When Xerox Corp. ousted Richard Thoman as CEO last month after just 13 months on the job, the board blamed his aloof management style for failing to ignite a much-needed sales boom. But the copier giant's problems go far deeper than leadership, say consultants, analysts, competitors, and former employees. In its heyday, Xerox was another Cisco Systems Inc., revered for its technology and dominant in its markets. But the company, based in Stamford, Conn., has largely been left behind in the current tech boom. "They need change," says James W. Lundy, who worked at Xerox for 15 years before becoming a research director at consulting company Gartner Group Inc. "There's a basic mentality of `Hey, we're still a copier company; we sell copiers."'
But being the world's most famous copier company just doesn't cut it in the New Economy, where computers and laser printers reign. Xerox' revenues are crawling ahead by just 3% to 4% a year. Its stock trades at around 26, just four and a half times its split-adjusted initial offering price back in 1959. Moreover, Xerox has plenty of other demons to battle. The sales force is still reeling from a traumatic reorganization. Customers are defecting, competition is tougher than ever, and the core business is under attack as more companies choose less expensive printers over copiers.
Navigating around these obstacles are Paul A. Allaire, the former CEO who recruited Thoman from IBM to succeed him and who has now stepped back into the job, and recently appointed President Anne M. Mulcahy. They're promising to get the company back on track by rebuilding morale and refocusing on customers. Is it enough? We asked three management and business observers to take a crack at that question. Although they prescribe wide-ranging options, each in his own way suggests that Xerox has huge assets it can leverage, from its legendary sales force to its fabled West Coast lab, the Palo Alto Research Center, or PARC. But the question remains: how to bring back the old razzle-dazzle to Xerox?
Sell the Company
Profiled in David Dorsey's best-seller, The Force, Frank Pacetta had been one of the greatest salesmen in Xerox' history. After a two-decade stint at the company, the outspoken supersalesman quit in 1996 and is now vice-president for sales at SingleSourceIT, which sells computer equipment over the Web. He has written two books, including the latest, Stop Whining and Start Winning.
If I were Paul Allaire, I'd be sitting next to [Hewlett-Packard CEO] Carly Fiorina tomorrow morning. I would be proposing more than a partnership--a merger. It [would be] one of the few end-to-end solutions in the industry. Nobody handles major accounts like Xerox. Xerox gets them into the high-end accounts. Xerox is dominant obviously in the copier game. HP dominates the printer business. They have the best product and they are the most respected.
I don't care if Xerox spends another billion dollars--they are not beating HP at that game. Of all my accounts, not one has asked me, "Can I buy a Xerox printer from you guys?" And here's Xerox whaling away, trying to beat HP. Xerox [would give] HP what they need: the ability to come up-market, get into the major accounts on the print side and also through its consulting services side, Xerox Business Solutions.
Carly would like very much for her PC business to get better. Her PC business really lags behind Dell and IBM. She needs Xerox' sales force. And what HP gives Xerox is some credibility and belief on the IT side of the business. Despite the fact that they've both struggled, they're still highly respected by customers. But if they're able to give a customer a complete solution, I think they would hit an absolute home run. There's huge synergy there. Think of the overall game plan they could give a [chief technical officer] or [a chief information officer]. They could really dominate. They're both giants in the hard-copy side. They need each other, and she would lend huge credibility to Xerox.
Xerox is going to need a partner. They need to hook on to a new wave. They can't do it by themselves. They lack energy, they've lost too much talent, and they've put up with way too much mediocrity. Xerox was the Dell, the Microsoft, of 30 years ago, and they turned themselves into a big slow company. And nobody's got the [guts] to break out of it.
Spin Off Research
Gary P. Pisano is a professor of business administration, specializing in technology and operations management, at Harvard Business School. He has devoted his research to issues of managing innovation, technology strategy, and product and process development.
Xerox is a classic example of being a victim of its own success--being dominant in the copier market. But the copier business is mature, and once again it's becoming competitive. This is not an issue of disruptive technology at all. It's lack of new growth.
The question now is how do they start to grow some new businesses from [their] new technologies, because the growth is not going to be in the copier business. PARC has some of the premier technologies in the world. [PARC, birthplace of the mouse and laser printer, continues to crank out innovations such as ContentGuard, an Internet security product that Xerox recently spun off as a separate business, with Microsoft as an investor.] This is still a jewel. The future growth for Xerox lies in exploiting those jewels. Yet, the copier business dominates the thinking and resource allocation of the company. The copier division has right of refusal on all of the new inventions that come out.
I think they should split off copiers from the rest of Xerox. There's no value in the common ownership. They should build a company around the new technologies and new businesses that PARC is spawning. By being separate, the new enterprises could streamline their dealmaking and not worry about conflicts of interest with the copier division.
When they want to strike a big licensing deal now, there's always the possibility that it conflicts with the copier division. PARC has an internal venturing group. One of its homegrown new ventures was negotiating a licensing deal with a fairly big corporate partner. When headquarters got wind of it they wanted to negotiate an all-encompassing deal that included rights for the copier division. And the partner said: "We're not interested in that." They lost the deal. That would never have happened at a small company.
A separation would allow PARC the freedom to do [licensing] deals without worrying about the competitive consequences for Xerox. You can't pursue small opportunities in big organizations. They don't get the attention and therefore they don't get the appropriate resources. What you want to do is size the organization to the size of the opportunity. Let these guys grow, let these guys do deals. That's where the market valuation growth lies.
Stay the Course
Tom Long is both a competitor and a Xerox veteran. After spending 13 years with Xerox, the last as vice-president for its Central Pacific region, he joined Oce Printing Systems in January and became CEO June 1. Oce competes with Xerox in some printing businesses; its parent, Netherlands-based Oce, competes across all product lines, including copiers.
There's a lot being written about Xerox today, but to paraphrase Mark Twain, the reports about Xerox' death have been greatly exaggerated. Xerox is a formidable company with terrific talent. But the reorganizations they went through in 1998 and 1999 created a major breakdown in customer relationships. To be blunt, in January, 2000, many sales reps didn't know their customers, and many customers didn't know their reps. Xerox' marketing motto is: "Nobody knows more about the document than Xerox." Customers and prospects are more interested in what you know about their business than what you know about the document.
Yet, under the reorganization, many territories have new salespersons, and it wasn't unusual to find salespeople spending 40% to 60% of their day on [administrative] issues. It's created somewhat of a credibility gap. If you start with the doctrine of try everything else before you reorganize, you stand a good chance of protecting those customer relationships. Xerox' penchant to reorganize really flies in the face of their industry-solutions strategy.
The second issue played off the first one, their transition from an analog to a digital company. It's well-documented that Rick Thoman's strategy was to create industry-based solutions. It's a great strategy. Again, the issue is in the execution. The field had a very difficult time implementing the strategy. The solutions were not clearly articulated.
Now, the best cure for Xerox is to simply stay the course. They're going to have to go out and earn the business all over again. The radical fix for Xerox is to quit tinkering. I would recommend they give the sales force a chance to execute. The cure can be found in the same place it's always been at Xerox--it's in the minds and hearts of their people.