Mr. Karlgaard spins a nice yarn, but it does not even hold together as a scarf, much less as an actual sweater. Yes, Kodak managers knew that the future belonged to digital photography as long ago as the 70âÂÂs. They also knew about other product lines such as copiers and laser printers, which could have been more significant than they were.
Their response to fading profit margins was not to focus on less profitable products with a future, but to double down on the film market without touching their unit costs of manufacturing (UCM). After all, so what if their labor costs were twice the regional average? Kodak was still making huge profits, declining margins notwithstanding.
It was easier for Kodak managers to continue running Kodak as a film company whose other product lines could be slowly cannibalized to feed the dying cash cow. They could have made the film operation a smaller, nimbler entity which provided cash to support the growth of future business lines. Instead, they fed the calves to the cow.
Kodak management refused to do the tough work when the times were ripe. They could have benefited greatly from being taken over by a company like Bain or by a raider like Carl Icahn. Instead, their management kept milking the cash cow, protecting margins by killing R&D in areas where there was indeed a future.
Kodak management protected themselves from raiders by putting in place âÂÂpoison pillâ terms to their bylaws. Those terms prevented shareholders from selling to people who would take over and make Kodak a smaller but more profitable company. As a result, today Kodak is a large but empty shell â a shadow of its former self.
Even today, Kodak management could save the company, but only by sacrificing themselves. If the board gets rid of the poison pill, suitors will start calling. Instead of being a thoroughbred en route to the dog food factory, Kodak would become a work horse with a long but less glamorous future ahead of them.