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Xerox Corporation, virtually synonymous with photocopying, now touts itself as The Document Company. In addition to its flagship copiers, Xerox also makes production publishers, electronic printers, fax machines, scanners, networks, software, and supplies. The company is also a market leader in the area of document outsourcing services. Xerox markets its products in more than 130 countries. Its Xerox Limited subsidiary (formerly Rank Xerox, a joint venture with the Rank Organisation Plc of the United Kingdom) distributes Xerox products in Europe, Africa, the Middle East, and parts of Asia (including Hong Kong, India, and China). Xerox Co., Limited--a joint venture with Photo Film Company Limited--develops, manufactures, and distributes document processing products in Japan and the Pacific Rim (including Australia, New Zealand, Singapore, and Malaysia).
Origins As The Haloid Company in 1906
Xerox can trace its roots to 1906, when a photography-paper business named the Haloid Company was established in Rochester, New York. Its neighbor, Kodak, ignored the company, and Haloid managed to build a business on the fringe of the photography market. In 1912 control of the company was sold for $50,000 to Rochester businessman Gilbert E. Mosher, who became president but left the day-to-day running of the company to its founders.
Mosher kept Haloid profitable and opened sales offices in Chicago, Boston, and New York City. To broaden the company's market share, Haloid's board decided to develop a better paper. It took several years, but when Haloid Record finally came out in 1933 it was so successful that it saved the company from the worst of the Great Depression. By 1934 Haloid's sales were approaching $1 million. In 1935 Joseph R. Wilson, the son of one of the founders, decided that Haloid should buy the Rectigraph Company, a photocopying machine manufacturer that used Haloid's paper. Haloid went public to raise the money, and selling Rectigraphs became an important part of Haloid's business.
In 1936 Haloid's 120 employees went on strike for benefits and higher wages. When Mosher proved intransigent, Wilson stepped in and offered concessions. Tension and resentment between labor and management persisted until World War II. During the war the Armed Forces needed high-quality photographic paper for reconnaissance, and business boomed. When the war ended Haloid faced stiff competition from new paper manufacturers.
Amidst this, Haloid needed to come up with new products, particularly following a showdown between Mosher, who wanted to sell Haloid off, and Wilson, who did not. Wilson won, and in 1947 Haloid entered into an agreement with Battelle Memorial Institute, a nonprofit research organization in Columbus, Ohio, to produce a machine based on a new process called xerography.
Xerography, a word derived from the Greek words for "dry" and "writing," was the invention of Chester Carlson. Carlson was born in Seattle, Washington, in 1906 and became a patent lawyer employed by a New York electronics firm. Frustrated by the difficulty and expense of copying documents, Carlson in 1938 invented a method of transferring images from one piece of paper to another using static electricity. In 1944 Battelle signed a royalty-sharing agreement with Carlson and began to develop commercial applications for xerography.
The XeroX Copier Debuts in 1949
In 1949, two years after Haloid signed its agreement with Battelle, Haloid introduced the XeroX Copier, initially spelled with a capital X at the end. The machine, which required much of the processing to be done manually, was difficult and messy to use and made errors frequently. Many in the financial community thought that Haloid's large investment in xerography was a big mistake, but Battelle engineers discovered that the XeroX made excellent masters for offset printing--an unforeseen quality that sold many machines. Haloid invested earnings from these sales in research on a second-generation xerographic copier.
In 1950 Battelle made Haloid the sole licensing agency for all patents based on xerography, but Battelle owned the basic patents until 1955. Haloid licensed the patents liberally to spread the usage of xerography to such corporations as RCA, IBM, and General Electric. In 1950 Haloid sold its first commercial contract for a xerographic copier to the State of Michigan. Meanwhile, Haloid's other products were again highly profitable, with paper sales increasing and several successful new office photocopying machines selling well.
In 1953 Carlson received the Edward Longstreth Medal of Merit for the invention of xerography from the Franklin Institute. In 1955 Haloid revamped its 18 regional offices into showrooms for its Xerox machines instead of photo-paper warehouses, hired 200 sales and service people, began building the first Xerox factory in Webster, New York, and introduced three new types of photography paper. Haloid also introduced the Copyflo, Haloid's semiautomatic copying machine. In 1956 Haloid president Joe Wilson, Joseph R. Wilson's son, formed an overseas affiliate called Rank Xerox with the Rank Organisation, a British film company seeking to diversify. This arrangement paved the way for Xerox factories in Great Britain and a sales and distribution system that brought Xerox machines to the European market.
1960: The Xerox 914 Copier Becomes an Instant Hit
In 1958 Haloid changed its name to Haloid Xerox, reflecting its belief that the company's future lay with xerography, although photography products were still more profitable. That balance quickly changed with the success of the Xerox 914 copier. Introduced in 1960, it was the first automatic Xerox copier, and the first marketable plain-paper copier. The company could not afford a blanket advertising campaign, so it placed ads in magazines and on television programs where it hoped business owners would see them. The company also offered the machines for monthly lease to make xerography affordable for smaller businesses.
Demand for the 650-pound 914 model exceeded Haloid-Xerox's most optimistic projections, despite its large size. Fortune later called the copier "the most successful product ever marketed in America." Sales and rental of xerographic products doubled in 1961 and kept growing. In 1961 the company was listed on the New York Stock Exchange and changed its name to the Xerox Corporation; photography operations were placed under the newly created Haloid photo division. In 1962 Xerox formed Xerox in Japan with Photo Film Company. Also during the 1960s Xerox opened subsidiaries in Australia, Mexico, and continental Europe. The company had sunk $12.5 million into developing the 914 copier, more than Haloid's total earnings from 1950 to 1959, and the 914 had led the company to more than $1 billion in sales by 1968. In 1963 Xerox introduced a desktop version of the 914; although this machine sold well, it was not very profitable, and Xerox depended on its larger machines thereafter.
With its suddenly large profits, Xerox began a string of acquisitions, purchasing University Microfilms in 1962 and Electro-Optical Systems in 1963. The market for copiers continued to expand at such a rate that they remained Xerox's chief source of revenue. The 1960s were a tremendously successful time for Xerox, which became one of the 100 largest corporations in the United States and, in 1969, moved its headquarters to Stamford, Connecticut.
In the late 1960s Xerox began to focus its efforts on the concept of an electronic office that would not use paper. With this end in mind the corporation bought a computer company, Scientific Data Systems, in 1969, for nearly $1 billion in stock, only to have it fail and close down in 1975. Xerox also formed Xerox Computer Services in 1970, bought several small computer firms in the next few years, and opened the Xerox Palo Alto Research Center (PARC) in California.
Scientists at PARC invented what may have been the world's first personal computer. So innovative was the work of the PARC scientists that many features they invented later appeared on Apple Macintosh computers. In fact, in December 1989 Xerox would sue Apple Computer for $150 million, alleging that Apple had stolen the technology that helped make its computers so successful. Apple cofounder Steven Jobs, who later hired some researchers from PARC, claimed that his company had refined Xerox's work, and thus made it original.
PARC's innovations were largely overlooked by Xerox; the computer division and the copier division competed for resources and failed to communicate. Products were released by the office products division in Dallas, Texas, that PARC had never seen before. Disagreements broke out at Xerox headquarters at the suggestion of change, which further stifled innovation.
Struggling Through the 1970s and 1980s
In April 1970 IBM introduced an office copying machine, giving Xerox its first real competition. IBM's machine was not as fast or as sophisticated as the Xerox copiers, but it was well built and was backed by IBM's reputation. Xerox responded with a suit charging IBM with patent infringement. The dispute was settled in 1978 when IBM paid Xerox $25 million. Meanwhile, Xerox itself became a defendant in several antitrust violation investigations, including a lawsuit by the Federal Trade Commission. Distracted from its market by legal battles, Xerox lost its lead in the industry when Kodak came out with a more sophisticated copier. IBM and Kodak followed a strategy similar to that of Xerox, leasing their machines and attracting many large accounts on which Xerox depended.
According to most critics, Xerox had become inefficient during this time, as its executives had concentrated too heavily on growth during the 1960s. Xerox had spent hundreds of millions of dollars on product development but introduced few new products. Engineers and designers were divided into small groups that fought over details as they missed deadlines. While the company sought to perfect the copying machine, it failed to challenge the new products on the market, and Xerox's market share dropped.
By 1985 Xerox's worldwide plain-paper copier share had dropped to 40 percent, from 85 percent in 1974. Yet Xerox's revenues grew from $1.6 billion in 1970 to $8 billion in 1980, partially because Xerox began to sell the machines it had been renting, thus depleting its lease base.
Beginning in the mid-1970s, Japanese products emerged as an even more dangerous threat. Xerox machines were big and complex and averaged three breakdowns per month. The Japanese company Ricoh, however, introduced a less expensive, smaller machine that broke down less often. The Japanese strategy was to capture the low end of the market and move up. By 1980 another Japanese competitor, Canon, was challenging Xerox's market share in higher-end machines.
In the late 1970s Xerox began reorganizing, making market share its goal and learning some lessons about quality control and low-end copiers from its Japanese subsidiary. The company also cut manufacturing costs drastically. Xerox regained copier market share but intense price competition kept copier revenues around $8 billion for most of the 1980s.
In 1981 Xerox finally began releasing new products, beginning with the Memorywriter typewriter. This typewriter soon outsold IBM's and captured over 20 percent of the electric typewriter market. By January 1983 Xerox had unveiled a Memorywriter that could store large amounts of data internally. In 1982 the 10-Series copiers, the first truly new line since the 1960s, was introduced. These machines used microprocessors to regulate internal functions and were able to perform a variety of complicated tasks on different types of paper. They were also smaller and far less likely to break down than earlier Xerox copiers. The 10-Series machines used technology developed at PARC, which was becoming more integrated with the company. Xerox began gaining market share for the first time in years, and morale improved.
Xerox also released computer workstations and software and built a $1 billion business in laser printers. The workstations proved an expensive flop, however, and by 1989 the company planned to close its workstation hardware business. Xerox also moved to protect its 50 percent share of the high-end market in the United States with machines that made 70 or more copies per minute. The major high-end competition was Kodak, but the Japanese--led by Ricoh--were again launching a drive for this market.
During the 1970s Xerox had also diversified into financial services. In 1983 it bought Crum and Forster, a property casualty insurer, and in 1984 it formed Xerox Financial Services (XFS), which bought two investment-banking firms in the next few years. By 1988 XFS supplied nearly 50 percent of Xerox's income--$315 million of the $632 million total. XFS performed well, able to raise funds at a low cost because it was backed by the Xerox "A" credit rating.
Xerox spent more than $3 billion on research and development in the 1980s looking for new technologies, such as those for digital and color copying, to promote growth. Xerox was a leader in developing technologies, but often had trouble creating and marketing products based on them, particularly computers.
A Late 1980s Comeback
In 1988 Xerox underwent a $275 million restructuring, cutting 2,000 jobs, shrinking its electronic typewriter output, dropping its medical systems business, and creating a new marketing organization, Integrated Systems Operations, to get new technologies into the marketplace more effectively. Xerox's comeback was so impressive that in 1989 its Business Products & Systems unit won Congress's Malcolm Baldridge National Quality Award for regaining its lead in copier quality. Xerox had demonstrated its ability to change in the late 1970s when it responded to the first wave of Japanese competition.
In 1990 when David T. Kearns, CEO since 1932, retired to become U.S. Deputy Secretary of Education, and Paul A. Allaire, a career Xerox man, was named to replace him, industry analysts speculated that Allaire would have to repeat the feats of the 1970s if Xerox was to survive as an independent corporation. A restructuring of company management occurred almost immediately. The office of the president was transformed into a document processing corporate office led by Allaire and including executive vice-presidents A. Barry Rand and Vittorio Cassoni, and senior vice-presidents Mark B. Myers and Allan E. Dugan. Two years later, Xerox announced plans to restructure the company as well. Three customer service operations units were created in Connecticut, New York, and England. In addition, nine document processing business units were established, each of which was headed by a president responsible for the profitability of the unit.
During the seven-month period from September 1990 to March 1991, Xerox introduced five new types of computer printers: the Xerox 4350, Xerox 4197, Xerox 4135, Xerox 4235, and Xerox 4213. These printers were designed to handle a wide variety of office needs from two-color printing to desktop laser printing. In October 1990 the Docu-Tech Production Publisher signaled Xerox's intent to take advantage of what the company foresaw as an industry move from offset printing to electronic printing and copying.
The introduction of the Xerox 5775 Digital Color Copier was met with great fanfare and was expected to rejuvenate sales. Xerox also continued to update and improve its facsimile machines by developing a personal-sized model that could be used as a copier as well as a telephone, and by developing thermal, recyclable fax paper. In May 1992 Xerox introduced Paperworks, software making it possible to send documents to a fax machine directly from a PC.
Despite these new products, financial and legal woes continued to plague Xerox in the early 1990s as American economic conditions worsened. After earnings of $235 million in the fourth quarter of 1990, Xerox reported only $91 million in profits for the same period the following year. Earlier in 1990, just four months after the creation of the X-Soft division, which was to develop and market the company's software products, Xerox announced that it would lay off ten percent of X-Soft's employees. In February 1992 the company offered severance pay to 6,000 of its American employees in an attempt to reduce the workforce by 2,500 by July.
By the end of 1991, Xerox was announcing the sale of three of its insurance wholesalers. Crum and Forster sold Floyd West & Co. and Floyd West of Louisiana to Burns & Wilcox Ltd. London Brokers Ltd. was sold to Crump E & S. Moreover, several lawsuits resulted in losses for Xerox during this time. In February 1992 Xerox was ordered to pay Gradco Systems, Inc. $2.5 million to settle a patent dispute; and a suit settled in favor of Monsanto a month later was expected to cost Xerox $142 million to clean up a hazardous waste dump site.
The Document Company Emerges in the Mid-1990s
With its core office products businesses on the upswing, Xerox announced in January 1993 that it intended to exit from insurance and its other financial services businesses. Later that year Crum and Forster was renamed Talegen Holdings Inc. and was restructured into seven stand-alone operating groups in order to facilitate their piecemeal sale. This exit took several years, however, and was delayed when a 1996 deal to sell several units to Kohlberg Kravis Roberts & Company for $2.36 billion collapsed. During 1995 two of the groups were sold for a total of $524 million in cash. In 1997 three more were sold for a total of $890 million in cash and the assumption of $154 million in debt. Then in January 1998 Xerox completed the sale of Westchester Specialty Group, Inc. to Bermuda-based ACE Limited for $338 million, less $70 million in transaction-related costs. Finally, Xerox in August 1998 sold its last remaining insurance unit, Crum & Forster Holdings, Inc., to Fairfax Financial Holdings Limited of Toronto for $680 million.
As it was exiting from financial services, Xerox was also beginning to shed its image as a copier company. In 1994 Xerox began calling itself The Document Company to emphasize the wide range of document processing products it produced. A new logo included a red "X" that was partially digitized, representing the company's shift from analog technologies to digital ones. A number of new digital products were developed over the next several years, including digital copiers that also served as printers, fax machines, and scanners (so-called multifunction devices). From 1995 to 1997 revenue from analog copiers was virtually stagnant, even falling slightly, whereas revenue from digital products enjoyed double-digit growth, increasing to $6.7 billion by 1997.
Xerox also shifted focus from black-and-white to highly sought-after color machines, with revenues from color copying and printing increasing 46 percent to $1.5 billion in 1997. The most notable introduction here was the DocuColor 40, launched in 1996, which captured more than 50 percent of the high-speed color copier market based on its ability to print 40 full-color pages per minute. Revitalized new product development at Xerox resulted in the introduction of 80 new products in 1997 alone, the most in company history and twice the number of the previous year. More Xerox products were being developed for the small office/home office market, with prices low enough that the company increasingly marketed its products via such retailers as CompUSA, Office Depot, OfficeMax, and Staples.
However, the new Xerox was about more than just office products. The company introduced DocuShare document-management software in 1997, providing a system for users to post, manage, and share information on company intranets. Xerox also gained the leading market share position in the burgeoning document outsourcing services sector through the 1997-created Document Services Group. This group offered such services as the creation of digital libraries, the design of electronic-commerce systems for Internet-based transactions, as well as professional document consulting services. In May 1998 Xerox bolstered its Document Services Group through the $413 million acquisition of XLConnect Solutions Inc. (renamed Xerox Connect) and its parent Intelligent Electronics, Inc. XLConnect specialized in the design, building, and support of networks for companywide document solutions.
The mid-1990s also saw Xerox launch a restructuring in 1994, leading to 10,000 job cuts over a three-year period. In February 1995 the company paid The Rank Organisation about $972 million to increase its stake in Rank Xerox to 80 percent. Then in June 1997 Xerox spent an additional $1.5 billion to buy Rank out entirely. With full control of the unit, Xerox renamed it Xerox Limited. That same month G. Richard Thoman, who had been senior vice-president and chief financial officer at IBM, was named president and chief operating officer of Xerox, with Allaire remaining chairman and CEO.
In April 1998 Xerox announced yet another major restructuring, as its shift to the digital world led it to spend more on overhead than its competitors. The company planned to eliminate 9,000 jobs over two years, taking a $1.11 billion after-tax charge in 1998's second quarter in the process. The cuts came at a time when Xerox was enjoying record sales and earnings as well as a surging stock price, so the company was clearly proactive in maintaining the momentum it had gained through its impressive 1990s resurgence.
Principal Subsidiaries: Xerox Financial Services, Inc.; Xerox Credit Corporation; Xerox Realty Corporation; Xerox (UK) Limited; Fuji Xerox Co., Ltd. (Japan; 50%); Xerox Canada Inc. The company also lists some 275 additional subsidiaries in the United States, United Kingdom, Canada, Japan, Peru, Venezuela, Colombia, Netherlands Antilles, Panama, Brazil, Barbados, Chile, Mexico, Dominican Republic, Hong Kong, China, Egypt, Singapore, Australia, New Zealand, Taiwan, Belgium, Russia, Germany, Sweden, Switzerland, Denmark, Norway, Austria, Spain, Poland, Finland, Portugal, Italy, France, and elsewhere.
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