Kodak Chairman Struggles to Develop Efficiency : Corporations: George Fisher battles competition problems, wasteful production and rigid management with layoffs. But more must be done, analysts say.

Steadying Eastman Kodak Co., the wobbly giant of photography, is turning out to be trickier than George Fisher imagined when he became chairman a year ago.

Stymied by Kodak’s longstanding failure to control costs, Fisher, the former chief executive of Motorola Inc., recently sanctioned a new round of job cuts, an expediency he had hoped to avoid.

Even after a half-dozen overhauls since 1983, the world’s largest imaging company--unlike many of America’s corporate icons--still hadn’t shaken off enough excess weight to outrun a burst of global competition.

So Fisher responded in quick succession this fall with a hiring freeze, cuts in research spending and speedy layoffs. Investors and analysts who had called repeatedly for an improvement in Kodak’s perennially flat profits were pleased.

“Let’s sharpen that scalpel!” said Morgan Stanley analyst Brenda Lee Landry. “This company built up layers of fat over how many years. There’s still plenty to get out.”

The mood was decidedly more somber in Kodak Park, the 2,200-acre manufacturing nucleus a mile north of downtown.

“There’s a lot of scared people here and a lot of depression. It’s happened one too many times,” said a dispirited Lori Pacific, who could be among 800 administrative employees being axed early next year.

“It’s getting to the point where I don’t know if I care or not,” said Pacific, 47, a single parent who joined Kodak 18 years ago. “Business is business, and they’re going to do whatever they have to do.”

Once a model of blue-chip prosperity, Kodak’s near-monopoly on U.S. film sales, dating to the turn of the century under founder George Eastman, has tumbled since the 1970s to an estimated 67%. Worldwide, its market share is around 45%.

While it remains consistently profitable, cutthroat competition from Japan’s Fuji and generic-label manufacturers has curbed Kodak’s ability to raise prices. And wasteful production methods and a management that is rigid and inbred have hobbled its entry into new markets.

A surge in electronic imaging presents a growing danger that Kodak’s chemical-based technology--its cash cow--could become obsolete. Profits from its digital business, however, are still five years away, analysts say.

The company tried to adapt to vigorous foreign competition by diversifying into health care in the 1980s but succeeded only in shrinking its profits and racking up $10.5 billion in debt.

Two weeks after chief executive Kay Whitmore was fired in August, 1993, for failing to cut deep enough into costs, the company said it would cut 10,000 jobs.

Now Fisher, who officially took over Dec. 1, 1993, is being forced down the same gangplank.

He quickly auctioned off Sterling Winthrop and nearly all non-photographic subsidiaries for $7.9 billion--a $1 billion-plus net gain that Kodak will use to invest in new products, alliances with leading electronics companies and fast-growing markets in the Far East.

But poor financial results in October were a grim reminder that returning to the business it knows best won’t eradicate old failings. While sales rose 12% to $3.5 billion in the third quarter, costs jumped 21%.

Again, Fisher’s response was swift: He initiated unit-by-unit cutbacks to shape up Kodak’s bottom line by year’s end.

Kodak’s most vocal critic on Wall Street, B. Alex Henderson of Prudential Securities, raised his rating of the company’s stock from “hold” to “buy” and predicted between 2,000 and 4,000 layoffs within the next year. From a peak employment of 145,300 in 1988, Kodak soon will have fewer 85,000 employees.

Still, Henderson doesn’t think long-term prospects look bright.

“The industry is confronted with increasing competition, eroding demographics, challenges from camcorders,” he said. “Fisher’s going to have to cut costs fairly aggressively not just now but ad infinitum to maintain profitability and cash flow.”

Others are willing to bet that Fisher, through innovative products and alliances, better use of brand marketing and a willingness to clamp down on sloppy operations, can reinvigorate Kodak without gutting its work force.

“You don’t want to hurt morale, you want to build up a fighting spirit,” analyst Landry said.

At the same time, she cautioned, “some problems might be deeper than he thinks. The Kodak culture could fool an outsider. I wouldn’t rule out some more changes at the top.”

“He’s certainly the best guy the company could have hired to do the job,” said Nicholas Heymann of NatWest Securities, who believes the crux will be Fisher’s ability “to create a dynamic, totally flexible environment that will transform the way the business is run.”