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Can Xerox Duplicate Its Glory Days?

The Corporation


Few companies have held out so much promise and delivered so many disappointments as Xerox Corp. Its engineers virtually invented the modern office: the laser printer, the personal computer, even the fax machine. Yet the Stamford (Conn.) copier giant nearly went out of business in the late 1970s when low-cost Japanese competitors caught it napping. And the 1980s were marked by a detour into financial services that never seemed to pay off.

Now, three years into his tenure as chief executive officer and chairman, Paul A. Allaire is hoping that he finally has a strategy in place to rejuvenate Xerox. Confronting a revolution that has altered office technology, Xerox now boasts a new line of modern gear, from color copiers to digital printers. And much of its equipment is getting better reviews these days. "Everything is a markedly improved piece of hardware," says Julianne Mehegan, an information- equipment consultant at BIS Strategic Decisions.

The company is also chasing new markets as never before. One target: the home office. In March, Xerox launched a pilot program to sell office supplies through supermarkets. What's more, Allaire is making strides in revamping Xerox' low-key, insular culture. Abandoning its go-it-alone approach, Xerox is increasingly teaming up with other high-tech companies, such as Microsoft Corp., to develop a new generation of printers and fax machines.

Xerox' chief has also shaken up his management team by bringing in senior executives from the outside. In July, Allaire hired former British Telecommunications PLC Finance Director Barry D. Romeril, known for his direct style and cost-cutting skills, as chief financial officer. That same month, Allaire also hired former NeXT Computer Inc. President Peter van Cuylenburg to supervise the daily operations of much of the copying and printing business. "We are trying to change the total culture of the company," says Allaire, 55, a 27-year Xerox veteran.

SLOW CLIMB. While few analysts are about to proclaim a new era of prosperity at Xerox, most agree that Allaire's strategy is slowly showing results. Analyst B. Alex Henderson of Prudential Securities Inc. estimates that Xerox' profits could climb 18% next year as its revenues rise 8%, to $15.8 billion (chart, page 58). "We don't expect instant gratification," says Henderson. "But the company is getting its act together."

Maybe so. But Xerox also faces some daunting problems. True, the company has expanded its share of the copier market to 17% this year from 15% in 1990. But it's still lagging behind market leader Canon Inc., with 20%, according to market researcher Dataquest Inc. And despite Xerox' home-office strategy, it has yet to come up with a successful product to challenge Canon's dominance in low-cost personal copiers. Then there's the problem of slow economic growth in Japan and Europe, which account for 51% of Xerox' sales. It's no wonder the stock has dropped nearly 19% since February, to about 70.

What's driving Allaire's push for a new Xerox is a technological revolution that's making its light-lens copiers and electromechanical printers a thing of the past. Indeed, the future is in copiers that use digital technology to produce faster and sharper copies. Until recently, most analysts felt Allaire's efforts to respond had been hamstrung by the woes of the company's financial subsidiary. Last year, however, Allaire slowly began dismantling Xerox' financial empire. And in January, he announced that Xerox would finally exit the $3.6 billion financial-services business. Crum & Forster Inc., the Basking Ridge (N.J.) property and casualty insurer, is the only remnant of the 1980s diversification. And it's expected to be sold later this year.

TIME-SAVER. Without the distraction of financial services, Allaire is focusing almost exclusively on Xerox' core business. In his view, new products will go a long way toward reviving Xerox' sales growth. Already, he has had some success with DocuTech, a high-speed digital electronic copier and printer introduced in 1990. Analysts said the $250,000 machine was too expensive and bulky. But DocuTech is proving to be a big success. Merrill Lynch & Co. analyst Dan Mandresh estimates that Xerox could sell 5,000 DocuTechs by the end of this year, up from 3,000 in 1992.

The machine's versatility has been a big attraction for customers. DocuTech scans, copies, prints, and with optional attachments, binds and staples small booklets. That was a big selling point for Blue Cross/Blue Shield of North Carolina. Gil Long, senior director of information systems for the health insurer, says he can put together benefits booklets in two to three days rather than the six to nine weeks it used to take. That also means the company doesn't need to print a big inventory of booklets. Blue Cross/Blue Shield wasted $30,000 last year printing unneeded booklets. Building on that success, Xerox introduced a smaller version of DocuTech late last year that sells for $160,000.

Allaire credits part of the success of DocuTech and the new copiers to a new, closer relationship between the home office and Xerox' research center in Palo Alto, Calif. Xerox' West Coast engineers and scientists have long been attuned to the computer age: They invented both the PC and the mouse. But managers in Connecticut preferred new copiers to Palo Alto's inventions, which other companies, notably Apple Computer Inc., ended up commercializing.

Allaire says he doesn't want to repeat that mistake. Today, engineers in Palo Alto work closely with marketing executives at the home office. That means that research is limited to products that can be rapidly brought to market. "We are doing work as radical as we ever did in the 1970s," says Chief Scientist John Seely Brown. "But it's grounded in real-world problems." Among the new products Brown's team is working on is a high-resolution liquid-crystal display that one day could be used in computer monitors or copier displays. Also in development: paper containing magnetic coding that can automatically direct documents, such as faxes, to specific locations.

Joint ventures are also helping Xerox enhance its product line. Last year, it linked up with Sun Microsystems Inc. to develop a new high-speed printer that uses a Sun workstation. And in March, Xerox signed an agreement with Microsoft to develop a new line of printers, copiers, and fax machines that will combine Xerox' document-handling software with Microsoft's At Work software that can perform a number of functions, including linking copiers and computers. And more joint ventures are likely. Insiders say van Cuylenburg, 45, who left NeXT when the company said it was exiting the computer-hardware business, was brought on board to forge new alliances with computer companies.

Xerox wants to bolster its supplier relationships with other high-tech companies. In 1992, it signed a deal with Compaq Computer Inc. to provide printing engines to the Houston-based computer maker, allowing it to market a new family of laser printers. And this year Texas Instruments Inc. started using a new Xerox ink jet in its MicroMark laser printer. "The technology allows faster printing than any of the competition," says Glenn Neland, manager of TI's printer business.

SUBCONTRACTING. Allaire is also scouting new markets. He is especially keen on home offices, which Xerox believes could grow into a $27 billion market by 1995. To tap it, the company began using multishelf displays in supermarkets over the summer to sell a range of office supplies from message pads to envelopes. Other manufacturers are providing the supplies, using Xerox' name under license. Allaire believes supermarkets offer direct access to the home-office market. Xerox has displays in 40 supermarkets owned by Wegmans Food Markets Inc. in western New York State. Another supermarket deal is in the works, but Xerox won't discuss the details.

Despite the improvements, Allaire admits that Xerox has a long way to go before it can reclaim its past glory. "We will need to change Xerox more in the next 5 years than we have in the past 10," he says. If so, it may be a while before the company is humming again. But it'll be worth it if the makeover ends up saving Xerox from copying past disappointments.Tim Smart in Stamford, Conn., with bureau reports

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