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COMMENTARY: THE MANAGEMENT LESSON FROM KODAK

'What does Jack Welch know about entertainment?'' asked John R. Walter when he emerged as the dark-horse winner of the race to be president of AT&T. ''What's a guy from a cookie company know about computers?'' he added, referring to IBM CEO Louis V. Gerstner Jr., former head of RJR Nabisco Inc.

Walter, the former CEO of R.R. Donnelley & Sons Co., was making the case for why he should run AT&T despite having no telecom experience. ''I know management,'' he insisted. But his abrupt departure suggests that the knowledge needed to run one company does not always travel well.

That's a lesson George M.C. Fisher, the highly regarded former CEO of Motorola Inc. who has headed Eastman Kodak Co. since 1993, is learning. In an era when more boards are looking to top-level recruits to shake up stagnating organizations, even the best outsider arrives with baggage. He lacks institutional acumen, personal contacts, and a feel for a company's culture. That can make it tough for even a superstar to do the job.

HURDLES. But as Gerstner and Raymond V. Gilmartin have proved at IBM and Merck & Co., respectively, they are surmountable hurdles. So what accounts for the difference between success and failure? It's a more ephemeral quality than marketing expertise or any other specific skill. An outsider must make hard decisions while offering hope for better days ahead. He has to know when to respect traditions--and when to scrap them.

At IBM, Gerstner spent much of his first six months stroking the egos of employees by extolling IBM's ''world-class technology and extraordinary people.'' But he matched the praise with tough medicine, slashing billions in overhead within two years and laying off an extra 35,000. At Merck, Gilmartin faced a different problem: a drought of big new drugs and investor worries over health-care reform. Unlike IBM and Kodak, it was not a bloated bureaucracy in need of major cuts. That gave Gilmartin the luxury of a gentler approach.

Fisher seems to have followed Gilmartin's approach rather than Gerstner's. Fisher arrived at Kodak with a mandate for radical change. That should have been an opportunity. But though Fisher trimmed 29,000 jobs by exiting the health-care and most of the copier business, he tried to get by without making the tough calls to cut jobs and costs in Kodak's ongoing units. Indeed, rather than paring the payroll in the core imaging units, he has upped it. At the end of last year, Kodak employees in continuing operations numbered 94,800--3,000 more than in 1994. And operating costs as a percentage of sales are still 27.6%, about what they've been throughout Fisher's tenure.

Deep cuts would have reduced overhead, allowing Kodak to be more aggressive against Fuji. Moreover, aggressive cost-cutting helps to rid a corporation of the most egregious manifestations of bureaucracy: worthless paperwork, excessive reports, and decision paralysis. And although downsizing saps morale in the short term, the environment of crisis can galvanize survivors.

Sadly, Fisher's stumble may be the result of wanting to be Mr. Nice Guy. But the unfortunate lesson for every outsider who arrives at an ailing, bureaucratic company is to quickly dispense the hard-to-swallow medicine to ensure a speedy and lasting recovery.

Senior Writer Byrne covers management issues.
By John A. Byrne


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Updated Oct. 9, 1997 by bwwebmaster
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