Kodak and the Rochester mentality

Rich Karlgaard of Forbes wote in the Wall Street Journal that Eastman Kodak Co. might not have failed if it hadn’t happened to be located here in Rochester, N.Y.

He said Kodak needed to be in a place where “success is the norm and innovation is built into the ecology.”  And he said Kodak CEOs did not make the bold and drastic decisions that were necessary because of excessive concern for the welfare of their employees and the community.

I heard stuff like this a lot when I was reporting on Kodak for the Democrat and Chronicle in the 1980s.  When Kodak started to falter, Wall Street analysts called for layoffs – the bigger, the better, in their view – and they complained about Kodak’s generous employee benefits and separation packages, which took money they thought rightfully belonged the stockholders.

It is true that Kodak’s operations were much more concentrated in a single city than almost every other major manufacturing employees.  I no longer have the figures on hand, but my recollection is that 40 percent of Kodak’s employees worked in the Rochester area.  Kodak accounted for one out of every eight jobs in the Rochester area, and one out of every three manufacturing jobs.  All of Kodak’s CEOs, from the death of George Eastman in 1932 to the hiring of George Fisher from Motorola in 1993, were promoted through the ranks and spent most of their careers in Rochester.  Kodak and Rochester were very much identified with each other.

During the 1980s, Kodak management was well aware, as Karlgaard noted, that the days of film photography were noted.  CEO Colby H. Chandler tried to incubate new enterprises within the corporate framework, but fostering start-ups within the framework of a larger corporation proved hard to do.  The new enterprises were neither self-reliant nor free of corporate independence.

Perhaps – who can say? – it would have been better for Kodak to launch its digital imaging business in a new location as a separate corporation, far from Rochester corporate headquarters.  Another Rochester-based company, Xerox Corp., did just that, and it didn’t work out.

In a deliberate effort to escape the Rochester mentality.  Xerox relocated its headquarters to Stamford, Conn., and its research laboratories to Palo Alto, Calif., so as not to be limited by the mentality of any one place.  Douglas K. Smith and Robert C. Alexander in their book, Fumbling the Future, wrote that scientists at Palo Alto Research Laboratories in effect invented the personal computer, but Xerox never capitalized on their invention.  Perhaps — who can say? —  if Xerox factories, research laboratories and headquarters had all been in the same place, the divisions of Xerox might have been able to work together to turn research innovations into marketable products.

Rich Karlgaard cited the example of Intel, which exited the memory-chip business and devoted all its resources to microprocessors, even though it involved closing many factories and laying off many long-time employees.   He said this was easier to do in the booming Silicon Valley than in a small city like Rochester, where axing all these jobs all at once would have been a civic disaster.  It seems to me – who can say? – that this would have caused Kodak to go bankrupt decades sooner than it did.  I can’t imagine a rational executive butchering a cash cow.  Rather a smart executive would follow the example of Jack Welch of General Electric, and to figure out what advantages there were in bigness that could be leveraged.

It’s true that that Kodak people in the 1970s had a reputation for being security-seekers rather than risk-takers.  The saying in Rochester in those days was that if you could get a job at Kodak, and not mess up, you were set for life.  Some Kodak employees were the second and third generations of their families to work for Kodak.

In the 1980s, Wall Street analysts called on Kodak management to break up the company’s conservative corporate culture.  They did break it up, but they didn’t create a dynamic new corporate culture to take its place.  Instead they found themselves with a work force that was resentful, exhausted and scared.  It seems to me that all this had more to do with the internal workings of Kodak than with the Rochester environment.

Indeed, Kodak might well have not become the dominant photographic company – who can say? – if George Eastman had happened to live in, say, St. Louis rather than Rochester.  One of Kodak’s competitive advantages in the early days was its close relationship with Bausch & Lomb, which made lenses for Kodak cameras.  The synergy helped both companies, according to Reese V. Jenkins in Images & Enterprise, a history of the early photographic industry; Kodak was for a time Bausch & Lomb’s biggest customer.

In the early 20th century, Rochester was a center of the U.S. optics and photographic industries, and there were many other local companies in this industry – Gundlach Optical, Defender Photo Supply and a maker of photographic paper named Haloid, which is known today as Xerox.   Joseph Wilson, the heir to Haloid, went into xerography partly because the photographic paper market was dwindling and he saw the need to reinvent the company, but also because he grew up in the neighborhood of Kodak Park and was inspired by the example of George Eastman.

Rochester throughout its history has been an incubator of companies.  When I reported on business in the 1980s, I could find no important manufacturing employer in the Rochester area that had not originated in Rochester.  Even the branch plants of companies such as General Motors or Asea Brown Boveri had originally been independent companies acquired by the larger companies.

Rlochester is not like cities in states such as Mississippi and South Carolina, which attract companies from outside through low wages, hostility to labor unions and special subsidies and tax breaks.  The Rochester community has never had any success in attracting outside companies.  Our success has come from growing our own.

The economic condition of Rochester isn’t good, but it is better than it might be.  There’s a big gap between the rich suburbs and the poor city neighborhoods.  Many of the best and brightest young people are moving elsewhere.  But the Rochester area’s unemployment rate is below the national average.  The Democrat and Chronicle reported recently that half the new jobs created in upstate New York during the past year were created here.  That is because of entrepreneurial companies, many of them started by ex-Kodak and ex-Xerox employees who want to stay in the Rochester area.  Our community is a good place for middle-class people to live and raise children, and people who come here tend to want to stay here.

Click on Kodak Didn’t Kill Rochester—It Was the Other Way Around for Rich Karlgaard’s article in the Wall Street Journal (which is behind a pay wall unless you get lucky.)

Click on Despite Long Slide by Kodak, Rochester Avoids Decay for an upbeat article on Rochester in the New York Times.  The writer made some good points as well as some errors.  Kodak, Xerox and Bausch & Lomb never employed 60 percent of the Rochester area’s work force, and Kodak did not employ 62,000 Rochesterians in the 1980s.  Kodak employment in Rochester was slightly over 50,000 through the 1970s, shot up to 60,000 in 19801982, fell to 53,000 in 19811983 and kept falling ever after. The drop in population within the Rochester city limits reflects moves to the suburbs more than any drop in Kodak employment.

Click on Kodak’s long fade to black and The Rise and Fall of Eastman Kodak for analyses of the causes of the company’s decline. The comment threads are as interesting as the original articles.  Perhaps – who can say? – Kodak might have survived if, instead of pursuing digital imaging, the corporate leaders had found a way to leverage Kodak’s advantage in chemical and coating technology.  Kodak’s Eastman Chemical spinoff is still viable.  I wondered at the time Kodak CEO Kay R. Whitmore divested Eastman Chemical whether his motive might not be to protect Eastman Chemical from being dragged down by Kodak proper.

Hat tip to Global Macro Monitor

Tags: Eastman Kodak Co., Kodak Bankruptcy, Personal, Rochester NY