On-Line Cases

Eastman Kodak: A Company in Transition
When Eastman Kodak Company appointed a new CEO in October 1993, the company's top management expected him or her to turn the 113-year-old company around. Morale among employees and managers was low. The company's core business - photographic products - was potentially threatened by digital imaging, but no one seemed sure how to deal with this new competition. Further, the company had borrowed heavily to finance the purchase of Sterling Drug, Inc., in 1988, which it had not yet fully integrated. One of the biggest challenges facing new CEO George Fisher, however, was how to turn around the company's attitude to make it as innovative and cost competitive as it had been until the 1970s. 

 

Kodak in Transition
The hiring of a new CEO, the first from outside the company, was not the first attempt top management had made to change Kodak's direction; there had been no less than five major restructuring programs in the last decade. In 1990 top managers had developed a strategic direction plan to determine how Kodak could make the transition to the new digital technologies. The strategy had never been implemented, however, because, as a former manager described it, "People thought that it was too big a risk, that we didn't have the skills to succeed (1)." Instead, Kay Whitmore, CEO at the time, concentrated on restructuring and trying to solve short-term problems. 

New CEO Fisher praised the company's brand and products. "Kodak has a great franchise, and my hope is to build on that to get exciting growth," he said (2). Fisher started not with extensive cost cutting but by emphasizing the opportunities facing the company. In his previous position as CEO of Motorola, Fisher had managed this mix of efficiency and technology-based growth and understood that concentrating on lower costs by eliminating expenses or jobs could actually make Kodak's problems worse. He quickly sold Sterling Drug and the household products division and paid off much of the company's debt. He then focussed attention on Kodak's traditional film products, created a separate digital technology division, and concentrated on changing the company's culture. 

Two of Fisher's complaints were that decisions were too slow and that people were afraid to take risks. He attributed part of the problem to the company's previous management style: "It was so hierarchically oriented that everybody looked to the guy above him for what needed to be done ... You have a different mental attitude when you drive for growth. You don't just try to figure out how to manage your way through existing markets (3)." Fisher wanted to encourage employees at all levels to take more responsibility. To overcome the rigid hierarchy, he made himself visible and accessible. He ate breakfast in the company cafeteria and personally answered e-mail messages from employees. 
 
1983With profits lagging, Eastman Kodak Co. laid off 3,100 employees; another 5000 took a buyout plan.

1986 Kodak said it would reduce its work force by 10%, or 12,000.

1988 Kodak bought Sterling Drug for $5.1 billion, the biggest move in its efforts during the 1980s to diversify. Kodak earned a record $1.4 billion for the fiscal year.

1989 Consolidation during the year eventually led to the departure of 6,000 workers.

1991 Kodak eliminated 3,000 jobs, primarily in its business information divisions.

1993 Kodak said in January it would cut 2,000 jobs and reduce R&D spending. In August, CEO Kay Whitmore was fired because he had failed to act to cut debt. Weeks later, the company said it would lay off 10,000 workers by 1995. George Fisher was named chairman, chief executive and president in October.

1994 In May, Fisher announced plans to concentrate on the film and camera business, selling other units.

1995 Fisher cut 4,000 jobs, but stopped short of a major restructuring.

1-97 Kodak said it would cut 3,900 jobs over the next 18 months, mainly in Europe and Latin America.

11-97 Under price-cutting pressure from Fuji Film, Kodak said it would eliminate 20,000 jobs to help cut costs by $1 billion.

The Columbus Dispatch, 11-12-97: G1

Fisher stressed the issue of accountability among his managers. "How can you hold a person accountable when you've had three overrides on his decision?" he asked. (4) He worked with executives to help them set realistic goals during the annual planning process. It was up to the executives to work out how to reach those goals, but Fisher emphasized that they would be held responsible for achieving them. He planned to provide further incentives with a plan linking managerial pay to performance. One area in which Fisher's new approach has already produced results is in the film division. Consumers appeared to have developed new patterns, taking pictures at different times and for different reasons. Fisher personally picked a team to address this challenge. Members came from manufacturing, as well as consumer research and sales. None were executives, but top management insisted that team members be allowed to take as much time as they needed from their "real" jobs to focus on this issue. Their goal was to understand why customer demand was changing and to develop products to serve this new market. 

The team discovered that many customers want quality pictures of special events, such as birthdays, weddings, and graduations. For these occasions, the price of the film is not as important as the quality of the prints and enlargements. By using new technologies, the team was able to develop professional quality film for this "special occasion" market segment. It also developed the manufacturing process and the marketing campaign. The new product, Royal Gold film, was an immediate success. Betty Noonan, a team member whose "real" job is United States marketing manager for film, described the process as "wonderful and painful." She was enthusiastic about the team's ability to define a new product and make it come to life. But she acknowledged that it was also painful because "it was risky ... I was afraid our strategy would be useless by the time we were finished". (5) 

Just one year after Fisher's appointment, the company had already produced a number of new products. In addition to new film and improved single-use cameras, Kodak had created one-stop photo print centers where customers could make copies and enlargements directly from pictures. Shifting its emphasis from film to imaging, Kodak has made technology a centerpiece of its new strategy, as evidenced by the firm's foray into digital cameras and digital imaging. However, in many departments, decision making remains slow, and some employees are still confused about Kodak's strategic direction. Kodak's core businesses of amateur film, photographic paper, and cameras continue to generate half its profits.(6) Although Kodak continues to push digital technology, its 1997 projected loss in digital photography is $400 million. 

Fuji's Onslaught

One area for concern is the continued inroads that Tokyo-based FujiFilm has made in the U.S. market, particularly in the core area of film. Using aggressive pricing, Fuji has successfully captured 20 percent of the American market - while it continues to dominate its home market back in Japan. Kodak charged Fuji with unfair practices and claimed that it keeps Kodak out of its home Japanese photography markets. This claim was formalized in 1996 when the U.S. government requested that the World Trade Organization (WTO) resolve the dispute. In late 1997, the WTO ruled against Kodak, leaving the firm  with a large number of difficult decisions. 

The immediate problem for Kodak is its inability to compete in a new global marketplace. Daniel Carp, Kodak's COO, argues that "It's not our intention to lead prices downward in the U.S. market, but we're not going to allow that value gap to open up and rise to levels that we saw this [1997] summer. (7)  Another problem in late 1997 was the strength of the dollar against the yen. The weakening yen, having moved from 80 to 125 to the dollar, provided Fuji with a tremendous pricing advantage. 

When Fisher arrived  at Kodak, he attempted to apply the same principles of high technology that had served him so well at Motorola.  However, Fuji's market share has moved from 14% in 1996 to 19.4 percent in 1997; conversely, Kodak has only 10 percent of the picture-taking Japanese market.  Fuji is making these gains by pricing their film up to 30 percent below Kodak's (7) and their sales per employee are twice that of Kodak.  While Fisher contends that he has made significant cuts at Kodak, Wall Street is pressing him to lay off as many as 20,000 of Kodak's 94,800 employees and cut $1 billion from its $4.5 billion in annual expenses. (8) 

Critics complain that Fisher refuses to address Kodak's basic internal problems: a corporate culture caught in a mind-set left over from an earlier manufacturing age, and excessive costs. (9)  Much of the trouble is that Kodak's move into the digital arena forces it to confront more nimble competition such as Canon and Hewlett-Packard.  The biggest test for Fisher's digital strategy comes in 1998 when he'll unveil the core product - a global network of digital printing stations or kiosks called Image Magic. (10) 

Confronted with Fuji's competition, Kodak faces more layoffs. Fisher is cutting 10,000 more jobs in an effort to save $1 billion in costs. In addition to the reduction in workforce, Kodak is reducing its 1998 R&D budget of $1 billion by $100 to $150 million, much of it in the digital arena. Whether this is drastic enough remains to be seen. "Before Fisher can enjoy any Kodak moments, he's going to have to slog it out one yellow box at a time." (11) 

Additional Internet Links
What's it Like to Work for Kodak?

The Kodak Story

Hoover's Company Capsule

Fortune 500 Ranking

Science, Photography Industry

Yahoo Profile

Review Questions
Eastman Kodak Online Case Review Questions
Endnotes
  1. Maremont, Mark. "Kodak: Shoot the Works," Business Week, November 15, 1993: 31.
  2. Nulty, Peter. "Kodak Grabs for Growth Again," Fortune, May 16, 1994: 77.
  3. Maremont, Mark. "Kodak's New Focus," Fortune, January 30, 1995: 65.
  4. Austin, Nancy K. "Motivating employees without pay or promotions," Working Woman, October, 1994: 18.
  5. Hoover's Handbook of American Business .  Austin, Texas. 1997. Hoover's Business Press:
  6. Ibid.
  7. Ibid.
  8. Smith, Geoffrey. "Can George Fisher Fix Kodak?", Fortune, October 20, 1997: 116..
  9. "Kodak's Imperfect Picture" The Columbus Dispatch, November 12, 1997: G1 - G2.
  10. Smith, op. cit., p. 116.
  11. Holstein, William.  "Not a Very Pretty Picture in Rochester", US News and World Report, November 24, 1997: