What Should Xerox Do? Don’t Integrate ACS, Partner with Them

Given its reliance on hardware, my old firm Xerox got squeezed by the recession as companies stretched equipment further and put off purchases of new printers and copiers. The company's bold expansion into services, through the $6.4 billion acquisition of Affiliated Computer Services announced on Sept. 28, represents an attempt to transform the company again into services.
Buying ACS will triple Xerox Global Services revenues, to $10 billion, and help it benefit from companies' desire to do more with fewer workers, even as business comes back. ACS, which handles paper-oriented tasks such as billing and claims processing for governments and private companies, also gives Xerox a bigger toehold in health-care and government services, two areas primed to benefit from federal economic stimulus spending.

Xerox Chief Executive Ursula Burns says the company needed to make a large services acquisition to accelerate its transformation from a product company into a service provider. "The way we were going was going to take 10 years," she said in an interview. "The path we were on wouldn't have given us scale fast enough." This is a bold move by any means an deven bolder for Xerox whit limited track record of successful integration of acquisitions. Last year Xerox bought Global Imaging Systems a national network of dealers to further expand distribution capacity of copiers and printers into middle market clients in the US.

What counts in making a happy marriage is not so much how compatible two people are, wrote Leo Tolstoy, but how they deal with incompatibility That philosophy underlies a novel approach to M&A that Ursula should adopt. The most critical success factor in determining the success of this bold move has to do with how ACS will work with the big house, ie Xerox North America. They should run ACS with full operational autonomy and preserve their identity. Instead of rushing to integrate businesses they’ve bought, they should allow their acquisition to continue operating independently, almost as if there had been no change of ownership. Each organization should focus on what it does best even as it learns to use the resources and capabilities of the other to achieve its goals.

Here is what Xerox should do:

1. Homegrown XGS should be folded into ACS first. Even Ursula acknowledges that “the way we were going was going to take 10 years” and this is exactly why left Xerox Global Services. Xerox buys ACS because they know how to build services business beter, faster and more profitably. ACS should keep all its senior executives particularly the CEO.

2. ACS should be run separately with full operational autonomy maintaining its own identity and organization. Xerox should simply lay down its values and create a fresh sense of purpose at ACS to be able to beter compete against HP and IBM. In a nushell, Xerox should treat ACS as it would partner in a strategic alliance. By doing so, Xerox can manage ACS’ organizational drivers and culture in a nonthreatening way, reduce the conflict and disrutpion of integration, and create an environment in which Xerox North America and ACS can collaborate, share knowledge and best practices.

3. Xerox should turn into a holding company with three separate companies:

a. Services Business: ACS & XGS to be combined as a $10B powerhouse.

b. Office Business: Office & Global Imaging Systems combined in North America to be spun-off soon. Canon, Konica/Minolta would be highest bidders.

c. Production Business: High-end digital publishing and printing business for commercial printers, quick printers, book publishers, etc. Although there does not appear to offer strong synergies with the services business initially, this is perhaps the single most valuable franchise Xerox has thanks to billions of pages moving away from presses into customized, personalized digital publishing.

The center should separately manage each business actively looking for synergies, selectively coordinating few activities and sharing best practices as well as coordinating through horizontal platforms such as strategic planning, budgeting, finance, human resources, lean six sigma, and information technology.

Any other approach would jeopardize Xerox shareholders’ investments because the firms is making an acquisition that is too bold too late to catch up with HP and traditional Xerox executives share a DNA of imposing their way of doing things with a command-and-control style.