On-Line Cases
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Eastman
Kodak: A Company in Transition
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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.
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Kodak
in Transition
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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
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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.
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Fuji's
Onslaught
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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)
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Additional
Internet Links
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Review
Questions
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Endnotes
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Maremont, Mark. "Kodak: Shoot the Works,"
Business Week, November 15, 1993: 31.
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Nulty, Peter. "Kodak Grabs for Growth Again,"
Fortune, May 16, 1994: 77.
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Maremont, Mark. "Kodak's New Focus," Fortune,
January 30, 1995: 65.
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Austin, Nancy K. "Motivating employees without
pay or promotions," Working Woman, October, 1994: 18.
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Hoover's Handbook of American Business
.
Austin, Texas. 1997. Hoover's Business Press:
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Ibid.
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Ibid.
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Smith, Geoffrey. "Can George Fisher Fix Kodak?",
Fortune, October 20, 1997: 116..
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"Kodak's Imperfect Picture" The Columbus
Dispatch, November 12, 1997: G1 - G2.
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Smith, op. cit., p. 116.
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Holstein, William. "Not a Very Pretty
Picture in Rochester", US News and World Report, November 24, 1997:
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