Today, we are going to talk about what happens when the leadership of an organization ignores the incongruity of their culture as it meets their current circumstances. This discontinuity always leads to severe breakdowns in the fiscal and emotional state of the organization.

To illustrate this topic, I have chosen Eastman Kodak as an example. Before I go further, I need to disclose some background. For two years (2007/8), I was a cultural consultant for Eastman Kodak. My observations and disclosures in this post DO NOT COME from any confidential information that I gained during this work. What I will share comes from publicly available news reports.

The culture of Kodak began at the turn of the 20^th century with the creation of its core photography business by George Eastman. Eastman had the idea of creating a simple photography product that would use film as a disposable commodity  (i.e. razor and blades analogy). At that time in American business, it was common for entrepreneurial owners to treat their organizations as family. This was the case at Kodak. In this model, the father (CEO) makes sure that the company takes care of the employees and their families throughout their lives.

If you’ve ever been to Rochester, NY, the home of Kodak, you’ve heard stories about life as a Kodak employee. At its peak, Kodak employed over 62,000 people in Rochester with the Kodak culture affecting all aspects of life in the area. This sense of family is a founding creation myth and underlies the cultural structure of the company.

The rules of the inner game at Kodak are an extension of this creation myth. Promotions for key positions with the company almost exclusively came from within the company.  Its commercial success created a mindset that the company could do no wrong and the company’s future would be the same as its past.

Kodak’s rules of the outer game evolved from this same sense of inevitable success. The company engaged its partners and suppliers with a mood of arrogance that is often derived from a sense of dominance. Kodak extended their worldview of market success into business areas for which they had no expertise or added value and spent hundreds of millions of dollars on failed products and ventures. This mindset also led to Kodak’s market blindness in which it missed the significance of Fuji film’s competitive prowess.

As the company was well into experiencing the impact of its reticence to meet the changing world of digital photography, employment plummeted in Rochester and around the world. New leadership was attracted in the form of a former Hewlett Packard executive.

From the beginning of this new chapter of Kodak’s history, the solution to its woes was thought to be a new strategy that would move the company into the digital age. It was clear that Kodak had missed the moment to be a significant company in the digital camera market so a massive acquisition and investment program was embarked upon.

This approach might sound reasonable except for one small problem – the Kodak culture. To be successful in the digital world required a culture that was completely different than Kodak is. The paternalistic/ family myths are not part of any successful digital company. Kodak was no longer a successful or powerful player, so its inner and outer rules weren’t going to work either.

The new leadership has not addressed this critical aspect of Kodak. Ignoring a transformation of Kodak’s culture dooms any possibility of future success Kodak has. In January of this year, Kodak entered into Chapter 11 bankruptcy protection. It is hopeful that it can shed its obligations from it family legacy particularly to its retirees. It plans to auction off many of its patents (another past legacy) to fund its strategy.

This will not work. As long as the leadership doesn’t seriously engage a transformation of the Kodak culture this money will be spent on plans that won’t bring the desired results. Remember, it’s about the culture first, not the capital structure, technology, product plans, customers, etc…

Transforming a culture must be engaged either prior to or in parallel with a strategy of change. In 1993, IBM posted one of the largest financial losses in corporate history (up to that time). Many of the cultural issues facing Kodak were present in IBM. A new CEO, Lou Gerstner, was charged by the board to dismantle what was broken without concern for any sacred cows. Gerstner dismantled the system of patronage and staidness that was the IBM way. He raised accountability to the level of a true value rather than a slogan and radically changed the company’s product portfolios. Gerstner talks about this experiences in Who says elephants can’t dance: Inside IBM’s historic turnaround.

Culture is the beginning and end of what’s possible for organizations. It takes leaders who are ready to be personally involved in honestly questioning every core belief to make sure they are relevant for today.  This process includes discarding beliefs that don’t serve, often developing a new creation myth and bringing to the culture supplemental rules of the inner and outer game that are essential for the attainment of its potential.

Once this assessment is complete, these leaders are called to have the courage to bring this new culture to life through the example of their behavior. It’s important to remember the words of Mohandas Gandhi, “Be the change you wish to see in the world.” This requires discipline, integrity and humility.

Until later,

Thomas