By Cary Sherburne, Senior Editor October 12, 2004 -- Following Kodak’s several acquisitions this year, the formation of its new Graphic Communications Group and an aggressive business integration plan announced at drupa 2004 and reaffirmed at the company’s recent consultant briefing, WhatTheyThink visited with Kodak’s Jim Langley, President of the Graphic Communications Group, and Barbara Pellow, Chief Marketing Officer, to learn what visitors to Graph Expo might expect to see from Kodak, and to get more insight into the progress the company is making. WTT: Jim and Barbara, thank you for taking the time to speak with us. I am sure you are very busy preparing for the show. Talk to us about your presence at Graph Expo; what should we expect to see from Kodak there? JL: You will see an integrated Kodak. As you know, we have made a couple of acquisitions over the year, and Graph Expo is our first chance at a major show where we can be together as an integrated organization, including branding and messaging. The booth itself, #1697, will emphasize the integration that is well underway. Of course, we will have presence in other areas of the show as well, including the Heidelberg booth. Versamark will also be present in the mailing and fulfillment pavilion, and Encad will be in the wide format pavilion. BAP: We will also have a Harley Davidson motorcycle in the booth to demonstrate the power of technology, with a Windy City theme. You can get your picture taken on a Harley in leathers with your hair blowing in the wind, and get your own personalized printed poster sent to you after the show. WTT: Sounds like fun! Jim, why do you think the KPG distribution channel is important? Do you think the relationship is going to go any deeper? JL: The reason I am excited about KPG as a distribution channel, and the reason I believe it is important, is that the ongoing transition of commercial print to digital is key to where Eastman Kodak is taking our business. With KPG’s close relationship with print providers around the world, it is an excellent channel to take us where we want to go. There is a lot of training going on right now, as you can imagine, and KPG brings a lot of lead generation capability because of the daily contact they have with commercial printers around consumables and plates. In terms of going deeper, beyond owning half of KPG, we currently have a deep technology relationship with them, and do R&D work in Kodak in workflow, color management and other areas that is brought to market by KPG. PressAIM is an example of that collaboration. Their relationship with EFI and their workflow presence will also benefit the other businesses in the Kodak family. WTT: You made a series of announcements at drupa relative to your product and integration plans; how are you progressing with respect to the integration of your acquisitions into a common business operation, and how are you measuring your progress? JL: There are a couple of ways to look at it. Perhaps the best way is to look at product flow and whether we are meeting the deliverables we promised and laid out at drupa. I look back on the last few months and I am really pleased with our progress. At drupa, we announced fifth imaging unit for the NexPress 2100 and said we would ship in late October, and it looks like we will achieve that target. The NexGlosser is also on track. The Encad NovaJet 1000i is shipping and meeting objectives. Relative to our Versamark 4-drop 15-picoliter VX5000e solution, we signed with Rotomail at drupa and they will be installed as a beta site around November 1 st. We also talked about NexTreme Exchange, and that is installed at The Johnson Group. So we are tracking well against the deliverables that we identified at drupa. BAP: I have to say that our work with the Johnson Group and NexTreme Exchange has been a home run. We will have a lot of news about that at Graph Expo, including video coverage relative to their tremendous level of satisfaction. Additionally, we are taking our own sales collaterals online. We will use NexTreme Exchange on an EFI platform and route the collateral for production via a group of print partners. Our sales reps in the field will be able to customize sales collateral and print it on demand at any one of a number of locations. JL: Another proof point is that we have implemented a cross-selling incentive between product lines. If a NexPress sales rep sees a Versamark opportunity there is a financial incentive to pursue that. We are working to expand share of customer with multi-product-line deals, achieving product leverage across the business units. WTT: Talk to us a little about your Professional Services group. Where does that reside within the Graphic Communications Group organization and are they developing tools and services that apply to the entire portfolio? JL: Right now, Chris Bondy, who runs that group, reports into the NexPress business. Within that context, he runs a separate P&L. So he is putting together these cross-unit solutions and running his own business statement off of them. It is tightly coupled to NexPress installations right now, and his group is doing the work to enable the sale as well as post-sale activities to make sure the press is used productively. This is a powerful engine we would like to build further and run across more of the business. I believe that professional and consulting services will be an important part of Kodak’s integrated solutions offerings. BAP: There is also a component of professional services in the Commercial Imaging Group that will become part of Graphic Communications in January. They deal with complex scanning, archiving and networking implementation and offer a good augmentation to the work Chris is doing. There is a great skill set embedded into that organization that links directly to the work we are doing in the Graphic Communications Group. WTT: Speaking of the CIG integration, can you share with our readers a little more about the benefit the Graphic Communications Group expects to achieve with the integration of Kodak’s Commercial Imaging Group? What are the primary channels to market that CIG has used, and do you see any changes there? JL: The Document Products & Services organization will become part of Graphic Communications as of January 2005. There are three major lines of business that will come with this integration. First is the scanning business itself. There is also a global service business that supports Kodak scanners, as well as third party equipment. And the third piece is mail and transaction oriented services, primarily represented by HPA, an independent public company in Australia with 50% ownership by Kodak. Here’s why I am excited about this: With this integration, we will have a better ability to respond to integrated bids involving transaction printing, scanning, document management, archiving, retrieval and output. We will have all those pieces that we can bring to bear to provide more complete solutions to our customers. In terms of channels, DPS has a range of channel partners that distribute market leading scanners. Business Process Services is located in Asia, with direct sales people there. Scanners are sold through distribution. BAP: In terms of high-end production scanners, many people don’t realize that Kodak is the market leader. The second piece that is important here is that as you look at where there is deployment of production scanning technology, it is typically in transactional environments, like large financial services institutions. This links in well to our Versamark business in terms of customer presence and coverage. The third piece is the service business. It is a large business with a great backbone worldwide with all of the back office elements needed to make it successful. It is very efficient, and we will integrate all of our service initiatives around the CIG service operation. WTT: What is the annual revenue run rate for the portion of CIG you are acquiring, and what do you expect it to be at the end of 2005? JL: We do not break out these numbers in our current reporting structure. Like a lot of businesses within Kodak, it has growth components in digital and services, but underneath the surface there is a declining film base—in this case, microfilm. When you net it out, we expect this business to grow in the mid single digits. WTT: What is your view of the scanning portfolio you acquired with CIG? JL: It’s very impressive, and I think it will open a lot of doors for us to bring in more business because of the power and capability represented by the scanners. We are still in the planning stages about how we will do the actual integration, including whether we will having our people sell scanners direct. We will consider that option, certainly. WTT: What is your planned roll-out for service, then, given the integration of CIG? JL: My objective in putting all of the service elements together will be to have the benefits of a large service organization in terms of back office, parts, dispatch, call centers, etc., the benefits of a responsive organization. So we will have, for example, transaction and color specialists where we need them, coupled with broad coverage in the back office. Effective January 1, then, we will have one service organization reporting to Dolores Traxler, that will be able to deliver on these objectives for the entire Graphic Communications Group. WTT: If you are going to have one face for service to the customer, are you going to have one face for sales, and if so, how do you see that migration taking place? JL: I get asked that a lot. Just like we moved carefully with service, we are also moving carefully with sales. When we identified the NexPress sales people that we wanted to bring with us into the Kodak organization, we made offers and had a very high acceptance rate. But they came without any back office or sales management infrastructure. We are putting that in place now. The Versamark team is fairly mature organizationally, and I didn’t want to throw that team and our fledgling NexPress team together from the get-go. The Versamark team is a well-run machine, and we are building and strengthening the NexPress side. At some point it will be appropriate to combine them, but I don’t want to do it prematurely. Encad is sold through channels, although our cross-selling incentives extend to Encad as well. WTT: It seems to me that one of the biggest challenges you still face is the integration of your product portfolio to provide customers with a more standardized, modular approach to buying Kodak solutions. Do you have a projected timeframe for when this work will be completed? JL: As we continue to integrate these businesses into Kodak, we will also develop more standard ways of doing business. To help us move in that direction, I regularly meet with all of the business unit CEOs, including Jeff Jacobson of KPG, and we talk about the top ten to twenty accounts where there is leverage across the business units. Today, that is fairly manual, and we will institutionalize it as we learn what works best. Right now we have pieces—some very good pieces—and we have to weave them together into a good integrated story, identifying holes and weaknesses and plugging those. This is work to be done that is a high priority for us. WTT: How are you doing against your financial goals? What is the financial health of the business today and where do you see it going in the future? JL: This is a real bright spot. When we made the two acquisitions, Versamark and NexPress, we had to sell the acquisitions to the Kodak Board, and there was an associated financial plan that we committed to with a set of metrics for lots of different parameters. But we primarily focused on the bottom line, and I am happy to report that these businesses are both are ahead of plan. We fell the money was well spent, and the businesses are living up to our expectations. WTT: Are you planning on making any additional acquisitions? JL: We are looking at potential acquisitions in the space. I can’t comment on which ones, of course. But we are serious about building a fully functioning, powerful, industry-leading organization, and more acquisition activity is most likely part of that. WTT: What kind of response are you getting to your No Limits advertising campaign? How might you use that theme in other ways to expand your marketing efforts? JL: It’s a little early to tell. I do have one test audience, though. I showed the campaign to the CIG team when I had my first meeting with them about a week ago. The purpose of the meeting was to describe the business they were joining and what it was all about, and I talked about the campaign and what was underneath organizationally. They liked it! BAP: First of all, everyone is a critic of advertising, but the key message is that we are out there and we are telling people that we are a part of the market, we are a player, and we are here to stay. Most people have said the messaging is right on. The employees like it, which is a bonus. Beyond that, having ads—and running them on a regular basis so people know you are around—is important and we plan to do that. We actually used this theme for our direct marketing campaign to drive people to our booth at Graph Expo, and when you get your Harley Davidson poster at the show, it will have something about No Limits on it, you can be sure! WTT: Jim, Barbara, thank you so much for speaking with us. Any final thoughts or words of wisdom you would like to share with our readers before we close? JL: This really is a journey for us. We are putting the pieces together, and it is fun to build this business and see the pieces come together as they have. I believe we have the right technology; I am excited about the team we have; and I think it is the right move for Eastman Kodak. When we announced this a year ago, there was a lot of skepticism. But I think that skepticism is waning and it is starting to make more sense. People are beginning to understand what we are trying to do. Barb’s a wonderful addition to the team and the sky is the limit—or maybe I should say there are No Limits! BAP: I went to visit one of our customers the other day, Jim Schulz at Great Lakes Integrated in Cleveland. As I travel around and talk to current and future customers, the people I see in the market that are players, like Jim Schultz and his team at Great Lakes, are happy that Kodak is back.