Focus at Kodak Blurred Amid Rising Inflation
Some companies bet their future on inflation. But Eastman Kodak, like so many American companies, was simply fooled by it.
Even as it posted record financial performance in the late 1970s, Kodak was unwittingly falling behind.
Kodak not only failed to make significant inroads in Polaroid’s instant camera line after it introduced its own product in 1976, but it also lost its near-monopoly over the amateur photography market as it failed to keep up with Japan’s technological strides in sophisticated, automatic-focus 35-millimeter cameras. Far superior in picture quality to Kodak’s aging Instamatics and much-ballyhooed Disc cameras, the Japanese models are practically as easy to use.
Meanwhile, Kodak’s diversification program soured. The company’s move into electronics got off to a bad start with its 1981 purchase of Atex Inc., its first acquisition in a decade. Atex, a leader in the newspaper and magazine text-editing business, lost ground against faster-moving competitors, and many of Atex’s key people left in frustration over Kodak’s slow responsiveness and its on-again, off-again management approach.
Other Kodak ventures into new markets, analysts said, were often poorly executed or too little and too late.
Situation Turned Bad
As a result, after years of recording one of the highest profit margins among major American firms, Kodak’s return on equity plunged to 7.5% in 1983 from 20% in 1980, recovering only partially to 12.6% in 1984 even as the national economy boomed. Its discretionary cash flow--the money left over after paying dividends and setting aside the capital needed to maintain existing equipment and support sales--plummeted to a negative $446 million in 1983 from $290 million in 1978, according to Barre Littel, analyst at Kidder, Peabody.
Although its top executives talked for several years about the need to move in new directions, only recently has Kodak--embarrassingly celebrated in the 1983 business best seller “In Search of Excellence” as a paragon of corporate virtues--begun to change.
“We’ve had difficulty with planning for sudden change,” acknowledged Colby H. Chandler, chairman and chief executive of the Rochester, N.Y.-based firm. “I knew we would have to try a different approach.”
Kodak began its transformation early this year with a reorganization of its vast photographic division into 17 business units, each with substantial autonomy. “Much of the outside world does not understand the magnitude of this change,” said J. Phillip Samper, an executive vice president with supervisory responsibility over all 17 units.
Going even further, Kodak started abandoning its age-old antipathy to using outside suppliers.
“Historically, Kodak was a company that tended to develop all its technology in-house,” Samper said. “Now we are not reluctant to look around and see if there is (something outside) that we need.”
These much-needed changes are not without their drawbacks. After decades of stable, strike-free employee relations based on lifetime employment, generous benefits and steady advancement up the ranks, the firm was forced at the end of 1983 to begin shrinking its work force by 11,000, or 8%, through layoffs and early retirement.
Such cutbacks, attributed to a lagging U.S. economy and the strong dollar, which undercut foreign sales, were particularly rankling in Rochester, where Kodak is known as the Great Yellow Father and employs nearly one worker in five.
