What Xerox can learn from Kodak's disintegration and Fuji's re-invention

What Xerox can learn from Kodak's disintegration and Fuji's re-invention

Summary: In a world that is rapidly becoming digital what Xerox does in the next few years may determine its fate

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xerox copier
What will Xerox do when we don't want to copy or print anymore?

 

After reading this newspaper article, it is tempting to think of Xerox as a company whose future is uncertain, perhaps even in peril, barring miraculous feats of innovation that can reinvent the company. 

In the article, Xerox's India boss, Rajat Jain, admits that with all the movement towards going green in the West involving striving for a lower carbon footprint and naturally, less photocopying and printing, the company is experiencing a 5 to 7 percent decline in the printing business. However, places like India are booming, growing upto 10 percent a year. 

Not only are places like China and India showing an unabated appetite for photocopy machines, many are gravitating towards a 'pay per page' service model, where corporates buy the service rather than the equipment. And as the article points out, a developing economy means hundreds of millions of application forms to fill out in the telecom, banking insurance and a plethora of other sectors. In short, print is not going away soon in the East, not at least for a good twenty years. And this, it seems, is what will pad Xerox's numbers for some time to come.

xerox logo

Still, many say that a US$23 billion behemoth like Xerox isn't going away anytime soon even in the West, where most of its business comes from. This Business Insider article echoes this sentiment pointing out that selling copiers is just 20 percent of its business. A huge one-third comes from servicing them and selling important fluids like toner—a very lucrative, high-margin, razors-to-blades business. Then, there's the servicing business for corporates who just don't want to deal with anything related to maintaining machines and would rather somebody take care of it for them—another nicely growing component of their revenue stream. In other words, a company that churns out veritable gold—US$2 billion cold, hard cash a year.

Also, the company seems to be constantly looking for a way to trot out 'green' services and machines that use less power and therefore a decreased carbon footprint. It is also apparently branching out into business services, including building health exchanges and trying to innovate in the imaging arena. 

kodak fuji

But is it enough? These details don't really address the quintessential, existential problem—which is, what will Xerox do when we don't want to print or copy things anymore (yes, that day will come), something that is as core to its business as grain is to Cargill or rubber is to Goodyear? How will it survive in a paperless world?

These questions remind me of a fascinating piece written some time back in The Economist that documented what happened to two iconic competitors in global business when the forces of disruption came knocking, a story of an epic struggle to survive in the face of a disintegrating future with two very different results.

It's a long story, but here's a brief recap of the aforementioned saga that has some pertinence to Xerox. The American Kodak and Japan’s Fujifilm were two giants in the photographic film arena and held near monopolies for their products. Kodak of course was an icon, a perennial on 'Most Valuable' company lists and a bluechip example of how much joy and business value American innovation can bring the world.

With 90 percent of film market, 85 percent of camera sales and a market cap and profits of US$16 billion and US$2.5 billion in 1996 and 1999 according to the Economist, the company ended up spectacularly imploding in the new millennium, so much so that it declared bankruptcy in 2012. Today it suffers the ignominy of trading as a penny stock with a market cap of just over a billion dollars, a development that would break the heart of its founder George Eastman if he knew about it. Fuji on the other hand has never been stronger—a US$24 billion in sales behemoth that recently posted US$808 in net profits and has a market cap of around US$14 billion.

kodak eastman
It would break Kodak founder George Eastman's heart if we were alive to see what has happened to his beloved company

How did this happen?

With Kodak, it was a case of complacency, bets gone awry and overconfidence. Ironically, Kodak may have started its own eventual demise by being one of the first to come up with the digital camera in 1975. In the 90s, when it was clear that the digital world was arriving, and pretty rapidly at that, the company thought that its stockpile of chemicals used in the photo business could be used to make valuable drugs—but that failed. Then Goerge Fisher, CEO from 1993 to 1996, decided that Imaging was the way to go and started churning out digital cameras—not a bad bet I would have thought, but cell phone cameras that began arriving on the scene torpedoed that initiative.

Fuji made some very similar moves but with staggeringly divergent results. It too decided to leverage its chemical arsenal, but in this case focused on the large cache on anti-oxidants that are used in the photo business. These were converted to a cosmetics line that became hugely successful and surfed the wave of obsessions with longevity-enhancing anti-oxidants that the world is still obsessed with today. It also, according to the article, churned out optical films for LCD flat panels in which it pumped in US$4 billion, allowing it to establish a 100 percent market in a niche but thriving business.

Kodak Shigetaka Komori
Shigetaka Komori, the man who saved Fuji

This is probably why Fuji survived—it, or rather its new boss Shigetaka Komori, put real money behind trying to unearth and build business opportunities. He also wasn't afraid to drop a cool US$9 billion on 40 odd companies in the last fifteen years that have added to the revenue stream. In a world where you didn't know what was going to work, the only way out was to make plenty of bets in the hopes that some would come good. Komori thinks that Kodak didn't feel a survival crisis, that it was ultra confidant about its brand and didn’t do enough quickly to build out promising ideas within the company.

Ironically, it was Kodak that acted like a stereotypical, steeped-in-its-ways and resistant-to-change Japanese firm while Fuji resembled a more nimble American counterpart. Still, as disruption innovation guru Clayton M. Christensen notes, everything is so much clearer in hindsight, but when you're caught in the eye of the storm things are very different. Its not very clear even today if Kodak could have done anything at all to alter the course of its history.

Kodak Fuji's Astalift
Fuji under Komori converted its stock of anti-oxidants used in making film into a successful cosmetics line

As it was with the leather tanning industry in the Catskill mountains in New York, or with Digital Equipment Corporation (DEC) in the Boston area, or the telegram, when your time is up, there's nothing else to do, it seems, but to pack your bags. No matter what you may end up doing to try and stave off disaster, it's ultimately futile. The Hindus have a word for it, called karma, or destiny although they think that this is influenced by what you did in your past life. That's a nice if not somewhat fatalistic thought, but it's probably what any of the Kodak CEOs didn't do in their current ones that prevented the company from becoming the Canon-cum-Picassa-cum-Facebook of today that has resulted in their trajectory.

Today, Kodak has emerged from bankruptcy and has improved its profitability while focusing solely on the corporate digital imaging market. Still it is a pale image of the giant that it once was.

Changing business models in mid-stride is easier said than done. Yet, having done so, at least to some extent, is perhaps the one big reason that Xerox has been able to extend its innings when it bought Dallas-based Affiliated Computer Services (ACS) for US$6.4 billion four years ago. So much so that it comprises half of Xerox’s US$23 billion in revenue last year. ACS does all the back-end processing work when you buy an airline ticket, or file an insurance claim, which puts it squarely in the IT outsourcing business. By 2017, apparently ACS will be responsible for two of every three dollars that Xerox will earn.

Xerox Burns
Xerox's rescuer Ursula Burns, but can she save the company in the long run?

The person responsible for this savvy move is Ursula Burns, the only African-American CEO of a Fortune 500 company and the product of a remarkable rags-to-riches, true-grit story that is very nicely detailed in the same piece.  "Xerox was dead in the water. It had no future. With ACS, it has a future, but it has to make something of it," the paper quotes a former ACS executive who prefers to go unnamed.

Burns may very well have saved Xerox from a starker fate. The only problem is, the business of business process outsourcing is itself being rapidly commoditized and is being done for much cheaper by people like Genpact in India. And when the Chinese get more competent in English and dive into the game, it may become a frenetically competitive business to be in, sort of like the call centre business where margins are razor thin and constantly declining.

The question is, what will Xerox do then? Burns will have to conjure up another trick to keep it relevant in what will soon be a digital-only world. And that may mean making several bets very soon in the hope that one or two of them will become monster hits.

Topics: Leadership, Outsourcing, India, Tech Industry

Rajiv Rao

About Rajiv Rao

Rajiv is a journalist and filmmaker based out of New Delhi who is interested in how new technologies, innovation, and disruptive business forces are shaking things up in India.

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3 comments
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  • At least Xerox embraces technology

    Companies like Kodak and Fuji are stuck in analog and are bad with new tech. Xerox is not the same as they have always been interested in high tech and research. Xerox purchasing ACS (an IBM competitor) was a great move. Kodak should have purchased several digital imaging tech companies (Nikon, Panasonic, etc) but instead they tried to do everything themselves.
    Sean Foley
  • The irony of this comparison is that both Xerox and Kodak...

    ... have a large corporate presence in the same city, in Rochester, NY.

    That said, another irony is that Eastman Chemical is doing well as a spin-off, while the parent Eastman Kodak is not.
    traumadog1
  • Adapting to new technologies

    At BMS (bmserp.com) we have lots of customers in the print industry, particularly in Managed Print Services. Nearly every business has long identified the decline in printing and moved to adapt their business model to offer other complementary services (depending on their particular in-house expertise).

    Whether that's just offering printers 'as a service' (including toner and servicing), introducing a financing arm to the business (covering more than just print contract business loans), offering 3D Printers and their supplies, Wide Format Printers, branching into Telecommunications as a service, Managed Network Services and IT administration, Fleet tracking, document management... the list goes on.

    As with Kodak, if you rest on your laurels and don't adjust your business to stay fresh and relevant, then you will quickly be left behind.
    Michael Mulligan