http://www.graphics.kodak.com/global/about...006/060410c.htm

“Choosing the Right Business Partner”

Jim Langley, President, Graphic Communications Group, Senior Vice President, Eastman Kodak Company

IPEX INNOV8 Keynote Address, Birmingham, United Kingdom, April 7, 2006

Good afternoon, ladies and gentlemen. Thank you to the organizers of INNOV8 for inviting me to be here today. I am honored to be in such distinguished company.

Kodak is one of the most scrutinized companies in the world, as it goes through a major transformation. And the Graphic Communications Group is a key part of that transformation.

My colleagues and I are managing Kodak through a historic period – and I don’t think ‘historic’ is an overstatement. As the Financial Times put it recently, what we are doing is “the most important restructuring and transformation of our history.” The article’s headline was also very appropriate, and clever – if you like puns: “Banishing the negative: how Kodak is developing its blueprint for a digital transformation.”

This transformation has not been easy. In fact, there have been many unanticipated bumps along the way. For instance, consumer film has declined faster than we aggressively anticipated. As a result, we have had to adapt to this business reality.

Of course, we’re not the only company in the midst of a transformation. Many printers are engaged in similar transitions. We’re all working to adapt to a communications industry in which digital technology is redefining how we do things, and to a wider business environment remarkable for its variety of new business models and supply chains.

On a recent trip to China, a Kodak executive shared a revealing story of a new supply chain in action. In Shanghai, a man is fishing. He catches a fish, takes out his mobile phone and snaps a picture. He makes a call, sends the digital photo to a potential customer, does the deal, puts the fish on his bike and delivers it. Without knowing it, he used technology to break five generations of supply chain.

In the two decades since desktop publishing appeared in our industry, printers have become accustomed to changes like this. As an industry, our resilience and innovation is inspiring. While we know when the transition started, no one among us can predict where it will finish.

As an industry, we can try to predict what the future has in store for us and react accordingly or we can go out and make our collective future. At Kodak, we believe in actively creating the future.

The big international exhibitions like IPEX are essential to helping us create this future. They offer an opportunity to rise above the day-to-day running of our businesses and get our bearings.

Today I would like to share Kodak’s vision with you.

First, I’ll discuss the parallels between Kodak and forward-looking print service providers. As you have gathered from my earlier remarks, we are in this period of transition together, and we can learn from each other. Partnership is an over-used word, but in this case it’s the right one.

Second, I will examine the main features of the transition in the industry, and the challenges and opportunities it presents. We can’t avoid the challenges, though if we’re foolish we can choose to ignore them. As for the opportunities, they’re out there to be found, and we have to find them before somebody else does.

Third, I will outline Kodak’s vision of the future of this industry, how we believe it will evolve and the decisions we are making. So far as products are concerned, the results of some of those decisions are here at IPEX.

Many other products are in the incubators at our R&D facilities and will see the light of day at future exhibitions in Düsseldorf, Chicago, Birmingham, Tokyo and Shanghai.

It was the enormous potential of these current and future Kodak technologies that caused me to come out of retirement in the summer of 2003 and join Kodak. I am very excited about our industry, where it’s going and Kodak’s participation. At Kodak, ink and the printed page are a big part of our business today and in the future.

Kodak as a whole is in the midst of a major transformation, one with clear objectives – to establish market leadership in key digital products and services, and ensure continued prosperity for Kodak and its customers in the digital age. That process began around five years ago.

Now I realize that compared to many of you in this audience, embarking on a digital transformation five years ago makes Kodak something of a new kid on the block. Since the Macintosh, LaserWriter and PageMaker created desktop publishing, the printing industry has grappled with the implications of digital technology longer and harder than most industries.

Before desktop publishing, the industry was a vertically-integrated supply chain linking specialist skills such as typesetting, color reproduction, film assembly, platemaking and, finally, printing. Barriers to entry were high. Competition was familiar and predictable. From the customers’ point of view, the process was at best opaque. And at worst impenetrable. Printing had something of the ‘black art’ about it. And printers did little to dispel that perception.

Desktop publishing, and then desktop color, began the shift in the balance of power toward the customer. Off-the-shelf software demystified the technology, opening up the supply chain and lowering barriers to entry. Customers took on tasks previously reserved for printers. The boundaries were blurred.

As an industry, we have adapted to these challenges. The fact is, we have a head start on what Nicholas Negroponte, founder of MIT’s Media Lab, called “Being Digital” in his famous book of the same name.

So our industry experiences a real sense of déjà vu when we watch the high-speed digital transformation sweeping across the planet.

The results of this head start are apparent when you walk round IPEX, in the variety of solutions offered and in the openness of the industry – the interoperability of software and hardware provides printers with a wide range of choices. But this openness brings with it the need for a new relationship between printers and suppliers, one of partnership.

I’ll revisit the implications of this later, but now I’d like to emphasize the importance of partnership to Kodak.

We recognize our future depends on how effectively our customers adopt digital technology in their workflows. Therefore, we have a simple business strategy: If we help our customers succeed, we will succeed with them. If we help our customers make money, we will make money with them. If we help our customers innovate their business model, we will help the industry innovate.

To realize this strategy, we created the Graphic Communications Group. We believe that Kodak has, under one roof, the broadest portfolio of products in the industry, backed by people with unrivalled expertise.

Our purpose is to partner with customers as the industry gradually changes from one founded on ‘ink-on-paper’ technologies to one populated by full-service communications businesses, in which print’s unique advantages as a medium are exploited along with other media. I hope you will come to Hall 5 to see what we have to offer.

GCG was built through a series of high-profile acquisitions, including assuming full ownership of Kodak Polychrome Graphics. Kodak already had a strong foundation of intellectual property and imaging and printing expertise. To that, we added industry-leading workflow and prepress equipment expertise from Creo.

Our Versamark products offer unique high-speed continuous inkjet printing solutions. NexPress products bring industry-leading monochrome and color EP digital presses.

When we set out to create GCG, we examined the industry. We realized that the printing industry had lagged in productivity gains compared to other manufacturing industries. One of our goals was to build an organization that could help customers address this productivity issue.

We have assembled the technologies, the solutions and—most importantly—the people that can help customers become more efficient, effective, productive and profitable.

Earlier, I described our transformation as ‘historic’. The Kodak name, which first appeared in 1888, was the biggest brand in a traditional imaging business that was arguably the most enduring and elegant technology of the last century. The printing industry is going through a similarly historic transformation. In fact, printing has a much longer history as an enduring and elegant technology. And the transition is all the greater for that.

At shows such as IPEX, we are all trying to see where that transition is leading. Many of you may know the quote from Dr. John M. Richardson, – “When it comes to the future, there are three kinds of people: those who let it happen, those who make it happen, and those who wonder what happened.” All of us here aim to make it happen.

So, what can we deduce from the printing industry that’s on display here in Birmingham? Interestingly, it’s the industry that we saw at Drupa two years ago. Its principal characteristics are the same we have seen at the major exhibitions since IPEX 1993.

Since then, digitization has extended upstream and downstream of the press, as technologies such as JDF bring about the possibility of the all-digital workflow.

However, to fully understand the future course of the industry we also have to look beyond these exhibition halls and appreciate that printing now exists in a digitally-integrated, global commercial landscape. In this environment, print service providers have to recognize and adapt to three major trends, whether they are a small print shop or a global player.

These closely related trends are: the proliferation of new modes of communication; the development of a new commercial geography; and the necessity of new business models.

Printing is now part of a global communications business, where the impact of digital technology is more revolutionary than evolutionary. Consumers have a huge choice of communications channels through which to receive information and entertainment, with more appearing each day. They have hundreds of specialized TV and radio channels. They have thousands of Web blogs that provide competition to broadcast media.

Music retailing has been revolutionized by the combination of the Internet and MP3 music players such as the iPod.

The Internet is essential to these channels – something our industry grasped early on, and it’s fair to say that our predictions have been proven correct. For example, consider the impact of the Internet on a traditional media empire such as News Corporation. In January the Economist ran a report asking, “Can Rupert Murdoch adapt News Corporation to a digital age?” Besides the Internet’s impact on newspapers, the article identified other digital encroachments on the corporation’s assets. Digital piracy is a threat to its film and TV production units. The Internet takes advertising revenue from its broadcast TV business. And a strong cable industry is tough competition for its satellite TV business.

This is the world of which print is now part.

It’s very challenging, because some of the new channels are competitors to print. But it’s also very exciting, because of new opportunities. These can be in traditional markets. For example, with the increase in specialist TV channels there has been growth in printed magazines to serve those same specialist interests.

When we look at the new commercial geography, we see that the digital revolution not only brings printing into contact with other communications technologies. It demands that print providers work in a new, international production environment.

In a recent book, The World Is Flat, Thomas Friedman, the New York Times journalist, analyses the ‘flat’ global business environment. Friedman’s proposition is that during the 1990s a set of technologies and political events converged that leveled the business playing field.

They include: the fall of the Berlin Wall; the rise of the Internet; the construction of a global fiber-optic network; and the creation of interoperable software applications. The result is a global platform that allows people to plug and play, collaborate and compete, share knowledge and share work.

In this ‘flat world’, companies and individuals can easily source the knowledge, production, innovation, research or advice they need. It may come from the company next door or from one that’s 3,000 miles away.

This may sound very familiar to print service providers. Coping with new models of sourcing is second nature to printers. We recognize a world where collaboration is simple, the barriers to entry are low, and the competition diverse, eager and innovative.

The third trend—new business models—follows logically from the ‘flat world’ concept. Think again for a moment about the changes we have experienced. Consider the fisherman in Shanghai, and how digital technology redefined the supply chain that took the fish from his hook to the restaurant table. That’s pretty dramatic – but at the end of the supply chain the fish was still a fish. In the diverse supply chains that print is now a part, digital data may end up as ink on paper, a page on a website, an interactive document, an email, or a text message.

As a result, print service providers must develop new business models based on an understanding of the wider digital environment and a sharp eye for the opportunities this environment offers. Marketers expect this of their suppliers. And it is good to see that print retains its capacity to adapt and accommodate.

You will gather from what I have said so far that Kodak is confident that the graphic communications industry is well placed to prosper in the blended production environment, where digital and conventional technologies merge.

The industry has lived in it for two decades now, and continues to adapt to changing circumstances by adopting new technologies and ways of working.

And we also have great faith in the unique features of print as a medium. Sometimes it’s easy to get hung up on the competition to the printed page and forget how many threats print has warded off.

At various times radio, TV and CD-ROMs have been touted as serious challengers, let alone the paperless office. But CD-ROMs have not replaced books. Video tape is on its way out, and its successor, the DVD, is under pressure. And we all know the state of the Paperless Office!

Of course, new modes of communication will continue to appear, such as portable readers and eBooks. But against these new ideas we have the unbeatable advantages of print. These advantages – like many of printing’s enormous benefits – are so familiar to us that they seem hidden. They include complete portability, an easy-to-grasp, globally understood user interface and no need for batteries.

But whatever our opinions on the viability of competitive media, whatever our personal preferences, ink on paper is one of many possible outcomes for digital data. This makes for a complex creative process and a multi-faceted production process. And greater complexity demands more from our people and our workflows.

So, this is the communications industry of which printers are a part: fast-moving, innovative and ruthless in its indifference to businesses that don’t adapt. The question we’re all here at IPEX to answer is, how do we survive and prosper in this climate?

Preparing for this talk, I tested some of Kodak’s ideas about where we’re going against other opinions. In doing so, I came across some insights that vividly convey the industry’s options.

I must thank Frank Romano, now with InfoTrends, for the comment that if print got a college report, it would read, “Print works and plays well with other media.” This is an excellent summation of the most important lessons for us – that we mustn’t forget print’s unique strengths. But neither can we ignore the fact that print has to play alongside other media.

Romano also noted in a recent issue of OnDemand Journal, that it is no longer print versus other media, it is print and other media. As a result, value is now placed on staff with ‘marketing services’ expertise that embraces direct marketing, in-store promotions, public relations, and so on – all of them opportunities for print.

Given the umbilical cord that connects sales and marketing with printing, there are obvious lessons to be drawn from the developing awareness among marketers of the role print plays.

In a world where immediacy is everything, where businesses are increasingly organized around the consumer’s overriding demand of “I want what I want, when and where I want it,” we have to make sure that we get print to where people need it faster.

Print has all the benefits I mentioned earlier: it’s portable, convenient, it has unrivalled tactile qualities. But we need to generate print so quickly that its content is fresh.

The content can be news, advertising or the latest best-seller. If we can deliver it with print’s unique benefits and in step with the rest of the supply chain, we have a business.

These are big ideas, but then transformations involve big ideas. As I have sought to remind you, the industry is well on its way to establishing its place in the world of digital communications. But after 20 years it’s pretty clear that this isn’t going to be an overnight transformation.

Looking ahead, two things are evident.

First, for many years to come, paper-based communication is going to remain strong. Most forecasts expect continued growth, albeit it at a slower rate.

Second, how we get information on paper will continue to involve a mix of technologies and processes—connected through a unified workflow.

Not surprisingly, much time and money has been devoted to estimating what the respective shares of offset and digital printing processes will be in the future. The results vary, but all predict that well into the next decade offset will still have a market share of well over 50%.

Its share will fall by a few percentage points, while some estimates see digital’s market share tripling.

Looking ahead, what does this scenario mean for print service providers? How do they continue to adapt and innovate?

The Apollo 13 Moon Mission is one of my favorite examples of innovation and adaptability. Many of you may be familiar with the story from the Hollywood movie. With the Apollo 13 spacecraft damaged and the mission destined for certain disaster, NASA engineers and astronauts devised a make-shift strategy and workflow to restore critical systems to the ship and ensure its safe return to Earth.

They were innovative and adaptive. As a result, what could have been the darkest day in NASA’s short history turned into one of its finest hours.

For me, the lesson is simple, and very relevant to the situation printers face today. Printers must continue to adapt and innovate, to make the most of the tools they have to develop new products and new services. The difference is that, unlike the engineers on Apollo 13, they don’t have to rely solely on what they have today. It’s up to manufacturers such as Kodak to add innovative new solutions to their portfolio.

The solutions we are developing contribute to what we at Kodak call a ‘blended production’ environment in which offset and digital co-exist at the end of an integrated unified workflow.

As I said at the outset, we had two goals in building the Graphic Communications Group: to offer the broadest portfolio of solutions and expertise in the industry, and to partner with our customers in their transition to a digitally-focused communications business. In the final section of my talk, I will look more closely at these two aims.

Many manufacturers will claim that they can deliver solutions in this blended environment—by themselves or through relationships with others. But Kodak is uniquely positioned to deliver unified workflows for blended production environments.

Historically, printers needed to invest in separate workflows to drive digital and offset processes, each with their own capital and workforce costs. For many years, the pure digital manufacturers in the industry focused on selling boxes. How to make money once those boxes were installed was often left to the printer to figure out.

And, of course, the digital manufacturers were not concerned about the impact digital might have on a printer’s conventional offset business.

Meanwhile, the conventional offset manufacturers continued with business as usual. Digital was not their problem. Frankly, they often viewed it as a threat to their core offset business.

The print service provider was caught in the middle, trying to drive growth in their new digital businesses and their conventional offset businesses, without a true partner that could provide them with a unified workflow that spanned both conventional and digital technologies.

When we created GCG, we brought together the best of the conventional offset world with the best of the new digital world by acquiring some of the industry’s leading companies. This uniquely positions Kodak at the intersection of offset and digital.

Based on our portfolio of conventional and digital solutions, Kodak provides choices that best fit customers’ unique business needs—all connected by Kodak’s unified workflow.

When Kodak acquired Creo we made unified workflow our Number 1 priority.

Kodak’s Unified Workflow provides digital infrastructure to seamlessly manage blended production environments by integrating three key components of a print operation: business workflow systems; production workflow systems; and color workflow systems. It leverages open standards to deliver powerful solutions. It helps printers work more efficiently. It automates production environments with integrated creative, production and business systems that provide a platform for growth.

I’d like to focus on the benefits that Unified Workflows can provide.

Business Workflow solutions—such as Kodak Enterprise Management Solution software—improve printer’s decision making, enhance relationships with their customers and suppliers, and reduce production errors and waste.

Kodak EMS offers a totally new approach to acquiring and managing business intelligence. By providing functionality that extends beyond traditional

print MIS, Kodak EMS enables printers to seamlessly integrate their business processes to dramatically increase operational efficiency and boost profitability.

Kodak’s production workflow solutions—such as Kodak Prinergy—enable printers to optimize different print processes through integration, automation and collaboration across conventional, digital and blended production environments.

And, Kodak Color Workflow solutions drive the delivery of accurate color…from design through to production. Color workflow solutions increase efficiency, enhance quality control and provide superior consistency.

Others in the industry are beginning to recognize what printers have known for some time and what Kodak has been evangelizing: blended production environments are here to stay for the foreseeable future; and it is critical to have a Unified Workflow.

In closing, let me look at the concept of partnership. Earlier I noted that the word partnership is often overused. But it’s the best way to describe the fundamental change in the way businesses of all shapes and sizes must work today. I talked earlier about Friedman’s ‘flat’ world. I quoted Frank Romano’s college report for print – “works and plays well with other media.”

And I described Kodak’s simple business strategy. If we help your customers succeed, we will succeed with them.

Today, partnership is vital to any high-technology business. And the same is true for printers. You not only have to keep up with advances in technology and keep your business moving forward, you must also understand what is happening in your customers’ businesses. You must be prepared to understand and partner with other technologies. And you must pick the right partners.

I appreciate that this can be unsettling and intimidating.

And there will always be people ready to warn you of the perils of partnership. And, there are perils if you don’t select the right partners and are not clear on where you add value and why collaboration makes sense.

The most critical concept of partnership is this: Only if you have a genuine and differentiated contribution to a partnership can you extract value from that participation. In the ‘flat’ world, if you don’t have something unique, the openness of the ecosystem will find you out, and keep you out. But bring something special to the party and it will let you in, and let you stay.

And as printers, you do have something genuine and differentiated to contribute. You have the uniqueness of print, with all its history, all its remarkable achievements, and its amazing resilience. These are things to be proud of and to build on.

And Kodak is here to help you do that.

Thank you for sharing your afternoon with me.

I will now take a few questions.