Out To Make Xerox Print More Money

New president and ex-IBM CFO Richard Thoman has a mission: Put the copier giant back in the fast lane

Soft-spoken and low-key, G. Richard Thoman doesn't immediately come across as a battler. Indeed, his manner and attire suggest professor rather than pugilist. But when Xerox CEO Paul A. Allaire sought an outsider to shake up the venerable copier company, his choice was the former IBM CFO. After spending a good deal of the past decade revamping Xerox, Allaire says the insular company still isn't ready for an increasingly competitive, high-tech world, and he thinks Thoman has the stuff to fix that. "We're in a brawl with no rules," says Allaire.

On June 12, Allaire lured the 53-year-old Thoman away from Big Blue to be Xerox Corp.'s new president and heir apparent to the 58-year-old CEO, who plans to stay for only a couple more years. The seemingly easygoing exec sports a five-star resume that includes stints as president of RJR Nabisco Inc. and head of international operations for American Express Co. As the protege of IBM Chairman Louis V. Gerstner Jr., Thoman is known for his roll-up-the-sleeves style and knack for getting at what ails a business.

Only Xerox is hardly ailing. Its new crop of high-tech digital copiers are selling like hotcakes, and the overall document-management market is growing at 20% annually. Three years of aggressive restructuring have sent operating margins up nearly a third to 11.6%, while sales per employee have soared 44%.

Yet Xerox still relies on old-fashioned and slow-selling analog copiers for more than half its revenue. That explains why, despite double-digit growth in new digital products and services, the company's sales rose just 4% in the first half of this year. For the year, Wall Street doesn't expect much more: Revenues are projected to grow 4% to 5%, to a little more than $18 billion. Still, the stock has soared 47% this year, to 77 13/16, on rising profits, courtesy of the higher-margin new products and a growing service business.

DIGITAL PIONEERS. What Xerox needs now is more a field general than an architect. That's where Thoman comes in. He will execute a game plan that Allaire has sketched out but is still unfolding: the move away from stand-alone copiers toward a system of digitally connected copiers, printers, fax machines, and scanners. The only snag: Hewlett-Packard, IBM, Canon, and a host of others have been leaving Xerox in the digital dust for years. Xerox insiders say that the rapid rise of the networked office surprised managers, and that prompted Allaire to pass over a couple of in-house candidates.

Thoman brings a persuasive track record. Before becoming IBM's top numbers guy, he oversaw the resurrection of IBM's Personal Computer Co., which he says was "in free fall." He turned the business into a winner by slashing payroll, reducing inventory, and revamping the internal information systems to closely monitor production and sales. Thoman, says Allaire, "has good operational, good strategic, and obviously good financial acumen."

At Xerox, Thoman will do some of the same things: namely, whack costs and sell off the last of the company's financial services units. Then he plans to target the small-business and home-office arena, where Xerox is itching for a bigger presence. One way to do that is to increase the number of retail outlets, including superstores, that carry Xerox products from 3,000 today to 4,500 by the year 2000. He's also going to dramatically increase the number of products Xerox sells through retail to include its full line of copiers, inkjet printers, and multifunction machines. Until now, retailers primarily sold personal copiers. All told, Thoman hopes to quadruple sales of personal copiers and multifunction machines through these channels by 2000. "The market opportunity," he says, "is more exciting than I thought when I came."

Then there's Xerox' digital future. The Document Centre multifunction digital copiers introduced in April are selling so fast the company has had to add manufacturing capacity. (Analysts say Xerox has already blown by initial one-year estimates of 50,000 units.) Once Xerox gets customers hooked on these machines, which are priced from $8,600 to $10,500, it can sell them more expensive, advanced digital copiers and networking setups. Xerox hopes that will blunt the success of its rivals. "Xerox is feeling threatened by us," says HP's Carolyn M. Ticknor, who heads its laser-printer division.

AT YOUR SERVICE. But for all this copier talk, the real sweet spot is good old-fashioned service contracts for managing the flow and copying of documents in large corporations. For Xerox, this business has doubled over the past two years to $1.3 billion, although the market is rife with well-heeled competitors that include IBM and Electronic Data Systems Corp.

Now Thoman plans to expand the business, which does everything from manage office-supply purchasing to providing Internet services such as designing electronic-commerce systems. One way is to offer a new Net service that will run electronic ordering and billing systems. Xerox will then manage the sorting, saving, and retrieval of those online documents. "Document services will ultimately be our lead offering to large customers," says Allaire. "It's a big part of our future."

Thoman isn't a techie. But at IBM, he proved to be a quick study who was more capable of managing change in the digital era than IBM's own engineering wizards. That, more than anything, may explain why Allaire placed Xerox' fate in the hands of this outsider.

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