Commentary: Kodak's Focus May Be Too Narrow

Will Chairman George M.C. Fisher's restructuring plan for Eastman Kodak Co. work? On Nov. 11, the revered former Motorola Inc. chairman described how he will streamline, cut $1 billion in costs, and eliminate 10,000 jobs.

Even those measures, however, are only a start. What ails this corporate icon runs far deeper than bloat and sluggish growth. Kodak has been repeatedly caught sleeping while rivals invaded its turf--in film and digital imaging. Fisher outlined plans to deal with those problems, too.

DISAPPOINTED. But he underwhelmed the analysts: Fisher provided scant details about where the cutbacks will come or how he will fight back against a surging Fuji Photo Film Co. "He might cut prices 1% or 10%. We just don't know," says Smith Barney Inc. analyst Peter J. Enderlin. Investors were disappointed. Kodak shares fell 6%, to 62.

Analysts may be more distressed when they finish dissecting Kodak's 21st century strategy. In refocusing the company's money-losing efforts in digital photography, Fisher has resolved to go after only one niche, while sidestepping potentially larger long-term markets. "He may be mortgaging Kodak's future," says Northwestern University marketing professor Mohan Sawhney. He has opted to concentrate on digital print stations in retail stores where people get their film developed. Kodak has already installed 13,000 kiosks that, sometime next year, will let consumers access photos from the Internet, manipulate them, and print them. Fisher's major digital initiative now will be to install more kiosks.

That could keep Kodak on the sidelines of the most promising digital market of the next decade--the home digital darkroom, a setup that lets consumers digitize, store, manipulate and print photos using a PC. The PC-imaging business will be a $5 billion market by 2001, says Lyra Research. "We are making a strategic decision to pick our fights--to compete on our home turf and not just in the PC-centric or consumer electronics environment," Fisher says.

Kodak's biggest rivals in imaging are heading in the opposite direction. Hewlett-Packard, Canon, Sony, and others are building products that will let consumers do at home all or most of what Kodak's kiosks do. James F. Moore, chairman of consultants GeoPartners Research Inc., says most consumers will opt for the convenience of doing their imaging at home rather than at the photo shop.

But Fisher is firm in his conviction. At Motorola, he was known for sticking his neck out to back new technology--and being right. He overcame the skeptics who said pagers and cellular telephones would not become huge consumer hits.

Kodak employees and investors can only hope Fisher is right about the future of digital photography. If he's not--and the company can't quickly jump back into the desktop-imaging race--Kodak stands a good chance of continuing what has now become tradition at the once proud company--layoffs, restructurings, and disappointing results.

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