You are on page 1of 4
Chapter 12. Siravegic Positioning 287 Developing and countering SCAa, and the perile of success XEROX: THE EARLY DAYS ‘When Chester Calon invented ssrogeaphy inthe 1990s, he attempted to matket is ‘dea toa host of fn, including Kodak and General Electric. All viewed the rather crude invention as unnecessary in the fave of carbon paper and the coated-paper copiers ofthe day: Finally, in tho 1950s, «smal firm took the gamble, The result was ‘the Xerox 914, inoduced in 1959, which truly revoliwionized the copying industry. The frst plin-poper copies, it nes eazy to use and operated at seven copies por sminute, The 914 was responsible for the numberof copies made m the United States increasing fiom 20 millon to 95 billion in only cea years. “The Xerox business strategy through the [970s involved soveral pillars, Fiest, the Inachines were Ieased at 395 per month, including 2,000 fiee copies per month to firms who mistakonly Flt that thoir uso would never exooed that level. Seeend, an extensive direct sales an service operation vas developed to market the 914 and smote expensive models, all of which were relatively complex and aceded informed salespeople and responsive zervice.Thied, the RED) focused on the high end of the market, where dhe best margins were. The low end was visually ceded to the Japanese, first with costed.paper machines and ker with inexpensive plain-paper products. Fourth, international grow as based on a joint venture with Fuji “Tho ih pillar, a major statogic thrust for Xorox in tho 1070s, was the “Office of ‘the Future.” This ccncept recogaized that the copier uns only one instrument of office prochuctvity and business communication, and Xerox wanted to be a leader in ‘the broader playing eld. Clea, the key tothe strategy was a computer capability. ‘To fill that gaping hole, Xevos in 1968 purchased Scientife Data Systems, a fina that targeted the scientific community, and changed its name to Xetox Data Systeme (XDS), Despite pouring investment into XDS. the firm's preduets for the business data-processing market never had any success mn the office, Nerexs territory. Further, {ie Xerox organization ha too many’ ayers of bureaneracy i too wsny factions to encourage the integration of computer and copier products. In 1975, alter six years of losses, Xetex close XDS, judging that the compiter mainframe marcet was not pat ofits core business alter all. Competitors: Savin, Canon, IBM, and Kodak Savin was a small company cbsessed with participeting in the copier markt and frus- ‘trated by the patent chokeholdof Xerox Finally, with the help of an Australian inven ‘or and a consortium of firms from the United States, Germany. and Japan, Sevin developed a liquid:toner approach that awoided Xerex patents. Its breakthrough Doecame the Savin 750, mannfactured by Ricoh in Japan and introduced in 1975 at 4,000, los than the (then) annual lease price of aXezox machine. Instead of a direct sales force, Savin sold thicngh dealers who wonld eomstact Netex customers with an altactive alternative when their contracts expired Dealer service was feasible Thecause he machine was relatively small and reliable; the Savin 750 averaged 17,000 258 Tore Thee Alvernadve Business Srarenies copies betneen failures, nade (venty copies per minute the fist in less than five seconde, a pace far superior to Xerox efforts at the low end. By 1977, Savin placed amore copice in the United States than Xerox Meanvhile, Ricoh eaptured the top market shate-m Japan, as measnred in units Canon also avoided the Neros patents by developing on altemative technolegy that was licensed to other Japanese firms. Rather than using jnt ventures, Cance deliberately decided to market its copiers dhroughoat the work under its ont name, even thongh that ‘would mean relatively sow market penetration ina fast-moving industry In the bog ran, Keeping control of the brad and operations became a strength. Canon strugled in the United Stato: until 1978, when its NF-80 combined swith an aggressive advertising campaign, succeeded in the micevoliune market. By 41979, Canon became a leader among the Japanese copier firms, In 1982, it intzo~ duced its Personal Copicr which sold for under $1,000 and had a 885 disposable ca tridge, The slower copying speed was unimpertant to the target customers, who ‘wanted asmall inespensive, worn-fice machine for the home or office In 1965, with Savin fading, Cancn became the world leader in low.end machines and the second overall company bebind Xerox BM attempted through the 1970s to participate in the copier market with sevies of products, Ie was generally unsuccessful, despite its famous name auxl a large sales force, in part because it war technologically behind and ite products ‘were unreliable Kodak entered the market in 1975 with ite Ektaprint 100, a plan-psper copier that soon became the industry standard for reliability inthe micevolunne market, The firm thon developed a series of high-end machines that were by mary measures the best in the industry Kodak moved slowly. however. making sure the products were reliable, carefully building a stro service and maresting organization, and avoiding building capacity Coo quickly. Kedak was stil abs to move into fourth place In copier sales by 1085 because of its tochnology, reputation, and resources—and because ‘Xerox was not suevessful in developing comparable products. A Xeien executive opined that if IBM, with its size and superior marketing sills, had the Kodale machine i€ would have aggressively captures] mauket share at the mide and high ends, ane Kerox would have boon severoly damaged. Problems at Xerox, Afr many years of dramatic sucess, Nem faced significant threats in 1960, The firm managed to hold onto its dominance i medium and highspeed machines, sill contrnllng 50 percent ofthe mares for machines over $40,000 in 1981. Performan at the lower end was much worse, however, and as a result Xerox's share of US. copier revenues declined dramatically; from 96 percent in 1970 to 48 percent in 1980, Between 1976 and 1982, Xewor’ share of workhvide copier revenues dropped fiem 82 percent to dl percent. Why? How did this happen? ‘One problem was the development of an unwieldy bureaucracy. In 1966, an executive from Ford was brought mn to control an undiseplined organization that was cexpancling ut an unmanageable rate, The result was a divisional structure that looked > Chepter 12 Swategic Positioning 239 (oo rueh like an auto firm, with « painfully complex anc slow process of geting a product from design to manufacturing to markoting, Throughout tis marathon, the product would he subjected to a system (adopted from NASA) of staged program ‘management, which entailed constant review and criticism, Tn part heesuse of this organizational parlyss, Xerox was not able to respond to the Kodak dhieat atthe high end ofthe market. Xerox had long prided itself om is superior technology, but it actually lagged behind in product development. In the 1970s, it only intrndveed three completely new machines, only one of which was a success—and that one cost more that 8900 milion to develop. For Newux to have grown as it dic during this decado ns more tribute to its sales force than to the quality of is produes. Ove of Xero’ mnjor problems in the 1970s was its focus on mating the largest, festoat, and Fanciost machines. It paid far less attention to rliailit, and thereforo it was not prepared to corapete with machines mad hy Keak. Rather than being les and tuim, it became bloated and lied to locate low-cost outsourcing opportunities, ‘When machines like the Sevin 750 were introduced, Xerox could not compets in either price or quality Despite its lange staff, Xerox was weak in customer and marlet rescarch, even as fe transitioned from being a vitwal monopoly to a participant in competitive mar- Jet. In particula, Netox zave no thoupht to the fact that ts customers might be wile ing to tae speed for price and reliability or that they might prefer to have more stnaller, slower machines rather than a few large, faster ones Xerox USA ignored the Japanese duscat,allewing those firms to get a laothold at the low ond of the markot that thoy explited by moving up. One rationale was that ‘the early Japanese machines were of quality andl priced too igh: the Sasin 750 ‘was a slicek, A second rationale was that dhe rangins al Uhe higher end were navel mote attractive than thote at the low end, Xerox USA, howoves, failed to recognize {ise the Japanese lems woul use their advantage Further denn to clit dhe market ladder. There was also a strong “not invented here” syndrome. After introducing its 3200 model in Japan in 1973, Fut Xerox offered to export ito the United States, bit Xerox USA refised. unable to believe chat « Japanese product would be up to Xerox USA standards Itwas not until 1979 that Xerox USA nally accepted a Fuji Xerox machine for the American market. FOR DISCUSSION 1. dent anc evaluate Xerox's strategy in the 1960s, What entry barviers dld Xerox creat in that decade? 2, Identify and evaluate the strategies of Savin, Canem, IBM, and Kodak How did each oxeroome Xeror’ entry barrio? Kodiak did not aggees- sively invest behind is equipmeat ata tine when it held a significant technological edge. Why? —o- 240 Part Three Alternative Business Strategies 3. Why did Xerox lose position in the 1970s? How could that happen? How could a large successful, admired company be so clueless? 4. What were the strengths and weaknesses of Xerox in the 1980s? What ‘wore its strategic imperatives? ‘Xerox had a research think tank in Palo Alto that essentially developed, ‘what became the Apple computer. When the Xerox organization was not interested, Steve Jobs anc others accessed the concept and started Apple. Why do you think such a blunder happened? Source: Draven in par from John Hilkik and Gary Jacobson, Xerex: American Samerci, New Yorke Macmillan, 1986, pp. 55-57.