Xerox's Struggle to Get into Focus

By John S. DeMott

The king of copiers is sharpening its competitive thrust

Try as it has for the past two decades, Xerox Corp. has never succeeded in earning much money from anything other than office copiers. Forays into computers, the education business and products for the office of the future have, in the main, been misadventures for Xerox or have yet to pay off.

Accordingly, the company's fortunes have slumped. Though sales were almost $9 billion last year, Xerox no longer monopolizes the market for the marvel it developed, the copier that works using ordinary untreated paper. Japanese and U.S. competitors have shaved the 70% share of the plain-paper copier market that Xerox held a decade ago to about 45% now Earnings for the first half of this year were down to $271 million, off 16% from the same period a year earlier. Security analysts expect that the third quarter, to be reported this week, will also be poor.

Wall Street followers of the company are still puzzling over Xerox's offer last month to pay some $1.6 billion in cash and stock for Crum & Forster, the 18th largest U.S. property and casualty insurer. High-tech Xerox in the insurance business? To many analysts, it seemed anomalous, a radical and inappropriate diversification of resources.

Analyst Sanford Garrett, at the time one of the few remaining bulls on Xerox, found the announcement so jarring that he took the company's stock off the buy list at Paine Webber, the Wall Street securities firm. Xerox stock, which made millionaires of investors prescient enough to buy in the years after the plain-paper office copier was introduced in 1959, sold as high as $172 in 1972. It closed at only $37.75 last week, even after moving up in the big market rally; it was at $29 two months ago when the Dow Jones industrial average began its 250-point climb. The low level of the I stock helped fan suspicions held by I Garrett and others that the purchase I served mainly to anchor the company against possible takeover by lowering its cash reserves and increasing the number of shareholders.

David T. Kearns, 52, who in May succeeded C. Peter McColough, 60, as Xerox's chief executive, says, "We are not walking away from our core business." He defends the Crum & Forster deal by saying that it could eventually produce a lot of cash, which Xerox needs to support its vigorous research efforts in copiers, duplicators, electronic typewriters and other office gadgetry. Buying the firm was not Xerox's first attempt to diversify into financial services. In 1968 the company made, then dropped, a bid for C.I.T. Financial Corp. But Xerox's acquisition record has been unspectacular except for one notable failure. In the early 1970s, the company sank $1 billion into Scientific Data Systems, a computer maker that was written off in 1975 as an $84 million loss. Xerox's striking success with its copiers may have stunted the nurturing of genuine management depth in other, related fields. The company's executives talked of developing technology for the office of the future as far back as 1965. The late Joseph C. Wilson, who steered the company into xerography, saw his firm as dealing not just in copiers but in the broader realm of information and knowledge.

Neither foresight nor omnipresence in white-collar enclaves ensured Xerox of success with products other than copiers. Its Star work station, one of the first office-of-the-future products designed for managers not comfortable with computers, has had disappointing sales since its introduction last year. Now it is almost too late. Says an analyst: "When it comes to automated offices, they're not good enough relative to those they're up against--IBM, AT&T and Kodak. They're not strong as a team."

Kearns agrees with some of the criticism. But he contends that Xerox is perhaps in a better position now than at any time since the 1960s to take advantage of its strengths: technical expertise, a far-flung sales and service network and a willingness to learn from past mistakes.

The chief executive has high hopes for the new 10 series of copier-duplicators, introduced last month and designed for customers needing copies in medium to low volumes. The lower-volume machines are directed squarely at Japanese-made products sold abroad by such competitors as Canon and Ricoh. While boosting sales, Kearns is also struggling to get costs down. From his tastefully furnished office in the company's headquarters building in Stamford, Conn., Kearns has this year slashed the company's worldwide work force of 120,000 by up to 4,000, almost as many people as the company employed in 1962. The cutbacks cost Xerox a bundle in severance pay and benefits, but Kearns expects savings to run into the hundreds of millions of dolars in the long run.

To reduce costs, Xerox managers use a technique called "competitive benchmarking." That means looking carefully at the lowest-priced competing copier, determining exactly how it is being produced for less, and making the Xerox product in a similar way. The method seems to be working. The 10 series costs between 40% and 50% less to produce than earlier machines.

To many company insiders and analysts, Xerox is only now learning how to compete effectively in a world market. The dozen or so years of monopoly in the plain-paper copier field took their toll and left the company overstaffed and flabby when the hardball players from Japan got into the game. Says one old Xerox hand, " When IBM and Kodak started competing with us. we could understand that. They had the same values we had. But then the Japanese came in with another set of rules altogether. All of a sudden, it became a whole new world." It will take some time to adjust, and everyone at Xerox knows it. Kearns foresees tough going for the company at least through 1983. --By John S. DeMott.

Reported by Janice C. Simpson/Stamford

With reporting by JANICE C. SIMPSON

This file is automatically generated by a robot program, so viewer discretion is required.