The New Flash At Kodak

Say one thing for George M.C. Fisher: He doesn't shy away from big decisions. A scant five months after taking over as Eastman Kodak Co.'s CEO, Fisher stunned outsiders on May 3 by announcing that Kodak would auction off three big units, including the Sterling Drug Inc. operations bought in 1988 for $5.1 billion. In a single stroke, Fisher repudiated the failed diversification strategy of his predecessors, shored up a debt-laden balance sheet, and underscored his commitment to Kodak's imaging business.

So far, Fisher appears to be winning plaudits from nearly everyone. "The pace at which he has been moving is refreshing," says a big institutional holder. In part, the kudos have come because of what Fisher has not done. He has not acted like a corporate Attila the Hun, swinging the budgetary ax and further demoralizing Kodak's already dispirited troops. Nor has he spent six months or more studying the company before taking decisive action.

Not novel. Fisher's turnaround strategy is fairly simple: Concentrate on wringing improved earnings from Kodak's core photography business. And build a future with digital technologies such as all-electronic cameras, thermal printers, and image-storage devices such as photo CDs. Any peripheral businesses, such as pharmaceuticals, should be sold.

Fisher readily admits the strategy isn't novel: "The difficulty is not knowing what to do, it's doing it." But insiders say Fisher has finally begun to tackle some long-running internal problems. One example: He has started to disentangle Kodak's management structure, which deflected responsibility for past mistakes. And he has ended an internal debate by forming a new digital-imaging group--resolving what many observers had seen as a half-hearted effort by traditional photography execs to push the new technology.

Another key target has been morale, left shattered by years of ineffectual restructurings and uncertainty. Fisher has frequented the company cafeteria and sent hand-written notes to congratulate staffers for solid work. Just as important, he has stressed that Kodak has a bright future with no immediate need for more layoffs. "Morale is better than it has been for years," says one insider. "People see George as a savior." Customers are similarly upbeat. "He's very interested and is willing to learn and understand our business," says David M. Ritz, head of the 485-unit Ritz Camera Centers Inc. chain. "That wasn't necessarily true of his predecessors."

Fisher's breezy style also is bringing a breath of fresh air into Kodak's stiflingly hierarchical management culture. Edgar J. Greco, who heads Kodak's $2.5 billion office-imaging division, says he met privately only once a year with Kodak's two prior CEOs. Fisher often asks him to drop by. And when a problem crops up, Greco says, "George owns [it] with you. He doesn't say: 'You have a problem, and you'd better fix it or we'll find somebody who can.'"

But warm and fuzzy goes only so far. Fisher and new CFO Harry L. Kavetas, the former CEO of IBM Credit Corp., vow to get tough on managers, who in the past were rarely held accountable for mistakes. The problem: Executives weren't given strict budget targets, and there was often no monthly review of a division's progress. "You're going to see us become much more religious about holding people's feet to the fire," says Fisher. "If they don't perform, we'll take them out."

Outsider. To squeeze Kodak's bloated cost structure, Fisher announced 10 teams to examine such issues as research-and-development productivity and cycle-time improvement. He pledges that return on net assets will at least double by 1999, from about 6% last year. He and Kavetas already have identified several cost-saving measures, including eliminating $100 million of expenses on unneeded real estate.

Some observers are surprised that Fisher has brought in only one outsider--Kavetas--given the need to shake up Kodak. "To do what he wants may require significant personnel changes, including at the highest levels," says Michael W. Ellmann, an analyst at Wertheim Schroder & Co. Fisher says he will recruit more outsiders and has identified his choice to head digital imaging.

There are still lots of skeptics who like what Fisher is saying but wonder if he can deliver. Says Fisher: "The skepticism is understandable given the track record of the company." But after just a few months, Fisher is starting to establish a track record of his own.



-- Shore up employee morale by emphasizing bright future

-- Plot new strategy based on analysis of Kodak's situation

-- Put Sterling drug operation on the block

-- Hire new CFO: Harry Kavetas, formerly CEO of IBM Credit

-- Start disentangling the Byzantine management structure

-- Emphasize digital imaging by forming a separate digital unit

-- Introduce low-price Funtime film


-- Focus on specific digital technologies where Kodak is on top

-- Sign deals with partners to improve technology, market reach

-- Hire outsiders for key positions

-- Change risk-averse, nonconfrontational culture

-- Cut costs to world-class levels; instill customer focus

-- Figure out how to milk more profits from film biz

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