(Editor’s note: This is the first of a series of articles written by The Cannata Report team on the latest developments taking place with Xerox and Xerox Business Solutions (XBS), the former Global Imaging Systems.)
Is Xerox on the verge of a Kodak moment?
That is one of several questions underlying the comments from an array of industry professionals on the heels of the mid-December round of layoffs and force reductions at Xerox. The immediate result has been a less-than-good winter for many who worked for the empire built on electrophotographic printing and copying.
Through off-the-record phone calls and emails with multiple credible sources, The Cannata Report has garnered details and impressions of the latest changes at Xerox, along with perspectives on what the future may hold for the iconic brand. Erstwhile employees, being understandably circumspect in their comments, mostly say that the reduction in force was on one hand a relief, while on the other a sad moment in what was for many the end of a career that may have been more than 30 years in length.
Beginning last fall, employees at the Xerox campus in Webster, New York came to dread the so-called Thursday massacres, named for the day of the week when another round of employees learned their future did not include time at the company credited with inventing digital printing and making Xerox an interchangeable term for photocopying.
“Every Thursday there was some kind of cut,” said one industry analyst with intimate knowledge of Xerox. “Morale was terrible. Most of those laid off had been there many years. People were in the dark, wondering what was happening, who was next.”
“It made for a nervous workforce, which can make people less productive even as others left on their own due to uncertainty,” added another analyst.
“No regrets,” said one veteran of 20 years. “I had a great career at Xerox and am looking on this as an opportunity for good things. I have a lot of great knowledge and experience and I'm only looking forward.”
Most of the former and current Xerox employees we contacted were less upbeat. “The Xerox cost-cutting continues with layoffs and that's unfortunate way to improve the bottom line,” said another, a comment echoed by several former employees and industry analysts.
“New management is cleaning house,” said one, “but they may not fully understand the ramifications of doing so.”
“This is cost-cutting, right-sizing, and probably some elimination of similar roles,” said another. “But at the same time, some important roles are not being replaced.”
Whatever the rationale, the force reduction will probably be applauded by the denizens of Wall Street, where costs and profits are the main elements of success. Still, the loss of proven expertise may prove costly for the company. At least some of those shown the exit were career “Xeroids.” Some say the force reduction is a deliberate salary drain, inferring that the layoffs were largely a cost-cutting measure. This makes some sense, given that newly minted vice presidents at the company pulled down hefty salaries and at least some of those with a decade of time or more could easily earn well north of $250,000 a year. Trim a few dozen high earners and the fixed costs of salary and benefits take a sharp dip.
In the big picture, though, salaries pale in comparison to the brain drain—the loss of experienced people who helped steer product development, management, and go-to-market strategies. “Cutting a lot of highly experienced people leaves the company as a rudderless ship when they can least afford it,” one analyst told us. We also learned from another that some important roles are not being replaced.
Rough waters ahead
These opinions echo that of others who have followed the company for many years. One analyst described a looming trifecta of lower print volumes that put more jobs within reach of digital print; a growing lack of highly skilled labor, which predicates greater automation and more digital printing; and the effect of inkjet, an emerging digital print technology that enables printing on more substrates than toner, but still requires significant investment. The convergence of these factors puts enormous pressure on a company that many industry observers say took its focus off digital print at the very time it should have doubled down on both toner and inkjet printing to help it retain a leading position in a turbulent industry. Now, other companies, notably Canon and HP, have leadership roles.
At first glance, Xerox may seem well-positioned in inkjet due to its acquisition of Impika some years ago, but those we spoke with cited a variety of challenges facing Impika’s technology, which we will not delve into here. More importantly, some we talked with noted, the company is not making the investments in sales training and technical improvements that are needed to gain a leadership position in inkjet. For example, while competitors steadily roll out new inkjet devices, Xerox reportedly has only a couple of inkjet devices planned for 2019 and 2020, and has placed its most recent marketing push behind the toner-based Iridesse press.
“That’s a nice machine if you need its capabilities,” we were told, “but it can be a tough sell because most print providers don’t need those capabilities all the time.”
A Pending Sell-off?
More broadly, some suspect Carl Icahn and Darwin Deason, the majority shareholders of Xerox stock, are readying the company for a sale.
Cutting overhead costs like salaries can make it easier to sell portions of the company. Or maybe they are looking to keep the technology but not people and sell through channels.
Sales could take various forms, such as selling off the Impika unit along with other assets, such as XMPie. Beyond those, said some of those contacted, there isn’t necessarily much to sell, with the possible exception of some intellectual property. But is there value there? It can be hard to say. Several competitors have long been reverse-engineering Xerox IP—and offering some viable alternatives.
Employees who were based in, “Toner Tower,” the former headquarters in downtown Rochester, now work in Webster, where the sprawling campus has shrunk to only a handful of buildings where few machines are built. Most machines bearing the Xerox brand now come from Fuji Xerox (Asia-Pacific) while inkjet machines are made at Impika’s factory near Marseille, France. Toner is still made in Webster and a good deal of engineering and competitive testing still takes place there, but it’s not the same place it was even a few years ago.
Still, said one analyst, blame cannot be laid entirely at the feet of Icahn and Deason: “The sad part is that the lack of leadership from the top runs all the way down the ranks.”
Over the past decade, various people from outside the printing industry held an assortment of leadership roles but lacked the understanding of the larger printing industry that had aided their predecessors. Yet, the same time, the company was home to some long-time employees who projected a ‘that’s not how we do it’ attitude when asked to shift gears or take a new approach. Some fell victim to the Thursday purges.
On the upside, we also heard from people who are upbeat about the company and its path forward. Remaining employees say Xerox is moving ahead, despite the current disarray resulting from people being in roles that may be outside their comfort zones. The “new Xerox” will certainly be leaner and more focused than the Xerox of old, and this may be a good thing. One of the immediate challenges for its leaders and most employees is re-setting market perceptions and expectations, a process that takes time and effort, backed by the introduction of new products that are relevant to the marketplace. We’ll see how it all works, but the one thing many have noted over the years is never disregard Xerox and its capability to be a force in the market.
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