Have just read another interesting article, but was thinking as I was reading it that if you changed the word Kodak to government.. or housing… or economy, then that works just as well also. [my comments in green]
Kodak declared bankruptcy last week. For years, this company was visibly a dinosaur. It had no visionary leadership. The senior managers had the wrong vision. The company had lots and lots of debt, which indicates how blind its creditors were.
Moody’s Investors Service cut the rating on the $3 billion of debt of the Eastman Kodak Company to the lowest investment grade as a drop in film sales drained cash. The company’s long-term senior unsecured rating was lowered to Baa3 from Baa2, Baa3 is just above junk bond status. [Baa… is that what sheeple do?]
As it watched digital dissolve its high-margin film business, Kodak has shed 47,000 employees since 2003, closing 13 factories that produced film, paper and chemicals, along with 130 photo laboratories. The restructuring has already cost $3.4 billion, because it was done “in a socially responsible” way, said a spokesman, Christopher Veronda. [how about socially responsibly not going bust in the first place…?]
Then there were its stock investors. This company was doomed because it sold film. Film as a technology was clearly doomed a decade ago. Nevertheless, there were blind investors who paid $40 a share in 2003. Then it went over the cliff. It was at 31 cents when it filed for bankruptcy.
Hope springs eternal. So do losses.
In an article on the British operations of Kodak, the author interviewed a Kodak executive who quit in 2010. The poor guy had hung on faithfully for a decade longer than he should have. But, finally, he abandoned the capsized ship. He told of a baffling conversation with a member of Kodak’s management: “Just last week a Kodak executive came to me and said ‘I think film will make a comeback’, and I’m thinking ‘who are you kidding?’ That’s the mentality that’s stuck in that company and you’ve got to break that and they’ve never been able to.” [delusion trumps reality right up to impact – everywhere]
Kodak is a classic story of a fat and sassy firm with a near monopoly in its field that did not bother to adjust to changing customer demand. Its executives had no perception of the fact that the new technologies would kill it if it refused to alter course. They thought they were immune because their industry was immune internally. But it was not immune externally. [Global Financial Crisis – if we just hold on long enough, it will all come right, just a bit more stimulus spending…]
Kodak’s executives refused to develop digital cameras because they feared that the new cameras would destroy their business. They feared cannibalizing their own company. [substitute: govt policy and electoral support] But as Steve Jobs famously said, “If you don’t cannibalize yourself, someone else will.
Kodak’s executives made a fundamental mistake in 1975. This mistake is almost universal. It did not understand what business it was in. If you had asked a Kodak executive what business the company was in, he would have said “the film business.” Kodak was famous for its film. But it was not in the film business. It was in the photography business. Kodak film buyers bought the film in order to get pictures. [Governments forget what business they are in too. They are in the people business – look after the people; but they forget and think they are in the money business. Money is a means to the end, not the end itself. And you sure don’t want to get caught up and trapped by the money-people in the process…]
In 1995, Kodak charged Fuji with trade violations in Japan. The hypocrisy of Kodak is obvious to anyone who understands economics. It was focused on government, not customers. Kodak was worrying about Fuji. It should have been worried about digital photography [Hypocrisy abounds everywhere – and means you have taken your eye off the ball]
At about the same time as these antitrust cases, the World Wide Web was beginning as a result of the introduction of a graphical web browser, Netscape. Lew Rockwell got the Mises Institute online in 1995, the year after Netscape was released. I got GaryNorth.com online in 1996. A couple of guys in the boondocks could see what was coming. Kodak executives didn’t. [too busy doing what they are doing, because that’s what they do]
They were too busy worrying about film sales in Japan. They were hypnotized by film. They were not focused on pictures. If anyone wants an epitaph for Kodak, I suggest this: “out of focus.” [works for the global economy too]
A company that is run by people who do not see the future clearly is in big trouble. Senior managers must decide what is coming next, and in what order, and how soon. Then they must allocate the firm’s resources to meet expected future conditions. This is why great success in the past can blind decision-makers.
“They were a company stuck in time,” said Robert Burley. “Their history was so important to them, this rich century-old history when they made a lot of amazing things and a lot of money along the way. Now their history has become a liability.” Kodak was a company with a great future behind it. [mmm… who should we substitute into that sentence?]
Profits come from one source: accurate forecasting. The free market allows people to invest their capital in terms of their vision of the future. Most people will guess wrong. A few will guess right. [that’s for damn sure right]
The institutional problem is this: decision-makers find it difficult to keep seeing the future accurately. They are committed to one way of doing things. It is expensive to change. They don’t want to change. They want [their] high salaries, stock options, and leisure [to continue – they have a right, donchano..].
Companies [politicians] with brand loyalty are set . . . for a while. Their customers don’t change brands very often. But there is always a generational problem. Their customers die off. A new generation of not-yet-customers buy new products that produce the same results in a new, better way. [Get set for the generational battle. What do you imagine is happening in Tunisia, Libya, Egypt, Syria…]
The employees at Kodak did not believe that this would happen to Kodak. [Denial – not just a river in Egypt]
They hung on to their jobs. They could have left. They could have had new careers in another company or another industry. But they held on for dear life, just like the owners of Kodak stock. Just like the bond experts at Citigroup. [Just like the sheeple… Baa³]