Monday, May 18, 2009

BP: Why I think Xerox will be one of the winners

from Death of The Copier:
Good to Great Author Reflects on Xerox - Back from the Precipice of Doom:
"'...When Anne Mulcahy became chief executive of Xerox (XRX) in 2001, she inherited a company mired in Stage 4. With Xerox's debt-to-equity ratio above 900%, Moody's (MCO) rated its bonds as junk. With $19 billion in debt and only $100 million in cash, Mulcahy described the situation as 'terrifying.
Mulcahy had never planned or expected to become CEO, describing her ascension as a total surprise. The consummate insider, she'd worked for nearly a quarter-century at Xerox, never drawing outside attention. For Mulcahy, it was all about Xerox, not about her.
And from
Connecticut-based Xerox Corp has implemented a KMS called Eureka that enables the organisation's 23,000 engineers from around the globe to input product solutions into a knowledge base. This knowledge base holds over 50,000 problem/solution entries. If an engineer encounters a unique situation where a solution does not exist in the knowledge base, he will voluntarily input the solution into the system once the problem is resolved.
Anne Mulcahy is one strand of Xerox dna. She started her career selling copiers. Then ran Human Resources. And didn't take a weekend off during the bad days. The other strand of Xerox dna is engineering.

These two strands evolved in an environment where asymmetric information made selling on the Brand as easy as shooting fish in a barrel. But without constraints the growth was unhealthy and unsustainable. By 2001 it almost killed the company. But, if you get lucky, the original dna brings together the resources to fight off disease. The problem is that it can take a long time to heal.

Now, eight years later, Xerox releases the Color Cube and XPS for MPS.

In the early 1990's, the Xerox docutech invented digital production printing. It was natural to take the detour into commercial print. But then the commercial print industry tanked and is still getting itself reorganized for the next stage of growth. Besides, Xerox is fundamentally about the office, not the printing plant.

The Color Cube + XPS + all the new boxes are directly in line with the kernel of Xerox value. The problem now is to reorganize the legacy communication ecology of the battleship to fight off the pirates. It's going to be a hard fight. In terms of financial resources and market cap, Xerox plays David to the HP, Ricoh and Fuji goliaths. My take is that if X can connect the boxes to the iGens, they will have invented the education printernet.

The problem is not Anne Mulcahy or Ursula Burns. The problem is a Board of Directors that are too busy being busy and bring the wrong dna to the table. Citicorp dna is just one example. Approving silly executive comp and commuting expenses is another. Reducing headcount, instead of inventing new ways to repurpose human capital is a third. Allowing SAG to hover in the mid 20%s is a fourth.

Click on the picture to see what I\
At one of the big four hedge funds that mostly own the company

1. I would do a very careful evaluation of the Board of Directors. Fire the ones that don't fit.
2. I would find the best sales people on the ground. Interview them. Ask one of them to serve on the Board.
3. I would find the best engineers on the ground. Interview them. Ask one of them to serve on the Board.

In any case, I always like small and mid cap companies that dominate their niche markets. Sooner or later big X will look at reinventing K-12 education. Education printernets to nurture learning at the bottom of the pyramid. Then they'll get back to a large cap company dominating a mass market. And do very well, by doing very good.

Go big X!

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