The Ties That Bind

The Ties That Bind

Since becoming CIO in January 2004, VanGelder has tightened the connections between IT and Kodak's research and development group, where she once headed the internal IT staff. At the time, she reported to James Stoffel, the company's former chief technology officer and R&D chief, who retired this year. Now her successor, Vicki Nagy, reports to VanGelder. "IT is much closer to R&D than ever before," says VanGelder, a veteran of more than two decades at the Rochester, N.Y., company. "R&D leverages much more of our IT infrastructure now than in the past, as we work collectively to drive out costs. Given that our growth is in digital products and services, we are also able to leverage our IT expertise, contracts and infrastructure into the commercialization of our digital products and services."

The IT organization doesn't actually write the software that powers Kodak's hugely successful EasyShare cameras and printing docks. Instead, it makes available the computers, software, networks and testing environments to support development, along with expertise on issues such as information security. Says VanGelder: "Developers have to understand how these products will work on a variety of systems, and simulate performance in the real world. That means a greater variety of hardware and software is required in R&D. We help with managing that and keeping it secure—cases where our expertise is portable to the product world."

Current CTO and R&D chief Bill Lloyd expects the relationship with IT to continue to develop as the product mix shifts ever more toward digital. "Future imaging products and services require increasingly sophisticated software to assure that Kodak delivers on our customers' expectations for quality and ease of use," he says.

Using IT to help differentiate products from those of competitors, rather than just looking to it for efficiency, is a key challenge for mature companies, says Geoffrey Moore, managing director of TCG Advisors LLC in San Mateo, Calif., and author of the forthcoming Dealing with Darwin: How to Innovate Forever in Established Enterprises (Penguin, Dec. 2005). But it can be a critical step in moving successfully into new markets and product categories. Established companies often have great difficulties with innovation, says Moore. One reason for this lack of fresh thinking is that many products—think IBM Corp. mainframes—remain highly profitable even as the next generation of products that will replace them begins to gain market share. "But it is hideous when the bottom falls out," he says.

Innovation means more than new products and services. It also involves the way they are produced and marketed, and CIOs are expected to improve those functions by working with different partners across all parts of large enterprises, says Gartner's Waller. "The job for IT is combinatorial innovation, the net effect of end-to-end business processes, not a silver bullet that solves all the problems at once," he says.

Kodak Moments
Since its founding in the late 1800s, Kodak has devoted its energies to the mass market.
1888 George Eastman registers Kodak trademark (it's a made-up word) and begins selling simple cameras that use film instead of plates.

1900 The first Brownie camera. It would be a mass-market favorite for generations.

1928 KodaColor film for color movies introduced.

1935 Kodachrome film introduced, bringing color photography to the masses.

1961 The carousel slide projector makes it easy to torture guests with vacation shots.

1963 The superpopular Instamatic camera is launched.

1989 Disposable cameras introduced; wedding receptions are never the same again.

1990 World's first completely digital consumer camera introduced—the Dycam Model 1.

1993 Former Motorola CEO George M.C. Fisher signs on as chairman and CEO as Kodak looks to uncertain future.

2001 Kodak launches EasyShare cameras, buys Ofoto online image service.

Source: Eastman Kodak Co.

Kodak must build on the success of its digital cameras with products like a simple-to-use docking system that lets users print photos from the EasyShare cameras, and services such as its as-yet-unprofitable offerings for online storage and management of digital images. But to do so it must rethink its business processes as well. The transformation into a consumer electronics company means that everything, from the global supply chain to target markets, is changing, and some of the old formulas that worked in the film industry don't necessarily apply anymore.

"There are differences in the way we look at it for our more traditional businesses versus the lower-margin electronic products," says VanGelder. "Much of our current efforts are focused on such areas as improved end-to-end supply-chain visibility. We are shifting to a much leaner company, capable of quickly commercializing products and services in a rapidly changing marketplace. Rather than simply adjusting to this change and reacting more quickly, IT needs to work with the businesses to help identify the possibilities."

The newer business lines have implications for managing for cost efficiency, too. A massive enterprise resource planning project built around SAP software has been rolling out across the company for several years, for example, but it had to be reconsidered when applied to the lower-margin digital product lines. "With the lower margins in the electronics business, we asked ourselves if what we had been deploying would still work," says VanGelder.

Ultimately VanGelder decided to stick with the system. "It was not a neat, one-day decision, but over time we determined that our ERP would work into the future," she says. "We had to go through the process of figuring out what would work and where we could bolt something on to extend it into the digital business. In the end we determined that we could continue to deploy the back-office systems to take costs out of our operations."

Kodak used cross-functional teams to adapt the systems to a digital business model that involves many more relationships with suppliers than its traditional business. "It's a real horizontal supply chain," says VanGelder. "To bring data from our planning and supply-chain software into the ERP system, we had to put together teams from many different functions, including IT, to understand how it all fits together."

This article was originally published on 06-05-2005
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