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The Kodak lesson: An ending that didn’t have to happen
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By Carmi Levy | Insight
Officially, it's business as usual at Kodak. The iconic photography pioneer still has a head office in Rochester, NY, is still introducing new wares at the 2012 International Consumer Electronics Show — including a couple of well-received Facebook-integrated cameras — and is still a fully functioning, publicly traded company.
Unofficially, everyone but CEO Antonio Perez seems to know it's all but over.
Kodak has struggled mightily to transition from being a long-dominant player in the photographic film and paper market — a Harvard Business School case study once estimated its 1970s market share at over 90 percent — to a digital imaging company. The 132-year-old company's stock shed 88 percent of its value last year.
It hasn't turned an annual profit since 2007 and it's been bleeding cash, with reserves down to $862 million at the end of its most recent quarter from $1.4 billion the previous year. The former global giant now employs around 18,000 people, down from its peak of 145,000. Market value that once topped $30 billion U.S. is now $163 million and falling.
The company, which is scheduled to report fourth-quarter results Jan. 26, has been peddling its portfolio of 1,100 patents since last summer, hoping to raise between $2 billion and $3 billion. No firm buyers have emerged, and speculation has been mounting in recent weeks that it's accelerating preparations for a Chapter 11 bankruptcy filing.
Will reorganization help?
Kodak recently announced a major reorganization that finally ditches its largely irrelevant traditional film and photographic paper, consumer digital imaging, and graphic communications units. In their place is a simplified two-unit structure — commercial and consumer, which should help the company more easily build its new core around inkjet printers for home and commercial use, as well as photographic workflow software. The company has invested heavily in these now-profitable technologies, and is counting on them to drive future growth.
"As we complete Kodak's transformation to a digital company, our future markets will be very different from our past, and we need to organize ourselves in keeping with that evolution," Perez said.
The company, playing every card it has, also filed suit on Tuesday against Apple and HTC, claiming they violated Kodak patents for transmitting pictures off of mobile devices like smartphones and tablets. Kodak also added HTC to its hit list on another lawsuit already pending against Apple over image previewing on digital cameras.
While it's still too early to tell whether or not the reorganization and the new lawsuits will help the company stave off bankruptcy, investors seemed pleased by the moves, and drove the share value up by 50 percent on Tuesday.
However the Kodak saga plays out, it's become a hugely influential example of how not to manage a business within a market undergoing fundamental and historic change. Here's a quick look at some key lessons that were ignored by successive generations of Kodak leadership:
•Core technologies won't remain relevant forever
Kodak dominated the photographic film and paper business for so long that its leaders assumed demand would always remain strong. The shift to digital destroyed demand for Kodak's revenue pillars, but the company failed to recognize the depth of the change until it was too late. Kodak is hardly alone: Stubborn and exclusive reliance on BlackBerry smartphones, Polaroid cameras and Motorola cell phones spelled disaster for their respective makers, as well.
•Inventing something is never enough
Kodak built the world's first digital camera, then watched others successfully market the new devices and undercut its business. It was also instrumental in introducing — but not profiting from — a wide range of technologies, including OLED displays and wireless-capable cameras. The company failed to turn these then-revolutionary technologies into sustainable sources of revenue, wrongly assuming that simply creating something was sufficient to create new markets. It needed to execute, as well.
•Don't stretch too far
Overdiversification can compromise organizational focus and result in viable business units being starved of resources. Kodak learned this lesson the hard way with ill-starred forays into, of all things, medical testing equipment and bathroom cleaners.
•Don't hold on for too long
Kodak's major failing lies in its inability to exit businesses before their value collapses. It stubbornly continued to manufacture film-based cameras long after major competitors had fully transitioned to digital. Its slow-footed transition away from declining revenue streams prevented the company from actively developing a differentiating presence in new markets. When it finally went digital, it was as a me-too follower.
In many respects, what happened at Kodak is precisely the kind of thing that can happen to any tech company if leadership fails to maintain focus and adapt. Organizations that believe in the supremacy of their dominating business for too long will face a similar fate. In industries increasingly marked by accelerating product cycles and reduced ROI windows, following Kodak's example could represent the shortest route to oblivion. It's a picture no one wants to take.
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