The Transformation of Xerox
The Xerox turnaround can be traced to about 1979, when Mr. Kearns took a close look at the strategies and products of Fuji Xerox and other Japanese companies. Xerox engineers were amazed by the Fuji Xerox reject rate for parts, which was a fraction of the American rate, and by the substantially lower manufacturing costs at the joint venture. Visits to Fuji Xerox facilities introduced Xerox executives to the practice of "benchmarking," which systematically tracked costs and performance in all areas of operations against those of the best in the field. Xerox's own benchmarking studies helped fuel Mr. Kearns's efforts to infuse his organization with new vision and determination.
In 1981, Mr. Kearns announced a company-wide initiative for "business effectiveness," and two years later he formally launched the Leadership Through Quality program, based partly on the experience of Fuji Xerox. Throughout the effort, Mr. Kobayashi and others at Fuji Xerox were called on for help. Xerox hired Japanese consultants recommended by Fuji Xerox, and some 200 high-level Xerox and Rank Xerox managers visited Fuji Xerox in later years to learn directly about its quality management program.
The rallying point for the Xerox quality movement was the development of the 10 Series, a new family of copiers. Dubbed the "Marathon" family, this became the most successful line of copiers in Xerox history and served to restore the company's finances and morale. The flagship Xerox 1075 became the first American-made product to win Japan's Grand Prize for Good Design. Altogether, 14 models were introduced between 1982 and 1986, six of which were still sold in 1990. Fuji Xerox designed and produced the low-end models in the series -- the 1020, 1035 and 1055, the latter drawing on basic technologies from the FX3500, the first machine that Fuji Xerox developed internally.
Because Xerox's Japanese competitors were not strong in mid-volume copiers at the time, the 10 Series forestalled their move into that segment of the market and helped Xerox win back market share. On the strength of the 10 Series, Xerox regained 2 to 3 percentage points of market share in 1983, and 12 points in 1984. By the end of 1985, more than 750,000 of the new machines had been rented or sold, accounting for nearly 38 percent of Xerox's worldwide installed base.
Xerox continued throughout the 1980's to change the way it did business. Taking another leaf from the Fuji Xerox book, the company reduced its supplier base, bringing the cost of purchased parts down by 45 percent. Average manufacturing costs at Xerox were reduced by 20 percent and the time-to-market for new products was cut by 60 percent. This progress was recognized by the Commerce Department in 1989, when the company won the Malcolm Baldrige National Quality Award.
Fuji Xerox Gains Greater Independence
Fuji Xerox continued to grow and mature through the 1980's. Its dollar revenues grew faster than Xerox's, and by the end of the decade represented a more significant portion of the Xerox group's worldwide revenues than ever before. Fuji Xerox's financial contribution to Xerox's net earnings in the form of royalties and profits had also grown sharply -- from 5 percent in 1981 to 22 percent in 1988. And throughout the decade, Fuji Xerox had been an important source of low-end copiers for Xerox. Between 1980 and 1988, Fuji Xerox's sales to Xerox and Rank Xerox grew to $620 million, from $32 million.
The technological capabilities of Fuji Xerox continued to broaden and deepen in the 80's. Fuji Xerox's increased technological strength is partly reflected in the technology fees it received from Xerox for designs it supplied to Xerox. These fees were introduced when the technology agreements between Xerox and Fuji Xerox were renegotiated in 1983. The new agreement also called for a gradual decline in Fuji Xerox royalty payments to Xerox, in anticipation of a declining value of xerography.(10)