The Future of Eastman Kodak By: Lindsey Steedly Southern Wesleyan University Masters of Business Administration Management 5053,

Organizational Behavior Professor PHD. 3/11/2012

Overview: The last few years have been particularly tough for Eastman Kodak, an almost-130year-old photographic company based in Rochester, New York. As they entered the 21st century, Kodak employed some 50,000 people around the world and turned a healthy profit today, there are just 19,000 employees, hundreds of millions of dollars are being lost every year, and it is speculated that Kodak might soon file for bankruptcy. What a fall from grace! Kodak, the company that created mass-market amateur photography, enabled Hollywood movies and home videos, and invented digital photography, is now on the verge of dissolution.

TABLE OF CONTENTS Opening Company Overview 1

Eastman Kodak Company is one of the leading imaging solutions providers worldwide. The company offers imaging technology products and services to the photographic and graphic communication markets. For Kodak, their core business has been disrupted by globalization, technology shifts, and new competitors. As a collective company, they failed to react to the ever changing environment, now they must rebuild and reinvent the entire business. The question remains to the consumers as well as stockholders, can this company reposition themselves quickly enough to bounce back from this downward spiral path the company is currently victim of. Company History: In 1880, after inventing and patenting a dry plate formula and machine for preparing large number of plates, George Eastman founded the Eastman Kodak Company. By 1884 Kodak had become a household name after he replaced glass photographic plates with a roll of film that Eastman believed was successful because it was a user-friendly product that would be as convenient as a pencil (Kodak), emphasized by the first marketing campaign that used the slogan; You press the button, and we do the rest (Kodak). Eastman later identified Kodaks guiding principles as; mass production at low cost, international distribution, extensive advertising, customer focus, and growth through continuous research. Furthermore, he also articulated Kodaks competitive philosophy; Nothing is more important the value of our name and the quality it stands for. We must make quality our fighting argument. (Kodak) With the advertisement of color technology, the success story continued as the company invested heavily in research and development and by 1963 Kodak had become

the industry standard. Sales topped $1 billion USD by launching into new product lines such as cameras and medical imaging and graphical arts and quickly rose to $10 billion USD by 1981. Today, Eastman Kodaks principal activities center on the development, manufacturing and marketing of consumer, professional, health and other imaging products and services. The company operates through three segments: The Digital & Film imaging segment provides consumer oriented traditional and digital products and photographic services such as film, photofinishing services and supplies, and digital cameras. The Health Group segment provides analogue products that include medical films, chemicals and processing equipment, and services and digital products including PACs, RIS, digital x-ray & output hardware supplies. The Graphic Communications segment proves inkjet printers, high-speed production document scanners, digital imaging systems and products aimed at the commercial print department. Kodaks Lenses Out of Focus In the early 1980s, Kodak underwent a successful entrepreneurial transformation from traditional film business to digital photography, a $20 billion annual business. However, by the late 1980s, the board of directors, at the advice of outside consultants, dismantled the digital business division, switching resources back to the companys core film business. Kodaks blurry vision was blindsided by the untested ideas promoted by the consulting industry, which was ultimately enriching its own bottom line rather than the bottom line of Kodaks future. For instance, in the early 1990s, the consulting industry came up with the idea to re-engineering the restructuring of the companys process rather than by tasks, so as to improve operational effectiveness of their core business. Level of

corporate hierarchies, organize corporate teams, and rotate employees to different departments and division, in essence introducing the principles of the Japanese management system into Kodak were just a few of the changes made within the organization. In addition, the consulting company advised Kodak to purchase a wide range of other companies and innovations that were financially strong, however, held no value to the core business that they, the consulting company, claimed to be focusing on. Kodaks focus was always on its massively profitable analog film business, and then as it became apparent that film was on the way out, Kodak tried to make the leap back into to digital business. Kodak might have demonstrated the first digital SLR, but the board of directors made a poor business decision when they eliminated funding the research and development of their digital photography business in the 1980s and continued to steer clear of it until forced to refocus due to consumers demands in technology. In several press releases the company acknowledges they were striving to become competitive in the digital age of photography once again at the start of the millennium, however, at this point, they were far behind their Japanese competitors. Currently the point and shoot where Kodak participates has been destroyed and commoditized by integrated camera phones, including the digital camera business of their competitors, by substitute consumption from devices manufactured by HTC, Samsung, Apple, Blackberry, and numerous others making increasingly sophisticated smartphones that are subsidized at the point of sale by wireless carriers. In 2003, Kodak hired CEO Antonio Perez in hopes that his technological background would jumpstart the companys future innovation. His efforts since joining Kodak have been clear, disconnect from the core business of cameras and film, and

horizontally begin funding research for inkjet printers. Much of Perezs career has revolved around the printing business, as he was formerly the CEO of Hewlett Packard up until he was released from his contract. Many speculators state that regardless of his efforts, this area of the business cannot sustain the company into the future. Kodaks strategy for printers is to sell the hardware machines at a higher price, and the components such as ink at a much lower affordable price to consumers, almost two-thirds cheaper than competitors like Hewlett Packard and Lexmark. Kodak has had mediocre success and a healthy serving of critical acclaim for its user-friendly EasyShare cameras and printers, but it hasnt been enough. With the analog industry all but dead, Kodak now draws its last few breaths and tries to find a way out of the labyrinth. It has even tried leveraging its patent portfolio by suing the Apple and BlackBerry, and for many years Kodak has plaintively pleaded with interesting and quirky gadgets at CES but the last few years have seen almost a cessation of exciting products, the de-listing of Eastman Kodak from the Dow Jones and S&P 500 indexes, and a major decrease of staff and assets. In an era where innovation is all the rage, many CEOs, like Perez, have discovered that product innovation alone isn't enough to save sick companies or turbocharge healthy ones. For many, their core businesses are being disrupted by globalization, technology shifts, and new competitors. They must reinvent the company. Even at healthy companies, business model innovations are essential to retaining their competitive positions. SWOT Analysis Eastman Kodak SWOT Analysis

Strengths: Brand Name Intellectual property portfolio Market Position Emphasis on Research & Development Comprehensive Offerings Trade In and Recycle Program

Weaknesses: Declining Liquidity Declining Operational efficiency Weak management Business restructuring Photograph film business Cash flow The binding on the contract with does not allow Kodak to produce private brands

Opportunities: Strategic growth initiatives Restructuring initiatives New technology New products Emerging markets New markets People trying to take more pictures, capture more memories may be linked to the lack of time being spent.... Social Networking

Threats: Seasonality of business Competitive pressures Rapid technological changes Substitute products

A New Lens for Focus Eastman Kodaks current forecast for the future is severely struggling. Despite being responsible for countless technological innovations in the film and digital photography arena, investors still question whether Kodak can adapt quickly enough to even survive. New product design and development is more often than not a crucial factor in the survival of a company. In an industry that is changing ever so rapidly, Kodak must continually revise their design and range of products. This is necessary due to the continuous technology change and development as well as their competitors and the changing preferences of consumers. Kodak has strategically aligned themselves with top tier Universities across the world to assist with research and development of new innovative strategies and products. Kodak uses unrestricted grants to support research in an area of general interest. They provide access to know-how and an understanding of research approaches through collaboration with a university researcher, in an area that complements Kodak's research portfolio. They also support sponsored research projects for collaboration in areas of specific interest. These projects will have specific objectives and deliverables defined in a statement of work in collaboration with a university researcher, typically in direct support of Kodak's research portfolio. Kodak External Alliances has negotiated Master Sponsored Research Agreements with a number of key universities in the United States and United Kingdom to streamline project execution by pre-negotiating project terms and conditions. In addition they support fellowship grants for select promising students doing research in an area of general interest to Kodak. Kodak Fellowships are initiated by research scientists in the Kodak Research Laboratories in alignment with future research and hiring priorities.

In addition to technological research, market research is one of the most important fundamental segments regarding the planning process for most companies, as it establishes what is needed in the current environment. If the development is technology driven, then it is a matter of selling what is possible to make. Kodak needs to take the business back to the basics and do a thorough market research of their current operating environments as well as their operation. The core analog film business can still serve as a means to generate funding if marketed correctly to their consumers. Kodak has implemented many kiosks throughout retailers that have eliminated processing film; however, this business remains very much seasonal and does not generate enough profit, therefore, they need to find their niche. As the Baby boomer generation ages, many are fearful of change and technology, it would be wise of Kodak to capitalize on this generation to further increase their bottom line. There is several mail-in film processing companies throughout the United States, Europe and Asia, building an alliance with the top performers in the industry and licensing out Kodaks patents would generate an additional profit for the company. In regards to the kiosks that are located in many retail stores across the world, Kodak has recognized the important role that social media now plays in the lives of most Americans as well as other races around the world. They have implemented software that connects with users Facebook, Twitter, and other social media networks accounts, that allows for easy connection and printing from these kiosk. This truly is an untapped area for the company, as history often repeats itself, one must question if they fully understand the effects of social media. Kodak has never been a company that limited their financial expenditures when revolved around advertisement marketing, therefore, the company should invest financial resources in tapping into the younger generation and exposing this

generation to the printing capabilities from their social media account that Kodak offers which will ultimately increase their cash flow. Kodak has already transitioned into the market of at home printers which offer the company high marginal returns, the key here is to target consumers to purchase their printers over the competition. These high quality printers are directed towards everyday consumers as these printers, specifically the ink cartridges, are designed to cut down on ink replacement costs. This is exactly the opposite of what PC printer giants like HewlettPackard, Canon, and Epson have been doing. These competitors have been selling printers at a lower cost as they intend to make money consistently on ink cartridge replacements. Kodak offers high quality printers, in terms of cost, can print twice the number of photos or documents compared to using the competitors printers and ink cartridges. This is made possible by designing the printers with built-in print head, so consumers will only buy ink in its tank without the print head that makes them very expensive. Kodak adds that you need not throw away those print heads every time users buy a new ink cartridge. An increase in marketing these printers and exposing them in high marketable areas would further generate more sales to their bottom line. The future of Kodak is currently indefinite. A recent news article in the Wall Street Journal shared the imaging company's decision to hire law firm Jones Day to advise on restructuring efforts to resurrect the current financial outlook of the company. Although CEO Antonio Perez told employees he had no intention of filing for bankruptcy, his announcement does not seem to ease the doubts of shareholders and Wall Street. Kodak's stock tumbled down to just $.78 cents per share, after a disclosure from Kodak, that they extracted $160 million from a credit line. They are now focusing on selling patents,

recently to IMAX, as an attempt to raise the cash critically needed to reinvent themselves, as much of their liquidity is currently overseas, and to bring the funding back to the United States would result in a financial loss with the fluctuating exchange rates and taxes. While short-term this may be a wise move for the company, there remains a dilemma between the Board of Directors and stockholders, the stockholders are demanding a payout of dividends, whereas, the Board of Directors are persistent that the monies from this sale should be reinvested in the company. In order to solve this dilemma, the company needs to show vast improvements and forecast for innovative products to their stockholders, otherwise, they too will back out of supporting the company. Financial Earning Statements Eastman Kodak Company second quarter reportings for fiscal year 2011 results that reflect continued momentum of the companys core digital growth businesses, increased raw material costs, continued investment in certain growth businesses, and cash performance which reflects the companys seasonal pattern. Second-quarter sales were $1.485 billion, a 5% decrease from the year-ago quarter. Digital revenue was $1.089 billion, consistent with the year-ago quarter. Revenue from the companys core digital growth businesses Consumer and Commercial Inkjet, Packaging Solutions, and Workflow Software & Services increased 22%, fueled by a 48% revenue growth in Consumer Inkjet printers and ink. Revenue from the companys Consumer Digital Imaging Group decreased 8%, reflecting planned lower sales of digital cameras, as the company implements its previously announced strategy in this business to trade top-line growth for improved full-year profitability. Second-quarter revenue from the companys Film, Photofinishing and Entertainment Group declined by 14%.

In a statement released by Chairman and Chief Executive Officer, Eastman Kodak Company, Antonio Perez said, We are enjoying success in our new growth businesses, as well as the challenges typical in the creation of new businesses based on revolutionary new technologies. We have ambitious goals for our growth businesses, and thus far have achieved impressive results against the industry. Revenue growth in these businesses is accelerating, with second-quarter 2011 growth more than double the year-ago period. We are also on track this year to once again double ink gross profit dollars in our Consumer Inkjet business, and were enjoying strong customer demand for KODAK PROSPER Presses. ( )

2010
Period End Date Period Length Stmt Source Stmt Source Date Stmt Update Type 12/31/2010 12 Months 10-K 02/25/2011 Updated

2009
12/31/2009 12 Months 10-K 02/22/2010 Updated

2008
12/31/2008 12 Months 10-K 02/22/2010 Reclassified

2007
12/31/2007 12 Months 10-K 02/22/2010 Reclassified

2006
12/31/2006 12 Months 10-K 02/27/2009 Reclassified

Revenue Total Revenue

7,187.0 7,187.0

7,606.0 7,606.0

9,416.0 9,416.0

10,301.0 10,301.0

10,568.0 10,568.0

Cost of Revenue, Total Gross Profit

5,236.0 1,951.0

5,838.0 1,768.0

7,247.0 2,169.0

7,757.0 2,544.0

8,122.0 2,446.0

Selling/General/Administrative Expenses Research & Development Depreciation/Amortization Interest Expense (Income), Net Operating Unusual Expense (Income) Other Operating Expenses, Total Operating Income

1,277.0 321.0 0.0 0.0 790.0 1.0 -438.0

1,302.0 356.0 0.0 0.0 115.0 4.0 -9.0

1,606.0 478.0 0.0 0.0 904.0 2.0 -821.0

1,802.0 525.0 0.0 0.0 441.0 6.0 -230.0

1,969.0 596.0 0.0 0.0 366.0 0.0 -485.0

Interest Income (Expense), Net NonOperating Gain (Loss) on Sale of Assets Other, Net Income Before Tax

0.0

0.0

0.0

0.0

0.0

0.0 10.0 -561.0

0.0 1.0 -117.0

0.0 -19.0 -874.0

0.0 -6.0 -257.0

0.0 16.0 -583.0

Income Tax - Total Income After Tax

114.0 -675.0

115.0 -232.0

-147.0 -727.0

-51.0 -206.0

221.0 -804.0

Minority Interest Equity In Affiliates U.S. GAAP Adjustment Net Income Before Extra. Items

0.0 0.0 0.0 -675.0

-1.0 0.0 0.0 -233.0

0.0 0.0 0.0 -727.0

-2.0 0.0 0.0 -208.0

0.0 0.0 0.0 -804.0

Total Extraordinary Items

-12.0

23.0

285.0

884.0

203.0

Discontinued Operations Extraordinary Item Net Income -687.0 -210.0 -442.0 676.0 -601.0

Conclusion Kodak is a household name known across the world for capturing memories, the question remains, will future generations recognize the brand as an archaic trademark, or will they too be a supporter of the brand. At one time they were the dominating force in the technological field, producing the latest and greatest gadgets for consumers. Their business has drastically changed over the years and they were unable to successfully complete, however, there is still hope for this iconic company. Over time, all innovation gets commoditized. In this regard, business models are not different than products and services. So business model innovation must be a perpetual quest for renewal. This reinvention stuff can be a tough slog. Business model innovation is harder than product innovation. It's harder to visualize, and the scope is larger and much more complex. It includes everything the company does. Everything has to be changed in order for Kodak to succeed in the future and most importantly, they must become an innovative leading company again.

Work Cited