REBIRTH OF A GLOBAL GIANT

ORGANISATIONAL LIFECYCLE ASSIGNMENT

By Sandy Eason George

Full-Time MBA (2010)

EXECUTIVE SUMMARY

Xerox Corporation is a global technology company that is famed for the introduction of

the plain-paper copier and have now have transitioned into a global document

management company.

This report focuses on the looks into the all the stages of its lifecycle with emphasis in

particular to the last three stages of stability, decline and resurgence. To understand these

various stages a series of academic frameworks and models have been employed and

their subsequent analysis has helped to under each stage in its depth.

The application of these models has made it clear that Xerox reluctance to change and a

series of bad leaderships has been the cause of its downfall. To prevent future setbacks a

series of recommendations have also been provided.

1. INTRODUCTION:

1.1 COMPANY SNAPSHOT

Xerox Corporation is a Fortune 500 document management company that was formed in

1961. Xerox began its foray into the technology inudtsry with the lauch plain-paper

copier. It now produces printers, multifunction devices and its related software. The

company also provides support in the form of supplies such as toners, paper and ink as a

part of its document technology offerings.

Xerox has a global presence and operates in three segments namely Office Products,

Production Equipments and Business Services.

1.2 REPORT STRUCTURE:

This reports looks into the Xerox era from 1906 to 2009. It then divides this period into

the 5 stages of the organizational lifecycle namely;

1. Startup Phase (1906 to 1959)

2. Growth Phase (1960 to 1970)

3. Stability Phase (1971 to 1989)

4. Decline Phase (1990 to 2000)

5. Resurgence Phase (2001 to present)

To divide the period into the above stages a number of factors have been considered

namely the changes in the leadership, strategy and their eventual impact on revenue

generation, net income and finally the stock price. The inadequacy of the data source to

provide financial information prior to 1983 has prevented the addition of those data in the

charts below.

2. LIFECYCLE STAGES

2.1 STARTUP PHASE (1906 – 1959):

Xerox Corporation began as the successor to the erstwhile ‘Haloid Company’, which was

in the business of manufacturing and selling photographic paper. The Haloid company

was formed on April 18, 1906 by Joseph Chamberlain Wilson. In 1930, the reins of

company was taken over by the owner’s grandson who was a Harvard MBA graduate and

similarly named Joseph C. Wilson. From the onset itself the company had an innovative

culture since it was under the shadow of the Eastman Kodak Company urging it to

constantly excel. As a result of its extensive research the company was able come out

with a better quality of photographic paper that helped it to tide the Great Depression of

1930.

The first primitive copier used chemically treated paper that smelled and turned black

after a period of time. Frustrated at cost of taking copies and pain of scribing a New York

patent lawyer, Chester Carlson, came up with a plain paper copier. He termed his dry

printing process as xerography (from classical greek xeros for dry and graphein

xerography is dry writing). He offered it to dozens of corporations, including Kodak and

IBM, but they all turned him down. It was during this time the younger Wilson was

planning to diversify the business and move into the copier industry. Wilson believed in

the product and took the invention to fruition.

2.2 GROWTH PHASE (1960 – 1970)

The precedence for Xerox’s growth was set by the launch of its 914 model, the world’s

first fully-automated plain-paper copier. It sold as many units in the first six months as

what had been projected to be the entire lifetime demand for the product. The number of

units pro was low only because they couldn’t manufacture enough to keep up with the

demand. With its success the company was renamed to Xerox Corporation.

By the early 1970s, Xerox had captured almost all of the new, huge photocopier market

with its revenues hitting $138 million and towards the end earning more than $1 billion in

sales. This rapid growth urged the company to grow globally by starting joint ventures

both in Europe (with Rank to form Rank Xerox in 1956) and Japan (with Fuji to form

Fuji Xerox in 1962) providing a global market advantage.

Towards the prime of the growth stage the company had gotten big, bureaucratic and

sluggish. In 1971 Wilson passed away, transferring the reins of the company’s leadership

to Peter McColough, the company president at that time. With the new leadership the

innovative spirit died down and company started to rely on its existing products slowly

and steadily bring the company into a period of stability.

2.2.1 STARTUP & GROWTH PHASE ANALYSIS:

The success of the first two stages was a well-balanced mix of visionary leadership and

Xerox’s competitive advantage.

1. VISIONARY LEADERSHIP:

Wilson was not only a humanitarian but also a shrewd and persistent

businessman. Instead of prolonging his sale of photographic paper and fight for

the market share he decided to diversify his company. The xerography technology

was rejected by all of the major player like IBM and Kodak, inspite of this Wilson

risked his existing options for a better future. After he found the new technology

he bought out the rights for it and started developing it, unsure of it end results.

Inspite of spending $3.5 million and 2 years of time, the first commercial

xerographic copier Model A didn’t have any customers. He persistent to find new

customers and eventually it became a huge hit in the offset printing industry.

Wilson cared for his employees and his community equally. Xerox was the first

company that allowed a social service leave program enabling employees to take

up to a year off for a worthy cause. Wilson was also one of the first business

leaders to hire African American workers when most other companies effectively

denied them jobs. According to Jim Collins, he was a level 5 leader.

2. MARKET FOCUS:

Learning from their mistakes from the Model A, Xerox developed a product for

the market rather than the other way round. According to Hamel ()the future for

growth always exists in unexploited oppurtunities as shown below.

Understanding the presence of an articulated need and unserved customers Xerox

launched their 914 copiers that used plain paper instead of photographic paper that

smelled and eventually turned black. To counter the huge price of $ 27,500 they brought

out a new business model of leasing the copier for $95 per month, which included 2000

free copies, plus 5 cents for each additional copy. Finally the patents gave Xerox its

monopoly.

2.3 STABILITY PHASE (1971 – 1990)

The first half of this stage is under the reign of Peter McColough as CEO. With a view to

diversify the company acquires the Crum and Forster insurance group as well as Palo

Alto Research Center (the erstwhile Scientific Data Systems). However the lack of focus

on the previous customers and complacency of the management Xerox started to lose its

its market share. The Xerox market share fell to 75 percent in 1975, 47 percent in 1980

and less than 40 percent in 1982.

As Kearns became the CEO during the second phase he started a program to rebuild the

company from within. With the help of a consultant he introduced the Total Quality

initiative and improved employee involvement. As a result of these initiatives it was able

to introduce new products and regain its market share both domestically and

internationally. However the success was short lived and towards the end of its stable

growth Xerox edged into a decline as it entered it next stage in the lifecycle.

The (PARC) was credited for bringing out the world’s first personal computer (Alto), the

Graphical User Interface (GUI), the first commercial mouse and the Ethernet network

architecture (footnote)

ANALYSIS OF STABILITY STAGE:

The reasons for the growth stabilizing during this period is due to the mediocre

leadership and culture mismatch that occurred during this period.

BAD LEADERSHIP:

According to the Blake and Mouton Managerial Grid( ), shown below Peter had an

‘impoverished management style’ while Kearns on the other hand was slightly better than

him with a ‘middle-of-the road’ style.

Peter McColough was a visionary and not a great leader. During this period envisioned

diversifying Xerox from its copier image to a leader in the ‘architect of information’.

With the advent of digital technology he believed that copiers would subsequently

intertwine with computers and hence decided to diversify into the computer business.

However he lost focus during his tenure by chairing over government committees

ignoring the company’s responsibilities. Similarly Jack Goldman, head of PARC, was

also involved with additional responsibilities such as being member of various corporate

boards. McColough’s failure to surround himself with people who shared his vision and

strategy rendered the acquisitions useless.

Kearns turned into a leader on the basis of the need that the market share was eroding. He

integrated the Xerox and PARC by declaring a target of regaining the market share. To

facilitate this goal he set up a Quality Committee and started a program of awareness and

training. Each tier of the hierarchy had to get trained and train the level below. This

helped to increase the accountability and participation. As a part of the quality initiative

‘competitive benchmarking’ of industries of was also introduced. These initiatives helped

to introduce a range of new and better range of copiers that helped Xerox to regain its

market share. However these products were still copiers and not digital services as Peter

had envisioned.

CULTURE MISMATCH:

From the very beginning both Xerox and PARC differed in their cultures. According to

Handy ‘Types of Cultures’ (1995), Xerox had a role type of culture that was more formal

and hierarchical while PARC, a group of scientists and researchers, on the other hand was

informal and task focused. The computer division and the copier division both competed

for resources and failed to communicate or collaborate. Both the cultures were essential

to the company but to balance the cultures and effectively use them required a great

leader that was missing in Xerox although Kearns reaped due to their short-term unison.

It is interesting to note that Kearns was successful since he had instilled a common

purpose to regain the market share. With the help of the training and benchmarking

initiative he enabled both entities to perform equally. After Kearns reign PARC kept on

bringing out new products, which however lost out on management approval due to the

bureaucracy that began to form. Xerox could have kept on using the relevant innovations

and licensed the irrelevant ones thereby converting it into a new revenue earning business

model. The lack of this caused frustration in the PARC team leading to product and

people exits to other firms.

2.4 DECLINE PHASE (1990 – 2000)

Paul Allaire took over as CEO after Kearns left office in 1990 and for a brief period of

time Xerox was able to reap gains over Kearns work. Allaire restructured the Xerox

management immediately and two years later the rest of the company. Following the sale

of its loss making financial services it shed its image as a copier company. The company

rebranded itself as ‘The Document Company’ and brought out digital copiers that served

as printers, fax machines and scanners (so-called multifunction devices) breaching the

divide into the digital world.

Allaire knew that the industry’s growth ahead lied in digital products and services. To

facilitate the transition he recruited Richard Thoman as the President and COO in 1997 as

the change agent. In the first two years Thoman brought forward a series of restructuring

measures followed by massive job cuts. Thoman’s rapid pace of change added to the

management malpractices during that period bought the company to the brink of

bankruptcy. Finally Thoman was asked to resign. During his reign the company’s share

value dropped to $ 4.60, the lowest since its launch and in the process eviscerating $ 38

billion of shareholder wealth along with it.

2.4.1 ANALYSIS OF THE DECLINE STAGE:

The fall of Xerox during this stage is attributed to rapid response towards technological

change, management failure and board irresponsibility

1. REACTION TO CHANGE

Ever since Peter McColough became CEO in the 70’s, the company has been

ignoring the need to change. All of the Xerox CEO’s ignored the long-term goals

and kept focusing on short-term objectives. As a last resort it had to undergo a

rapid restructuring leading to its paralysis. Had the change process been initiated

three decades ago at par with when it was envisioned the company would have

surely transformed Xerox into a market leader.

2. MANAGEMENT FAILURE

Being a large organization the change process should have been implemented in

stages and gradually rather that rapidly. Following John Kotter’s Change process

(shown below) would cause delays in the short term bring positive results

ultimately. According to Kotter’s theory, the only right move made by Thoman

was to create a sense of urgency by urging his strategic services department

to cut $ 1 billion in three years followed by 9,000 job cuts world wide. He did

not follow through with the change process especially the critical step of

creating a change team to communicate the vision. As a result of this

employees were left with a low morale, directionless and confused. The

disgruntled employees led to unhappy customers who sought merchandise

from Xerox’s competitors. All of this proved costly to Xerox with a loss of

around $ 271 million in the end of year 2000

3. BOARD IRRESPONSIBILITY

Xerox during this period did not follow good corporate governance practices. According

Business week (2010), Allaire had stayed on for board and management meeting even

after Thoman took over as CEO making it unclear who was in control. The Xerox board

was not neutral as it had a lot of insiders 5 out 15 (i.e. 33%) unlike its peers IBM (17%)

and Eastman Kodak (15%). In addition to this most of the directors were boards member

of multiple companies, especially Allaire was the member of more than 5 boards, this

would have lead to lower focus on Xerox. Such an issue would be critical when the

company is undergoing a downturn. Finally to make up of the revenue losses during this

transition had cooked the books.

It is evident from the above reasons that the organization was vying for a change for long

and the person in charge of the operation was not qualified nor were the board committed

enough to focus on the malpractices leading to unnecessary corporate upheaval,

reputation loss and risked destroying the company.

2.5 RESURGENCE PHASE (2001 – 2009)

With Thoman’s exit Anne Mulcahy, a Xerox lifer and insider, was brought in to the CEO

position. Within two year of her promotion she reworked her entire top management

team, renegotiated a $7 billion bank line of credit, settled a Securities and Exchange

Commission (SEC) fraud complaint against the company and restated five years worth of

financial filings. During the same period she revamped Xerox, leading to a launch of 100

new technologies. Finally bringing the company into resurgence and driving it towards

growth.

2.5.1 ANALYSIS OF THE RESURGENCE STAGE:

Xerox’s comeback is hugely credited to Mulcahy’s leadership skills and the reasons

are the following: During the time of her recruitment Mulcahy had already spent 24

years of life in Xerox. Of this she spent 16 years in sales and the remainder of her

term as an HR director and a Vice President. She was also credited for her smart

decision skills that helped Xerox to acquire Tectronix Inc’s colour printing division.

The acquisition helped Xerox to gain 30 % of the colour ink market share, making it

number 2 after Hewlett-Packard. All this proved that she was the right person for the

job but the following aspect helped to revive Xerox back to growth. They are:

1. OPEN COMMUNICATION:

Unlike previous CEO’s who were all business graduates Mulcahy majored in

journalism. As a result of this she was able to articulate a compelling reality as

she presented the dire state of the company to the employees and the

management. With this she was able to mend the distrust that developed from the

incomplete change process. She cemented the gained trust after she voiced her

support for R&D funding, the first place a every CEO goes to cut down on costs,

with a view to bring in a long-term advantage for Xerox.

2. ETHICAL FOCUS:

She rebuild here entire management team from within the company and

cooperated with the SEC and restated five years worth of financial record,

correcting her predecessors mistakes. This has helped to change its tainted image

and display its commitment to work ethically.

3. GOAL FOCUSSED:

To bring back the revenue she met with all of the customers and found out that

Xerox had fared badly in its customer service. To fix it she reinitiated the change

process. To propogate the vision and drive the change she used the team to

created regular journals, dated five years into the future, describing the successful

events that would happen if every worked towards that goal. She also rewarded

their small wins by not only bonuses but also giving a day off to the employees

during their birthday, creating a sense of acceptance. Finally she completed the

change process.

2. MARKET REPOSITION:

Xerox lost most of its customers from its downfall. To regain the customers in the

short-term Xerox became price-competitive on the sectors with growth potential

such as high-end colour printing and services, compared to its rival Canon. Once

its regained its market share it focused on product differentiation by offering

sustainability focused products

Mulcahy’s competence and her commitment timely moves have helped to bring

Xerox, slowly but steadily back to profitability. But to ensure that the company

does not fall into the same trap again it must start an initiative to set goal regularly

so that the organization is regularly tuning rather than overhauling as per Nader-

Tushman’s model shown below.

Also sufficient effort must be placed in the organization towards succession

planning.

3. CONCLUSION:

The Xerox organizational lifecycle shows us that for a company to be successful it not

only needs to be competent but also be ready to embrace change. The downfall of every

company is complacency that results from their previous success. Since the market

demands are not static but dynamic success at one point of time might breed its own

failure at the next.

To fight complacency companies must have visionary leaders who set new and regular

goals that to facilitate change that is tuning (proactive and continuous) rather than

overhauling (reactive and discontinuous). Another way is to do a competitive

benchmarking of your competitors helping to remove the false sense of superiority.

Every organization has to pass through the stages of the lifecycle but only organization

with great leaders come out to stronger. To enable these adequate measures for

succession planning has to be incorporated in relevant levels of the organization.

Appendix Time line.