Enrique Dans

A propósito de la noticia de Kodak, una newsletter de Harvard: «Strategy & Innovation», realiza un comentario sobre este movimiento y analiza las repercusiones,…. lamento que sea un poco largo y en inglés… pero es interesante ver que siendo de lo más lógico han tenido muchos problemas para llevarlo a cabo.

«Photo Finish?

What happens when you make the right decision–and your shareholders pummel you for it? This is the dilemma facing Eastman Kodak right now as

it tries to manage its transition from the traditional film business–upon which it built its reputation–to digital imaging. To successfully make this transition quickly and effectively, the company might have to consider something as radical as going private.

Investors in public equity markets are famous for being results-driven, imposing discipline upon the companies in which they invest. They tend to prioritize near-term earnings, which serve as a clear signal that the company they invested in is strong and healthy. Although this often

makes sense, the pressure from public equity markets for high dividends and continued quarterly gains is actually a key root cause for why some companies fail to take actions that in hindsight are blindingly obvious.

KodakÃ?Â?s current dilemma illustrates this perfectly. For a long time, the traditional film business was picture perfect for

Kodak. The companyÃ?Â?s revenues hit $16 billion in 1996, and its gross profit margins approached 50%. But KodakÃ?Â?s financial results have been trending downward ever since. Annual revenues are now about $13 billion, with gross profit margins hovering in the low 30s.

The handwriting is on the wall to anyone who pays attention. Conventional film sales are in irreversible decline. The future of the photography business is digital imaging, which is a classic disruptive innovation

compared with KodakÃ?Â?s core business. Although most digital cameras still canÃ?Â?t compete with traditional film cameras on the basis of image quality, digital technologies offer new benefits, such as simplicity and convenience.

Ironically, Kodak recognized the potential of digital imaging years

ago and invested to make sure it survived the transition. But the

giant corporation moved too slowly. This year it correctly identified that it needs to speed up its transformation because the transition to digital is happening more quickly than anyone predicted. In late September, Kodak unveiled its bold plan: it would slash its dividend by

72% and invest close to $3 billion in digital technologies.

Investors revolted. Immediately after the announcement, the companyÃ?Â?s stock dropped about 20%, to approximately $22 per share from about $28.

It has bounced back a bit, but as of December 22, it is still hovering around 10% below pre-announcement levels. Over that same time period, the S&P 500 index rose almost 8%.

Investor reaction should not have been a surprise. Just as corporations have «values» that help them determine whether they find a particular opportunity attractive, investors in public companies have their own

set of values. Because they put a high premium on company earnings, they tend to severely punish companies whose earnings go down. In particular,

investors who have become accustomed to high dividends head for the exits when dividends shrink.

Generally, these investor values make sense. But sometimes, these very same values inhibit a company seeking to grow a disruptive business that

might need a longer time to incubate. From our perspective, if Kodak doesnÃ?Â?t take some kind of aggressive action, it runs the real risk of continuing to dwindle toward irrelevancy.

It is a true dilemma. We worry that the proclivity of financial market

investors to push for near-term results will stand in the way of KodakÃ?Â?s emerging as a leading player in the digital world. KodakÃ?Â?s investors simply wonÃ?Â?t allow the company to make the decisions that it must make to thrive. Its best chance of capturing the long-term potential inherent in digital imaging, therefore, is to go private, which would allow the

company to take actions permitting sustainable growth.

KodakÃ?Â?s best bet would be to find new investors whose values are more in accordance with the path the company must follow. Investors could use the still substantial cash flow from KodakÃ?Â?s traditional business to take it private. As a privately held company, Kodak would be free

to make the decisions that ultimately will maximize its long-term value-creation potential.

KodakÃ?Â?s management could look at the example provided by disk drive manufacturer Seagate. In 2000, Seagate cashed out a large stake in Veritas Software and went private. Released from Wall StreetÃ?Â?s relentless focus on short-term earnings, Seagate was able to reinvent itself, successfully introducing a low-priced disk drive that went into MicrosoftÃ?Â?s Xbox gaming machine. Seagate went public again in December 2002. Its market capitalization is now about four times greater than its value was when it went private.

Taking this approach would give Kodak the freedom to do what it knows is right. From our perspective, this may be its only hope to emerge as a

leader in digital imaging. If Kodak has to continue to yield to short-term pressure, it will be forced to go on making decisions that hinder its ability to succeed».