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XEROX - THE
BENCHMARKING STORY
The case examines the benchmarking
initiatives taken by Xerox, one of the world's leading copier companies, as a
part of its 'Leadership through Quality' program during the early 1980s. The
case discusses in detail the benchmarking concept and its implementation in
various processes at Xerox. It also explores the positive impact of benchmarking
practices on Xerox.
"Benchmarking at Xerox is still very much a matter of competitive advantage. It
is used to keep Xerox's edge razor-sharp, to discover where something is being
done with less time, lower cost, fewer resources and better technology."
- Warren Jeffries, a Customer Services Benchmarking
Manager, Xerox, in 1999.
BACKGROUND NOTE
The 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 for 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.
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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 million in 1960 to $268 million 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.
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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 million in 1966 to $ 4.4 billion in 1976, profits
increased five-fold from $ 83 million in 1966 to $ 407 million 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 billion to $ 290 million (Refer Exhibit I).
In 1982, David T. Kearns (Kearns) took over as the CEO. He discovered that the
average manufacturing cost of copiers in Japanese companies was 40-50% of that
of Xerox. As a result, Japanese companies were able to undercut Xerox's prices
effortlessly. Kearns quickly began emphasizing reduction of manufacturing costs
and gave new thrust to quality control by launching a program that was popularly
referred to as 'Leadership Through Quality.' As part of this quality program,
Xerox implemented the benchmarking program. These initiatives played a major
role in pulling Xerox out of trouble in the years to come. The company even went
on to become one of the best examples of the successful implementation of
benchmarking.
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BENCHMARKING AT XEROX
IMPLEMENTATION
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This case study is intended to be used as a basis for class discussion rather
than to illustrate either effective or ineffective handling of a management
situation. This case was compiled from published sources. |
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