GENERAL MANAGEMENT JAN 2018

Read the following case study and answer the questions that follow What's Wrong with This Picture: Kodak's 30-year Slide into Bankruptcy As Eastman Kodak begins to adapt to the challenges of bankruptcy, David A. Glocker's company, Isoflux, is expanding -- thanks to technology he developed in Kodak's research labs. He didn't steal anything. In fact, before he founded Isoflux with Kodak's blessing in 1993, Glocker approached his managers at the company and suggested they market the coating process he had developed. "In a nutshell, I went to them and said, 'I think this is valuable technology and it's not being commercialised.... I'd like to do that if Kodak is not interested,'" he recalls. "And they said, 'Fine, do it.'" So he did, in his spare time, for five years while still working at Kodak, then full-time after leaving in 1998. Today, several patents and innovations later, Isoflux is a growing company in Rochester, N.Y., that coats a range of three-dimensional products, from drill bits to optical lenses to medical devices. The technology is one of countless innovations that Kodak developed over the years but failed to successfully commercialise, the most famous being, the digital camera, invented by Kodak engineer Steven Sasson in 1975. Digital technology has all but desroyed the iconic filmmaker. Since 2003, Kodak has closed 13 plants and 130 processing laboratoriess, and reduced its workforce by 47,000. It now employs 17,000 worldwide, down from 63,900 less than a decade ago. When new technologies change the world, some companies are caught off-guard. Others see change coming and are able to adapt. And then there are companies like Kodak which saw the future and simply could not figure out what to do. Kodak's Chapter 11 bankruptcy filing on January 19 culminates the company's 30-year slide from innovation giant to aging behemoth crippled by its own legacy. Adapting to technological change can be especially challenging for established companies like Kodak, because entrenched leadership often finds it difficult to break old patterns that once spelled success. Kodak's history shows that innovation alone isn't enough; companies must also have a clear business strategy that can adapt to changing times. Without one, disruptive innovations can sink a company's fortunes -- even when the innovations are its own. It wasn't always this way. When Kodak founder George Eastman first began using his patented emulsion-coating machine to mass produce dry plates for photography in 1880, he was the one being disruptive. For more than a century thereafter, Kodak dominated the world of film and popular photography, with sales surpassing $10 billion in 1981. Ringing up profit margins of around 80%, film drove the company's expansion. Leo J. Thomas, senior 2 vice president and Kodak's director of research, told the Wall Street Journal in 1985: "It is very hard to find anything [with profit margins] like colour photography that is legal." Many say film's profitability contributed to Kodak's demise. "I believe the single biggest mistake that Kodak made for two decades or more was the fear of introducing technologies that would disrupt the film business," Glocker says. "There were excellent scientists and engineers at the bench level and through several layers of management who generated some of the world's leading innovations. Kodak was never short on innovation, adds Glocker, but there was a disconnect between the research laboratories and upper management. When he joined Kodak in 1983, research was funded on what was known as Eastman's nickel -- that is, for every dollar of Kodak film sold, research got five cents. The culture in the labs was "relatively laissez-faire," and research managers often pursued projects for a long time before management decided whether or not to bring a product to market. Creating and Capturing Value Companies often have trouble managing innovation, says Wharton operations and information management professor Christian Terwiesch, director of Wharton's Strategic R&D Management program. "Either they are focused on what they currently do and seek incremental innovation, or when they talk of research, they talk about what will happen in 10 years. Innovations that reach a middle ground -- such as envisioning new product lines in the next two to five years are much more elusive and often don't have a champion pushing for them in the organization." Kodak failed to build a strategy based on customer needs because it was afraid to cannibalise its existing business, suggests Wharton marketing professor George S. Day, co-director of Wharton's Mack Centre for Technological Innovation and author of Strategy from the Outside In. "It succumbed to inside-out thinking," says Day -- that is, trying to push forward with the existing business model instead of focusing on changing consumer needs. Refocusing the Company Kodak's legacy goes beyond patents and capital equipment. In the U.S. alone, the company also has 38,000 retirees and up to $200 million per year in health care, insurance and pension obligations, says Bob Volpe, president of EKRA, a Rochester-based association of Kodak retirees. Chief executive Antonio Perez has vowed to "right-size" the company's legacy operations, Volpe points out. "Retirees are the center of the target. We're in the bull's eye of the company's efforts to reduce costs." Kodak could have avoided this fate if it had used the resources it earned during better times to acquire the technologies it lacked, says Wharton management professor Saikat Chaudhuri. The company made a number of acquisitions over the years, but most were "bit 3 players" that didn't help Kodak gain an edge. "They should have gone for one of the electronics manufacturers. It's better to cannibalize yourself in a calibrated way than to let others do it to you." The problem was that Kodak had built up a lot of inertia and could not react quickly. "Those very systems that serve you well and allow you to build your lead -- once conditions change, they become a rigidity in and of themselves." On top of footdragging into the digital world, Kodak had become "bloated" in its heyday, and didn't know how to scale back during the past decade, according to Wharton operations and information management professor Kartik Hosanagar. "It was never clear whether Kodak wanted to be a products company or a services company. Or a consumer company or a B2B company," he says. "The lack of a clear strategy for digital coupled with being in too many areas led to the current situation. The confusion was also visible in its Merger and Acquisition work. Acquisitions have been all over the place." Kodak will need to streamline going forward, Hosanagar adds. It is "in too many lines of business. Wharton management professor David Hsu agrees. The digital era pushed Kodak into "a position of reacting," and the company seemed to lose focus. "They had reorganization efforts ... [and] brought in CEO after CEO. When you have that much disruption and change," it becomes difficult to implement a long-term strategy, Hsu says. Going forward, Kodak has to figure out what its business is going to be, and focus on that. "It's okay to specialize in one part of the value chain.... They can't be the best at everything. It's a moment in time where they should put their start-up hats on and refocus the company." It's business advice that Glocker of Isoflux is taking to heart. As his company has grown, other start-ups have emerged with new technologies for coating complex shapes. Glocker's team is now exploring the possibility of investing in those technologies, even if it means using its own technology less. "It wouldn't hurt my feelings to bring [the technologies] in house and learn how to do it." After all, he figures, his customers don't really care which technology he uses they just want to get the job done. It's a lesson he learned from watching Kodak: "Don't assume that just because you're not willing to do it, somebody else won't."

QUESTION ONE [25]

"In a nutshell, I went to them and said, 'I think this is valuable technology and it's not being commercialised.... I'd like to do that if Kodak is not interested,'" he recalls. Comment on this extract in light of organisational culture, by discussing the relationship between culture and managerial action.