Xerox Turns to Services for Future Growth

By Michael R. Zimmerman  |  Posted 2001-11-16

Xerox Turns to Services for Future Growth

As one of its most financially turbulent years in recent history draws to a close, Xerox Corp. is turning inward to a little known, but potentially booming business as a source of hope for the future: global services.

The copier giant on Monday will announce to investors a restructuring of its services operations, that brings its disparate groups under one division called Xerox Global Services.

XGS brings together the companys half a dozen existing services operations under longtime Xerox sales executive, Tom Dolan, as president in a grand effort to offer a unified approach to everything from document management to IT infrastructure and consulting services to customers.

To do it, XGS will consist of two distinct subdivisions: Xerox Managed Services and Business Innovation Services. The first focuses on facility management such as hosted document services, storage, and professional production services. Business Innovation Services will key on traditional global services consulting and system integration services.

"We have taken six organizations and brought them into one -- not only do we want to serve customers better, but rationalize better," said Dolan, who was last president of Xeroxs Global Solutions Group, which has been subsumed by XGS. "One of our challenges is to get aligned, then get offerings."

In the same vein of other global service providers, XGS will offer and provide best of breed products to customers, not merely Xerox products. It will however, leverage its content and document management expertise as well as budding services the company has only turned on months ago, such as its Xerox Imaging and Global Retrieval Solutions unit.

This group, based in Hot Springs, Ark., was launched earlier this year and offers customers the ability to have their hard copy documents scanned and converted to digital files. From there, the customer can have the electronic documents returned, or stored on Xeroxs digital repository in Rochester, N.Y. Customers can access the stored data through Xeroxs secure global network or over the Internet.

As for the hard copies, customers can request to have them destroyed, in which case Xerox will do so in a bonded process with certificates of destruction. Or, the customer can request that Xerox store the documents, which the company will do in a 131,000 cubic foot secure warehouse.

"Its a very pragmatic approach [to services]," said Angela Boyd, an analyst at International Data Corp., in Framingham, Mass. "I think theres a lot of these little nuggets."

Other changes affected by the reorganization include reporting duties. Under the new plan, Xerox Industry Services and Solutions, based in Europe now reports directly to Dolan, instead of the head of Xerox Europe. Likewise, Xerox Professional Services, based in Canada will also report directly to Dolan.

In addition, the president of Xerox Connect, the companys premiere consulting group, Jim Joyce, now reports directly to Dolan instead of Mike MacDonald, the head of the North American Solutions Group.

Its Up To You,

New York">

Its Up To You, New York

The XGS announcement, set to take place in New York, is important for Xerox, which has been pounded by Wall Street over an S.E.C. investigation into questionable accounting practices, as well as other business practices.

Earlier this week Xerox reported that two divisions of the Securities Exchange Commission -- the Division of Corporation Finance and Office of the Chief Accountant -- are looking into changes the company has made in how it accounts for equipment leasing revenues.

The news is only the latest in a growing litany of financial woes for Xerox this year, which have included such notables as the restatement of its financial results for the last three years, a drawn out battle with outside auditor, KPMG LLP, over accounting practice differences, the firing of KPMG, the resignation of its CFO, Barry Romeril, and two sequential quarters of net losses.

Despite these financial land mines, the company has pressed on. In addition to meeting goals set last year, such as reducing cost by $1 billion, Xerox has also shut down slow growth businesses like its inkjet printer unit, (which the company had been trying to sell).

The company sold half of its stake in Fuji Xerox Co. to Fuji Photo Film Co., Ltd., for $1.3 billion, and in June, announced it had received $500 million in revolving credit from Bankers Trust Co.

By the end of the third quarter Xerox reported said cash reserves had climbed to $2.4 billion, up from $2.2 billion in June.

"Strategically, I think Xerox has the capability and will work to migrate to a more consultative type of services and solution," said IDCs Boyd. "They had XBS for a long time, they have expertise in that area. They have PARC [Xeroxs Palo Alto Research Center] which has a lot of understanding and workflow."

According to Dolan, Xeroxs services operations are already making a significant contribution to the bottom line. The company estimates that it will bring in $2.8 billion in services revenue for 2001. The goal is to take an even bigger bite out of the services market, which is expected to hit $47 billion by 2004.

Rocket Fuel