Poor Management - Xerox Corporation - Essay Example

Xerox Xerox Corporation is the world's largest document-management company. Headquartered in Stamford, Connecticut, the company is a pioneer of photocopying that its name has become so synonymous with the product that the term "Xerox machine" is often used to refer to xerographic duplicators produced by other companies. In addition, the term "Xeroxing" is quickly becoming synonymous with "copying." The company made its presence felt in 1959 with the introduction of the first one-piece, plain paper photocopier using the process of xerography (electro photography), the Xerox 914. The company opened a famous research centre, the Xerox Palo Alto Research Centre or Xerox PARC. Until the end of 1970, Xerox dominated the market with am amazing monopoly. Its market share was 90% and this led to a confidence about it surviving new competition in the market. By the 1980's Xerox's market share declined from 90 percent to 43 % due to the competition from Ricoh, Sharp, Cannon, Kodak and IBM. Facing a downturn in office-equipment outlays, tougher rivals, an accounting scandal, and management turnover, Xerox saw sales drop drastically. By the year 2000, Xerox's share price had fallen below $4, from a high of $64 a year earlier. In year 2001, Xerox experienced a net loss of $293 million. That was down 1% from the year before and 20% off its peak of $19.4 billion in 1998. Analysis of the causes leading to the loss of market share by Xerox Vulnerability to change in Technology The rapid change of the technology sector makes most of the technological companies suffer. This is a common phenomenon in technological companies were the buzz phrase is "The technology is obsolete by the time you hear about it"! With a rapidly evolving technological market, complacency is the first causative factor for decline. The office equipment industry is a technology driven industry. The fast development of hardware and software as well as mass consumption often brings down the prices rapidly. There has been increasing cost pressures and price competitions in this industry. Xerox being in the office equipment industry is susceptible to a lot external environmental factors as well. With the globalization, bringing the world closer together and opening up the arena to more acquisitions and mergers companies have now more dynamic product lines brought upon by consolidation of the companies. The ever-changing global economy brings both opportunities and threats. Deregulation of the trade economies and lowering import barrier for goods offer more incentive to more players. Xerox was also affected by the economic uncertainties and the recession of early 90's and early 2000's. These contributed to lesser capital spending which influenced its overall profitability. The uncertainty in the economy created significant challenges in driving revenue growth, especially in the technology sector where customers were delaying capital spending. Failure to move into digital age products Xerox, which was using the digital interface in its research center failed to see that it was the heartbeat of the future. It was one of the great fumbles of all time. In the 1970s, Xerox Corp.'s Palo Alto Research Center (PARC) developed the technologies that would drive the personal computer revolution. ''By 1979, we had it all--graphical user interfaces, mice, windows and pull-down menus, laser printing, distributed computing, and Ethernet,'' recalls M. Frank Squires, a PARC founder in 1970 and now chief administrative officer of Sematech Inc., the chip-industry consortium in Austin, Tex. Xerox had the PC and networking businesses firmly hooked--but didn't try to reel them in. It did not even patent PARC's innovations. Management was too preoccupied with aggressive competition from Japan in its core copier business, says CEO Paul A. Allaire. ''If we had been good, we could have done both. We probably should have,'' he admits. Instead, PARC's technologies became the foundations for such icons as Apple Computer Inc. and 3Com Corp. Apple co-founder Steven P. Jobs visited PARC in 1979 and was astonished at what he saw. His PARC tour inspired the Macintosh. That same year, Ethernet inventor Robert M. Metcalfe left PARC to start 3Com. These are just two famous examples of the great Xerox giveaway. It is also common knowledge that over the past few years the company fumbled the digital future yet again by badly underestimating the inkjet printer, which Hewlett-Packard Co. stumbled upon and built an enviable base that is enormously profitable. Brazilian Fiasco Chief Financial Officer Barry D. Romeril's leadership abilities were undoubtedly questioned when the company lost the company lost 13%, or $1 billion, of its net worth because of foreign-currency losses, mostly in Brazil in the year 1999. Analysts were stunned that Xerox would have left such a big chunk of its equity exposed to the vagaries of the notoriously volatile Brazilian economy. Xerox suffers from ''a clear deficiency in financial oversight,'' contends Richard J. Lane, a vice-president of Moody's Investors Service, which downgraded Xerox bonds after this episode. This added to the piling up management issues at Xerox Corp. Accounting scandals On April 11, 2002, the U.S. Securities and Exchange Commission (SEC) filed a complaint against Xerox. The complaint alleged Xerox deceived the public between 1997 and 2000 by employing several "accounting manoeuvres", the most significant of which was a change in when Xerox recorded revenue from copy machine leases - recognizing a "sale" in the period a lease contract was signed, instead of recognizing revenue rateably over the entire length of the contract. The SEC also alleged that Xerox's senior management was aware of, either by directing or approving, the accounting actions that were taken for the purpose of what management called "closing the gap" to meet revenue and profit goals. In response to the SEC's complaint, Xerox Corporation neither admitted nor denied wrongdoing. It agreed to pay a $10 million penalty and to restate its financial results for 1997 through 2000. On June 5, 2003, six Xerox senior executives accused of securities fraud, including former chief executive officers Paul A. Allaire and G. Richard Thoman, and former chief financial officer Barry D. Romeril settled their issues with the SEC and neither admitted nor denied wrongdoing. They agreed to pay $22 million in penalties, disgorgement, and interest. Ineffective board of directors The board of directors came under a lot of fire for the lack of contribution to the direction of the company. The bungled succession of Paul Allaire, and the dismissal of the CFO Barry D. Romeril, the accusation of the accounting manipulations, billions of share holders wealth in smoke in Brazil, and decades long failure to keep up with the changing technology all added up to an ineffectual board. The scandal that involved the senior executives of the board further eroded the integrity of the board in the public's eye and cost the company a dent in its reputation. With the departure of Allaire, the board of directors did nothing concrete and this further contributed to the poor management issues at Xerox. Senior Management Power struggles The revolving doors of the CEO office of Xerox spun too fast ejecting its fledgling CEO out of the office. Xerox' failures to commercialize the breakthroughs made in its famous Palo Alto Research Centre (PARC) in the 1970s and 1980s--including the personal computer--have been thoroughly documented. G. Richard Thoman arrived for work to find that he was fired in absentia by the chairman Paul A. Allaire, the man he had replaced as chief executive of Xerox Corp. just 13 months earlier. The firing of a fledgling CEO who was in office was only thirteen months reflects a systemic corporate failure. It denotes the failure of the company's board of directors and that of the previous CEO. Although not without responsibility for Xerox Corp's failures, it is impossible that a CEO will be able to make his mark within a period of a mere thirteen months in a company. After Thoman's dismissal, Paul A. Allaire, was reinstated as CEO and became a combination Chairman-CEO that was another questionable move. A combination Chairman-CEO Several scholars notably Jensen (1993) have argued that the lack of independent leadership when the CEO is also the Chairman results in less monitoring of top management and consequently more severe problems. Given a key function of the board is to determine that who would serve as CEO, these scholars argue that board cannot effectively replace poorly performing managers when the CEO and Chairman titles are vested in one individual. Hence, Allaire as a combination of CEO and Chairman had no watchdog to ask questions and this further led to the lack of controlling measures. The board was also disadvantaged in putting firmer control measure for the performance because the power was vested in a single individual instead of two. The poor timing of a massive reorganization When Xerox awoke to the real danger, it was a little too late. The company realized that a massive restructuring was needed to regain its former glory. Xerox Corp consolidated 36 administrative centres into three back in 1999 in a massive effort to recover millions in cost savings. Nevertheless, the move came just as Xerox was also reorganizing its sales division. The simultaneous upheaval in two key units' unleashed chaos across the company's billing system. Customers received invoices quoting prices they had never agreed to or detailing equipment they had never ordered. Worse, the mistakes took months to sort out, prompting some long-time customers to defect. This merely added insult to an already injured company. The company also tried to position itself as a solution provider rather than a supplier without sufficient research and this ineffective transition from selling high-tech products to selling high-tech solutions and services resulted in losing the direction of the company. Lack of Company Direction Xerox's biggest weakness was its financial situation, and specifically the heavy debt and the low profitability due to its model of leasing rather than selling outright. With the senior management busy with the civil war and power politics, there was no consolidation of skills at a lower management level and no focus or direction for the workforce. The scandals, the loss in market share and the failed reorganising effects affected the employee moral. Xerox focused on being a copier company and not a documentation company, and even less a modern information technology company. This resulted in loss of direction in the company. The reorganization was ill timed and Xerox under Mr. Thoman's leadership reshuffled and lost its focus due to conservative management style and board irresponsibility, with many employees defecting when they could. 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