"Innovate or die" is more than a good idea at Kodak. New products and services to follow up on a hot-selling line of digital cameras are the keys to its very survival.Eastman Kodak Co. has a really big problem. The photographic film business that sustained one of the world's great brands for more than a century is headed the way of the daguerreotype. Digital cameras and images are the new mass market; in order to survive, Kodak must transform itself into a digital products and services company to replace the revenue lost as its traditional markets dwindle.
Last year, nearly 61 percent of Kodak's $13.5 billion in revenue came from its traditional businesses, including film, paper and the nondigital products used in its healthcare, graphic communications and commercial imaging segments. But the first quarter of 2005 was terrible, with total revenue off 3 percent and a net operating loss of $143 million. The company expects sales from traditional business to drop another 17 percent this year, due in large part to the decline in demand for film.
The good news is that consumer digital sales are racing in the opposite direction, up 44 percent last year. Kodak shipped nearly 5 million digital cameras to pass Sony Corp. as the leading U.S. digital camera vendor in 2004. And Kodak's revenue from digital products is expected to surpass film revenue by the end of this year. But there is a cloud around that silver lining: Margins on digital products are much thinner than those on film, typically 10 percent for digital cameras versus 60 percent to 80 percent for film. So replacing a dollar of lost film revenue with an equal volume of digital sales still leads to lower profits, making the growth challenge even more urgent.
To balance the old business with the new, says Kodak Chief Information Officer and Vice President Kim VanGelder, "we need to drive down cost dramatically and drive up growth. The challenge is to execute on both cost-cutting and innovation concurrently." Information technology, she says, "is fundamental to both," and the dual imperative is redefining her role at the company. "It feels like a different job, to simultaneously manage both a decrease in costs and to focus IT across the globe on changing processes and products as we grow," she says.
Read the full story on CIOInsight.com: Kodak Refocuses to Keep Up With Customers
