After attending Xerox Investor’s Day, we may have been premature in our speculation about the company’s future.
(Editor’s note: This is the fourth and final installment in our series on Xerox.)
After the first three articles in our Xerox series with comments from off the record sources presenting their perspectives, as well as our speculation as to the fate of the company, we might have been premature in how things may play out. Most of the commentary and speculation was less than positive. However, those perspectives allowed individuals impacted by various initiatives that have taken place inside the company during the past 12 months to tell it like it is or was even if it wasn’t always pretty. But after attending the Xerox Investor’s Day conference at the New York Stock Exchange on February 5, we, or at least I am tempering some of my concerns regarding the future of the company.
The Cannata Report was among a select handful of imaging industry analysts who joined the dozens of financial analysts attending the event. The proceedings began with an introduction of the company’s executive team, who are described in a Xerox handout as a balanced mix of new and tenured leaders. Some of those executives have been with the company for only a few months while others, albeit not many, have been with decade for two to three decades.
Xerox Vice Chairman and CEO John Visentin initiated a discussion of the strategic initiatives that have been put in place to position Xerox for success, most significantly a three-year plan that takes the company through 2021.
The plan calls for simplifying operations, creating a culture of improvement, investing in growth areas, and capitalizing on new and adjacent market opportunities. By doing that, Xerox is expected to achieve flat to growing revenue by 2021.
The three-year plan is flexible and Xerox executives participating in the briefing emphasized that elements of the plan are not working, adjustments will be made as necessary.
Among the initiatives discussed was flattening the organization for better accountability and ownership, leveraging the company’s growing customer base to deliver end-to-end solutions, investing in emerging technologies with attractive addressable markets, and expanding earnings and cash flow generation.
After simplifying the organization in 2018, this year is focused on transforming Xerox’s product and services portfolio and accelerating sales. By 2020, the plan is to stabilize the company, and by 2021, the goal is to begin growing again. Let’s look at specifics for each of those years.
Here’s what to expect in 2019, a year dedicated to transforming the portfolio and accelerating sales:
- An expansion of technology solutions offerings
- Broadening the services & software portfolio
- Driving SMB and XBS organic coverage and dealer acquisition
- New sales coverage and compensation
For 2020, the plan is to stabilize the company by:
- Continuing to build on its strengths in SMB
- Accelerating expansion in services and software
- Scaling its eCommerce platform
- Commercializing select R&D and intellectual property
By 2021, Xerox expects to achieve flat to expanding revenue growth by:
- Continuing to lead/advance its position in core markets
- Yielding revenue from innovations (3D print technologies, sensor technology, AI/IoT)
- Increasing post-sale revenue as a result of 2019-2020 placements
What’s different at Xerox?
An interesting initiative outlined during the briefing was Project Own It, which was described as Xerox’s enterprise-wide transformation program to simplify its business and drive greater operational efficiency while establishing a culture of continuous improvement. This initiative is expected to result in more significant investments, including funding of longer-term innovation to support the company’s revenue roadmap and bottom-line annual profit growth.
One of the changes discussed during the briefing is greater accountability with the appointment of a senior owner to oversee different segments of the business. According to Visentin, some of the new leadership team have experience driving major transformations.
Execution is key and Xerox is designing for end-to-end operational efficiency. The plan is to execute with greater speed through accelerated decision-making on complex decisions. Xerox will also be investing in what it sees as new and/or emerging areas of opportunity, such as IT solutions/cloud, robotics, analytics, delivery solutions, and e-commerce/channel enablement.
Automation is another area of investment and Xerox will be adding 50 “bots” in production per month. Additionally, by employing predictive analytics, Xerox expects to enhance digital customer engagement and digitally enable its products.
Plans are also underway to jumpstart innovation by leveraging Xerox’s intellectual property in adjacent areas and exploring opportunities where it can gain traction in high-growth markets. Xerox technology is expected to drive developments in digital packaging and print, 3D printing, AI workflow assistants, and sensors and services for the Internet of Things.
Revenue Roadmap & Leveraging Leadership in Key Product Segments
Xerox’s revenue roadmap is focused on five major strategies, some referenced earlier, including:
- Improving its core technology business
- Expanding services & software
- Capitalizing on the opportunity in SMB
- Transforming its client’s digital experience
- Driving innovation and new growth businesses
All this reportedly builds on the company’s leadership positions in its core technology and services markets, including A3, A4, high-end production color, and managed services.
In the MFP market, Xerox is looking to create a new category of Workplace Assistant (MFP) that leverages new technologies in cloud, security, automation, AI, and personalization. We’ve already seen some of those initiatives at a Xerox event in New York City last fall and at previous Xerox events. Integral to this disruption is further leveraging Xerox’s ConnectKey platform, extending the capability of the MFP through apps, creating a more personalized experience, and by offering greater security.
The company is also looking to revolutionize traditional color by going beyond CMYK and paper. This will be done with metallic, fluorescent and clear inks, providing what Xerox said higher value solutions to its customers, lowering the cost of entry into inkjet printing by leveraging its press platforms and proprietary inkjet technology, and by disrupting digital packaging with new technology to grow the addressable market.
There will also be a rebranding of MPS to Xerox Intelligent Workplace Services. Here Xerox will reinforce benchmark data, document and device security, provide scalable cloud services that are user and IT friendly, and leverage analytics to find opportunities for automation and improvement.
On the services and software side of the business, the plan is to accelerate services revenue by leading with vertical service bundles supported by horizontal capabilities, focusing on services growth in the SMB, and extending its leadership in Enterprise services. In addition, Xerox plans to leverage its personalization software and content management solutions to drive revenue.
The SMB represents a significant opportunity and Xerox is increasing its investment in channel and Xerox Business Solutions’ (XBS) focus on SMB markets. While enterprise accounts will still be the domain of direct sales and service, XBS will continue to focus on the SMB. The plan is to expand XBS to provide organic and inorganic coverage, expand its IT services business, and expand in the channel (mono-branded & multi-branded).
Between the Lines
We could be wrong, but these initiatives don’t seem to be the initiatives of a company desperately seeking the exit door or a buyer.
Yes, Xerox made some difficult and unpopular decisions and has completely shaken up the organization during the past nine months leading up to this event. Admittedly, some Xerox employees we spoke with are still shell-shocked despite having survived the company’s extreme cost-cutting measures. While they feel fortunate to have survived, one could still feel a sense of uneasiness.
Nothing was mentioned about a potential sale and the only references to Fuji Xerox revolved around what is for now an uninterrupted supply of product. That doesn’t mean a sale is no longer a short- or long-term possibility.
Whatever happens over the course of this three-year plan, one can’t underestimate the power of the Xerox brand, a brand that could very well survive the current drama and speculation about the company’s fate. In our view, Xerox leadership has a well-conceived plan that could yield significant results over time just if things go according to plan. Should that happen, Xerox may very well come out of this a much stronger company. But there’s still a long way to go.
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