Xerox: Services to survive – a long hard road

by NIck Frank on April 18, 2010

Xerox logo image from The Logoquiz http://thelogoquiz.blogspot.com/2007/05/evolution-of-logos-xerox-logo.htmlXerox’s transition from a product to service orientated company has been a long hard journey.

Far from being driven by luck, it has grown from a deep cultural desire to satisfy the customer and talented people determined to succeed.

The Copier Machine Company

Xerox’s $17 billion business started in the garage of Chester Carlton who began thinking about reproducing printed documents very early on in his career. In 1959, the company introduced the Xerox 914, the first plain paper photocopier. He anticipated sales from the first model to be 500 units; Xerox sold 600,000.

Xerox’s dramatic growth in the 60’s was not only driven by product innovation but also a deep understanding of customers’ needs. This led the company to be the first to sell copies to customers instead of machines. Xerox’s obsession with customer satisfaction and listening to the voice of the customer in designing products was clear to me when I worked there as a young design engineer. In hindsight it was also the basis of transitioning into a services businesses which would allow it to survive.

Xerox’s dominant position in the copier market was undermined by severe competition through the late 70s and early 80s. Attempts to commercialise new technologies such as personal computing failed. Xerox’s product and process leadership in its core printer and copier business’s had been slashed. The business relied heavily on its printing and copier after-market business to generate the cash needed to fund developments.

The Document Company

Xerox realised that to return to double digit growth it would have to re-invent itself to have a clear business focus using technology to support customer solutions.

So in the late 80’s Xerox re-branded itself as ‘The Document Company’ positioning itself as solutions provider within the document lifecycle. In addition to copiers and printers, it focussed on colour digital printing technologies, document management systems and services. A new services business unit was created, which specialised in the outsourcing of mailrooms, production services and fleet management.

But re-branding the company was not enough to drive profits. All through the 90’s Xerox struggled to turn these solutions into profit, culminating in the business coming close to filing for Chapter 11 in 2001. It had poured billions of dollars into new technologies which never materialised, struggled to manage its production costs and, in spite of the name change, still had a strong culture of being the Copier company.

Drastic action had to be taken to survive.

A services-led partner

Xerox transformed from a company producing copier, printers and paper, into a services led technology company focussed on customer value.

Xerox outsourced most of its manufacturing to Flextronics, retaining only the high-volume equipment and specialist manufacturing operations. It slashed its cost base, using Lean-6-Sigma methodologies to cut out non-value-added processes in all areas of the business. It focused on how it could add value to its customer processes.

The result is that Xerox is now, in its own words, a “services-led partner in key entrerprises” (from the Annual Report 2007), a trusted partner who helps its customers make the most of their IT infrastructure to bridge the paper and digital worlds. 70% of Xerox’s revenues are now created after the product sale. The services business is growing at 18% per annum, focussing on reducing the Document costs of major global brands. 20% of Xerox revenues are now made of a services annuity stream that is not connected to the lifecycle of the product.

The shift did not happen by not an accident, but was led in pain staking detail by the senior management team who:

  • Understood that their competitive advantage would come from the solutions they could bring to the customer to improve value and not from the technology or cost leadership, hence paving the way to manufacturing outsourcing.
  • Defined a business model based on After Market and Services profitability: enabled by technology leadership in niche markets
  • Recognised the importance of effective lean processes to drive out cost and become profitable

Through its acquisition of Affiliated Computer Services, Xerox continues to push its services business deeper into their customers’ processes and value chain.

  • Execution of this ambitious transformation required a change of mindset that went through all aspects of the business from Engineering & Production to Sales and Marketing and is still ongoing. It includes:
  • A deliberate shift in hiring policies to put in place the right people with the right culture who understand customer value.
  • An effective sales model which has led to separating out services sales into a separate division, creating focus and a degree of internal competition for customers,
  • The integration of services & products to drive profitable delivery of services.
  • Commercial and operational management of services contracts which are often customised to the specific needs of the clients. (This remains a key challenge even within this sophisticated company.)

It has taken Xerox many years to evolve from a product technology led company, to a services led technology company.

It is a journey that is still ongoing and requires constant re-evaluation. For example at 8% of revenues, investment in new technology is still vital to gaining a competitive edge. These innovations are brought to market through offering solutions that often have fundamental implications on Xerox’s customers’ ability to create value in their own business.

It is this customer solutions and services approach that now differentiates Xerox from its competitors rather than technology itself. Not only has this allowed Xerox to rebuild its margins, but has also provided the springboard into new non-product based lifecycle services that are leading revenue and profit growth.

The transition has not been an accident but has come out of a culture with a passion for the customer.

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