Xerox and It Management

Xerox is one of the largest companies in the document processing products and services industry. Xerox held a virtual monopoly in the plain-paper copier market until the Federal Trade Commission intervened. In 1975 Xerox was forced to forfeit patent protection and had to license to competitors. Xerox's markets share dipped from 80% in 1976 to 13% in 1982. In order to become more competitive, Xerox began to use benchmarking, Leadership through Quality and employee involvement initiatives. These initiatives helped grow Xerox's market share back to 18% in the low end copier business and 35% in the mid-to-high end. Despite the improvements in market share the financial performance of the company declined. Therefore in 1992 a major reorganization was planned, Xerox would change from a geographic organization to a market segment organization.

Xerox corporate information management (CIM) unit was established in the early 1970s. In 1987, CIM was moved to the General Services Division and was given the task to "Provide the overall information technology leadership to the company." The leader of the CIM group quickly realized the task was not possible without significant organizational change. After bringing in consultants to review the Information Management at Xerox, the director of CIM realized the Xerox IM infrastructure could not support the company's strategic direction. To address the IM problems, CIM started a new initiative, "IM 2000". The goal of IM 2000 was to move Xerox to a new information systems infrastructure.

The problems found with Information Management at Xerox

* Aging application portfolio built on proprietary technologies

* Large cost associated with keeping legacy system running

* Duplicate work caused by corporate culture - autonomy

The IM 2000 design team recommended the following four strategies

1. Reduce/Redirect

 Reduce overall costs by reining in the expense of legacy system. Use savings to fund new applications and infrastructure.

2. Infrastructure Management

 Move to a industry standard infrastructure that would be managed centrally - a client server environment.

3. Leverage worldwide IM resources

 Create library of shareable core modules.

4. Business process-driven solutions

 The current legacy system was to be replaced by solutions supporting new Xerox business process.

Xerox's earlier quality initiatives had created a corporate culture used to having a partner relationship with suppliers. Because of this, management suggested IM should look at outsourcing as an alternative.

Typical Reasons for Outsourcing

* Concerns about Cost and Quality

o Vendors save money by

 Running much leaner overhead structures than their customers

 More aggressive use of low cost labor pools (India)

 Staff must keep up to date on newest IT practices

 Purchasing Power

 More efficient use of capacity

 Better Control over software licenses

 More aggressive management of service and response time to meet corporate standards.

 Outsourcing is their only business and their success is measured by customer satisfaction

 The ability to run with a leaner management structure

 The ability to access higher levels of IT skills.

 Creative and more realistic structure of leases

* Breakdown in IT performance

o Failure to meet service standards - could be impression

o The need to rapidly retool backward or obsolete IT structures

* Intense Vendor Pressures

o Large visibility and aggressive sales force enable vendors to "sell" the value of their services

* Simplified General Management Agenda

o Allows management to focus on its competitive differentiates as long as IT is not a core competency

* Financial factors

o Liquidate the IT assets

 Up-front capitol paid by vendor

o Turn fixed cost business to variable cost

o Hard dollar expenditure

 Users must use discipline which can be lacking with soft-dollar allocations

o Allows firms looking to sell to get value for an asset unlikely to be recognized

* Corporate Culture

o Allows consolidation of services even if the internal IT department lacks power to do so.

* Internal Irritant

o Remove tension in the organization

Xerox Explicit Reasons for Outsourcing

* Conflict between IM and Division leaders

o Business Division did not understand problems faced by IM. Division would overload IM with tasks and complain about how inefficient IM was.

* Funding constraints - $55 million just for hardware

* Viewed as expense center - no value added

* Extremely competitive business environment

* The need to adapt IM 2000 quickly

Five factors dictate whether outsourcing benefits outweigh the risks; Position on the Strategic Grid, Development Portfolio, Organizational Learning, A Firm's Position in the Market and Current IT Organization. Xerox's