Xerox used a recent Investor Day briefing to share details on its strategic initiatives and financial plans following on from last year’s dramatic board room changes.
John Visentin, vice chairman and CEO of Xerox, said that the company is working to develop its next generation products: “By simplifying our operations, instilling a culture of continuous improvement, investing in growth areas and capitalizing on new and adjacent market opportunities, we anticipate that we can achieve flat to growing revenue by 2021, while driving continued annual adjusted earnings per share expansion, including at least $4 of adjusted earnings per share in 2020, and delivering over $3 billion of cumulative free cash flow over the next three years.”
For now, Xerox seems to be pining its hopes on its restructuring plan, called Project Own It, which mainly seems to be about simplifying the way that Xerox operates to remove problems that shouldn’t have been there in the first place. Steve Bandrowczak, chief operating officer for Xerox, said that the company is expecting to realise $640 million of savings by the end of this year, adding: “We have to optimize what we have and leverage the investment that we have already made.” The aim is for a further $825m savings by 2021, which should free up cash to reinvest at that point.
Bandrowczak talked about optimizing the supply chain and rationalizing the number of suppliers to get better discounts. Strangely, he described the relationship with Fuji Xerox as “very good” saying “We have had no disruptions and it’s continuing to work and we see that continuing in the future from a key supplier standpoint.” It’s worth remembering that Fujifilm has sued Xerox over the failure of its acquisition last year and that last year the current Xerox management has talked about abandoning the Fuji Xerox agreement and sourcing printers elsewhere. But perhaps Xerox has now realised the difficulty of walking away from the Fuji Xerox joint venture, which was after all the logic that originally drove last year’s attempted acquisition.
Xerox is heavily reliant on the SMB (small and medium business) sector for something like 70 percent of its revenue so is putting a lot of effort into squeezing more revenue from this area. Part of this involves changing the existing Managing Print Service to Xerox Intelligent Workplace Services, which essentially means adding more digital and cloud-based services alongside the printing.
Joanne Collins Smee, chief commercial officer, added: “We are looking at revolutionizing production colour print…we have very advanced technologies in that space.” Much of this seems to come down to adding the sort of enhancements that Xerox introduced with the Iridesse press to some of its less expensive dry toner machines.
Xerox is also trying to squeeze its most important asset – the PARC R&D centre that’s been responsible for a whole host of interesting technologies over the years. Steve Hoover, chief technology officer, said that Xerox is looking to develop into new areas, beyond its core capabilities identifying four main sectors. This includes digital print for packaging, with Hoover noting: “Currently, the technologies to do digital print, the materials are too expensive to get broad penetration, and the ability to print on packaging materials like plastics and foils are hard for the traditional technologies to print on.”
So Xerox is working to develop a new print technology that allows users to print to a broad range of materials. For now this project is still at the lab stage, although Hoover says that Xerox has defined some early partners and is looking to license the technology to other players.
Xerox also sees an opportunity to develop applications that use AI assistants for drawing up contracts, including requests for quotes.
The Internet of Things has also caught Xerox’s eye, with Hoover pointing out that many people are interested in the idea of the Internet of Things but that it requires more sensors, and many of those are not there yet at the low cost and low power that IoT needs. The potential applications range from sensing hazardous gases to detecting if foods or drugs have been spoiled or even smart packaging that allows brands to interact with their customers when they open the package. Hoover adds: “PARC has a long history in miniaturization. It’s what made the laser printer possible, with the small laser diode.”
Hoover also says that Xerox is working on 3D printing, which I’ll cover in a separate story this week. Perhaps more importantly than these individual concepts, Xerox is also working to develop the business models around the technologies, even as those technologies are being developed in the lab. Hoover explained: “We are putting together a new operating model that’s really like the way a start-up operates. This includes identifying technologies to develop, and establishing milestones to determine if they merit further funding.”
As part of this Xerox has also unveiled a plan to leverage some of its underlying technology by licensing it to other vendors with a ‘Powered by Xerox’ tag as opposed to Xerox actually building and selling its own kit. Hoover says that this is “like a Qualcomm kind of business model where you sell a high value component or even the IP and other people embed that in the product, which is the idea of ‘Powered by Xerox’.” He explained: “We may decide in certain cases to take the entire product to market ourselves but we are going to really look at that kind of business model because it lowers the risk and lowers the investment and increases the time to market and allows us to get a really strong return on our investments.”
Essentially, Xerox is following the standard corporate playbook for rescuing a company in difficulty, which mainly consists of cutting costs and sweating the existing assets. But in Xerox’s case the cost cutting is going to have to go a little deeper. Visentin described the problem: “We had a complex operating model. We were difficult to do business with. Our supply chain can be improved. Our R&D, our innovation, our software businesses, it was lost in a product business. Our strategic transformations never flowed through to the bottom line.”
And yet, no real surprises in all this. In the years that I’ve been covering Xerox I’ve always been struck by its utterly inflexible corporate culture, where bright people and clever ideas are moulded into the same dull facsimile, where there are endless layers of management ticking boxes and safeguarding their own jobs but without in any advancing the company, and no one in the European operations seems capable of answering simple questions without referring back to the US mothership.
By far the most interesting part of the whole presentation was Hoover’s discussion of the new technologies that Xerox is working on and their efforts to monetise those. But is also covers up the lack of actual technologies that Xerox can use right now. And the effort to monetise the R&D even as it’s being developed, which might excite the investors, does also point to a certain urgency to find new revenue streams. Then again, Xerox has not always reaped the benefits of some of the inventions that have come out of PARC over the years so there is some common sense in this.
Some of the new technologies seem genuinely exciting but the problem with old-fashioned sceptics hacks like me is that we’ve seen it all before. So I remember a similar presentation some years ago of an exciting new print technology, another glimpse into the magical stuff that the boys in the lab were cooking up, and that turned out to be the waterless Production Inkjet System (PIS) – I’ll bet not many of you bought one of those babies.
In the end Xerox patched the gap in its inkjet portfolio by buying Impika, which at the time was probably the most exciting and innovative company developing high speed single pass inkjet production printers. It’s true that Xerox has gone on to market and sell some of those inkjet presses but the bright promise that was Impika has mostly been smothered by that Xerox culture.
So in the end, the challenge for Xerox is not so much to cut costs and deliver dividends to the shareholders but to completely change the culture of Xerox and to see whether or not somewhere, hidden deep beneath the many bloated layers of management, the original spark that made Xerox an exciting company worth watching might yet still be burning.
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