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Eastman Kodak (NYSE: EK) has been struggling for decades, and the current financial crunch is just pushing it further along. Today it announced 4,500 job cuts on a 24% drop in revenue and a restructuring charge of $350 million. Kodak is a classic example of a company whose decades of success make it unable to adapt to change.
First, a look at Kodak's report. With sales down to $2.43 billion from $3,22 billion a year ago, it is cutting its workforce by 18%. This cut contributed to a fourth quarter loss from continuing operations of $133 million, or 50 cents a share -- compared to last year's profit from continuing operations of $92 million, or 32 cents. This report comes at the end of a four-year, $3.4 billion overhaul in December 2007 that eliminated 50% of its workers, or 28,000 jobs. The shakeup was supposed to shift the company's focus to digital products and services from traditional film, but it came too late.
I spent over a year consulting to Kodak 20 years ago. Already then it was grappling with the same issues that continue to plague it. Kodak created and led the business of giving away cameras and reaping huge profits from its dominance of the silver halide film and chemicals business. But Fuji took away its market share and digital photography took huge chunks of its former customers. Its latest restructuring program is too little too late.
Kodak has been flailing around for decades, trying to figure out how to compete in this world. What amazes me is that it has survived for so long. Its stock is down 92% from its February 1997 peak of $90. It has nowhere to go but down.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in Kodak securities.
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Reader Comments (Page 1 of 1)
1-29-2009 @ 11:52AM
BHarrison said...
Kodak simply became a "modern buggy whip manufacturer" in a digitized industry. They failed to adapt to the changing technologies until it was too late. (And my 1998 $1,200.00 35 mm camera with all of its accessoreis is, for all practical purposes, worthless.) That is just a downside to a society with rapidly changing technologies . . . keep up or die. On the flip side, how much is the cost of new technologies worth when they cost so much to implemnt, esp. duing a major Recession and/or Depression . . . life's a bit*h at times.
1-29-2009 @ 5:39PM
Arius said...
China is not a capitalist system. It's a communist system. Believe it or not communists use money too.
The means of production is controlled by the state, not private individuals.
Wages are controlled by the state in China.
That's communism, not capitalism.
There is no such thing as capitalism in the world today. Capitalism died in 1929, and it's never come back.
Everything tried since then has been different degrees of socialism.
When the government pays your way it's socialism. Whether it's for the rich or the poor. It's definitely not capitalism.
Enough of the free market capitalist phonies. I'm so sick of your b.s.
National Socialism was and always will be a miserable failure. It's nothing but a cancer that claims millions of lives. It does nothing but spread death and destruction everywhere it goes. It is rule by fear mongering and people see benefits only when millions are deprived of their lives and property.
4-18-2009 @ 1:17AM
alb said...
For Kodak - the model of "technology disruption" is well known and documented in "The Innovator's Dilemma" by Clayton Christensen. Kodak's business model, research and development cycle, overhead, and structure is all built around high-margin consumables where they have a legacy of dominant market share from the beginning.
They have tried to enter other markets, even with coated products, such as floppy disks, CDs, video tapes, etc. and have never succeeded in being able to develop a market entry and growth plan that would penetrate, then grow share.
Today they are betting nearly everything on the multi-function ink jet printer. The breakthrough was mounting the print head in the printer, rather than on the ink cartridge. This lets them make the ink cartridges at much lower cost, and therefore sell the ink at lower prices.
It is a good idea, but so far their marketing strategy does not seem to be exploiting it. This goes back to a company that has always counted on strong brand with traditional products. They just never developed the capability to enter a crowded, competitive market space and slug it out.
As for the second comment, I am not sure what China's economic system has to do with Kodak... but actually China is far more capitalist than socialist or communist. MOST business there is NOT owned by the state, it is owned by private individuals and investors. They have a very active free market, and anyone there can get a business license in an afternoon. It is full of small entrepreneurs and medium-sized companies. The free market is alive and well in China. They just CALL it "communism" and the Communist Party still rules the country. But the government doesn't "give you" very much there.