Getting Kodak To Focus

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To be fair, Kodak has long invested in digital technologies, going back to a 1976 digital-camera prototype. More recently, in 2001 it introduced the first of a line in digital cameras named EasyShare that have grown in popularity and today command a leading share of the market, ahead of Sony, according to International Data Corp. Carp began preparing the ground for Kodak's transformation soon after he took over in 2000, placing people from digitally dominant companies like General Electric and Lexmark International into top management posts. After his first COO, Patricia Russo, left to head up Lucent, he replaced her in April 2003 with Antonio Perez, 59, a former Hewlett Packard exec who had nursed its printer division into a $10 billion dynamo. "I think people will have more confidence in this strategy if they know Antonio is actively involved," says Carp, laughing.

Perez sifted through Kodak's intellectual property to come up with a new plan. The picture was brighter than he expected. "People think our challenge in becoming digital is that we don't understand the technology," says Perez. "They're absolutely, terribly wrong. We have technology coming out of our ears." What the company didn't have was focus. Perez provided one, identifying three areas of concentration: consumer imaging, health imaging and commercial printing. To eliminate distractions, he sold Kodak's Remote Sensing Systems satellite business to ITT Industries for $725 million and began pulling Kodak out of a range of other partnerships.

Kodak had already been through several ugly reorganizations, but Perez still saw the ghosts of old, comfortable business habits. He exorcised them. "I guess, as a legacy from a very rich, very successful company, [Kodak's management] was sloppier than we wanted it to be," says Perez. "We were looking for accountability. We organized the company so it was very clear who was responsible for what." Perez also had to find the right people to--as Carp puts it--"teach" Kodak about the brave new world it was entering. Many have come from outside--including seven of the 10 most recently appointed senior managers--though Carp himself joined Kodak as a statistical analyst 34 years ago.

The company overhauled its manufacturing process as well. That task fell to an old-timer, Charles Brown, a lean, cerebral 31-year Kodak survivor who is today the chief administrative officer. A chemical engineer, Brown spent much of his career in manufacturing, ultimately developing a lean production system in 1997 that was based on Toyota's acclaimed continuous-improvement approach. He dubbed it the Kodak Operating System. KOS forces managers to look at everything that happens in a plant in terms of waste--waste of time, waste of space and so on. They then analyze every step in a process--down to the hand movements of assembly-line workers--to look for a better way. Everything goes that does not "create value for the customer," says Brown.