Summary
Xerox is facing increased competitive pressure in its traditional copier and printing markets. Many of its rivals, including HP, are expanding their printing offerings in the enterprise and wide-format markets while at the same time extending into the areas of enterprise services. Technology firms have a hard time transforming and Xerox is likely to face tremendous challenges.
Analysis
Let's face it. Leaving out the Dog Whisperer, it is very hard for an old dog to learn new tricks.
Technology firms, from startups to behemoths, face similar 'old dog' challenges when it comes to reinventing themselves as solution/service providers. The tech firms are built around creating and selling technology. Not creating and selling solutions. The management teams consist of the best historical management drivers of technology products, not solutions. Their development teams consist of the best and brightest product technologists, not the business solution innovators that are needed going forward.
It is especially difficult when the transition is driven by an insider. Ursula Burns, the new chief executive at Xerox and the architect of the acquisition of ACS, is definitely a smart leader and technologist. But, it is almost impossible for even the best and brightest to dismantle and reassemble the company they helped create. HP needed Mark Hurd. Unisys needed Ed Coleman. MCI needed Michael Capellas. Ms. Burns will have to take a bloodthirsty, live-or-die approach to succeed.
Xerox needed to do something. There largest competitor HP, with the acquisition of EDS in 2008 and of Nur Macroprinters and MacDermid ColorSpan in 2007, was setting Xerox up for a major fall within the enterprise market where the best margins are.
Xerox definitely needs long term recurring revenues from services. The question will be what residual equipment sales they can blend in with those services? HP can deliver servers, networks and pretty much the entire enterprise IT infrastructure if they can manage the evolution of EDS into the new HP Enterprise Services. Cisco is partnering and positioning themselves as well and has a huge product portfolio as well as a huge bankroll. IBM is already there with Global Services. Dell acquired Perot systems for the same reasons and is expanding into the small to medium enterprise with ProManage and AT&T.
The debt Xerox will take on to acquire ACS will further limit their ability to compete. Their major competitors have large cash reserves to draw on to make acquisitions and flesh out a complete enterprise offering.
ACS is a reasonable start for Xerox. Unisys might have been a better match. The challenges of aligning Xerox and ACS will be numerous. Teaching the old Xerox dog new service related tricks will be extremely difficult requiring drastic internal changes and will demand hair trigger executive management. Implementing these types of changes requires a near perfect execution, especially in the initial moves.
Wondering if Xerox will be able to afford to compete against HP and others makes me twitch even more than the Xerox/ACS merger challenges.
David Croslin consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
