One of the most important jobs of a CEO is to recognize that a company is in a dying business and devise a plan to pivot out of that business. Reed Hasting's pivot of Netflix from a DVD rental company rental company into a streaming company is a good example of a successful pivot.If you are a company in a dying industry, it is pretty likely that a great management team isn't going to turn things around. I remember when George Fisher, the successful Motorola CEO, was brought into Kodak to turn this formerly great company around. The film business was a cash cow but a declining business as photography was transitioning from film to digital. It turned out that Kodak, though it was in the imaging business, had no edge in the digital space. The company still exists though a shell of its former self.Warren Buffett has said that, “When a management team with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.”
Meaning that the quality of a management team is not the most important factor in valuation. It is still a very important factor, but more important is the nature of the business itself. I believe he was referring to the airline business in the context of the above quote, and its penchant for losing enormous sums of money for shareholders.
The new executive team at Chrysler, lead by Lee Iacocca was able to turn Chrysler around despite the fact it become a terrible company with terrible financials, terrible prospects, and terrible products. Bob Lutz, a long time auto executive who was a car nut with great passion for the auto business and the terrific design team that put a lot of exciting new products were big keys in getting Chrysler to turn around. Chrysler also need a government loan to give the company breathing space until the new products could be produced and introduced to the public. So sometimes, a great new management team can turn things around though even Chrysler could have failed.
Unfortunately, Kodak never really saw itself as an imaging company. As noted, they simply could not compete with foreign manufacturers of digital cameras who had vastly more experience in the consumer electronics arena, like Canon and Sony. Kodak's intellectual property was in its manufacturing processes. They were always more aligned as a chemical company than an imaging company.
Their processes for manufacturing film were pretty amazing though, and they still make a significant amount of film at high profit margin for the movie industry. Film is apparently making somewhat of a comeback (at a much smaller scale) similar to vinyl records. There is an excellent series of videos on the Smarter Everyday channel about Kodak film manufacturing here: https://www.youtube.com/watch?v=HQKy1KJpSVc
Another curious Kodak anecdote was their peculiar last-ditch effort to save their business by launching a KodakCoin during the bitcoin frenzy of 2018, which led to a very brief tripling of the share price. https://www.cnbc.com/2018/01/10/kodak-s ... kcoin.html.
Statistics: Posted by investorpeter — Sun Feb 25, 2024 2:19 pm — Replies 18 — Views 964