BUS643: Leading Organizational Change

Rivalry with Fujifilm

Japanese competitor Fujifilm entered the U.S. market with lower-priced film and supplies in the 1980s. Fuji defeated Kodak in a bid to become the official film of the 1984 Los Angeles Olympics, which gave it a permanent foothold in the market. Fuji opened a film plant in the U.S. and its aggressive marketing and price cutting began taking market share from Kodak, rising from a 10% share in the early 1990s to 17% in 1997. Fuji also made headway into the professional market with specialty transparency films such as Velvia and Provia, which competed with Kodak's signature professional product, Kodachrome.

Encouraged by shareholders, the company began cutting benefits and making large layoffs to save money. Despite the competition, Kodak's revenues and profits continued to increase during the 1990s, due to the strategy changes and an overall expansion of the global market. Under CEO George M. C. Fisher, Kodak's annual revenue peaked at $16 billion in 1996 and profits peaked at $2.5 billion in 1999.

In May 1995, Kodak filed a petition with the US Commerce Department under section 301 of the Commerce Act arguing that its poor performance in the Japanese market was a direct result of unfair practices adopted by Fuji. The complaint was lodged by the United States with the World Trade Organization. On January 30, 1998, the WTO announced a "sweeping rejection of Kodak's complaints" about the film market in Japan.

A price war between the two companies began in 1997, eating into Kodak's profits. Kodak's financial results for 1997 showed that the company's revenues dropped from $15.97 billion in 1996 to $14.36 billion in 1997, a fall of more than 10%; its net earnings went from $1.29 billion to just $5 million for the same period. Kodak's market share declined from 80.1% to 74.7% in the United States, a one-year drop of five percentage points.

Fuji and Kodak recognized the upcoming threat of digital photography, and although both sought to diversify as a mitigation strategy, Fuji was more successful at diversification. Fuji stopped production of motion picture film in 2013, leaving Kodak as the last major producer.

Shift to digital

Kodak logo from 2006 to 2016. It is still used by Kodak Alaris.

Kodak employee Steven Sasson developed the first handheld digital camera in 1975. Larry Matteson, another employee, wrote a report in 1979 predicting a complete shift to digital photography would occur by 2010. However, company executives were reluctant to make a strong pivot towards digital technology, since it would require heavy investment, make the core business of film unprofitable, and put the company into direct competition with established firms in the computer hardware industry.

Under CEOs Colby Chandler and Kay Whitmore, Kodak instead attempted to diversify its chemical operations. Although these new operations were given large budgets, there was little long-term planning or assistance from outside experts, and most of them resulted in large losses. Another effort to diversify failed when Kodak purchased Sterling Drug in 1988 at a cost of $5.1 billion. The drug company was overvalued and soon lost money. Research and development at Kodak Research Laboratories was directed into digital technology during the 1980s, laying the groundwork for a future digital shift.

In 1993, Whitmore announced the company would restructure, and he was succeeded by George M. C. Fisher, a former Motorola CEO, later that year. Under Fisher, the company abandoned diversification in chemicals and focused on an incremental shift to digital technology. Tennessee Eastman was spun off as Eastman Chemical On January 1, 1994, and Sterling Drug's remaining operations were sold in August 1994. Eastman Chemical later became a Fortune 500 company in its own right. A key component of the incremental strategy was Kodak's line of digital self-service kiosks installed in retail locations, where consumers could upload and edit photos, as a replacement for traditional photo developers. Kodak also began manufacturing digital cameras, such as the Apple QuickTake. Film sales continued to rise during the 1990s, delaying the digital transition from occurring faster.

In 2001, film sales began to fall. Under Daniel Carp, Fisher's successor as CEO, Kodak made an aggressive move in the digital camera market with its EasyShare family of digital cameras. By 2005, Kodak ranked No. 1 in the U.S. in digital camera sales, which surged 40% to $5.7 billion. The company also began selling digital medical image systems after acquiring the Israel-based companies Algotec Systems and OREX Computed Radiography. Despite the initial high growth in sales, digital cameras had low profit margins due to strong competition, and the market rapidly matured. Its digital cameras soon were undercut by Asian competitors that could produce and sell cheaper products. Many digital cameras were sold at a loss as a result. The film business, where Kodak enjoyed high profit margins, also continued to fall. The combination of these two factors caused a decline in profits. In 2007, Kodak was No. 4 in U.S. digital camera sales with a 9.6% share, and by 2010, they held 7% in seventh place behind Canon, Sony, Nikon, and others, according to research firm IDC. By the late 2000s, an ever-smaller percentage of digital pictures were being taken on dedicated digital cameras, being gradually displaced in the late 2000s by cameras on cellphones, smartphones, and tablets. Digital camera sales peaked in 2007 and declined afterwards.

New strategy

Kodak's main headquarters in Rochester, New York

Kodak began another strategy shift after Antonio Pérez became CEO in 2005. While Kodak had previously done all development and manufacturing in-house, Pérez shut down factories and outsourced or eliminated manufacturing divisions. Kodak agreed to divest its digital camera manufacturing operations to Flextronics in August 2006, including assembly, production and testing. The company exited the film camera market altogether, and began to end the production of film products. In total, 13 film plants and 130 photo finishing facilities were closed, and 50,000 employees laid off between 2004 and 2007. In 2009, Kodak announced that it would cease selling Kodachrome color film, ending 74 years of production, after a dramatic decline in sales.

Pérez invested heavily in digital technologies and new services that capitalized on its technology innovation to boost profit margins. He also spent hundreds of millions of dollars to build up a high-margin printer ink business to replace falling film sales, a move which was widely criticized due to the amount of competition present in the printer market, which would make expansion difficult. Kodak's ink strategy rejected the razor and blades business model used by dominant market leader Hewlett-Packard by selling expensive printers with cheaper ink cartridges. In 2011, these new lines of inkjet printers were said to be on verge of turning a profit, although some analysts were skeptical as printouts had been replaced gradually by electronic copies on computers, tablets, and smartphones. Inkjet printers continued to be viewed as one of the company's anchors after it entered bankruptcy proceedings. However, in September 2012 declining sales forced Kodak to announce an exit from the consumer inkjet market.

Bankruptcy

Kodak's finances and stock value continued to decline, and in 2009 the company negotiated a $300 million loan from KKR. A number of divisions were sold off to repay debts from previous investments, most notably the Kodak Health Group, one of the company's profitable units. Kodak used the $2.35 billion from the sale to fully repay its approximately $1.15 billion of secured term debt. Around 8,100 employees from the Kodak Health Group transferred to Onex, which was renamed Carestream Health. In 2010, Kodak was removed from the S&P 500.

In the face of growing debts and falling revenues, Kodak also turned to patent litigation to generate revenue. In 2010, it received $838 million from patent licensing that included a settlement with LG. Between 2010 and 2012, Kodak and Apple sued each other in multiple patent infringement lawsuits.

By 2011, Kodak was rapidly using up its cash reserves, stoking fears of bankruptcy; it had $957 million in cash in June 2011, down from $1.6 billion in January 2001. Later that year, Kodak reportedly explored selling off or licensing its vast portfolio of patents to stave off bankruptcy. In December 2011, two board members who had been appointed by KKR resigned. By January 2012, analysts suggested that the company could enter bankruptcy followed by an auction of its patents, as it was reported to be in talks with Citigroup to provide debtor-in-possession financing. This was confirmed on January 19, 2012, when the company filed for Chapter 11 bankruptcy protection and obtained a $950 million, 18-month credit facility from Citigroup to enable it to continue operations. Under the terms of its bankruptcy protection, Kodak had a deadline of February 15, 2013, to produce a reorganization plan. In January 2013, the Court approved financing for Kodak to emerge from bankruptcy by mid 2013.

During bankruptcy proceedings, Kodak sold many of its patents for approximately $525 million to a group of companies (including Apple, Google, Facebook, Amazon, Microsoft, Samsung, Adobe Systems, and HTC) under the names Intellectual Ventures and RPX Corporation. Kodak announced that it would end the production of several products, including digital cameras, pocket video cameras, digital picture frames, and inkjet printers. As part of a settlement with the UK-based Kodak Pension Plan, Kodak agreed to sell its photographic film, commercial scanners, and photo kiosk operations, which were reorganized as a spinoff company, Kodak Alaris. The Image Sensor Solutions (ISS) division of Kodak was sold to Truesense Imaging Inc.

On September 3, 2013, Kodak announced that it emerged from bankruptcy as a technology company focused on imaging for business. Its main business segments would be Digital Printing & Enterprise and Graphics, Entertainment & Commercial Films.

Kodak's decline and bankruptcy were damaging to the Rochester area. Its jobs were largely replaced with lower-paying ones, contributing to a high poverty rate in the city. Between 2007 and 2018, real GDP losses from Kodak canceled out the growth in all other sectors in Rochester.

Post-bankruptcy

On March 12, 2014, Kodak announced that Jeffrey J. Clarke had been named as chief executive officer and a member of its board of directors. At the end of 2016, Kodak reported its first annual profit since bankruptcy.

In recent years, Kodak has licensed its brand to a number of other companies. The California-based company JK Imaging has manufactured Micro Four-Thirds cameras under the Kodak brand since 2013. The Kodak Ektra, a smartphone, was designed by the Bullitt Group and launched in 2016. Digital tablets were announced with Archos in 2017. In 2018, Kodak announced two failed cryptocurrency products; the cryptocurrency KodakCoin, which was developed by RYDE Holding, Inc., and the Kodak Kashminer, a Bitcoin-mining computer which was developed by Spotlite.

In 2016, the Kodak spinoff company eApeiron was founded with assets acquired from Kodak and an investment by Alibaba. The company's mission is to eliminate “knock offs” and promote authenticity.

Despite the pivot to digital technology, film remains a major component of Kodak's business. The company continues to supply film to the motion picture industry after signing new agreements with major studios in 2015 and 2020. In 2022, Kodak announced it would hire new film technicians after film photography experienced a revival among hobbyists.

Source: Wikipedia, https://en.wikipedia.org/wiki/Kodak
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