,

high-speed production document scanners, digital imaging systems and products aimed at

the commercial print department.

Kodak’s Lenses Out of Focus

In the early 1980s, Kodak underwent a successful entrepreneurial transformation

from traditional film business to digital photography, a $20 billion annual business.

However, by the late 1980s, the board of directors, at the advice of outside consultants,

dismantled the digital business division, switching resources back to the company’s “core”

film business. Kodak’s blurry vision was blindsided by the untested ideas promoted by the

consulting industry, which was ultimately enriching its own bottom line rather than the

bottom line of Kodak’s future. For instance, in the early 1990s, the consulting industry

came up with the idea to “re-engineering” the restructuring of the company’s process rather

than by tasks, so as to improve operational effectiveness of their “core business.” Level of



corporate hierarchies, organize corporate teams, and rotate employees to different

departments and division, in essence introducing the principles of the Japanese

management system into Kodak were just a few of the changes made within the

organization. In addition, the consulting company advised Kodak to purchase a wide range

of other companies and innovations that were financially strong, however, held no value to

the core business that they, the consulting company, claimed to be focusing on.

Kodak’s focus was always on its massively profitable analog film business, and

then as it became apparent that film was on the way out, Kodak tried to make the leap back

into to digital business. Kodak might have demonstrated the first digital SLR, but the board

of directors made a poor business decision when they eliminated funding the research and

development of their digital photography business in the 1980’s and continued to steer

clear of it until forced to refocus due to consumers’ demands in technology. In several

press releases the company acknowledges they were striving to become competitive in the

digital age of photography once again at the start of the millennium, however, at this point,

they were far behind their Japanese competitors. Currently the point and shoot where

Kodak participates has been destroyed and commoditized by integrated camera phones,

including the digital camera business of their competitors, by substitute consumption from

devices manufactured by HTC, Samsung, Apple, Blackberry, and numerous others making

increasingly sophisticated smartphones that are subsidized at the point of sale by wireless

carriers.

In 2003, Kodak hired CEO Antonio Perez in hopes that his technological

background would jumpstart the company’s future innovation. His efforts since joining

Kodak have been clear, disconnect from the core business of cameras and film, and



horizontally begin funding research for inkjet printers. Much of Perez’s career has revolved

around the printing business, as he was formerly the CEO of Hewlett Packard up until he

was released from his contract. Many speculators state that regardless of his efforts, this

area of the business cannot sustain the company into the future. Kodak’s strategy for

printers is to sell the hardware machines at a higher price, and the components such as ink

at a much lower affordable price to consumers, almost two-thirds cheaper than competitors

like Hewlett Packard and Lexmark.

Kodak has had mediocre success and a healthy serving of critical acclaim for its

user-friendly EasyShare cameras and printers, but it hasn’t been enough. With the analog

industry all but dead, Kodak now draws its last few breaths and tries to find a way out of

the labyrinth. It has even tried leveraging its patent portfolio by suing the Apple and

BlackBerry, and for many years Kodak has plaintively pleaded with interesting and quirky

gadgets at CES — but the last few years have seen almost a cessation of exciting products,

the de-listing of Eastman Kodak from the Dow Jones and S&P 500 indexes, and a major

decrease of staff and assets.

In an era where innovation is all the rage, many CEOs, like Perez, have discovered

that product innovation alone isn't enough to save sick companies or turbocharge healthy

ones. For many, their core businesses are being disrupted by globalization, technology

shifts, and new competitors. They must reinvent the company. Even at healthy companies,

business model innovations are essential to retaining their competitive positions.

SWOT Analysis

Eastman Kodak SWOT Analysis



Strengths:

Brand NameIntellectual property portfolioMarket PositionEmphasis on Research & Development

Comprehensive OfferingsTrade In and Recycle Program

Weaknesses:

Declining LiquidityDeclining Operational efficiencyWeak managementBusiness restructuring

Photograph film businessCash flowThe binding on the contract with does notallow Kodak to produce private brands

Opportunities:

Strategic growth initiativesRestructuring initiatives New technology New productsEmerging markets New marketsPeople trying to take more pictures, capturemore memories may be linked to the lack of time being spent....Social Networking

Threats:

Seasonality of businessCompetitive pressuresRapid technological changesSubstitute products



A New Lens for Focus

Eastman Kodak’s current forecast for the future is severely struggling. Despite

being responsible for countless technological innovations in the film and digital

photography arena, investors still question whether Kodak can adapt quickly enough to

even survive. New product design and development is more often than not a crucial factor

in the survival of a company. In an industry that is changing ever so rapidly, Kodak must

continually revise their design and range of products. This is necessary due to the

continuous technology change and development as well as their competitors and the

changing preferences of consumers.

Kodak has strategically aligned themselves with top tier Universities across the

world to assist with research and development of new innovative strategies and products.

Kodak uses unrestricted grants to support research in an area of general interest. They

provide access to know-how and an understanding of research approaches through

collaboration with a university researcher, in an area that complements Kodak's research

portfolio. They also support sponsored research projects for collaboration in areas of

specific interest. These projects will have specific objectives and deliverables defined in a

statement of work in collaboration with a university researcher, typically in direct support

of Kodak's research portfolio. Kodak External Alliances has negotiated Master Sponsored

Research Agreements with a number of key universities in the United States and United

Kingdom to streamline project execution by pre-negotiating project terms and conditions.

In addition they support fellowship grants for select promising students doing research in

an area of general interest to Kodak. Kodak Fellowships are initiated by research scientists

in the Kodak Research Laboratories in alignment with future research and hiring priorities.



In addition to technological research, market research is one of the most important

fundamental segments regarding the planning process for most companies, as it establishes

what is needed in the current environment. If the development is technology driven, then it

is a matter of selling what is possible to make. Kodak needs to take the business back to the

basics and do a thorough market research of their current operating environments as well as

their operation. The core analog film business can still serve as a means to generate funding

if marketed correctly to their consumers. Kodak has implemented many kiosks throughout

retailers that have eliminated processing film; however, this business remains very much

seasonal and does not generate enough profit, therefore, they need to find their niche. As

the Baby boomer generation ages, many are fearful of change and technology, it would be

wise of Kodak to capitalize on this generation to further increase their bottom line. There is

several mail-in film processing companies throughout the United States, Europe and Asia,

building an alliance with the top performers in the industry and licensing out Kodak’s

patents would generate an additional profit for the company.

In regards to the kiosks that are located in many retail stores across the world,

Kodak has recognized the important role that social media now plays in the lives of most

Americans as well as other races around the world. They have implemented software that

connects with users Facebook, Twitter, and other social media networks accounts, that

allows for easy connection and printing from these kiosk. This truly is an untapped area for

the company, as history often repeats itself, one must question if they fully understand the

effects of social media. Kodak has never been a company that limited their financial

expenditures when revolved around advertisement marketing, therefore, the company

should invest financial resources in tapping into the younger generation and exposing this



generation to the printing capabilities from their social media account that Kodak offers

which will ultimately increase their cash flow.

Kodak has already transitioned into the market of at home printers which offer the

company high marginal returns, the key here is to target consumers to purchase their

printers over the competition. These high quality printers are directed towards everyday

consumers as these printers, specifically the ink cartridges, are designed to cut down on ink

replacement costs. This is exactly the opposite of what PC printer giants like Hewlett-

Packard, Canon, and Epson have been doing. These competitors have been selling printers

at a lower cost as they intend to make money consistently on ink cartridge replacements.

Kodak offers high quality printers, in terms of cost, can print twice the number of photos or

documents compared to using the competitors’ printers and ink cartridges. This is made

possible by designing the printers with built-in print head, so consumers will only buy ink

in its tank without the print head that makes them very expensive. Kodak adds that you

need not throw away those print heads every time users buy a new ink cartridge. An

increase in marketing these printers and exposing them in high marketable areas would

further generate more sales to their bottom line.

The future of Kodak is currently indefinite. A recent news article in the Wall Street

Journal shared the imaging company's decision to hire law firm Jones Day to advise on

restructuring efforts to resurrect the current financial outlook of the company. Although

CEO Antonio Perez told employees he had no intention of filing for bankruptcy, his

announcement does not seem to ease the doubts of shareholders and Wall Street. Kodak's

stock tumbled down to just $.78 cents per share, after a disclosure from Kodak, that they

extracted $160 million from a credit line. They are now focusing on selling patents,



recently to IMAX, as an attempt to raise the cash critically needed to reinvent themselves,

as much of their liquidity is currently overseas, and to bring the funding back to the United

States would result in a financial loss with the fluctuating exchange rates and taxes. While

short-term this may be a wise move for the company, there remains a dilemma between the

Board of Directors and stockholders, the stockholders are demanding a payout of

dividends, whereas, the Board of Directors are persistent that the monies from this sale

should be reinvested in the company. In order to solve this dilemma, the company needs to

show vast improvements and forecast for innovative products to their stockholders,

otherwise, they too will back out of supporting the company.

Financial Earning Statements

Eastman Kodak Company second quarter reportings for fiscal year 2011 results that

reflect continued momentum of the company’s core digital growth businesses, increased

raw material costs, continued investment in certain growth businesses, and cash

performance which reflects the company’s seasonal pattern. Second-quarter sales were

$1.485 billion, a 5% decrease from the year-ago quarter. Digital revenue was $1.089

billion, consistent with the year-ago quarter. Revenue from the company’s core digital

growth businesses – Consumer and Commercial Inkjet, Packaging Solutions, and

Workflow Software & Services – increased 22%, fueled by a 48% revenue growth in

Consumer Inkjet printers and ink. Revenue from the company’s Consumer Digital Imaging

Group decreased 8%, reflecting planned lower sales of digital cameras, as the company

implements its previously announced strategy in this business to trade top-line growth for

improved full-year profitability. Second-quarter revenue from the company’s Film,

Photofinishing and Entertainment Group declined by 14%.



In a statement released by Chairman and Chief Executive Officer, Eastman Kodak

Company, Antonio Perez said, “We are enjoying success in our new growth businesses, as

well as the challenges typical in the creation of new businesses based on revolutionary new

technologies. “We have ambitious goals for our growth businesses, and thus far have

achieved impressive results against the industry. Revenue growth in these businesses is

accelerating, with second-quarter 2011 growth more than double the year-ago period. We

are also on track this year to once again double ink gross profit dollars in our Consumer

Inkjet business, and we’re enjoying strong customer demand for KODAK PROSPER

Presses.” ( )



2010 2009 2008 2007 2006

Period End Date 12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006

Period Length 12 Months 12 Months 12 Months 12 Months 12 Months

Stmt Source 10-K 10-K 10-K 10-K 10-K

Stmt Source Date 02/25/2011 02/22/2010 02/22/2010 02/22/2010 02/27/2009

Stmt Update Type Updated Updated Reclassified Reclassified Reclassified

Revenue 7,187.0 7,606.0 9,416.0 10,301.0 10,568.0

Total Revenue 7,187.0 7,606.0 9,416.0 10,301.0 10,568.0

Cost of Revenue, Total 5,236.0 5,838.0 7,247.0 7,757.0 8,122.0

Gross Profit 1,951.0 1,768.0 2,169.0 2,544.0 2,446.0

Selling/General/Administrative Expenses 1,277.0 1,302.0 1,606.0 1,802.0 1,969.0

Research & Development 321.0 356.0 478.0 525.0 596.0

Depreciation/Amortization 0.0 0.0 0.0 0.0 0.0

Interest Expense (Income), Net Operating 0.0 0.0 0.0 0.0 0.0

Unusual Expense (Income) 790.0 115.0 904.0 441.0 366.0

Other Operating Expenses, Total 1.0 4.0 2.0 6.0 0.0

Operating Income -438.0 -9.0 -821.0 -230.0 -485.0

Interest Income (Expense), Net Non-

Operating

0.0 0.0 0.0 0.0 0.0

Gain (Loss) on Sale of Assets 0.0 0.0 0.0 0.0 0.0

Other, Net 10.0 1.0 -19.0 -6.0 16.0

Income Before Tax -561.0 -117.0 -874.0 -257.0 -583.0

Income Tax - Total 114.0 115.0 -147.0 -51.0 221.0

Income After Tax -675.0 -232.0 -727.0 -206.0 -804.0

Minority Interest 0.0 -1.0 0.0 -2.0 0.0

Equity In Affiliates 0.0 0.0 0.0 0.0 0.0

U.S. GAAP Adjustment 0.0 0.0 0.0 0.0 0.0

Net Income Before Extra. Items -675.0 -233.0 -727.0 -208.0 -804.0

Total Extraordinary Items -12.0 23.0 285.0 884.0 203.0



Discontinued Operations

Extraordinary Item

Net Income -687.0 -210.0 -442.0 676.0 -601.0

Conclusion

Kodak is a household name known across the world for capturing memories, the question

remains, will future generations recognize the brand as an archaic trademark, or will they

too be a supporter of the brand. At one time they were the dominating force in the

technological field, producing the latest and greatest gadgets for consumers. Their business

has drastically changed over the years and they were unable to successfully complete,

however, there is still hope for this iconic company. Over time, all innovation gets

commoditized. In this regard, business models are not different than products and services.

So business model innovation must be a perpetual quest for renewal. This reinvention stuff

can be a tough slog. Business model innovation is harder than product innovation. It's

harder to visualize, and the scope is larger and much more complex. It includes everything

the company does. Everything has to be changed in order for Kodak to succeed in the

future and most importantly, they must become an innovative leading company again.



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