Kodak Plans to Lay Off 10,000 Workers by 1996 : Technology: Analysts say the cuts are just the beginning for the company, which is facing an electronic imaging revolution.
Days after ousting its chairman--in part because he moved too slowly to cut costs--Eastman Kodak Co. on Wednesday announced plans to lay off 10,000 workers by the end of 1995.
Analysts say those cuts will be just the beginning for the company, which is grappling with a technological revolution in its core photography business.
The word came in a letter to shareholders from lame-duck Chairman and Chief Executive Kay Whitmore, whose resignation was demanded by Kodak’s board earlier this month.
When a new CEO is in place--probably by the end of the year--analysts expect at least 10,000 additional jobs to be trimmed by the Rochester, N.Y.-based firm.
“This is just a part of what will eventually be done,” says Eugene Glazer, an analyst at Dean Witter Reynolds.
Kodak--like IBM, General Motors, American Express and others--has painfully discovered that its traditional formulas, including generous employment practices and reliance on a widely recognized brand name, are no longer adequate in the hyper-competitive business environment of the 1990s.
Kodak is still profitable and its problems are less profound than those facing other troubled corporate icons. But the solutions so far appear similar: Get rid of the CEO, slash jobs and other costs and try to reinvigorate bureaucracies grown sclerotic.
However, Kodak must still solve a more difficult riddle: how to cope with steady improvements in electronic imaging technologies, which threaten to eventually render all but obsolete the chemical film with which it has been identified for more than 100 years.
Just as the video camera has virtually eliminated the home movie camera, electronic still cameras will someday rule the photography world--and observers say the turmoil at Kodak has virtually frozen any new initiatives in this area.
“They really need a new paradigm,” says Eugene Fram, a professor of marketing at the Rochester Institute of Technology who has long followed Kodak. “They’re still very much a chemical company in an imaging world that’s moving toward digital.”
Kodak has made plenty of forays into electronics. It bought several specialized computer systems companies, but they have mostly been disappointments. It developed a modestly successful laser printer and copier businesses, although the latter is rumored to be for sale.
The company has also bet heavily on a product known as Photo CD, which allows photofinishing shops to put regular film pictures on compact discs for playback on a personal computer or a special CD machine that hooks up to a TV set.
Though considered a big success for publishing and other specialized applications in the computer world, Photo CD has not caught on as a consumer product. And much of the management team responsible for Photo CD defected earlier this year to an imaging company owned by real estate and publishing magnate Mortimer Zuckerman.
Overall, critics say, Kodak still has no coherent strategy for the new technologies.
The cost cutting unveiled Wednesday could undermine the company’s ability to make new investments. Whitmore said capital spending will be cut to about $1.4 billion a year from more than $2 billion, while research and development expenditures will be frozen at current levels.
Still, some Kodak watchers believe the threat from digital imaging is far enough off that the company should focus on improving its core film and photographic paper business. Film sales are now under attack not only from Fuji of Japan, but also from “private label” film--much of it produced by Agfa of Belgium--that sells for as little as half as much as Kodak’s famed yellow boxes.
While the film business may be mature in the United States, it is still growing overseas, but critics say Kodak needs much sharper marketing to take advantage of the opportunities. Over the last decade, it instead has been preoccupied with diversifications--notably the $5.1-billion acquisition of Sterling Drug in 1988.
Glazer and other analysts are looking for the company to sell Sterling and other non-core businesses. Kodak has already announced its intention to spin off its specialty chemical business to shareholders.
No matter what measures are taken, though, critics say Kodak will not become healthy without an overhaul of a corporate culture that--like IBM’s--was once widely admired but has now become a millstone.
Kodak was one of the first companies to introduce benefits such as pension plans and disability insurance, and it has long been a generous philanthropist and a pillar of the city of Rochester.
Yet some observers say such generosity has bred complacency.
A former Kodak executive refers to management advancement based not on achievement but on seniority: “You take No. 21,” he says, “and when No. 20 retires, you take No. 20.” Adds Roger O’Brien, head of a small Rochester company that sells electronic imaging components, “The Kodak work ethic is almost a joke around this town.”
Some people in Rochester now believe that a shake-up will be good for everyone in the long run, even if local Kodak employment--already down to 39,000 from a peak of more than 60,000--falls further.
“If Kodak downsizes and outsources, and the result is to spawn small businesses in Rochester, we could be better off, because those firms will be more efficient and can serve the needs of companies other than Kodak,” says Albert J. Simone, president of Rochester Institute of Technology. The city also boasts Xerox and Bausch & Lomb as major employers and is a world leader in imaging technology.
Much will depend on the new CEO. A search is under way, and the names that have popped up range from Apple Computer Chairman John Sculley to former Northern Telecom Chairman Paul Stern--both of whom won mentions during IBM’s recent search--to iconoclastic former Kodak executive J. Phillip Samper.
