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  • First copier introduced after 10 years of development.
  • Such as what???
  • Paul Allaire implemented this restructuring See 1992 Annual Report - Page 4 1993 - Disengaging from remaining Insurance and other Financial Services businessesenabling greater focus on its Document Processing Business. Document Processing Workforce down by 10,000 (about 10%) over the next two to three years.
  • CIM established for being responsible for managing data centers and networks — What kind????? 1987 - CIM moved under this division under the lead of Patricia Barron, Director of CIM.
  • What is the norm expenditures in percent?
  • What sort of applications? What is a Legacy system - and how did it pertain to this particular system? Book defines Legacy as transaction processing systems designed to perform a specific function, which, over time, may not accurately reflect business information needs. In addition, as hardware and software improvements occur in the information systems marketplace, older IS solutions may be more costly to operate and maintain. Legacy comments by Dalal: “ I spent 110% of my time on legacy systems; there was not enough time to implement new ideas. You had to maintain the old systems. It took a lot of resources and a lot of time. T was like an additional weight on your shoulders and prevented you from moving forward.” Duplication: “ We had no consolidated list of applications — what their technology was, what development methods were used, or what business process they supported.”
  • These are four strategies whereby IM could quickly develop the IT infrastructure and capabilities required to provide Xerox’s business divisions with the information they needed.
  • Give examples where outsourcing is prevalent everywhere. i.e.. cafeteria services, lawn care, as well as outsourcing as used in everyday life (major house work, car repair). Core competencies are what a company does best. Strategy should be focused around that. Will discuss more in more detail shortly.
  • Porter's 5 forces is really just the basis for competition. In marketing you learn that there are really only two strategies; low cost or product differention. The five focus ultimately influence profitability of the firm. Jeff reviewed the bargaining power of competitors.
  • Contract Amended to include: how fast EDS must respond to problems like computer viruses and set penalties if they did no comply Also cover LAN management and desktop computer support
  • Contract Amended to include: how fast EDS must respond to problems like computer viruses and set penalties if they did no comply Also cover LAN management and desktop computer support
  • Xerox

    1. 1. Outsourcing Global Information Technology Resources
    2. 2. Outsourcing relationships fail for manyreasons. Chief among them are unrealisticexpectations; lack of a formal bid process;so-called relational contracts that assumethe vendor will act as a strategic partner butthat fail to spell out the details; and failingto manage the relationship once the contracthas been signed - “Divorce Your Outsourcer,”Computerworld, August 1996
    3. 3. Questions to Consider• Was Information Management (IM) a Core Competency for Xerox?• Was the IM Outsourcing an Appropriate Decision?• Does Outsourcing Give Xerox a Competitive Advantage?• Was the Outsourcing Process Taken By Xerox Appropriate?
    4. 4. Key DefinitionsCIM: Corporate Information ManagementLegacy System: Transaction Processing System Originally Designed for a Specific TaskProprietary System: System Designed for a Specific Task by an Internal IM OrganizationEmerging Technology: On-line publishing, digital video, image(as it relates to this case) communication over the internet, digital copying and printing
    5. 5. Case Study Team• Jim Bodine• Jeff Muckler• Eric Mendola• Ron Volans• Amy Esposito
    6. 6. The Industry
    7. 7. Industry Evaluation• Market Analysis – Trends – Key Success Factors – Attractiveness
    8. 8. Industry Evaluation• Environmental Analysis – Threats – Opportunities – Uncertainties
    9. 9. Industry Sales 1998 Sales - in millions 1,100 286 1,800 Xerox Sharp3,000 Ricoh Minolta 18,000 Canon
    10. 10. – Overview / History– Image and Positioning– Objectives– Core Competencies / Strengths– Weaknesses
    11. 11. – Overview / History– Image and Positioning– Objectives– Core Competencies / Strengths– Weaknesses
    12. 12. – Overview / History– Image and Positioning– Objectives– Core Competencies / Strengths– Weaknesses
    13. 13. – Overview / History– Image and Positioning– Objectives– Core Competencies / Strengths– Weaknesses
    14. 14. – Image and Positioning– Objectives– Core Competencies / Strengths– Weaknesses
    15. 15. Competitor Strength GridAssets and Competencies Sharp Canon Minolta Rocoh XeroxTechnologyAlliancesFinancial Position Strong Average Weak
    16. 16. The Company
    17. 17. Company Background DescriptionA global enterprise addressing theworldwide document processing marketwhich develops, markets, services, andfinances a complete range of products andservices designed to make offices aroundthe world more productive.
    18. 18. Background History• 1959 - Model 914 Copier Introduced• 1970 - Literal Monopoly on the Market• 1975 - FTC Settlement Occurs• 1976-1982 - Share Decreases to 13%• 1980 - Focus on Leadership Through Quality
    19. 19. Xerox Introductions & Market Share 120 100 80 New 60 Product New Product & 40 New Copier 20 Copier Introduct Introductions 0 ions 1961-64 1965-68 1969-72 1973-76 1977-80 1981-84 1985-88 1989-92 35 30 25 20 Low-End Copiers Market Share 15 10 Mid/High End Copiers 5 0 1984 1993
    20. 20. Yet, Net Income is Declining $800 $600 $400 $200 $0 ($200) Net Income ($400) ($600) ($800)($1,000)($1,200) 1993 1992 1991 1990 1989 1988 1987 1986
    21. 21. Background Corporate Restructuring — 1992• Decision Making Moved Closer to Customer• Greater Focus on Core Competencies• Focus on Core Business• Focus on Benchmarks• Workforce Reduction
    22. 22. Information Management• 1970s - CIM Established• 1987 - General Services Division Established Mission of CIM was now to . . . “develop the IT strategy for Xerox and ensure that it was implemented in all the business units.”• $500 Million IT Budget
    23. 23. Information Management IT Strategy Consulting Firm Finds Problems• No coordination of money spent each year• No Corporate-Wide Management of IM Investment Priorities• A Peripheral Player in IT Management• Narrowly Focused IM Talent Pool• Senior Managers Stingy With IT Infrastructure• Redundant / Overlapping Efforts• No Staff Development Mechanisms
    24. 24. Centralizing IM Wallington Presents at President’s Council Meeting — April, 1993• $670 Million spent on IM in 1992 —• Forecast to grow to $1 Billion by 2000 —• . . . Amounts to 3.7% of total revenues!
    25. 25. IM 2000 Reengineering Project Mid-1993• Identification of IM problem areas• Strategies to address those problem areas• Projects implemented to fix problem areas Goal: Move IM to a new information systems infrastructure.
    26. 26. Regional IM Infrastructure
    27. 27. Product Line Focus(Many different products per circle)
    28. 28. Problems Revealed• Aging applications portfolio• Proprietary technologies from previous structure• Large spending for legacy systems• Autonomous culture allowed for costly duplication
    29. 29. IM 2000 - Strategies• Reduce / Redirect• Infrastructure Management• Leverage Worldwide IM Resources• Business Process Driven Solutions
    30. 30. IM 2000 Internal Obstacles Remain• Conflict between IM problems and IM customers - the business divisions• Little discipline of both time and money• Internal costs of $55 million for hardware• Viewed as an “expense center’ by top executives
    31. 31. IM 2000 External Forces Create Final Pressures• Increasingly competitive environment• Forced to adapt quickly
    32. 32. . . . “Top IM managers began to realizethey would not be able to change quicklyenough without outside help.”
    33. 33. Outsourcing & Xerox: What? Why? How?
    34. 34. What was and What is Outsourcing• Outsourcing was looked upon as the business strategy associated with downsizing• Outsourcing now is looked upon as utilizing the best expertise in local laws and business customs.
    35. 35. What is Outsourcing?• Is the strategic use of outside resources to perform activities traditionally handled by internal staff and resources.• Mgmt strategy by which and organization outsources major, non-core functions to specialized, efficient services providers.• Wholesale restructuring of the corporation around core competencies and outside relationships.
    36. 36. What is Outsourced? Admin Others 9% 22% Mkt & Sales 14% Fin11% IT HR 29% 15% Admin Mkt & Sales IT HR Fin Others
    37. 37. Industry Trends in Outsourcing• According to the Outsourcing Institute, 80% of Fortune 500 companies outsourced some or all of their information management function in 1997.• These services accounted for 42 billion dollars in1996, a number expected to grow exponentially in the next decade.
    38. 38. Porter’s Five Forces Threat of new entrantsBargaining Competition Bargaining power of among existing power of suppliers firms existing firms Threat of substitute products
    39. 39. Reason for Five Forces• Basis of competition• Focus on core competency• Create a competitive advantage – Build barriers to entry – Build switching costs – Change the basis of competition – Balance power in supplier relationships
    40. 40. Basis of Competition Competitive Advantage Lower Cost Differentiation Broad Target Cost Leadership DifferentiationCompetitive Scope Narrow Differentiation Cost Focus Target Focus
    41. 41. Need for Outsourcing is driven less by cost than…..• Rapid access to new technologies and skill sets.• Better responsiveness to changing conditions.• Faster IT cycle times.
    42. 42. Top Reasons Companies Outsource• Reduce and control operating costs.• Gain access to world class capabilities.• Resources are not available.• Allows you to free up resources (people and capital) to work on your core business (i.e.. focus).• Improves capacity and quality.• Makes new business possible.
    43. 43. Reasons Companies do NOT Outsource• Difficult to successfully implement.• Problems regaining knowledge.• Differing company strategies.• Core competency.• Lack of control.• Lack of expertise.
    44. 44. IT Outsourcing• Fastest growing area for outsourcing today.• Executives are currently outsourcing: – Maintenance / repair – Training – Applications development – Consulting and reengineering – Mainframe data centers
    45. 45. IT Outsourcing• Executives are considering outsourcing: – Client / servers – Networks – Desktop systems – End-user support – Full I/T outsourcing
    46. 46. Outsourcing at Xerox• Outsourcing versus integration.• Create win:win relationship.• Share values to create a true partnership.• Develop “spirit of the contract” for senior management to and understand.• Create infrastructure to support companies strategic direction in the 90’s.
    47. 47. Outsourcing Process Phase I - Fact GatheringPhase II - Request for Proposal and Data GatheringPhase III - Feasibility and Management Approval Phase IV - Baseline Building and Evaluation Phase V - Due Diligence and Contract Awarded
    48. 48. Phase I - Fact Gathering Vendor Benchmarking Selection IT Partner Outsourcing Objectives
    49. 49. Phase I - Fact Gathering• Vendor selection team – Cross-functional representatives – Establish outsourcing requirements, objectives, goals, and timeline – Conduct industry benchmarking
    50. 50. Outsourcing Objectives• Drive down spending on “legacy” system• Improve quality and cost of IM services• Focus company’s resources on the primary mission.
    51. 51. Xerox Benchmarking• Outsourcing Strategies• Outsourcing Processes• Vendor references• Human resource impactCompanies• Salomon Brothers • AT&T• General Motors • Kodak• Equifax • Sun Microsystems• First Boston • McDonnell Douglas
    52. 52. Vendor SelectionQualifications Financial• Global Presence • Translation of productivity• Capability to manage savings to Xerox“globally” •Flexibility in meeting Xerox• Experienced in large scale financial requirementsoutsourcing “Soft” Criteria •Experience in•“Core” strengths in various • “Congruence” with “engineering” financialframeworks positive Xerox environment environment•Mgmt processes and strengths • Provide benchmark for desired Xerox cultural traitsHuman Resources Technical Solutions• Treatment of Xerox • Productivity Commitmentemployees • Support for existing Xerox•Human resource values diverse environment •Capability to “migrate”
    53. 53. Outsourcing Process Phase I - Fact GatheringPhase II - Request for Proposal and Data Gathering
    54. 54. Phase II -Data Gathering and Request for ProposalPrepare a Request for a Proposal • Be structured in a way that will allow assessments and comparisons to be done in meaningful way • Define requirements in complete and measurable terms • Describe the type of relationship you are looking for • Explain the problems that you are trying to solve • Ask specific questions about corporate culture • Present the current costs to the organization • Specify a service level
    55. 55. Phase II -Data Gathering and Request for ProposalData Gathering• Research the Vendors – Financial Stability, potential mergers, takeovers• Questions and Answers
    56. 56. Outsourcing Process Phase I - Fact GatheringPhase II - Request for Proposal and Data GatheringPhase III - Feasibility and Management Approval
    57. 57. Phase III - Feasibility and Management Approval• Outsourcing feasibility• Recommendation to Management for approval to proceed
    58. 58. Outsourcing Process Phase I - Fact GatheringPhase II - Request for Proposal and Data GatheringPhase III - Feasibility and Management Approval Phase IV - Baseline Building and Evaluation
    59. 59. Phase IV - Baseline Building and Evaluation• Evaluate the vendor responses – Systematic – Measurable – Meets objectives• Select the vendor for contract negotiation
    60. 60. Lessons Learned - Xerox• “What you want” is essential• Clear objectives are key• Cross functional team is a necessity• A good contract requires a lot of data
    61. 61. Outsourcing Process Phase I - Fact GatheringPhase II - Request for Proposal and Data GatheringPhase III - Feasibility and Management Approval Phase IV - Baseline Building and Evaluation Phase V - Due Diligence and Contract Awarded
    62. 62. Phase V -Due Diligence & Contract AwardedOutsourcing deals that go bad frequentlysuffer from poorly designed contracts -“Outsource Sense,” InfoWorld, September 1996
    63. 63. Managing the Outsourcing Relationship• Create a Shared Vision• Include Effective Performance Measures• Use Performance Incentives and Penalties• Establish Clear Communication Mechanisms• Develop a Clear Contingency Plan and Exit Strategy• Manage People Issues
    64. 64. Negotiate a Sound Contract• Terms of the • Disclaimers Agreement • Bankruptcy• Minimum Service Contingency Levels • Force Majeure• Ownership & • Performance Measures Confidentiality of • Anticipate Change Data• Warranty• Incentives
    65. 65. Global Complications• Various Human Resource / Employee Laws• Degree of Risk• Political Instability• Various Asset Transfer Laws
    66. 66. Xerox: Outsourcing Partnership XeroxInformation Technology System Development EDS Tactical Implementatio n Infrastructure Management Telecommunications Mainframe Computer Desktops Systems Local Area Networks
    67. 67. Xerox: Status in June 1994• Xerox/EDS Core Teams Created• Massive Internal PR Campaign Initiated• Switch Incentives Offered• Assured Confidentiality• Divorce Issues Addressed• Annual Price Benchmarking• Single Global Contract• Key Global Players Added to Team
    68. 68. Xerox: Status 1996/1997• Xerox “Satisfaction at the Low End and Dropping”• 2000 Employees Transferred to EDS / 700 Remain• After 2.5 Years 15% of Proprietary System Replaced (Global View)• 600 Novell LANs installed• 1000’s Desktops and Printers Replaced• 12 Person Xerox Team Established to Manage• Contract Amended in Sept 1996
    69. 69. Contract Addendum• Clarified Terms for Desktop and LAN Support• Established Formalized Response Metrics• Established ‘Managed Rate Change”• Eliminated Billing Inconsistencies
    70. 70. Xerox: Status 1999EDS Files Suit Against Xerox February 1999
    71. 71. Differing Views EDS Literature Xerox Testimonials• Collaborative • Technology Transition• Value Transition Painful Employees • Standard Architecture• Communication Key not as Complete as Proprietary Systems • Spent More Time Co- Managing Than Expected • More Costly
    72. 72. Conclusion
    73. 73. Summary - Decision Printing, Publishing &Electronic Media Industry:Competitive Environment Technologically Focused Emerging Technology: Xerox Core Competency Information Management Not Core Competency Outsource Non-Core Competency
    74. 74. Summary - Process• Process – Focused – Management Buy-in – Benchmarking Utilized• Implementation – Underestimated Change in Information Technology – Service Specifics Not Addressed
    75. 75. Recommendations• Outsource Non-Core Competency Functions• Write Air-Tight Service Level Agreements for Every Strategic Business Unit & Every Platform• Define Graduated Levels of Performance and Penalties Based on Customer Satisfaction• Don’t Compromise Service Levels with Price Negotiation