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C A S E 8

The Rise and Fall of Eastman Kodak: How Long Will It Survive Beyond 2011?

This case was prepared by Gareth R.Jones,Texas A&M University.

In 2011,Antonio Perez, CEO of the Eastman Kodak Co., was reﬂecting on his company’s current situation. Since he had become CEO in 2005 and launched his strategy to make Kodak a leader in the consumer and business imag-ing markets, progress had been slow. His efforts to cut costs while investing heavily to develop new digital prod-ucts had reslted in Kodak losing money in most of theprevious years, and Kodak had already cut its proﬁt esti-mates for 2011. After spending billions of dollars to create the digital competences necessary to give Kodak a competitive ad-vantage, and after cutting tens of thousands of jobs, thecompany’s future was still in doubt. Could Kodak survive given the fact its digital rivals were continually introducing new and improved products that made its own look out of date? Was Kodak’s new digital business model really working and did it have the digital products in place to re-

build its proﬁtability and fulﬁll its “You press the button, we do the rest” promise? Or, after ten years of declining sales and proﬁts, was the company on the verge of bank- ruptcy in the face of intense global competition on all product fronts?

Kodak’s History

Eastman Kodak Co. was incorporated in New Jersey on October 24, 1901, as successor to the Eastman Dry Plate Co., the business originally established by George Eastman in September 1880. The Dry Plate Co. had been formed to develop a dry photographic plate that was more portable and easier to use than other plates in the rapidly developing photography ﬁeld. To mass-produce the dry plates uniformly, Eastman patented a plate-coating machine and began to manufacture the plates commer- cially. Eastman’s continuing interest in the infant photo- graphic industry led to his development in 1884 of silver halide paper-based photographic roll ﬁlm. Eastman capped this invention with his introduction of the ﬁrst portable camera in 1888. This camera used his own patented ﬁlm, which was developed using his own propri-etary method.Thus Eastman had gained control of all the stages of the photographic process. His breakthroughs made possible the development of photography as a mass leisure activity. The popularity of the “recorded images” business was immediate, and sales boomed. Eastman’s in-

ventions revolutionized the photographic industry, and his company was uniquely placed to lead the world in thedevelopment of photographic technology. From the beginning, Kodak focused on four primary objectives to guide the growth of its business: (1) mass production to lower production costs, (2) maintaining the lead in technological developments, (3) extensive product advertising, and (4) the development of a multi-national business to exploit the world market. Although common now, those goals were revolutionary at the time. In due course, Kodak’s yellow boxes could be found in every country in the world. Preeminent in world markets, Kodak operated research, manufactur-ing, and distribution networks throughout Europe and the rest of the world. Kodak’s leadership in the develop-

ment of advanced color film for simple, easy-to-use cameras and in quality film processing was maintained by constant research and development in its many research laboratories. Its huge volume of production allowed it to obtain economies of scale. Kodak was also its own supplier of the plastics and chemicals needed to produce film, and it made most of the component parts for its cameras. Kodak became one of the most proﬁtable American corporations, and its return on shareholders’ equity aver-

aged 18% for many years. To maintain its competitiveadvantage, it continued to invest heavily in research and development in silver halide photography, remaining prin-cipally in the photographic business.In this business,as the company used its resources to expand sales and become a

global business, the name Kodak became a household word signifying unmatched quality. By 1990, approxi-mately 40% of Kodak’s revenues came from sales outside the United States. Starting in the early 1970s, however, and especially in the 1980s, Kodak ran into major problems, reﬂected in the drop in return on equity.Its preeminence was being increas- ingly threatened as the photographic industry and the indus-try competition changed. Major innovations were taking place within the photography business, and new methods of recording images and memories beyond silver halide tech- nology,most noticeably digital imaging,were emerging.

Increasing Competition

In the 1970s Kodak began to face an uncertain environ-ment in all its product markets. First, the color ﬁlm and paper market from which Kodak made 75% of its proﬁts experienced growing competition from Japanese compa- nies, led by Fuji Photo Film Co. Fuji invested in huge, low- cost manufacturing plants, using the latest technology to mass-produce ﬁlm in large volume. Fuji’s low production costs and aggressive, competitive price cutting squeezed Kodak’s proﬁt margin. Finding no apparent differences in

quality and obtaining more vivid colors with the Japanese product, consumers began to switch to the cheaper Japanese ﬁlm, and this shift drastically reduced Kodak’s market share. Besides greater industry competition, another liability for Kodak was that it had done little internally to improve productivity to counteract rising costs. Supremacy in the marketplace had made Kodak complacent, and it had been slow to introduce productivity and quality improve-ments. Furthermore, Kodak (unlike Fuji in Japan) pro-duced ﬁlm in many different countries in the world rather than in a single country, and this also gave Kodak a cost disadvantage.Thus the combination of Fuji’s efﬁcient pro-duction and Kodak’s own management style allowed theJapanese to become the cost leaders—to charge lower prices and still maintain proﬁt margins. Another blow on the camera front came when Kodak lost its patent suit with Polaroid Corp.Kodak had forgone the instant photography business in the 1940s when it turned down Edwin Land’s offer to develop his instant photography process. Polaroid developed it, and instant

photography was wildly successful, capturing a signiﬁcant share of the photographic market. In response, Kodak set out in the 1960s to develop its own instant camera to com-pete with Polaroid’s.According to testimony in the patent trial, Kodak spent $94 million perfecting its system, only

to scrub it when Polaroid introduced the new SX-70 cam- era in 1972. Kodak then rushed to produce a competing instant camera, hoping to capitalize on the $6.5 billion in sales of instant cameras. However, a federal judge or-dered Kodak out of the instant photography business for violating seven of Polaroid’s patents in its rush to produce an instant camera. The cost to Kodak for closing its in- stant photography operation and exchanging the 16.5 mil- lion cameras sold to consumers was over $800 million. By

1985 Kodak reported that it had exited the industry at a cost of $494 million; however, in 1991 Kodak also agreed to pay Polaroid $925 million to settle out of court a suit that Polaroid had brought against Kodak for patent in- fringement. On its third product front, photographic processing, Kodak also experienced problems. It faced stiff competition from foreign manufacturers of photographic paper and from new competitors in the ﬁlm-processing market.Increasingly, ﬁlm processors were turning to cheaper sources of paper to reduce the costs of ﬁlm processing.Once again the Japanese had developed cheaper sources of paper and were eroding Kodak’s market share. At the same time, many new inde-

pendent ﬁlm-processing companies had emerged and were printing ﬁlm at far lower rates than Kodak’s own ofﬁcial developers. These independent laboratories had opened to serve the needs of drugstores and supermarkets, and many of them offered twenty-four-hour service.They used the less

expensive paper to maintain their cost advantage and were willing to accept lower proﬁt margins in return for a higher volume of sales.As a result,Kodak lost markets for its chem-ical and paper products—products that had contributed signiﬁcantly to its revenues and proﬁts. The photographic industry surrounding Kodak had changed dramatically. Competition had increased in all product areas, and Kodak, while still the largest producer,faced increasing threats to its proﬁtability as it was forced to reduce prices to match the competition. The Emergence of Digital Imaging Another major problem that Kodak had to confront was not because of increased competition in its existing prod-uct markets but because of the emergence of new indus-tries that provided alternative means of producing and recording images. The introduction of videotape recorders, and later video cameras, gave consumers an al-ternative way to use their dollars to produce images, par-ticularly moving images. Video basically destroyed the old, ﬁlm-based home movie business on which Kodak had a virtual monopoly. After Sony’s introduction of the Betamax machine in 1975 the video industry grew into a multibillion-dollar business. VCRs and ﬁrst 16mm and then compact 8mm video cameras became increasingly hot-selling items as their prices fell with the growth in demand and the standardization of technology. Then the

later introduction of laser disks, compact disks, and, in the 1990s, DVDs were also signiﬁcant developments.The vast amount of data that can be recorded on these disks gave them a great advantage in reproducing images through electronic means. It was increasingly apparent that the whole nature of the imaging and recording process was changing from chemical methods of reproduction to electronic, digital methods. Kodak’s managers should have perceived this transformation to digital-based methods as a disruptive technology because its technical preeminence was based on silver halide photography. However, as is always the case with such technologies, the real threat lies in the fu-

ture. These changes in the competitive environment caused enormous difﬁculties for Kodak.Between 1972 and 1982,proﬁt margins from sales declined from 16% to 10%. Kodak’s glossy image lost its luster. It was in this declining situation that Colby Chandler took over as chairman in July 1983. Kodak’s New Strategy Chandler saw the need for dramatic changes in Kodak’s businesses and quickly pioneered four changes in strategy: (1) he strove to increase Kodak’s control of its existing chemical-based imaging businesses; (2) he aimed to make Kodak the leader in electronic imaging; (3) he spearheaded attempts by Kodak to diversify into new busi-nesses to increase proﬁtability; and (4) he began on major efforts to reduce costs and improve productivity. To achieve the ﬁrst three objectives,he began a huge program

of acquisitions, realizing that Kodak did not have the time to venture new activities internally. Because Kodak was cash rich (it was one of the richest global companies) and had low debt,ﬁnancing these acquisitions was easy. For the next six years,Chandler acquired businesses in four main areas. By 1989 Kodak had been restructured into four main operating groups:imaging,information sys-tems, health, and chemicals.At its annual meeting in 1988 Chandler announced that with the recent acquisition of

Sterling Drug for $5 billion the company had achieved its objective:“With a sharp focus on these four sectors,we are serving diversiﬁed markets from a uniﬁed base of science and manufacturing technology. The logical synergy of the Kodak growth strategy means that we are neither diversi-ﬁed as a conglomerate nor a company with a one-product family.”The way these operating groups developed underChandler’s leadership is described in the following text.

The Imaging Group

Imaging comprised Kodak’s original businesses, including consumer products, motion picture and audiovisual prod-ucts, photo ﬁnishing, and consumer electronics. The unit was charged with strengthening Kodak’s position in its ex- isting businesses. Kodak’s strategy in its photographic im-

aging business has been to ﬁll gaps in its product line by introducing new products either made by Kodak or bought from Japanese manufacturers and sold under the Kodak name.For example,to maintain market share in the camera business Kodak introduced a new line of disk cam- eras to replace the Instamatic lines. Kodak also bought a minority stake and entered into a joint venture with Chinon of Japan to produce a range of 35mm automatic ﬁlm cameras that would be sold under the Kodak name.

This arrangement would capitalize on Kodak’s strong brand image and give Kodak a presence in this market to maintain its camera and ﬁlm sales. Kodak sold 500,000 cameras and gained 15% of the declining ﬁlm camera mar-ket.In addition,Kodak invested heavily in developing new and advanced ﬁlm such as a new range of “DX”coded ﬁlm to match the new 35mm camera market that possesses the

vivid color qualities of Fuji ﬁlm.Kodak had not developed vivid ﬁlm color earlier because of its belief that consumers wanted “realistic”color—its managers were still ﬁxated on improving core declining ﬁlm business. Kodak also made major moves to solidify its hold on the ﬁlm-processing market. It attempted to stem the in- ﬂow of foreign low-cost photographic paper by gaining control over the processing market. In 1986 it acquired Fox Photo Inc. for $96 million and became the largest na-

tional wholesale photograph ﬁnisher. In 1987 it acquired the American Photographic Group and in 1989 it solidi-ﬁed its hold on the photo-ﬁnishing market by forming a joint venture, Qualex, with the photo-ﬁnishing opera-tions of Fuqua industries. These acquisitions provided Kodak with a large, captive customer for its chemical and paper products as well as control over the photoﬁnishing market. Also, in 1986 Kodak introduced new improved one-hour ﬁlm-processing labs to compete with other photographic developers. To accompany the new labs, Kodak popularized the Kodak “Color Watch” system that requires these labs to use only Kodak paper and chemicals. Kodak’s strategy was to stem the ﬂow of busi-ness to one-hour mini-labs and also establish the industry standard for quality processing. It succeeded, but the pace of change to the digital world was accelerating and by the end of the 1980s, given the soaring popularity of digital PCs, Kodak’s managers should have recognized they were on the wrong track. Kodak’s rapidly declining proﬁtability forced it to engage in a massive internal cost-cutting effort to im- prove the efﬁciency of the photographic products group. Beginning in 1984 it introduced more and more stringent efﬁciency targets aimed at reducing waste while increas-ing productivity. In 1986, it established a baseline for measuring the total cost of waste incurred in the manu-facture of ﬁlm and paper throughout its worldwide oper-ations. By 1987 it had cut that waste by 15%, and by 1989 it announced total cost savings worth $500 million annu-ally.This was peanuts given the rapidly changing compet-itive situation—Kodak’s managers did not want to shrink their large, bureaucratic company that had become con-servative and paternalistic over time.As a result,Kodak’s

proﬁts dropped dramatically in 1989 as all ﬁlm makers woke up to the new competitive reality and Polaroid and Fuji also aggressively tried to capture market share by engaging in price cutting and increased advertising to in-crease market share. The result was even further major declines in proﬁtability. These rising expenditures offset most of the beneﬁts of Kodak’s cost-cutting effort and

there was little prospect of increasing proﬁtability be- cause Kodak’s core photographic imaging business was in decline—Kodak already had 80% of the market; it was tied to the fortunes of one industry.This fact, plus the in-creasing use and growing applications of digital imaging techniques, led to Chandler’s second strategic thrust: an immediate policy of acquisition and diversiﬁcation into

new industries, including the electronic imaging business with the stated goal of being “ﬁrst in ﬁlm imaging and digital. He thought the two could still co-exist. He could not understand that digital imaging was a disruptive technology. The Information Systems Group In 1988 Sony introduced a digital electronic camera that could take still pictures and then transmit them back to a television screen. This was an obvious signal that the threat to Kodak from new digital imaging techniques was going to accelerate. However, at that time the pictures taken with video ﬁlm could not match the quality achieved with chemical reproduction but technology always ad-vances, and the introduction of CDs was also a sign that new forms of digital storage media were on the horizon—the silver halide ﬁlm media was already out of date as de-clining sales showed. For Kodak to survive in the imaging business its managers woke up to the fact that it required expertise in a broad range of new technologies to satisfy

customers’ recording and imaging needs—they began to see the threat posed by the disruptive technology. Kodak’s managers saw in all its ﬁlm markets different types of digi-tal products were emerging as strong competitors. For example, electronic imaging had become important in the

medical sciences and in all business, technical, and research applications driven by introduction of ever more powerful servers and PCs.

However, Kodak’s managers did not choose to focus on imaging products and markets close to “photographs.” For example, Kodak could have bought Sony or Apple. Instead, they began to target any kind of imaging applica- tions in communications,computer science,and so on,that they believed would be important in digital imaging mar-kets of the future. Since Kodak had no expertise in digital imaging, its managers decided to acquire companies they perceived did have these skills and then market these

companies’ products under its own famous brand name— for example, a Kodak electronic publishing system for business documents, and a Kodak imaging record keeping system. Kodak thus began its disastrous strategy of acquisi- tions and joint ventures that wasted much of its huge re-tained earnings in new imagining technologies that its managers hoped, somehow, would increase its future prof-

itability. In the new information systems group, acquisi- tions included Atex Inc., Eikonix Corp., and Disconix Inc. Atex made newspaper and magazine electronic publishing and text-editing systems for newspapers and magazines worldwide as well as to government agencies and law ﬁrms. Eikonix Corp. was a leader in the design, develop- ment, and production of precision digital imaging systems.

Further growth within the information systems group came with the development of the Ektaprint line of copier-duplicators that did achieve some success in the competitive high-volume segment of the copier market.In 1988, Kodak made another major move into the copier service business when it purchased IBM’s copier service business and announced that it would market copiers manufactured by IBM as well as its own Ektaprint copiers.But these copiers were not based on digital imaging—even

though they used digital technology they were still based on chemical ink. With these moves, Kodak extended its activities into the electronic areas of artiﬁcial intelligence, computer systems, consumer electronics, peripherals, telecommunications, and test and measuring equipment. Kodak was hoping to gain a strong foothold in these new businesses to make up for losses in its traditional business,

but it was still not trying to streamline and shrink its core business to reduce its cost structure fast enough, and obvi- ously these acquisitions raised its cost structure. In addition, top managers, now terriﬁed by how far Kodak was behind, decided to purchase imaging compa-nies that made products as diverse as computer worksta-tions and ﬂoppy disks! Kodak aggressively acquired any IT companies that might ﬁll in its product lines and obtain technical expertise in digital technology that might help it

in its core imaging business. After taking more than a decade to make its ﬁrst four acquisitions, Kodak com- pleted seven acquisitions in 1985 and more than ten in 1986. Among the 1985 acquisitions was Verbatim Corp., a major producer of ﬂoppy disks. This acquisition made Kodak one of the three big producers in the ﬂoppy disk industry—an industry in which it had no expertise. In entering ofﬁce information systems, Kodak entered new markets where it faced strong competition from es-

tablished companies such as IBM, Apple, and Sun. The Verbatim acquisition brought Kodak into direct competi-tion with 3M. Entering the copier market brought Kodak into direct competition with Japanese ﬁrms such as Canon that was the leader in marketing advanced, new, low-cost copiers—and Canon still is today. In brief, Kodak was entering new businesses where it had little expertise, where it was unfamiliar with the com-petitive forces,and where there was already strong competi-tion.Soon,Kodak was forced to retreat from many of these markets.In 1990,it announced that it would sell Verbatim to

Mitsubishi. (Japanese investors immediately criticizedMitsubishi for buying a company with an old, outdated product line!) Kodak was forced to withdraw from many other areas of business simply by selling assets,closing oper-ations, and taking write-offs such as its nondigital videocas-sette operations.The fast-declining performance of its infor-mation systems group,which Kodak attributed to increased competition and delays in bringing out new products, reduced earnings from operations from a proﬁt of $311 mil-lion in 1988 to a loss of $360 million in 1989. This was a major wake-up call to investors, who now realized that Kodak’s top managers had no viable business model for the

company and were simply wasting its capital. ﬁlms, printers, and accessories—for improving the display,

storage,processing,and retrieval of diagnostic images.This seemed more related to its core business imaging mission. However, Kodak did not conﬁne its interests in med-ical and health markets to imaging-based products. In 1984, it established within the health group a life sciences

division to develop and commercialize new products de- riving from Kodak’s distinctive competences in its still proﬁtable chemical division. Kodak had about 500,000 chemical formulations on which it could base new prod-ucts, and top managers decided that they could use these resources to enter newly developing biotechnology mar- ket and grow its “life sciences” division, which soon engaged in joint ventures with major biotechnology com-panies such as Amgen and Immunex. However, these

advances into biotechnology proved highly expensive and again Kodak had no expertise in this complex industry! Soon even its own managers realized this, and in 1988 Kodak quietly exited the industry. What remained of the life sciences division was then folded into the health group in 1988, when Chandler completed Kodak’s biggest and most useless acquisition,the purchase of Sterling Drug,for more than $5 billion. The Sterling acquisition once again had no relevance to Kodak’s business model. Sterling Drug was a global maker of prescription drugs, over-the-counter medicine, and con-sumer products with familiar brand names such as Bayer as-pirin, Phillips’ Milk of Magnesia, and Panadol. Chandler

thought this merger would allow Kodak to become a major player in the pharmaceuticals industry. With this acquisi- tion, Kodak’s health group became pharmaceutically ori-ented, its mission being to develop a full pipeline of major prescription drugs and a world-class portfolio of over-the-counter medicine—something that is an enormously complex, uncertain, and expensive process.Analysts imme-diately questioned the acquisition because once again Chandler was taking Kodak into a new industry where com- petition was intense and was consolidating because of the massive costs of drug development. Some analysts claimed that the acquisition was aimed at deterring a possible takeover of Kodak—because it was still cash rich and its capital was being wasted.The acquisition of Sterling also re-

sulted in a major decline in proﬁts in 1989; this was growth without proﬁtability. The Chemical Division

Established almost a hundred years ago to be the high- quality supplier of raw materials for Kodak’s ﬁlm and pro-cessing businesses, the Eastman Chemical division was responsible for developing many of the chemicals and plastics that made Kodak the leader in silver-halide ﬁlm making.The chemical division was also a major supplier of chemicals, ﬁbers, and plastics to thousands of customers worldwide and Kodak had beneﬁted from the proﬁts from its plastic material and resins unit because of the success of

Kodak PET (polyethylene terephthalate),today the major polymer used in soft-drink bottles. However, in its chemical division Kodak also ran into the same kinds of problems experienced by its other oper-ating groups. There is intense competition in the plastics industry, not only from U.S. ﬁrms like DuPont but also from large Japanese and European companies.In specialty plastics and PET, for example, increased competition forced Kodak to reduce prices by 5% and this also led to the plunge in its earnings in 1989. The chemical division, however, had excellent resources and competences—but

not now that they were still controlled by a declining ﬁlm giant.

Kodak’s Failing Business Model

Results in Massive Cost Cutting

With the huge proﬁt reversal in 1989 after all the years of acquisition and “internal development,”analysts were ques-tioning the existence of the “logical synergy,” or economies

of scope that Chandler claimed for Kodak’s new acquisi-tions. Certainly, Kodak had new sources of revenue—but was this proﬁtable growth? Was Kodak positioned to com-pete successfully in the future? What were the synergies that Chandler was talking about and wasn’t any increase in proﬁt due to its attempts to reduce costs? Indeed,as Chandler made his acquisitions he also real-ized the increasing need to change Kodak’s management style and organizational structure to reduce costs and allow

it to respond more quickly to changes in the competitive environment. Because of its dominance in the industry, in the past, Kodak had not worried about outside competi- tion. As a result, the organizational culture at Kodak emphasized traditional,conservative values rather than en- trepreneurial values. Kodak was often described as a con- servative, plodding monolith because all decision making had been centralized at the top of the organization among a clique of senior managers. Furthermore, the company had been operating along functional lines. Research, pro-duction, and sales and marketing had operated separately in different units at corporate headquarters and dispersed to many different global locations. Kodak’s different prod-uct groups also operated separately. The result of these factors was a lack of communication and slow, inﬂexible decision making that led to delays in making new product

decisions. When the company attempted to transfer re-sources between product groups, conﬂict often resulted, and the separate functional operations also led to poor product group relations, for managers protected their own turf at the expense of corporate goals.Moreover,there was a lack of attention to the bottom line, and management failed to institute measures to control waste. Another factor encouraging Kodak’s conservative orien- tation was its promotion policy. Seniority and loyalty to

“mother Kodak” counted nearly as much as ability when it came to promotions.Only twelve presidents had led the com-pany since its beginnings in the 1880s. Long after George Eastman’s suicide in 1932,the company followed his cautious ways:“If George didn’t do it,his successors didn’t either.” Kodak’s technical orientation also contributed to its problems. Traditionally, its engineers and scientists had

dominated decision making, and marketing had been neg-lected. The engineers and scientists were perfectionists who spent enormous amounts of time developing, analyz-ing, testing, assessing, and retesting new products. Little time, however, was spent determining whether the prod-ucts satisﬁed consumer needs.As a result of this technical orientation, management passed up the invention of xe-

rography,leaving the new technology to be developed by a small Rochester, New York, ﬁrm named Haloid Co—later Xerox. Similarly, Kodak had passed up the instant camera business. With its monopoly in the photographic ﬁlm and paper industry gone,Kodak was in trouble.Chandler had to alter Kodak’s management orientation. He began with some radical changes in the company’s culture and structure.

Forced to cut costs, Chandler began a massive downsizing of the work force to eliminate the fat that had accumu-lated during Kodak’s prosperous past. Kodak’s policy of lifetime employment was swept out the door when declin-ing proﬁtability led to continuing employee layoffs and cost reductions. Between 1985 and 1990 Kodak laid off over 10,000 of its former 136,000 employees, less than 10% of its workforce and a tiny percentage that would do nothing to prevent its declining performance. Kodak was now a company that had come unstuck;it could not recog- nize that it had lost its competitive advantage and that all its new strategies were just accelerating its decline. It was burning money but its top managers did not want to dam-age the company or its employees. It was obviously a dinosaur. Every move top managers made failed. Kodak at- tempted to create a structure and culture to encourage internal venturing. It formed a “venture board” to help un- derwrite projects imitating 3M and created an “ofﬁce of submitted ideas” to screen projects. Kodak’s attempts at new venturing were unsuccessful; of the fourteen ventures that Kodak created six were shut down,three were sold,and four were merged into other divisions. One reason was Kodak’s management style, which also affected its new businesses. Kodak’s top managers never gave operating executives real authority or abandoned the centralized,con-

servative approach of the past. Kodak also reorganized its worldwide facilities to increase productivity and lower costs, For example, Kodak streamlined European produc- tion by closing duplicate manufacturing facilities and cen- tralizing production and marketing operations and in doing

so thousands more employees were laid off. George Fisher Tries to Change Kodak Chandler retired as CEO in 1989 and was replaced by his COO, Kay Whitmore, another Kodak veteran.As Kodak’s

performance continued to plunge, Whitmore hired new top managers from outside Kodak to help restructure the company. When they proposed selling off Kodak’s new acquisitions and laying off tens of thousands more em-ployees to reduce costs, Whitmore resisted; he too was entrenched in the old Kodak culture. Kodak’s board of di-rectors ousted Whitmore as CEO and in 1993 George Fisher left his job as CEO of Motorola to become Kodak’s new CEO.At Motorola,he had been credited with leading

that company into the digital age. Fisher’s strategy was to reverse Chandler’s diversiﬁca-

tion into any industry outside digital imaging and to strengthen its competences in this industry. Given that Kodak had spent so much money on making useless acqui-sitions,and the company was now burdened with huge debt from its acquisitions and because of falling proﬁts, Fisher’s solution was dramatic. Strategizing about Kodak’s four business groups, Fisher decided that the over-the-counter

drugs component of the health products group was reduc- ing Kodak’s proﬁtability and he decided to divest it and use the proceeds to pay off debt. Soon, all that was left of this group was the health imaging business. Fisher also decided that the chemicals division, despite its expertise in the in-

vention and manufacture of chemicals, no longer ﬁtted with his new digital strategy. Kodak would now buy its chemicals in the open market and in 1995 he spun the chemicals division off and gave each Kodak shareholder a share in the new company.This was a very proﬁtable move for shareholders who kept their shares in Eastman Chemicals—its price has soared. The information systems group with its diverse busi-nesses was a more difﬁcult challenge. Which new busi-nesses would promote Kodak’s new digital strategy, and which did not and should be sold off? Fisher decided Kodak should focus on building its strengths in document imaging and focus on photocopiers, business imaging, and inkjet printers and exited all its business that did not ﬁt this theme. After two years Fisher had reduced Kodak’s debt by

$7 billion and boosted Kodak’s stock price. Fisher still had to confront the problems inside Kodak’s core photo- graphic imaging group and here the solution was neither easy nor quick. Kodak was still plagued by high operating costs that were over 27% of annual revenue, and Fisher knew he needed to reduce these costs by half to compete effectively in the digital world. Kodak’s workforce had shrunk by 40,000 to 95,000 by 1993 and the only means to quickly slash costs was to implement more layoffs and close down its operations. However, Kodak’s top man-agers fought him all the way because they wanted to keep their power,arguing that it was better to ﬁnd ways to raise revenue that lay off a loyal workforce to reduce costs. Kodak put off the need to take the hard steps neces-sary to reduce operating costs by billions. At the same time, top managers were urging Fisher to invest billions of its declining capital in R&D to build competences in digi-tal imaging. Kodak still had no particular competence in making either digital cameras or the software necessary to allow them to operate efﬁciently. Over the next ﬁve years

Kodak spent over four billion dollars on digital projects, but new digital products were slow to come online and its competitors were drawing ahead because they had the ﬁrst-mover advantage. Also, in the 1990s consumers were slow to embrace digital photography because early cam-eras were expensive, bulky, and complicated to use and printing digital photographs was also expensive. By 1997 Kodak’s digital business was still losing over $100 million a year and Japanese companies were coming out with the ﬁrst compact, easy-to-use digital cameras. To make things worse, Kodak’s share of the ﬁlm market was falling as price wars broke out to protect market share and its rev- enues continued to plunge.

To speed product development, Fisher reorganized Kodak’s product divisions into fourteen autonomous busi-ness units based on serving the needs of distinct groups of customers, such as those for its health products or com-mercial products. The idea was to decentralize decision making and put managers closer to their major customers and so escape Kodak’s suffocating centralized style of de-cision making. Fisher also changed the top managers in charge of the ﬁlm and camera units but he did not bring in

many outsiders to spearhead the new digital efforts—Kodak’s top managers prevented him. However, the cre-ation of these 14 business units also meant that operating costs soared because each unit had its own complement of functions;thus sales forces and so on were duplicated.The bottom line was that Fisher was making little progress and was in a weak position and pressured by pow-erful top managers, backed by Kodak’s directors. Daniel A. Carp, a Kodak veteran, was named Kodak’s president and

COO, meaning that he was Fisher’s heir apparent as Kodak’s CEO. Carp had spearheaded the global consolida-tion of its operations and its entry into major new interna- tional markets such as China. He was widely credited with having had a major impact on Kodak’s attempts to ﬁght Fuji on a global level and help it to maintain its market share. Henceforth, Kodak’s digital and applied imaging, business

imaging, and equipment manufacturing—almost all its ma-jor operating groups—would now report to Carp. However, Kodak’s revenues and proﬁts continued to decline throughout the 1990s and into the 2000s as it steadily lost market share in its core ﬁlm business to Fuji and to new cheap generic ﬁlm makers. Prices and proﬁts plunged, and so did its market share—down over 25% in the last decade to 66% of the U.S. market, meaning the loss of billions in annual revenues. Meanwhile, the quality

of the pictures taken by digital cameras was advancing rapidly as more and more pixels were being crammed into them. And the price of basic digital cameras was falling rapidly because of huge economies of scale in global pro- duction by companies such as Sony and Canon.Finally,the

digital photography market was taking off, but couldKodak meet the challenge? The answer was no. Kodak had effectively taken con- trol of Japanese camera manufacturer Chinon to make its

advanced digital cameras and scanners and Kodak contin-ued to introduce low-priced digital cameras—but it was just one more company in a highly competitive market now dominated by Sony and Canon. Kodak also bought online companies that offered digital processing service over the Internet and began offering Kodak-branded digi- tal picture-maker kiosks in stores where customers could

edit and print out their digital images. Although Kodak was making some progress in its digital mission—its digital cameras, digital kiosks, and online photoﬁnishing opera-tions were being increasingly used by customers—it was being left behind by agile competitors. In 1999 Carp re- placed Fisher as CEO to head Kodak’s ﬁght to develop the digital skills that would lead to innovative new products in all its major businesses. In 1999, its health imaging group announced the then fastest digital image management sys-

tem for echocardiography labs. It also entered the digital radiography market with three state-of-the-art digital sys-tems for capturing X-ray images. Its document imaging group announced several new electronic document man-agement systems. It also teamed up with inkjet maker Lexmark to introduce the stand-alone Kodak Personal Picture Maker by Lexmark, which could print color pho-tos from both compact ﬂash cards and SmartMedia. Its commercial and government systems group announced

advanced new high-powered digital cameras for uses such as in space and in the military. With these developments, Kodak’s net earnings in- creased between 1998 and 2000, and its stock price rose.

However, one reason for the increase in proﬁts was that the devastating price war with Fuji ended in 1999 as both companies realized it simply reduced both their proﬁts. The main reason was simply the fact that the stock market soared in the late 1990s and Kodak’s stock price increased with it—for no good reason. Kodak was still not introduc- ing the new digital imaging products it needed to drive its

future proﬁtability. Also, Carp made no major efforts to reduce costs in its ﬁlm products division,where the power-ful managers who had backed Carp to become CEO made sure he did nothing to threaten their interests. It was the same old story, a rising cost structure and declining rev-enues and proﬁts.

Kodak in the 2000s

Rapidly advancing digital technology and the emer-gence of ever more powerful, easy-to-use digital imaging devices increasingly began to punish Kodak in the 2000s. In the consumer imaging group, for example, Kodak launched a new camera, the EasyShare, in 2001. Over4 million digital cameras were sold in 2000 and over 6 million in 2001. However, given the huge R&D costs to develop its new products, and intense competition from Japanese companies like Sony and Canon, Kodak could not make any money from its digital cameras because profit margins were razor thin. Moreover, every time it sold a digital camera, it reduced demand for its high-margin film products that really had been the source of

its incredible profitability in the past. Kodak was being forced to cannibalize a profitable product (film) for an unprofitable one (digital imaging). Kodak was now a di- nosaur in the new digital world and its stock collapsed in 2000 and 2001, falling from $80 to $60 to around $30. Investors now saw the writing on the wall as its prof-itability plunged. Carp argued that Kodak would make more money in

the future from sales of the highly proﬁtable photographic paper necessary to print these images and from its photo- ﬁnishing operations. However, consumers were not print-ing out many of the photographs they took, preferring to save most in digital form and display them on their PCs and then on the rapidly emerging digital photo frames market that basically made ﬁlm-based photograph albums

obsolete. Revenues would not increase from sales of ﬁlm or paper. Similarly, the photoﬁnishing market was declin-ing and its own Qualex and Fox photo ﬁnishing chains were forced into bankruptcy.

Kodak was also faring badly in the important health imaging market, where its state-of-the-art imaging prod-ucts were expected to boost its proﬁtability.However,com-petition increased when health care providers demanded lower prices from imaging suppliers and Kodak was forced to slash its prices to win contracts with other large health care providers. So intense was competition that in 2001 sales of laser printers and health-related imagining prod-ucts, which make up Kodak’s second biggest business, fell

7% and proﬁt fell 30%, causing Kodak’s stock price to plunge.Also, in 2001 Carp announced another major reor-ganization of Kodak’s businesses to give it a sharper focus on its products and customers. Kodak would create four distinct product groups: the ﬁlm group, which now con-tained all its silver halide activities; consumer digital imag-ing; health imaging; and its commercial imaging group,

which continued to develop its business imaging and print-ing applications. Nevertheless, revenues plunged from $19 billion in 2001 to only $13 billion by 2002 and its proﬁts dis-appeared.

Analysts wondered if Carp was doing any better than Fisher and if real change was taking place. Now Carp was forced to cut jobs, and by 2003 its workforce was down to 78,000—still far too high a number given its declining per-formance.Carp was still trying to avoid the massive down-sizing that was still needed to take place to make Kodak a viable company because its entrenched, inbred, and unre-

sponsive top managers frustrated real efforts to reduce costs and streamline operations. Despite all the advances it had made in developing its digital skills, Kodak’s high operating costs combined with its declining revenues were driving the company further down the road to bankruptcy. Would even layoffs or reorganization be enough to turn Kodak’s performance around at this point? The year 2002 proved to be a turning point in the pho-tographic imaging business as sales of digital cameras and other products began to soar at a far faster pace than had been expected. The result for Kodak’s ﬁlm business was

disastrous because sales of Kodak ﬁlm started to fall sharply and so too did demand for its paper—people printed only a small fraction of the pictures they took. From 2003 to 2005 this trend accelerated, as it has ever since. Digital cameras became the camera of choice for photographers worldwide and Kodak’s ﬁlm and paper revenues sank. Kodak had become unproﬁtable, which was somewhat ironic given that Kodak’s line of EasyShare digital cam-eras had become one of the best-selling cameras and

Kodak was the number two global seller with about 18% of the market.However,proﬁt margins on digital products were razor thin because of intense competition from com- panies such as Canon, Olympus, and Nikon. Proﬁts earned in digital imaging were not enough to offset the plunging proﬁts in its core ﬁlm and paper making divisions.

The Decline and Fall of Kodak’s

Core Film Business

In 2004 Carp announced Kodak’s cash-cow ﬁlm business was in “irreversible decline” and that Kodak would stop investing in its core ﬁlm business and pour all its resources into developing new digital products, such as new digital cameras and accessories to improve its competitive posi-tion and proﬁt margins.To protect its competence in digi-tal imaging, it bought the remaining 44% of Chinon, its

Japanese division that designed and made its digital cam-eras. Kodak began a major push to develop new state-of-the-art digital cameras and to develop new skills in inkjet printing to create digital photo printing systems so its users could directly print from its cameras—and achieve economies of scope. Also, Carp announced that Kodak would invest to grow its digital health imaging business that had gained market share, and it would launch a new initiative to make advanced digital products for the com-mercial printing industry. Analysts and investors reacted badly to this news. Xerox had tried to enter the digital printer business yearsbefore with no success against HP, the market leader.

Moreover, they wondered how new revenues from digital products could ever make up for the loss of Kodak’s ﬁlm and paper revenues. Carp also announced that to fund this new strategy, Kodak would reduce its hefty dividend by 72% from $1.80 to .50 a share, which would immedi-

ately raise $1.3 billion to invest in digital products. Investors had no faith in Carp’s new plan, and Kodak’s stock plunged to $22, its lowest price in decades. Kodak’s top management came under intense criticism for not reducing its cost structure, and Kodak’s stock price con- tinued to fall as it became clear its new strategy would do little to raise its falling revenues.This might be the begin-ning of Kodak’s end.

In 2004 Carp ﬁnally announced what the company should have done 10 years before. Kodak would cut its workforce by over 20% by 2007;another 15,000 employees would lose their jobs,saving a billion dollars a year in oper-ating costs. Jobs would be lost in ﬁlm manufacturing, at the support and corporate levels, and from global downsizing as Kodak reduced its total facilities worldwide by one-third and continued to close its out-of-date photo-ﬁnishing labs that served retailers.This news sent Kodak’s share price up by 20% to over $30. But it was now too late for Kodak to build the competences that might have offered it a chance to rebuild its presence as a digital imaging company.There were too many agile competitors and digital technology was changing too fast for the company to respond—at least

under Carp’s leadership. Antonio Perez Takes Control of Kodak It had become clear that Carp would not radically re-structure Kodak’s operations and bring it back to prof-itability. Kodak’s board of directors decided to hire Antonio Perez, a former HP printing executive, as its new president and COO, to take charge of the reorgani-zation effort. Perez now made the hard choices about which divisions Kodak would close and announced the termination of thousands of more managers and employ- ees. Carp resigned and Perez’s restructuring efforts were rewarded by his appointment as Kodak’s new CEO. He

was now in charge of implementing the downsized, streamlined company’s new digital imaging strategy.

Perez announced a major three-year restructuring plan in 2004 to continue to 2007 to try to make Kodak a leader in digital imaging.On the cost side,Perez announced that Kodak needed “to install a new,lower-cost business model consistent with the realities of a digital business.The reality of digital busi- nesses is thinner margins—we must continue to move to the business model appropriate for that reality.” His main objectives were to reduce operating facilities by 33%,divest redundant operations, and reduce its workforce by another 20%. In 2004 Kodak ended all its traditional cam-era and ﬁlm activities except for advanced 35mm ﬁlm. It allowed Vivitar to make ﬁlm cameras using its name, butin 2007 that agreement ended. Kodak also implemented SAP’s ERP system to link all segments of its value chain

activities together and to its suppliers to reduce costs afterbenchmarking its competitors showed it had a much higher cost of goods sold. Using ERP, Kodak’s goal was to reduce costs from 19% to 14% by 2007 and so increase proﬁt margins. From 2004 to 2007 Perez laid off 25,000 more employ- ees, shut down and sold operating units, and moved to a more centralized structure.All four heads of Kodak’s main

operating groups report directly to Perez. In 2006 Kodak also signed a deal with Flextronics,a Singapore-based out-sourcing company to make its cameras and ink-jet printers that allowed it to close its own manufacturing operations. The costs of this transformation were huge. Kodak lost $900 million in 2004,$1.1 billion in 2005,and $1.6 billion in 2006. Because of its transformation, and the high costs in-

volved in terminating employees while investing in new digital technology, its 2006 ROIC was a negative 20%, compared to its main digital rival, Canon, which enjoyed a positive 14% ROIC! Kodak’s Increasing Problems, 2007 Kodak’s revenues and proﬁts were falling fast but in its three main digital business groups—consumer imaging, business graphics, and health imaging—Perez continued his push to develop innovative new products. The goals was to reduce costs in its declining ﬁlm division,which still

enjoyed much higher proﬁt margins than its digital busi- ness groups! Kodak had to increase proﬁt margins in all its digital divisions if it was to survive.

The Medical Imaging Group

By 2006 the costs of research and marketing digital prod-ucts in its consumer and commercial units was putting in-tense pressure on the company’s resources—and Kodak still had to invest large amounts of capital to develop a lasting competitive advantage in its medical imaging unit. Here too in the 2000s, Kodak had made many strategic acquisitions to strengthen its competitive advantage inseveral areas of medical imaging such as digital mammog-raphy and advanced X-rays. It had developed one of the

top ﬁve medical imaging groups in the world. However, in May 2006 Kodak put its medical imaging unit up for sale. It realized that this unit required too much future invest-ment in its own right if it was to succeed, and its consumer and commercial groups were not providing the proﬁts nec- essary to fund this investment. In addition, although the medical unit accounted for nearly one-ﬁfth of Kodak’s

overall sales in 2005, its operating proﬁt plunged 21% as proﬁt margins fell because of increased competition from major rivals such as GE. In 2007 Kodak announced that it had sold its medical imaging unit to the Onex Corp., Canada’s biggest buyout ﬁrm, for $2.35 billion. By selling its health imaging unit, Kodak cut another 27,000 jobs and its global workforce was now under 50,000 from a peak of

145,300 in 1988. Once again Perez said, “We now plan to focus our attention on the signiﬁcant digital growth oppor-tunities within our businesses in consumer and profes- sional imaging and graphic communications.”

Developments in the Consumer Imaging Group

In the consumer group,improving its digital imaging prod-ucts and services was still the heart of Perez’s business model for Kodak; he was determined to make Kodak theleader in digital processing and printing. Perez focused on developing improved digital cameras, ink-jet printers, and and photoﬁnishing software and services. ADVANCED DIGITAL CAMERAS Perez pushed designers to continuously innovate new and improved models several times a year to increase proﬁt margins and keep its lead over

competitors.It was the market leader in the United States by 2005 in digital camera sales,and sales and revenues increased sharply.However,by 2006 Kodak’s prospects deteriorated as the growth in sales of its digital cameras came to a standstill because of increasing price competition. Now many new

companies like Samsung were making digital cameras that had become a commodity product, and proﬁt margins plunged for all digital camera makers.Nevertheless,in 2006, the company brought out new digital camera products such as its ﬁrst dual-lens camera, and cameras with Wi-Fi that could connect wirelessly to PCs to download and print pho-tographs, and it used these innovations once again to raise

prices. Kodak also entered the growing digital photo frame market in 2007, introducing four new EasyShare-branded models in sizes from 8 to 11 inches, some of which included multiple memory card slots and even Wi-Fi capability to connect with Kodak’s cameras. Since 2007,however,Kodak has been forced to cut the prices of its digital cameras to compete with Canon and Sony.U.S.customers had lost faith that its EasyShare mod-els offered the best value and so Kodak’s proﬁts from the sales of its cameras continued to decline.At the same time, increasing digital camera sales led to a major decline in

sales of its ﬁlm products.In 1999,Kodak announced that it was ending production of its consumer ﬁlm products and its “yellow boxes” disappeared from sight as it sought to cut costs.In sum,its camera business offered little prospect of being able to raise its future poﬁtability. NEW INKJET PRINTERS A major change in strategy occurred when Perez launched a major advertising cam-paign to launch its new Kodak EasyShare all-in-one ink-jet printers.This new line of color digital printers used an advanced Kodak ink that would provide brighter pictures that would keep their clarity for decades. Apparently Perez, who had been in charge of HP’s printer business before he left Kodak, had all along made the develop-

ment of digital printers a major part of his turnaround strategy—even though proﬁt margins were shrinking on these products as well. However, Perez’s printer strategy is based upon charging a higher price for the printer than competitors like HP and Lexmark, but then charging amuch lower price for the ink cartridge to attract a bigger market share—a razor and razor blades strategy. Blackink cartridges will cost $9.99 and color $14.99, which will average out to about 10 cents a print—far lower than the

20 to 25 cents per print using an HP printer. Perez be- lieved this would attract the large market segment that still wants to print out large numbers of photographs and so would make this product a multibillion-dollar revenue generator in the future. Perez announced he expectedinkjet printing to result in double-digit increases in proﬁt within three years. Kodak’s new printers did attract a lot of customers who were alienated by the high costs of ink cartridges. However, as online photo processing and storage solutions became more and more popular,and new mobile devices made it in-creasingly easy to access photos from the Net—on iPods, iPads, and smartphones in general—users had less and less incentive to burden themselves with paper-based photo al-bums. Nevertheless, its new printers did help increase rev-enues and proﬁts, although they never achieved the gainsPerez anticipated. In 2009 it announced its new line of ESP all-in-one digital printers that still used all its EasyShare technology to help users print and share their photographs. Kodak’s new printers were popular and helped to increase revenues and proﬁts. For example, in 2010–2011 sales in-creased by over 40% but this was still not enough to make up for declines in revenues elsewhere in digital imaging.

DIGITAL PHOTOFINISHING Another part of Perez’s con- sumer strategy was to invest in developing both online and physical “digital kiosks,” channels to allow customers to download, process, print, and store their photographs us- ing its EasyShare software. Kodak’s EasyShare Internet service allows customers to download their images to itsonline website, Kodak Gallery, and receive back both printed photographs and the images on a CD. In a major effort to develop an empire of digital pro- cessing kiosks,Kodak began to rapidly install them in stores, pharmacies, and other outlets as fast as possible, especially

because they used its inks and paper. It conﬁgured these kiosks to give customers total control over which pictures to develop at what quantity, quality, and size. Kodak and Wal-Mart signed an alliance to put 2,000 kiosks into 1,000 Walmart stores and by 2006 Kodak had over 65,000 kiosks. However, this was an expensive business to operate and proﬁt margins were razor thin as competition increased.

These moves proved popular because it was easy to use and photoﬁnishing revenues increased as it built a base of 30 million customers. But proﬁt margins were slim because competition increased and many other free online programs were being introduced, such as Google’s Picasa. Between

July 2010 and 2011 proﬁts dropped from $36 million to $2 million and did nothing to help Kodak’s bottom line. Kodak also made major attempts to penetrate the mobile imaging market because of the huge growth in the use of cameras in mobile phones in the 2000s.The Kodak Mobile Imaging Service offers camera phone users several options to view, order, and share prints of all the digital

photos on their phones. Users can upload and store pic-tures from their cameras in their personal Kodak gallery accounts; then after editing using Kodak’s free EasyShare software they can send their favorite photos back to their mobile phones or wirelessly link to its picture kiosks to arrange to print the best photographs. Kodak also joined up with social media sites like Facebook and Picasa, now linked to Google+, to easily download photos to members of their social community.And of course it has developed applications for the Apple iOS, Blackberry OS, and Android OS mobile operating systems to make it easy for users to connect their Kodak EasyShare pictures to what- ever kinds of mobile computing devices they are using. Kodak beneﬁts from revenues received when mobile

customers take advantage of its processing and printing services while they upload and share photographs; for example, any user can request a paper copy or an enlarge-ment of a particular photograph or a series of photos con- tained in an album. Kodak kiosks also allow users to

upload pictures wirelessly through Bluetooth; customers can beam photos right to the kiosk from mobile device to get Kodak prints and more. One problem, however, was that increasing sales of

powerful cameras in smartphones led to a major decline inthe number of customers who intended to upgrade to a more advanced digital camera—smartphones were canni-balizing sales of digital cameras. In addition, this has not proved to be an important source of additional revenues; its greater market share has not translated into higher proﬁts. By 2010 there was intense competition in all areas of the digital imaging and information markets, including PCs, smartphones, MP3 players, and gaming consoles, as more and more people gravitated online and became used to the Web as the place to process and store their docu-ments in whatever form—written, graphic, photographic, video, music, or movies. Although Kodak had achieved a presence in the consumer digital imaging and storage mar-

ket segment, it still could not generate the proﬁts needed to offset its losses resulting from the rapid decline of its cash-cow ﬁlm business,and in its other business areas. In fact, in July 2011 Kodak announced major falls in proﬁts and sales across many of its product groups. Sales of

cameras were down by 8% and revenues from its photoﬁnishing operations were down 14%. Sales of ink and inkjet printers had increased by over 40%,a bright spot,but nevertheless overall sales had decreased by 10% compared to the previous year,and the group had lost $92 million.

The Graphic Communications Group

Although its consumer digital business is its most visible business group, by 2007 Perez had recognized that its graphic communications group that dealt with business customers also offered an opportunity to grow revenues and proﬁts if it could develop distinctive competences. Proﬁt margins are much higher in commercial imaging and packaging because the users of these products are compa-nies with large budgets. The ﬁve main customer groups served by this group are commercial printers, in-plant printers, data centers, digital service providers, and pack- aging companies. For each of these segments, Kodak

developed a suite of digital products and services that offered customers a single end-to-end solution to deliver the products and services they need to compete in their business. Kodak was able to develop this end-to-end solu-tion because of its acquisition of specialist digital printing companies such as KPG, CREO,Versamark, and Express. From each acquisition Kodak gained access to more prod- ucts and more customers along with more services and solutions to offer them. Perez claimed that no other com-

petitor could offer the same breadth of products and solutions that it offers. Kodak’s product line includes im-age scanners and document management systems, and the industry’s leading portfolio of digital prooﬁng solutions and state-of-the-art color packaging solutions that can becustomized to the needs of different customers, whether they need cardboard boxes or rigid or ﬂexible cardboard

or plastic packaging. Following his decision to make Kodak a major com-petitor in consumer ink-jet printing, by 2009, with his HP printing background, Perez also decided to make it a major player in commercial printing as well, bringing it into direct competition with HP,Xerox,and Canon.Kodak

had developed an award-winning wide-format inkjet printing process, including the most robust toner-based platforms for four-color and monochrome printing.Kodak also claimed to have the leading continuous inkjet tech-nology for high-speed,high-volume printing,as well as im- printing capabilities that can be combined with traditional offset printing for those customers still in the process of

making the transition to digital printing. At the same time,Perez decided to invest resources to

improve Kodak’s packaging solutions to utilize its expert- ise in color processing, and he made packing another avenue to increase revenues and proﬁts. Kodak an- nounced in July 2011 that second-quarter sales from this group were $685 million, similar to the previous year. However,this group also lost $45 million,compared to $17 million in the same quarter the year before because of the enormous development and marketing costs necessary to support growth in its commercial inkjet operations.

Will Kodak Survive? In January 2009 Kodak posted a $137 million loss and announced plans to cut 4500 jobs, which brought its work- force down to about 18,000. In June 2009 it announced it would retire its Kodachrome ﬁlm—the main source of its incredible past ﬁnancial success.In fact,its losses have been

increasing in the last ﬁve years,but the extent of these losses has been disguised because of the way the company has sold many of its assets to reduce its losses and has engaged in patent battles. For example, in 2007 it sold its Light Management Film Group to Rohm & Hass, and in 2009 it sold its Organic Light-Emitting Diode (OLED) business unit to LG Electronics.Both were advanced LED ﬂatscreen technologies that it could no longer afford to invest in—but this brought in a few hundred million dollars.

Then, to ﬁnd new sources of revenue to offset losses, Kodak launched a series of lawsuits against other electron-ics companies,claiming that they had infringed on its huge library of digital patents that it has generated over the years.In 2008 Kodak selected its ﬁrst targets, Samsung and LG, which it claimed had used its technology in the cam-eras in their mobile phones. A U.S. judge decided in 2009 that these companies had infringed on its patents but they decided not to appeal. Kodak announced it would settle

out of court and develop cross-license agreements with these companies; it is estimated that Kodak received over $900 million from these settlements. Emboldened by its success, Kodak decided to take on Apple and Research in Motion (RIM) in March 2010.The Kodak complaint, ﬁled with the U.S. International Trade Commission (ITC), claimed that Apple’s iPhone and RIM’s camera-enabled BlackBerrys infringe on a Kodak patent that covers technology related to a method for pre- viewing images. At the end of March the ITC ruled in favor of Kodak, which seemed to have won its patent dis-

pute with Apple and RIM, a victory that might provide it with $1 billion in new licensing revenue. Overnight Kodak’s stock soared by 25%.Then Apple ﬁled a counter-suit,and in April 2011 it sold its Microﬁlm Unit to raise the millions needed to fund its lawsuits. In June 2011 the ITC, under a new judge, issued a mixed ruling and announced the ﬁnal decision would not be made until August 2011—

and Kodak’s stock plunged 25%. Perez claimed he would use the proceeds from intellec-tual property licensing to continue to invest in the company’s now core growth businesses—inkjet printing, packaging and software, and services—in order to counter falling revenue from camera ﬁlm. However, since 2007 Kodak’s stock has plunged from $24 to around $2.50 in July 2011.It seems thatPerez’s strategies have done little or nothing to turn around Kodak,whose market value was only around $650 million in

July 2011. Some analysts claimed the only reason the com-pany had not been acquired for this low price was that it had $2.6 billion in unfunded pension obligations because of its huge layoffs over the last decade. Given that it had less than$900 million in cash in 2011, many wondered how long the

company would be able to survive—and what would push itinto bankruptcy.

References

www.kodak.com,Annual reports,1980–2010.

www.kodak.com,10K reports,1980-2011.

Please do the following and follow complete instructions beleow.

· Write a 5-8 page paper addressing the following:

1. What is the current state of Eastman-Kodak?

2. How can an organization which had 80% of the market at a certain point, fail?

3. What opportunities & why did Kodak miss them?

4. What did the competition do differently?

5. Why did Kodak fall so far behind?

6. What caused Kodak's demise?

7. What role did Kodak's leadership play?

8. What would you suggest Kodak have done?

9. What would you suggest Kodak do now (2015)?

Follow APA formatting. Use at least three (3) other sources in addition to the text (at least four (4) applied and cited).

. NB. Please apply intext citation in body of paper and reference page