Technology industry

Creo: The digitization printing company that could have saved Kodak

Kodak ruined the one company that might have saved it.

Kodak could have become a leader in digital printing had it not hollowed out Creo. (Daniel Acker/Bloomberg/Getty)

Before Kodak got its hands on it, Creo was a jewel of B.C.’s tech industry. Founded by Dan Gelbart and Ken Spencer in 1983, the developer and manufacturer of commercial printing equipment had a reputation for being nimble and innovative. It had a growing stable of 4,200 employees and profitable sales in the billions of dollars.

Today, Creo is a shadow of its former self. In 2005, Eastman Kodak bought the company for $1.05 billion in cash, and Creo’s fortunes declined with those of its parent as it slid into bankruptcy. The irony is that Kodak’s plan to emerge from Chapter 11 protection (which it entered on Jan. 19), involves selling patents and assets, and slimming down to a lean, mean core focused on digital printing technology over the next year or two. In other words, it wants to become what Creo once was.

According to insiders, soon after Kodak’s acquisition of the company, a textbook process of hollowing out began. Over the objections of Canadian managers, departments were cut and operations outsourced. “I could prove to them it was more economic to have people in Vancouver doing certain things,” says one ex-executive who asked not to be named. “We had a ton to offer. I think we really could have helped them.” Instead, “people were protecting their turf. Whatever we were doing, they absorbed it into their departments.”

To this day, Dave Kauffman is mystified why Kodak closed and outsourced the software division he ran in 2009. “We brought in about $65 million a year of service and support revenue,” he says. Creo’s research and development division was relocated to Israel. The remaining Canadian employees, once spread over five buildings in Burnaby, Richmond and Victoria, today fit in a single location. They number at most a couple hundred— Kodak won’t confirm the head count—mostly occupied with assembly and customer support. However Creo might once have helped Kodak face its digital challenges, it no longer can. “I think Kodak’s reduced it below critical mass,” says Kauffman, now product manager with Tantalus Systems Corp., a developer of smart grids.

A blogosphere outpouring of reminiscences by former Creo employees suggests Kodak’s problem wasn’t so much one of strategy as one of culture. Writing in The Tyee, Geoff D’Auria recalled how immediately after the takeover, employees had to start filling out requisition slips for office supplies. IT support moved to Kodak’s Rochester, N.Y., headquarters, and travel had to be personally approved by Kodak president (now chair and CEO) Antonio Perez. “Was the president of one of the largest companies in the world really going to vet everyone’s travel plans?” D’Auria asked. “The message was clear. No more nimble. No more imagine, create or believe.”

It’s fair to note that few observers believe Kodak can pull off its restructuring by focusing solely on printing. “You’re betting on the wrong horse,” Amer Tiwana, an analyst with Connecticut-based CRT Capital Group LLC, told Bloomberg. The printing sector itself is shrinking as consumers, advertisers and publishers increasingly eschew paper for digital delivery through the screens of smartphones, tablets and computers. “The amount of pain that printers and printing companies are going to take over the next five years is immense.”

Creo, though, is fondly remembered by its alumni as a creative, flexible organization that had changed course once already, from optical data storage to direct-to-plate printing, and could have done so again. “Creo was a magical combination of a really good culture and the digitization of the printing world,” Kauffman says. When the latter trend hit a plateau, Creo began manufacturing the printing plates themselves, which brought it into competition with Kodak and motivated the takeover. But Kauffman believes Creo could have survived on its own. “Creo had excellent core technology. It also had a sustainable advantage in a culture that was unique and incredibly powerful, in that economic thinking was distributed through the company,” he says. “We would have moved to where the market was going to be.”

Ex-Creoites have gone on to lead notable startups in fields like alternative energy (General Fusion), medical devices (Kardium Inc.) and software as a service (Copperleaf Technologies). However, in a country grasping for technology champions, the heft Creo once had is irreplaceable, and the value destroyed by a flailing Kodak is something that should cause Industry Canada to re-examine its “net benefit” criteria for foreign investment. At the time of the Creo acquisition, Kodak was already transitioning away from its vanishing film and photofinishing business into digital business lines. Since 2003, it has closed 13 factories and 130 processing labs and slashed its workforce by 47,000.

“Non-U.S. subsidiaries are not part of the filings…and are operating as usual,” said the release announcing the bankruptcy. That’s little comfort to employees of what was once Western Canada’s largest tech company, who’ve seen nothing but decline under Kodak.