Antonio Perez, CEO of Eastman Kodak, took time out of a very busy Graph Expo to speak with WhatTheyThink about the company’s digital transformation, future potential, and the state of the industry.

Editor's Note: Subsequent to conducting this interview with WhatTheyThink, Perez announced an organizational change, indicating on September 24th that the board of directors had promoted Philip J. Faraci to the position of President and Chief Operating Officer, effective immediately. James T. Langley, 57, remains a Senior Vice President until his departure at the end of the year. Since the company is eliminating the position of president for both CDG and GCG, Langley will leave Kodak once he completes the transition of his responsibilities for GCG. Perez commented, ""With a single leader for the digital businesses, we will be able to leverage our technology across product lines more effectively, while keeping independent business models and go-to-market strategies for both CDG and GCG."                                               

WTT:  How is Kodak's digital transformation going? Anything new you can share with us?

AP: In 2003, we said it would take us four years to do two things:  transform our film business into a sustainable business, and create a digital company.  There were many implications with restructuring the film side of the business, including assets we had to dispose of, and we have done all that.  When we started, we had $3 billion in assets associated with film; we will end this year with about half a billion.  Our results have been great in that area because the cost structure is lower and the plants are fully occupied.  It is a declining business, but still a large business for the company. 

The other part of the equation was creating a digital company.  As we embarked on that effort, we analyzed a great deal of detail to understand our strengths.  Two areas emerged: know-how relative to intellectual property and trade secrets; and a significant and relevant brand in a number of business areas, primarily material science and digital imaging. The first comes from our more than a century of history and the second has been a heavy area of investment for the last two decades. We started those investments earlier than anyone else I can think of, for obvious reasons.  We were the only pure imaging company; our life was images.  So while we were delivering great analog technology, we were investing hundreds of millions of dollars every year in digital technology related to imaging, and we created a portfolio of patents second to none.

WTT:  So as you came out of that strategic assessment, what was the overriding plan for the company?

AP:  The plan for the new digital company was to focus on the intersection between materials science and digital imaging.  To that end, we created two large businesses, Consumer Digital Imaging, and the Graphic Communications Group.  We are basically finished with that effort and expect no more large restructuring or accruals against the P&L because of plants that we are closing or people that we are laying off; that is behind us.  We have created an impressive portfolio in both spaces, with a lot more to come.  Had someone told me four years ago that we would end up with a $5 billion consumer business, a $4 billion Graphic Communications business and a sustainable film business, I would have signed up immediately.  Along the way, we sold the health group, since it didn’t fit with the equation, and we cleaned up the balance sheet. I feel we are in great shape.  We have a lot of cash, which is good these days.

WTT:  As you look ahead, what do you see as the key opportunities and obstacles you face in concluding the transformation and implementing strategies for the future?

AP:  The opportunity for us now is growth in the digital businesses.  You will see us expanding our portfolio, moving as fast as we can with new technology we still have in house that we haven’t brought to market.  You will also see us expand our partnerships.  It is a complex world, and no one can do everything alone these days.  We are a much better partner today.  Everyone wants to dance with us, because they know we can dance very well.  We want to dance, too, because we can offer more.

In terms of obstacles, the biggest concern for me is some macroeconomic change that fundamentally transforms the economy of the U.S. or the world in a significant manner.  I am not saying that I am expecting that, but that would be the biggest concern.  I think we will go through phases of strength and weakness.  The economy now is a little unstable. 

Another challenge is getting too big to a scale as a company.  Larger doesn’t necessarily mean better, but if you make the company larger and as good, it does become better.  We have strong competitors out there, but I believe we are strong as well because of our focus. At the same time, you need to move quickly, and any new technology that you come up with requires a lot of effort to productize.  You can’t deliver breakthroughs without that effort—time, money, resources, good people and know-how.

WTT:  How many employees will you have by the end of the year?

AP:  We are such a different company at this point in time.  We will end up this year with around 35,000 people.  We have literally built a new company with a very dynamic culture. The culture we had before was the appropriate culture for the business we had. What we have today is aligned with the industry in which we live and the goals we have. 
 
WTT:  What's new with the GCG?  Is that organization living up to your expectations from a financial perspective?

AP:  I am very impressed with them.  We took the path of buying companies that were significant for us.  We got lucky buying those companies early in the game before our competition saw what we were doing.  I don’t think we could do it as easily now. It was complex, but we didn’t have another option.  GCG has transformed itself into a unified company that supports today’s hybrid environment. We had that vision well ahead of others, garnered from listening to our customers, who were telling us that their real problem was not another digital press, it was making their operation more efficient.  We set out to solve those problems.

WTT:  How is the new organizational structure working—particularly the Co-COO roles between GCG and Consumer?

AP:  It is working well, with two phenomenal individuals.  I am obsessed with cost structure, and I hope that one of the elements of this new culture is to be absolutely obsessed with cost structure.  We had too many administrative costs associated with our different businesses.  You can call CDG and GCG whatever you want, but underneath, whether it is B2B or B2C, there is imaging technology and material science. That is the core, and I don’t want to lose leverage there.  This is an attempt to create enough independence within the P&Ls while at the same time not losing sight that there is a lot of leverage in technology and administrative costs. 
 
WTT:  How are your various ecommerce networks doing?  Can you make any comments on volumes, or the number of NexPress owners/enterprises that are participating?

AP:  The majority of our NexPress owners are involved in ecommerce.  We have also seen an uptake on those buying unified workflow and ecommerce bundled, from one in every eight to a one-to-one relationship.  That situation has really changed through the last year as people recognize the value of ecommerce networks and the value of linking with each other.  One of the good things about those companies we acquired is that we have an extraordinary user association.  If you want to know about this industry, you have to go to our association meetings; you see it all there.  It is a phenomenal learning opportunity for us.

WTT:  Can you make any comment about Kodak's role in "the inkjet drupa"?

AP:  As we have indicated, we will be showing a technology demo of our stream technology, and we are very excited about it. We think it is revolutionary, a great step for this industry to have another choice of technology to go after incredibly fast, very low cost, VDP.  We will have some implementations of stream commercially available at that time, but the explosion of this technology will take another year or year and a half, when we have a variety of solutions. What is important for us is to demonstrate at that time that this is real.  We have shown it in the lab, but in the lab you can argue that with good engineers, you can make anything work.  We will be taking orders for some applications.  We will ultimately have different size formats—stream will be in many shapes and forms; some will be available at drupa.  Our key objective is to demonstrate at drupa that this is real, and that it is offset class. The other point of drupa will continue to be workflow.

WTT:  As you look at the industry as a whole, what do you see as the key challenges for print service providers, and what should they be looking for here at the show and over the next several months leading up to drupa to ensure business success?

AP:  There are key parts of the printing industry that are growing significantly, and it is important for print providers to understand that.  No industry stays the same.  When business models change, some of the profit pools change. If they don’t make the appropriate changes, they will miss profit pools and they will suffer.  We have a lot of experience with change at Kodak. 

WTT:  Where do you see the growth opportunities?

AP:  Web to print, packaging, VDP with more intelligent use of databases. For most graphic communications service providers, it is about marketing and the ability to move upstream into customer base.  They are more than printers now, they are an extension of marketing departments. They are graphic communicators, hence the name of this group.  Printing is just one of the things that you have to do.  If your business does not have a very strong workflow integration, integrating color management, production, and business tools, you will have trouble competing.