Page 113 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Unit 6: Organisational Appraisal: Internal Assessment 2

Notes

Caselet XEROX – Benchmarking Story

he history of Xerox goes back to 1938, when Chester Carlson, a patent attorney and
part-time inventor, made the first xerographic image in the US. Carlson struggled
Tfor over five years to sell the invention, as many companies did not believe there
was a market for it. Finally, in 1944, the Battelle Memorial Institute in Columbus, Ohio,
contracted with Carlson to refine his new process, which Carlson called
'electrophotography.' Three years later, The Haloid Company, maker of photographic
paper, approached Battelle and obtained a license to develop and market a copying machine
based on Carlson's technology.
Haloid later obtained all rights to Carlson's invention and registered the 'Xerox' trademark
in 1948. Buoyed by the success of Xerox copiers, Haloid changed its name to Haloid Xerox
Inc in 1958, and to The Xerox Corporation in 1961. Xerox was listed on the New York Stock
Exchange in 1961 and on the Chicago Stock Exchange in 1990. It is also traded on the
Boston, Cincinnati, Pacific Coast, Philadelphia, London and Switzerland exchanges. The
strong demand for Xerox's products led the company from strength to strength and revenues
soared from $37 millions in 1960 to $268 millions in 1965.
Throughout the 1960s, Xerox grew by acquiring many companies, including University
Microfilms, Micro-Systems, Electro-Optical Systems, Basic Systems and Ginn and Company.
In 1962, Fuji Xerox Co. Ltd. was launched as a joint venture of Xerox and Fuji Photo Film.
Xerox acquired a majority stake (51.2%) in Rank Xerox in 1969. During the late 1960s and
the early 1970s, Xerox diversified into the information technology business by acquiring
Scientific Data Systems (makers of time-sharing and scientific computers), Daconics (which
made shared logic and word processing systems using minicomputers), and Vesetec
(producers of electrostatic printers and plotters).

In 1969, it set up a corporate R&D facility, the Palo Alto Research Center (PARC), to
develop technology in-house. In the 1970s, Xerox focused on introducing new and more
efficient models to retain its share of the reprographic market and cope with competition
from the US and Japanese companies. While the company's revenues increased from $ 698
millions in 1966 to $ 4.4 billions in 1976, profits increased five-fold from $ 83 millions in
1966 to $ 407 millions in 1977. As Xerox grew rapidly, a variety of controls and procedures
were instituted and the number of management layers was increased during the 1970s.
This, however, slowed down decision-making and resulted in major delays in product
development.
In the early 1980s, Xerox found itself increasingly vulnerable to intense competition from
both the US and Japanese competitors. According to analysts, Xerox's management failed
to give the company strategic direction. It ignored new entrants (Ricoh, Canon, and Sevin)
who were consolidating their positions in the lower-end market and in niche segments.
The company's operating cost (and therefore, the prices of its products) was high and its
products were of relatively inferior quality in comparison to its competitors. Xerox also
suffered from its highly centralized decision-making processes. As a result of this, return
on assets fell to less than 8% and market share in copiers came down sharply from 86%
in 1974 to just 17% in 1984. Between 1980 and 1984, Xerox's profits decreased from
$ 1.15 billions to $ 290 millions.

Contd...

LOVELY PROFESSIONAL UNIVERSITY 107