Executives from Xerox and Fuji Xerox felt that this new alliance gave them a better chance at competing in a tough market. They traced their earlier difficulties in that market, in part, to the lack of an appropriate organization for the business. Although Xerox had an existing O.E.M. business, which it contributed to X.I.P., the business had lacked a competitive array of low-volume products. Fuji Xerox sold to Japanese O.E.M. customers, but was not licensed to sell in the United States; furthermore, the competitive environment in Japan was less fierce. The new alliance would give Fuji Xerox more direct contact with customers in the United States and align the two companies behind a common business strategy for this specialty market.
Perhaps because of the need to get the "right" structure for the alliance, it took the companies a year to negotiate the X.I.P. agreement. From the beginning, the aim was a structure that would create incentives for collaboration. Mr. Marcus, who was the Xerox executive in charge of these negotiations, stated his philosophy: "I am not a believer in management, but rather in organization. An agreement needs to be self-policing." The negotiating teams left no stone unturned, he noted: "A lot of bright people argued down all the alleys looking for potential future problems. We spent our time going through all the 'what if' questions. We took the agreement apart and put it back together. Because of this searching, things should be pretty smooth. Throughout all these arguments, we maintained a long-term vision."
Toshio Arima, chief negotiator for Fuji Xerox, agreed with this assessment. "It remains to be seen if we will survive in the business," he said in 1993, "but X.I.P. is already a success in terms of the strategy and the arrangement."
Among other things, the new arrangement aimed to alleviate friction over how profits from the business would be shared. The joint ownership of X.I.P. helped to align the interests of Xerox and Fuji Xerox. In addition, the negotiators practiced "mathematical gymnastics to create a seamless company with all the right incentives to succeed," Mr. Marcus explained. "Now it is only us, not we and they."
The seamless company reached all the way to Japan, where Fuji Xerox created a separate unit for the low-end printer business. This unit transferred products to X.I.P., which then sold them to the O.E.M. customers. The agreement also set the ratio at which profits from the whole business would be shared between Xerox and Fuji Xerox; the level of transfer prices would not affect this ratio.
The new arrangement also helped Fuji Xerox upgrade its capabilities more rapidly. Tommy Tomita, a Fuji Xerox planner, summarized the impact of this venture in 1993: "Through X.I.P., Fuji Xerox was thrown into a new arena. Today, we can take on Canon because of the discipline we learned from the U.S. market. X.I.P. helped us see the need for low-cost engineering and showed us how to fill the needs of our customers."
To fill these needs, Fuji Xerox completely changed the way it designed and built laser printer engines. It created a business unit dedicated to the development of I.O.T.'s and made the engines in a factory specializing in high-volume production. Even more important were the changes in management. Fuji Xerox engineers were involved, for the first time, in direct discussions with O.E.M. customers in the United States. Mr. Marcus described other changes: "They made a huge commitment to turn things around. They changed suppliers, inventory management practices, design processes, sourcing and so on. You name it, they changed it -- everything in the food chain. The organizational learning was tremendous."