Death of a Once Formidable Company

Eastman Kodak (NYS: EK) is apparently standing near the corporate equivalent of death's doorstep. It recently hired Jones Day, a law firm that specializes in restructuring, leading to speculation that the storied photography giant may itself file for bankruptcy.

It's an unfortunate endgame for a company that was destroyed in large part by the digital photography revolution it actually pioneered. But it also serves as a harsh reminder that the rule of the corporate jungle remains "adapt or die."

What once was
Kodak was no slouch of a company. It has a longer than 130-year history, and it was an American exporter as far back as 1889. At one time it was so formidable, well-known, and respected, that it was a member of the Dow Jones Industrial Average (INDEX: ^DJI) , an elite group of companies whose shares are often used as a proxy for the health of the overall economy.

Yet today, the photography giant is "exploring strategic alternatives" and could declare that rumored bankruptcy, should its other alternatives (like a breakup or a sale of its patent portfolio) fail.

Kodak isn't alone
The Kodak story, while tragic, isn't unique among even the companies that make up the Dow Industrials. In fact, of the original 12 stocks in that index, only General Electric (NYS: GE) remains there today, and even that giant stumbled hard during the recent financial meltdown. Other recent spectacular crashes among the Dow titans include General Motors (NYS: GM) , whose own 2009 bankruptcy got it kicked out of the index.

Indeed, if anything, the "adapt or die" rule may actually be accelerating in today's digital and global era.

It wasn't that long ago that Sun Microsystems was at the forefront of the Internet. Nearly 70% of the early Internet applications were written on its hardware, an amazingly high market share. Yet today, after several years of stumbling on its own, Sun survives only as part of Oracle (NAS: ORCL) , following a 2010 acquisition.

And let's not forget that today's giant of the Internet, search king Google (NAS: GOOG) , was itself a "Johnny come lately", founded in 1998. That was three years after its former competitor AltaVista got off the ground, nearly an eternity in "Internet years." Yet today, AltaVista searches are likely actually powered by Microsoft's (NAS: MSFT) Bing, an ironic fate for that Internet pioneer.

Speaking of Google and Microsoft, that particular war isn't anywhere near settled. Bing, after all, is essentially Microsoft's attempt to fight Google on Google's home turf of search. And Google isn't playing purely defense either, choosing to go after Microsoft's Office and Windows franchises with its Docs and Chromebooks, respectively.

There may very well be room on the Internet for both companies. That said, the one thing that'll likely come true is that if one of them rests on its laurels, that will be the one that falls farthest and fastest.

What this means to investors
Whether it was Kodak inventing digital photography, Sun's early pioneering on the Internet, or AltaVista's search engine, just because you have the lead today doesn't mean you'll have it tomorrow. Any company that wants to last needs to innovate just to maintain its current position, much less continue to grow its business over time.

As an investor, it means that you must remain ever vigilant with the companies you own, always on the watch for what might come around to disrupt your company's operations. When (not if) that disruption happens, watching how your company responds will speak volumes for its long-term staying power and worthiness to remain in your portfolio.

Disruptive change will happen. The companies that successfully adapt may very well come out stronger, but the ones that don't will almost certainly die. That's even true of companies like Kodak that were once so well-known and respected to appear in the Dow Jones Industrial Average.

At the time this article was published At the time of publication, Fool contributor Chuck Saletta owned shares of General Electric and Microsoft. Click here to see his holdings and a short bio.The Motley Fool owns shares of Microsoft, Google, and Oracle. Motley Fool newsletter services have recommended buying shares of Google, Microsoft, and General Motors. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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zwibbs11

Where are the really sane people in this world----Did Barack really give another solar Company a ___Billion Dollars---Yesterday???!!!!!!???:mIKEY Moore ---are you there babe????--My God IN Heaven----Forgive him ( Barack---) As God, you know He does not have a CLUE!!!

October 03 2011 at 6:46 PM Report abuse rate up rate down Reply
zwibbs11

What about AMR???? iS Mymain man B O gonna save them____I Think not!!!!!!!!!!!!!!!!!!!!

October 03 2011 at 6:39 PM Report abuse rate up rate down Reply
alfabear

As a former employee, and retiree, I believe that Kodak was killed, and did not die on its own. Its legacy will be a case study for Harvard Business School students on corporate executive mis-management and incompetence. How could one company make so many bad decisions ? Unfortunately, those who made the bad decisions have insulated themselves from the consequences, leaving the stock holders, the bond holders, and retirees to suffer.

October 03 2011 at 2:39 PM Report abuse rate up rate down Reply
1 reply to alfabear's comment
Alan

Oh so true. Kodak is dying because of the lack of corporate governance. Executives lavishly compensate themselves to fail and stock holders stand by powerless to stop the fall to earth.

It is not just Kodak, look at Citibank, General Motors, and others that fail as the executive committees earn 100s of millions. This is pay for performance? And the employees, retirees, and investors lose everything.

Tell me again how we do not need financial market regulation.

October 10 2011 at 1:15 PM Report abuse rate up rate down Reply