Smaller, More Agile Xerox Should Become More Competitive

By Chris Preimesberger  |  Posted 2016-01-30 Print this article Print

NEWS ANALYSIS: Smaller and lighter is better, and two or more entities is better at doing business than one. By the way, smaller is also easier to sell, too.

As Three Dog Night stated famously in a hit record back in the '60s, "One is the loneliest number that you'll ever do." An increasing number of American corporations are now singing that tune.

They are determining that smaller and lighter is better, and that two or more entities are better at doing business than one. By the way, smaller is also easier to sell, if that becomes necessary.

Xerox Corp. revealed Jan. 29 that it will soon become the latest in a series of major U.S. corporations to split up in order to survive the often bloody day-to-day battles of enterprise business.

Hewlett-Packard Co. famously split last year into Hewlett Packard Enterprise, or HPE, (enterprise IT products and services, such as servers, storage appliances, networking gear and cloud solutions) and HP Inc. (PCs, printers and other hardware). Previously, IBM split and sold off most of its hardware business; AOL and Time Warner famously divorced; AT&T was broken into a number of smaller companies; and the list goes on.

Large Companies Were Once Smaller, More Agile Companies, Too

These huge conglomerates got to be as bulky as they are because they were marvelously successful as smaller companies coming up in the markets. But all enterprises—even very successful ones—come to a point when they simply cannot maneuver as well in the market anymore to fend off smaller, quicker-moving and agile foes. Those competitors often can iterate software and service customers faster and more efficiently, which is exactly what the markets now demand.

Slow and/or unresponsive simply doesn't cut it in the 2016 business environment.

World War II aficionados will recognize the analogy of large bombers versus fighter planes. If you're flying a lumbering B-17 or B-24, you're not going to get into a dogfight with a swift Messerschmidt or Zero fighter without taking some collateral damage. You can deliver the goods, but you deliver them in a slower, more susceptible manner—and you won't be able to deliver them at all if the other guys shoot you down.

Xerox, which has seen its stock slide 38 percent in the last 13 months to less than $10, was getting shot at and decided it had to do something radical. Thus, we get the news from CEO Ursula Burns (pictured) of Jan. 29.

The Norwalk, Connecticut-based company said it will divide into two publicly traded companies, with one continuing the office machines business and the other handling the professional services operation. The company is smarting from having to forecast its fourth straight year of declining profits and sales.

Natural Dividing Line for Xerox

The split will uncouple Xerox from its largest business buyout, Affiliated Computer Services Inc., which was ingested for $6 billion in 2010 and turned out to not be a fruitful move. This acquisition wasn't exactly within Xerox's core competence, but management and the board of directors thought it was a good idea at the time.

What made matters worse was that the ACS division then went out and bought subsequent companies like CreedenceHealth and TMS Health that also didn't fit the Xerox track very well.

It is interesting that this happened the same year Oracle bought Sun Microsystems for $7.4 billion. More than a few people now look back on that deal as also not working out nearly as well as had been projected. Six years later, Oracle has yet to see black ink from the Sun properties.

Xerox generates black ink but has been seeing less of it over the years. It brings in about $20 billion in annual revenue—$18 billion in fiscal 2015—yet has a market value that is less than half that amount.

An 'Orderly Retreat'

"This looks like a mostly orderly retreat for Xerox as it exits a services business that really hasn't driven the synergies the company hoped," Pund-IT principal analyst Charles King told eWEEK in an understatement.

"In a way, the company is enjoying some cover from similar moves, particularly HP's split of its PC/printer and enterprise businesses. The essential pitch is that the businesses will do better on their own than they will together, but they'll also likely attract more interested buyers this way. It isn't likely that Xerox customers will be deeply affected, and much of the market isn't likely to care one way or the other."

King said that he would be interested to see is whether more companies will pursue this strategy in the months ahead.

"If market analysts are correct and economic uncertainties turn 2016 into a tough year for businesses, organizations may be pressured to fracture themselves or sell off assets to deliver value to shareholders," King said.

So Xerox now begins the arduous and unenviable task of shedding jobs, offices, functions and products as it narrows its tasks and becomes more agile. It can't retool into a fighter plane, but it can slim down from being a slow four-engine bomber to at least a lighter twin-engine aircraft over time.

The best companies learn from these experiences and get better at what they do; Xerox, a survivor for generations and among the world's best researchers (PARC in Palo Alto, Calif., is a Xerox-owned think tank) and is likely to do the same.



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