(FORTUNE Magazine) – George Fisher, normally a cerebral, rational scientist, is mad. "We've run out of patience--we're in a kill mode," he said, sitting in his Rochester, N.Y., office on a recent rainy day. Kodak's 57-year-old CEO looked energized as he cradled a cup of coffee, but huge questions remain: Will a newly launched offensive--four years after he took the helm--be enough, and in time? Last summer was his belated rude awakening. When sales fell apart from a price war with Fuji Photo Film, a strong dollar, and hiccups in growing markets, Kodak, like a plane suddenly losing power, stopped climbing. "We went from 20% growth to about 7%," says Fisher glumly.

The results were disastrous. In the U.S., Kodak lost three to four points of market share, most to Fuji. The outcome: a 24% drop in Kodak's operating earnings. Fisher immediately ordered that more than $1 billion in costs be taken out of the company over two years--a move Wall Street analysts have been advising for four years. After a $1.5 billion charge for restructuring and asset write-downs, Kodak earned a puny $5 million on sales of $14.7 billion last year. That compares with net earnings of $1.3 billion on sales of $16 billion in 1996. First-quarter results this year were equally grim; Kodak earned 70 cents a share, vs. 82 cents in 1997, on sales that were 7% lower.

Fisher's anger simmers beneath a series of tough actions he's taking to turn things around. Between last August and October he fired the heads of the three most critical businesses--consumer imaging, Kodak professional, and digital and applied imaging. He is cutting 200 managers and 16,600 other employees, and reexamining businesses for strategic fit. He speeded up the introduction of new marketing techniques. He paid the tiniest bonus ever, 2.06%, to employees--none to himself and top managers--and announced a special grant of 100 stock options to 90,000 employees. In the midst of all this gloom, a ray of light shone: China selected Kodak to restructure three failing state enterprises and pour more than $1 billion into upgrading facilities--basically, building a photographic infrastructure--in the next few years. Fisher called it "probably the most historic thing that's happened to Kodak in 25 years."

Perhaps, but Fisher, who took over Kodak in December l993, still has plenty of woes to deal with back in Rochester. Take R&D. Last year, Kodak squandered millions on diffuse projects with little chance of producing competitive products, such as improving 14-inch optical storage disks, a business Kodak has decided to leave. Over two years, Fisher is slashing $100 million to $150 million from the $1 billion R&D budget. If a business doesn't have long-term prospects of yielding a decent return on capital measured by economic profit--Fisher would say anything under 13%--it's being scrutinized. The company currently has a two-page list of projects in digital imaging alone that it is reexamining. Under consideration: outright divestiture, finding a partner to share R&D costs, acquiring a thriving business, manufacturing overseas, and creating a joint venture.

While the well-honed Fuji attack got all the attention in the U.S. last year, lots of things seemed fundamentally out of whack at Kodak. It blew $100 million introducing an advanced-photo-system camera and film, only to find that it could not fill store shelves and could not process the film at enough locations. This year the company is spending another $100 million on the system, but it is taking a much more focused approach, designed by new marketing chief Daniel Palumbo, 40. "One-third of all camera buyers want cameras under $50," he says simply, "but our models were higher than that." You can bet they aren't now. The relaunch of the advanced-photo-system camera, a hybrid between digital and analog cameras devised by five major companies, did well last Christmas. It was responsible for 20% of Kodak's camera sales.

Palumbo, who came onboard from Procter & Gamble in May, is trying to take the clutter out of Kodak's marketing approach. His repositioning of the brand is just now being introduced in stores around the country. Combing through the data, Palumbo discovered that more than 80% of all Kodak sales are achieved by less than 20% of the product line. So he has eliminated 27% of all sales items, come up with new packaging, and thrown together the first few commercials. The new in-store presentation will organize Kodak film into three distinct sections. First comes a section called Max, which will offer two speeds of film that will satisfy just about every need. This section will also feature the company's one-time-use camera, which is called, naturally, Max. "It's our version of 'Intel Inside,' " says Palumbo of his branding efforts. Second, for price-sensitive consumers--those who drifted to Fuji last summer--there is Kodak Gold in 100 and 200 speeds. And third, for specialty users there is the Select group: Advantix, Royal Gold, Elite, and Kodachrome.

Palumbo also plans a big boost in Kodak's ad budget. "Our ratio of media expenditure to total sales is lower than that of other world-class companies, so we're going to see huge increases," he says. Ad Age suggests the company will spend 25% more in '98 than in '97, and no one at Kodak is denying that figure.

These moves seem savvy enough, but the company's critics wonder what took so long. "I wouldn't run from taking the rap for '97, but I think the scorecard has to be written over a ten-year period," says Fisher. "We had some major screwups. It's time to get a much more aggressive, new leadership team." From now on, he says, "we're going to take more out of costs than we need so that no matter what happens to the dollar, to pricing, we can still yield good earnings. And we've realigned our management's compensation so that people will take serious financial hits for bad performance."

It's far from certain that Fisher can refocus Kodak. In May 1994, when Fisher announced he intended to divest the company's Sterling Drug and other peripheral pieces, a halo effect brightened everything he did. Two years of solid growth built his reputation, and by February 1997 the stock had more than doubled, from a low of $40 to a high of $94.25. Then, last September, the company revealed its earnings woes, and the stock plunged back to $56. (It was recently around $71.) Says Eugene Glazer, a Fortis Advisers analyst who never changed his opinion that Kodak was a mature business that couldn't grow: "Fisher moved too slowly and didn't instill a sense of urgency. Now he suffers from a serious credibility problem."

Fisher has turned to President Daniel Carp to help him reexamine his overall strategy. Carp's back-to-basics view is that Kodak must convince customers that it has answers to their problems. He points to a new film, E200, that is helping the company win back sales to professional photographers that it lost long ago to Fuji. For years, Fuji ate Kodak's lunch with the pros, gaining a reputation for technical superiority so strong that when Kodak handed out its new film at the 1996 Summer Olympics, photographers refused to use it. But the new E200 has resurrected Kodak's reputation among professionals. Says Heinz Kluetmeier, senior photographer for special projects at Sports Illustrated: "At one point on my light table, we would not have had any Kodak film." Today he's hard pressed to find a few rolls of Fuji.

Carp, who just turned 50, is worth listening to because he's an outsider in insular Rochester. He grew up in Wytheville, Va., was a Sloan Fellow at the Massachusetts Institute of Technology, and worked for Kodak in Canada, Latin America, and London before coming home as assistant chief operating officer. He was named president Jan. 1, 1997. "The industry is changing relatively quickly, and the question is, Can Kodak keep up?" he says. "That's the essence of the challenge." He recognizes the importance of building Kodak's software operations in Silicon Valley and Boston, and the 1,000-person sales and marketing force in Atlanta, because they are places, unlike Rochester, that can attract people with skills Kodak needs. More important, he knows the value of putting people who understand competition in positions of power.

To that end, Carp has shown a strong hand in assembling a team that reflects his new-to-Kodak thinking. "I think I've demonstrated in 1997 that if you can't perform, we're going to have to give somebody else a shot," he says. He selected Robert Keegan, 50, who had lived in New Zealand and Spain, to be president of the company's core division, consumer imaging. And he named Patrick Siewert, 42, who had headed operations in Canada, London, and Hong Kong, to be president of an area aimed at developing products for professional photographers. Siewert is the third head of that division since last summer--Keegan held the job for four months before he switched to consumer imaging--so it's hardly surprising that in his new post he got tangled up in a mess. Kodak had provoked professional photographers into an uproar by sending a letter urging its advertising agencies to save money by using Kodak staff photographers instead of hiring outsiders. To tamp down the outcry, Siewert paid a call on Les Riese, president of the American Society of Media Photographers, at his Princeton Junction, N.J., headquarters. "If getting down on my hands and knees and crawling is what I have to do," he said bluntly, "I will." Kodak discontinued pitching staff photographers, Riese was mollified, and Siewert was saved the wear and tear on his knees.

For the much troubled digital business, Fisher brought in Willy Shih, 47, who arrived in July just before the deluge and by August had replaced his superior, Robert Unterberger. He has a Ph.D. from Berkeley and has worked at Silicon Graphics, Digital Equipment, and IBM. "I came here because of George Fisher," he says unapologetically, "and yes, I will recruit good people here." Bleak, industrial Rochester is not exactly a Californian's dream; the San Jose Mercury News recently reported that Shih ended up in Rochester, commenting: "God knows why."

But Shih sees an enormous opportunity: Stop doing stupid stuff. To that end, he formed operating teams to study problems in the capture, storage, and application of digital images. For example, a new Kodak CD plant in Ireland was cranking out CDs at costs that translated to a retail price of $4 to $5, until a Taiwanese company entered the business and dropped the price to $1.50. Suddenly the operation's bottom line went from a $100 million profit to a $100 million loss. In the past seven months, Shih's team has pushed the plant's yield rate from the low 60% range to more than 90% with one-third fewer people, cutting costs in half. "A near-death experience focuses the mind," quips Shih.

With $440 million in losses last year coming from digital, a lot of rethinking is going on. "If we think our past was film and our future is digital, we're going to have problems. But if we think of our past being pictures and our future being pictures, we'll use whatever technologies are available," says Fisher. That is the key, and it has given rise at Kodak to the term "digitization." Capturing the image is not necessarily a digital process, which was news to Shih when he took the job. "I thought I would be working on digital cameras, but they turn out to be a means to an end."

What Shih's talking about is a revolution in how consumers will use images in the future. Pictures can be taken by digital cameras--or by standard cameras on traditional film and then scanned into computers or onto CDs--for manipulation, storage, retrieval, and printing. Once scanned, they can be sent to relatives over the Net or be toyed with in various ways. Go to an Image Magic print kiosk, a new Kodak venture, and for $3 have your photo attached to the body of a cheerleader. Or head to an Image Magic Theatre, another new venture, and for about $10 pose with the Land Rover on Mars or with Godzilla. Kodak has 20 Image Magic machines today and is ramping up to install several thousand. It has just shipped its first ten Image Magic Theatres to places like the Universal Theme Park and Disney World.

Shih's division also concentrates on the daily struggle over the growing market for digital cameras, and he keeps a close eye on Kodak's standing. "We have a 20% world market share. We are among the top in dollar share in the U.S., we are No. 1 in Europe, and we do well in Japan. We have to pick where we add value and commoditize where we can't." To help its worldwide digital-camera sales, Kodak bought 51% of Japan's Chinon Industries last year and will use the company for assembling the newest digital models.

After 4 1/2 years in the job, George Fisher still has his work cut out for him. He's got a lot of marketing people to hire and some technical heads to place, and he must prove that Kodak can execute his master plan flawlessly. If it all comes together, a turnaround would begin about mid-year and produce steady, sustainable 10% earnings-per-share growth. Fisher is obviously an able executive with a strong record, and not one of the wise heads on Wall Street who follow Kodak is willing to say he will fail. Then again, not one is willing to bet the bank that he will succeed either.