4 Chapt One Th Nature Manage Col tot PPLE ee Hee eee en eee eee eee eee Case 13, Xerox Corporation (A) ‘Al Sater, fer 25 yeare with Xerox, reached tho top ois profession in 1960— ‘Vice Preidentof Finance A nectar anid, “Ia many ways Al isthe product of ‘the Xerox society, self confident and otapoken, Hes vocal sbout the prottive role the Xerox Bena people muct pay to make the new company culture ‘Wort. Al firmly bellows in the activ participation ofthe business eanrolers dedsion making” Al remersbered the analytial era ofthe 1970s where se- tueacy and rigid eyntera were more important than Ustaning tothe customer ‘The conrollors were the numbers people, and there was never enough data or ‘nalysi, During thie ora tome good peoplo lft the company, and Xerox factd ‘ew competitors in the battle for market share. ‘The company, however, ‘hanged withthe quality cltaral revolution f the 1980s, One never satised to harvest history Al bid « new agenda which continues and enhances the ‘work start daring the previous devade, According oA, "The contra funtion mua evalua tothe produce by marking with oe ‘Ranageeat We sult ctiely participate with inagerest Sa mang ‘otter tenon, The ony way we cn do tht ave open commanieton, {Speight and wolltained peopl, end to be on the cating edge of information {ethnsogy. Pounce baa partner wa saekting and tendlogy an me ‘lon he value we ad Ire sant ad vel, tn we dont belong a! Kero ‘Our Hwan tena paty dare god. Wo tra ench oer, wl the FEC (Ginancal Seacatve Count) is highly respecte through the camp, Toop coking ct workcles Sane rgunizations fr Lina, en the er ‘eos te re {apres what we havea ear. We know of eure, ‘ha there are sean whew ca Improve sad we are addressing them Company Background Xerox, the dosument sarpany, was « multinational corporation serving the ‘lobal docomont-proceasing and nancial varices markets. They developed, Ianufictured end merksted eopers and duplicaors, facsimile product, ‘cnnners, worktatins, compote software, supplies, aud other related equi ‘ment in over 180 countries, Tir financial services operations included nour ce, equipment financing, investments, and Savestment banking, This e356 {cote onthe document processing activi ofthe company. “Xerox yas one of the outetanding businese eucess stores in the world rom 104601079, ehte anual alas growth excecdad 25 percent, while the sonal growth of eumings exeeded 36 percant, Tai amazing recor’ was due to the dominant postion Xenve crested in the plain paper copier business. 1069 the eompeny introduced the revoltionary 914 plain paper copes. This ‘generatlon of equipment motivated the explosion ia the copying busines from Ins campy Cat ire a hn oe op 87‘Chip he Nate Management Corel Stone 38 EXHIBIT 1 Financial Highlights of Xerox Corporston (Dallas in sand Employee Data) 1938 ger Vie Von vias Bae Ngan Soden Foca Sr gia Taal tcor Boe SR Fane pois ker) : rena 276 more sage ag a ‘ele 8 2h ee ese 0 Sete, Jag =. Hsiao ae Ea ele Ag ae Mie ‘eit iy Sho Sos Sass” asso Ste” ae Nether pereonmonitae tae ae Saat Sees a33 gaa ripeepmne Bae. HG ae Sas, as manatee ‘doen based tan Mie alle SBR 20 million copies made annually n 1957 t 9.6 billion opiet meds annually in 1966 Tn 1900, the world copy business was over 900 bilion copie. ‘The orginal patent for the plain pape copier expirad in 1970, ending ann vitaton to potential compatitrs. In the next docade US Arm (IBM and Kode) ‘and capaneae firme (Canon, Minolta, end others) entered the large and small ‘opy machine industry. Exhibit 1 provide the Korox enporate financial high light forthe pest three decades, ‘Daring this pid growth period, Xerox bul ts worldwide business natvrk. Joo Wilson, tha legondary chairman and sreator ofthe name Kero, daced to {ow the compeny ab rapdly as poable? The company rough frega partners ‘who offered immediets entry into overvous markets, Phe swift growth, pros ‘tary technology avd salos methods easing contracts rather then equiped ‘seg required local poopl fans with Ue cxltue and market. fn 1086 Ken fntered into 5060 jain ventur with the Rank Ongarstion PLC, forming Rank Xerox Limited, This gave Nerox market acces to Europe Ate, atthe Mido Bast. In 1962 Keren formed a partnership wth Ff Phot Film Company in Japan to croata Pi Xoror. Tho gave Xorox sonnet Japan and Asie. At he ‘ame time, soparetearrangemente were mada with the South und Central ‘American countries. Their ownership structure varied besed onthe county and te loel partner. Tn tho early 70a, Xerox was more concerned with a US government antitrust suit than with the market entry of domestic and foreign compet ‘on, Only a the end ofthe decade di they reognize the werious competitive problem. The growth, income, and balance sheet strongth of Noro were ‘ths a ott prhat orate ete ih sf the es reat Se Gay esac oom sy ese an ear es Wena, 98) Spectr yp36 chan One The Nou of Menage Coal tnt EXHIBIT 2 Excerpts from the Xerox Teoning Literature BE clon iN rédiets, services, and buiiness practices iain the toughest ies eminent Feline wematarneseretn ipasiOecaig nen reps nner Impressive, attracting more ivestre who were pleased with the financial performance, Xerox operating inanager, however, began to fel the eompeti- presbure, Hetwosn 107D and 1980, Xorox'a marketshare as meesured by US copier revenues, fell from 96 pereent to 4G percont. The Japanese at- tacked the low and medium range of the coplor sazket, while the domestic competitors made inroads ia the highend agulpment market. To furthor frustrate Xerox managament, the Japanese firme were selling their equip ‘mont at Xeror’s manufecturing cost “eva enrns hecna airmen in 1982, and wes well aware of he sisi ‘ant marked share loees, The competition was formidable amen they were financially strong, technologically advanced, and enjoyed exellent eastomer ‘elation. Xerox developed a corporate revitalization plan called “Leadership ‘hrowg Quality Ie wa built upon the aarly work (3 compostive benchmari- ing and employes invoremsent. Exhibit 2 outlines the cental features of ese ‘progracns, which served a Ue oonorstone af the new Meron cure. Ine Hon, Xerox anor maneger alaried to improve the cumbersome management procees, The corporate reporting and planning process was very long and Erreewerati, wth ore deta! then most managers could absorb. ven Worse, the reporting formate were not even consatent between divisions. Ker improved ite management information aystem and standardized roportiog format to addeeae many ofthese prblam.Copter Mh Nt Management Conte Stems 27 Kearns passed tho leadership of Xerox to Paul Allaire tn 1991, hoving achieved « ompanyturnareund in the 8s, His tray chenged the caltare oe ‘Xerox pd gave the competitive uel to regain market shave und make La brovements in te eampany operation. The 1990 anual reper reflects some ‘fir euceee Document Proceesing achioved the folowing demonstrable renuls + Cuotomer aatinfaction lvela tacrowsed {a every Market served by the company + Revenues ose by 9 porcent to rsord $19.6 billion *+ Profi increased by 28 percent o $509 milion, + Rotarn on aatets improved by over 2 ponta to 146 percent. + $1.1 billion in aah was generat? Organization ‘Thocmphasis was on 9 business division, supported by 9 googrephiccustomor operations divisions, These 12 units were organised under thre operation imary focus for the ranegament of Xerox was the huxineee management level, which promotad more offctive linkages between markets ‘and tathnologion. These divisions had end-to-end reepoasiiliy for salitying ‘he customer, They were"... responsible for Keron offerings research and technology, development, manufctaring, mating, eley, ervce, admin: tration all work ceother seamloly tpt toga heteo and fata or th customers ‘The Finance and Control Function _ ‘The conral feel point ‘or the haanee function at Xerox wea the Financial Executive Council (FEC). The membarehip consited cf the senior Crporata ‘Finance sta andthe chief faeneial offers frm the major Xerox operating orgauisations. The FEC evolved inthe 1980s in esponee to the seer inane ‘ial managers gol of furthor improving the fuses operatiene and obtaining ‘greater involvement by the Finanoo executives Actording to Al," they felt financial managers (contellors) could contibute in the forulation of ‘management decisions atthe operating unite, The move ws basicly from an accounting policy group toa group which added more value to the maa ‘agement procs. Inthe epirt of Leadership though Quality, the Rewncal Practices requrod straining aad maior revision, The FI sot the course for becoming a world-class financial operation based on their benehmnar, sdien” ‘Note the P3C evaved in paral with the start ofthe 17@ and Benchmark {ng activites, The new Xerox LTQ culture demanded an iavelvel aid proactive Sinaneo group. The ey to tho value added concept was a bpig lie an agors Per 190, A Rape “ter 200 tg oe company dacnert ering the expan hg mie mio38 OngterOre Tir Neurecf Managenet ira Syne rake more enlightened busines decision, In addition, the FEC was the oon tral developer of the companys Snaseial homan remoree talent, Hxecutive ‘management reognied the stvength end talnt ofthe FEC and regularly used ‘ham as a sounding board for policy and strategie considerations. ‘The FEC actively promoted the building of trast the Xerox nance com unity: They tplealiy met once quartet for 2 days and discussed a wide ‘Thug of dinuneial end bosinou matters witha structured but informal atmo- “phere. Many ef the members had been onthe FEC for 10 years. They knew the soother very well, and ely exprassd their iden» end opiiane, Thix {group enginecrod the finance and accounting changes n Xerox wa the ongani- Efton end business prectces changed drastaly inthe 1080s, Raghunandan Bechdev (Sech®, corporate controler and ene of the FEC founding mem- bere, made the fellowing comment, “ta not clear how the FIC evolved, bat inence seeded tn stop second guossing line managers, We hada choice either {a bocome glorified euditore oto got involved in decisions early and become Dart ofthe menayesent process. We know we could add value to Use provess End provide managers with vale analysis and advice, Today the goncral Imanagers linen to their nance people, use them as sounding Feards and havea vary close working relationship.” Financial Organization ‘The 12 business unit controles in the esument procosing onganization 1e- ‘ported directly (oid ine ta the general manager oftheir rexpective bainoss Unit They had a deted line relationship to corporate nance forthe fdueiary Toles Ansncial reporting, and profeesonsl development, The docoment pro- ‘Goclag Hnancal ongenitation of arox wat « modified matrix, multinationa) Sgantation withthe basins aaiteontoer aving both solid and dated line poring responsiblity. The Business division, with responsibility for product Gevelopment and manufacturing, managed thelr busines Uroughout the ‘world "The Customer Operations divisions were organized geographically and Inenaged customer relationships. The management contol system concon- ‘latod on the esponsibility aod performance ofthe 12 usinoss divisions, “Tere were numerous subuits euch as manufacturing fcitie,distiba- tion and erviee centers, and eae fee, within each bosiness division. Bach Durineas unit hed its’ own organisation whecaby the subunit controller ‘sported diecly to his or her general manager and dotted line tothe division Centroler, The fllowing rommarises the global document processing opera ‘onal orgenieatin ‘business Division As outlined above, the Business divisions wer fr the overall masagement of their product businees areas worldwide ible Us Customer Operations US Customer Operations provided sles, service and fusiamer adminstzation apport to tha United States as contracted withthe ‘Busines divs, They purehesed docoment processing and related oguip- ‘ment from the 0 business divisions ‘honk Xerox Limited ‘They wore 51/69 poreant joint venture with the Ral “rganization when Xerox acquired the majerity uhare in 1969 end operatedCues The anne Mossgement Cont Stine 38 the company, Rank Xerox marketed and serviced document, procesing and elated equipment in Europe, Affica, and parts of Asin for the Business divisions, The Rank Xerox legal entity also cosained mansfaeturing alia {n Europe. For example, in Holland, they had en extansive sles orgonietion ‘8 wel as a major production fcity that supped equipment fer many other ‘countries including tho United States In thi ase, the Vonray plant rena legally were conslidete with the Rank Xerox rents, For porformance pur- oto, the plant provided product to the Busitwm division Thos, the plant ‘ontrller was at the intersction of the parfermance angeniation eatin ‘ee reported dotted tine to the Rank Xerox CPO wod solid line tothe plant sencral manager. Te plat general misnager reported directly to the Office Document Products Busiost Division CEO with n dated line to the Rack Xeror Business Division GEO. Amerleas Customer Operations ‘This group mstkated and serviced document broeessing product forthe Business diviionsn Canada, South and Gentel ‘America, Chin, and Hong Kong. Some of the uth and Central American op- rations were joint ventures with leal companies. In thee instances Kero ‘maintained a majority share and management responsibilty, Ful! Xerox This was’ 5060 joint venture with Fu Film Corporation of Japan. Thy developed, manafictired, marketel, and serviced Pat Xerox doce lument processing producta in Japan and other terrtoric n the Pei Ris ‘They fanetionod as an indepandent Japanescerporaion, buying and eling to other Kerex divisions. Development & Manufctring In 1902 the foesions ofthis organization (to develop and manufactur Narox dooument processing Products, Incuing ‘copiers, duplicator, electronic printers, fuses products, seainers, co Duter sofware, and sopplis) were integrated into tho 9 basiness divisions ‘wherever posible. A core Corporate Strategie Servicen organization provided fontracted support to the divisions. In general {the development or mano facturing facility produced atleast 90 person oftheir output fora epee ‘boxiness, they were placed in that business group. If thes facilities sup ied multiple busines group, ty were pled in tho Corporate Stage ervicos group. ‘or external financial reporting purposes, Xerox fllomed the legs organi- ‘alianal structure, For examplo, Pu Xerox ves an afited company and Serox only repored the results ofthe agutty savestment Fa Meron, Ia the ‘enray example above, they conslidated the feetory results with the Reale Korox results. Xerox Incorported the Rank Xerox (a majority-owned sabe ‘siinry) resulta with the totel company throazh consolidation. For parr. ‘ance mearurement, Venray rsults were reported through thelr Buinees Aivstons. The operational management sceounting reports performance porting, focused on Business dviion rerults, Management wasted to match secountability and respenailty by operating unit within & business ares Both the financial end management control rejrting apttems functioned in parallel A former foreign bane unit controle aa "Wo have fo fora on ‘ur hey objectives and deliver the planned reule Thi requires we manage ‘our bal environment, which may aot cooperate wit the origin plan”4 capes Ove ‘TieNatref Managoent Cour Stent ‘Management Control ‘The measurement aystom bagan with the planning proces. Each operating Fes wathin a Businae division or Customer Operations division developed i rel nd fongennge pane. Theo plas were copaofidated into the Bus rid Gustamer Operations division plane. Tis was a common business aera pith revcwe and feedback aorsons ax che plang proces reed seat (ne cogenzaticn, The overiding principe was tht the division on aac aenagers rere rorponsble for managing and eantrlling thelr environ ‘mena deliver the committed rent. fas Leadership through Quality which included competitive benchmark ing) tancoyersent uilzed eperstinal meanures, such as market share, ney ar aatafucion, and various qusllty statins, an a maj part of ‘ReRtagorement scheme, These date augmenied the traditional nancial ees formance measures, auch ae rerora on investment. Compeiive peeeh ering provided standards of word clus yerormnnce, and managers ae model wo imprave, ever tise, to these levels. Operating ure eet Target (umber of enachine installa per machine type, numberof customary ater coor onde delivery rates, arvce reponse tne levels, cosomer Pefafacton cotings, etc) for achievement. John McGinty, vice president of aaa Cane oie iearaed that ativies of e business enuse the mumbert ano ee ao we nec to ges better nation of time and beable to pute COeeFFen: dollar on tine, These qualit-rlated coneapis help provide the ‘Snel framework prover of pretctve deliverables” fcustaomenta were. eomination of nancial and operational argets Ro terrae ne of operations! aust, Dazed on die eitisal aseome ae on get peas unit, wer the measures Bach operating unit had so eo od targota Management linked growth end prof mesmares to Tee a sreen economy with operational mearures inked to world-class ‘benchmarking performance Reporting ‘Until 1967 the monthly reporting proves included a completa financial pec- eat ports mote due on & very tg time achedule, with fall reparsing to be ‘Eptote on the fourth work day. Opersting activity statistics, added tothe febedle in 1987, wer readily av fad id not ave fo seeehly nancial reals in fll detall fom all te unite were not necessary, ‘Bate on reported spect, but Limite, data conaating of sales rots and key opertional atieti on a ontly basis For corporate reporting, only ‘feareary fl inanclal love of he books was nacossary. The value of faforme ‘Fom'oad ot changed, bot Unete woe asignifeantredetion in the number fn {Unact pearlsivlvad in the praeea. Tho individual operations continued to sacha dee data nowded to manage tei respective busines, bat wit m de> ‘rena in corportte reporting requirements a fonda report aya also evolved. Open and honest smn nichtion teinforee the catclle' dotted line connextion ta corprate, Por ex. aa vpuch tall t allo his dotted Hine astecatae a least once x week ubfiaand the diestion their businesses were talking in the enrrent quarter(Copter The Nore f Managed Cot Some and the fll yee. These tak ware informative and centered around problems fand business risks, The FEC maintained standard of "no worries” and promoted trust among the controler. The unit eontollore know both the f- teal und operator] matters of thle business unr, ‘hie was the rvul of the partnering with line management. The informal network was nt hem: ‘mer but rather anopea dacusson of sever. Naturally the informal channel of ‘eporting complemented the formal channel, Questions 4. Outline the management control ayer at Xerox. Whatee the heyelements ‘hat make th eytam work? 2, What recent trond at Xarox do you se infvencing the management control Proce 8. In your opinion, how important are organizational culture and individual inthe Nev ntl proves?