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TO: GEORGE FISHER RE: HOW TO FIX KODAK
As the new CEO at Eastman Kodak Co., you've just accepted one of the toughest jobs in American business. Your new company has been mismanaged for at least a decade, its employees are dispirited, the talent in its executive ranks is thin. But you have promising raw material to work with. Unlike IBM, Kodak still posts reasonable operating profits, and there are no revolutionary new technologies destroying its core business--yet. The yellow Kodak film box is one of the world's best brand franchises, and Kodak retains two-thirds of the U.S. film market.
There's still time to save this 113-year-old giant. But you'll have to act fast. Here are some critical issues that must be addressed:
-- Cost-cutting. You never had to do much of it at Motorola, but it's a big issue here. Your predecessor, Kay Whitmore, was fired for doing too little, too late. Kodak is bloated, and Wall Street figures 25,000 of its 110,000 workers should be cut. That may be about right, or it may be slashing too deeply into a complex organization. Whatever number you decide on, do it in one sharp blow: Morale is too low for drawn-out agony.
Cost-cutting has to go deeper than staff-slashing. Everything Kodak does is gold-plated: Kodak's research and development spending, at $1.6 billion, or 7.9% of sales, are far too high. Too much money is lavished on fruitless projects.
-- Culture. Kodak is far too inbred in its Rochester (N.Y.) base. Most high-level executives are lifers. You'll be the first CEO from outside the company. Bring in new talent at all levels, particularly marketing expertise, which is sorely lacking. Should parts of the company be moved out of insular Rochester?
Then, work on toughening up the company's too-genteel and nonconfrontational culture. One former exec jokes that he actually liked it when people swore in the corridors at Kodak; at least it showed a spark of passion. You need to establish a tougher atmosphere in which managers are held accountable.
-- Long-term strategy. Kodak has badly fumbled here. While management feared the threat to its core photography market from digital imaging, it never figured out how to respond. Billions have been wasted on research aimed at remaking the company into an electronics player. Billions more went into a discredited diversification effort.
You should turn back the clock 15 years and refocus on the core photography business. Sure, digital imaging will inevitably eat into this market. But the impact could be a decade or more away. In the meantime, figure out how to combat cheaper private-label film, which is stealing market share in the U.S. Consumers are finally realizing that most films are about the same, yet Kodak charges 20% more. Should you cut Kodak's prices, or sell private label yourself? Whitmore never settled on any strategy--you must.
-- Asset sales. Kodak needs to reduce its $8.7 billion in debt and refocus itself. The struggling copier division should be sold or put into a joint venture. Kodak doesn't have the heft to beat the Japanese in that game.
Then there's Sterling Drug Inc. Let's face it, that 1988 acquisition for $5.1 billion was a bad buy. Still, Kodak has lavished huge amounts on drug research and may have some promising new products in three to five years. Besides, Sterling won't fetch much in this market. Hang on to it--at least for a while.
-- Organizational structure. Kodak's organization lacks clear lines of authority. It's rife with petty fiefdoms, and rarely is anyone held responsible when things go wrong. One example: When Kodak was introducing the Photo CD last year, many staffers were convinced that commercial buyers were the target market. But management insisted on heralding it as a consumer electronics item. Why? Because the project was conceived and run by the Consumer Imaging group. Insiders say those championing commercial uses had to operate almost as a guerrilla movement. Guess what? Photo CD has been a consumer flop.
Sound like a tall order? It will be tougher than your Motorola job, where in 1988 you took the helm of a company already on an upward trajectory. Granted, sales have doubled in your five years and the stock price has increased at a 26% compound rate. Indeed, you're leaving Motorola in good shape for your likely successor, Assistant Chief Operating Officer Christopher B. Galvin.
But you haven't had to fire thousands of people or rejuvenate a tired culture. And marketing, a key need at Kodak, is one of Motorola's few weak spots. Good luck--you'll need it.GEORGE M.C. FISHER
EDUCATION BS, University of Illinois; MS engineering, PhD applied math,
CAREER PATH Started at Bell Labs as a researcher in 1965. Joined Motorola in
1976. Climbed the ranks of the mobile radio and paging units, spearheading
Motorola's 1982 move into Japan in paging. Named CEO in 1988.
PROFILE Quiet, self-effacing, cerebral. A passionate adherent to Japanese
production and quality techniques. Chairman of the high-profile Council on
Competitiveness, a public policy group.
PERSONAL Wanted to be pro baseball player but was sidelined by college
Mark Maremont in Boston, with Lois Therrien in Chicago