NINE MILE

Management Consulting

The Relationship between

Xerox & Fuji Xerox

February 2013

www.ninemileco.com
Copyright 2013. All Rights Reserved. The Nine Mile Management Consulting Group

Nine Mile Management Consulting Group

February 2013

The Relationship between Xerox & Fuji Xerox Fuji Xerox (FX) was a 50-50 joint venture between Rank Xerox (RX) and Fuji Photo Film (FPF) in 1962 to pursue the Japanese market. In this early global structure, Xerox participated in the activities of FX through RX, but no real linkages in terms of resources or information flow was seen. By 1988 however, FX accounted for over one-fifth of Xeroxs net earnings, it established itself as a technically competent member of Xerox with development of the FX2200/FX3500, established a Total Quality Control (TQC) philosophy, and by 1989 all Xeroxs and RXs mid-to-high volume copiers were FX designs. FXs successes within Xeroxs evolving global strategy can be attributed to the following determining factors: (1) a strong vision for the company with formalized expectations, and a strong understanding of their value creation/appropriation dynamic within Xerox, (2) focusing around a set of values and norms (TQC) that positively infiltrated through all aspects of Xerox, (3) a responsive attitude towards endogenous market shifts, (4) promoting a shared culture of cooperation and technology transfers, and (5) adopting a long-term company focus. Ultimately, these successes within FX translated into a stronger joint-venture relationship FX served as a vehicle for change in the organization while Xerox benefited via the adoption of many of FXs strategies. Vision, Expectations, and Understanding of Value Creation & Value Appropriation Even with Xeroxs limited direct-involvement in FXs early activities, FX had a clear vision with aspirations to be a global company in marketing, manufacturing, and research. 1 The initial perceived conflicts between Xerox and FX were a result of an expectations shortfall on the dimension of efficiency (both internally and externally) while FX reacted responsively to these value creation challenges (i.e. Asia-Pacific competition, low-end copiers), Xerox wanted uniformity and status-quo across the organization. While Xerox never formally supported FXs vision in the beginning FX

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remained true to their internal company goals and strived towards them by investing in long-term R&D, product design (FX2200/FX3500), and manufacturing capabilities (Xerox 914 copier). Ultimately Xerox began to follow suit and sought new competitive positioning opportunities. Adopting Common Values & Norms FXs TQC movement (Achieving No. 1 Product1 or dantotsu1) cannot be underestimated as a driving and solidifying force behind the organization. This adoption of a common set of values and norms led to many positive benefits that permeated the organization i.e. reducing product costs ([copier] machine manufactured for half the price1), minimizing product complexity/parts, and developing an understanding of their competitors and consumers by analyzing competitors products/systems. As FXs influence on Xeroxs bottom-line began to increase, Xerox implemented this as a global strategy with 100,000 employees going through off-site training to unite the entire organization behind the quality effort.1 TQC allowed FX to achieve high product quality, minimal defects, and improve margins through cost-control all endeavours to retain competitive positioning against its largest rival, Canon. Responsiveness towards Endogenous Market Shifts FX realized early on the significance of the growing number of entrants in the Japanese marketplace for copiers by 1975, the market was being saturated by 11 Japanese companies leading to an erosion of Xeroxs position. While Xerox defensively attempted to maintain their market position via litigation of patent infringements with little product development attempts, FX realized the need for copiers to serve the low-to-mid-range market. The Xerox 10 series ultimately responded to this market demand through cooperation between Xerox and FX becoming its most successful line of copiers.

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Culture of Sharing, Cooperation, & Technology Transfers The lack of direct communication, information, and resource flows early on in the joint-venture was due to the structure of the organization itself with RX acting as an agent for communications with FX. While Xerox was reluctant to acknowledge FXs R&D and product design capabilities (those traditionally associated with Xeroxs US HQ), and reluctant to import FXs products FX on the other hand always imbued cooperation. It was through this framework of cooperation that furthered the Codestiny discussions and technology agreements but true acceptance of cooperation from Xerox only occurred when it was willing to take constructive feedback and began benchmarking performance against FXs operations. Long-Term Company Focus The long-term focus achieved by FX and later adopted by Xerox also helped the organization to achieve success against rivals. For example, while Xerox cancelled many R&D projects (7 in middevelopment), FX continued to strive towards its vision and continued development of the FX3500. From these examples, it becomes clear that by-and-large the successes of the Xerox-Fuji Xerox relationship comes from the direction of FX. When FX was able to prove its capabilities and earn its position within the Xerox organization (as demonstrated through bottom-line returns), the dynamic of the Xerox-FX relationship changed and the balance of power shifted towards FX. With this slight power shift came openness from Xerox (through previously established cooperative communication channels) to establish many of the strategies that FX adopted ultimately leading to further cooperation and success. Comparison of Xerox-FX Joint Venture to GM-Daewoo Contrasting Outcomes While the Xerox-FX joint-venture was a success, the GM-Daewoo venture proved to be on the

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road to nowhere.2 The Value Creation-Appropriation framework suggests that perception gaps and shortfalls between expectations and intermediate results ultimately lead to joint-venture failure2. The contrasting outcomes between Xerox-FX and GM-Daewoo are outlined below: Table 1: Mapping Expectations in the Xerox-FX Venture: Casual Attributes of Perceived Shortfall Endogenous Factors Sharing product design capabilities (Xerox 10 series). Dialogue to improve interfaces: Codestiny discussions, technology transfers, top management summits. Mutual learning through adoption of TQC. Exogenous Factors Sharing of strategic market assumption in regards to AsiaPacific region, Europe, need for low-end copier. Joint analysis to determine best strategy to compete against Canon. Renegotiation discussions regarding decline of royalty paid by FX and FX begins to receive manufacturing license fee.

Nature of Perceived Shortfall

Efficiency (Value Creation)

Reinforcement of strategic Equity alliance through adoption of (Value TQC and uniting organization Appropriation) behind the quality effort.

Table 2: Mapping Expectations in the GM-Daewoo Venture: Casual Attributes of Perceived Shortfall Endogenous Factors Exogenous Factors Internal conflicts and poor Deterioration of external cooperation, GM not promoting conditions (labor unions, wages, Pontiac LeMans aggressively South Koreas expanding enough. economy & currency. Differences in management Diminishing benefits of location decision-making: GM advantage for manufacturing. prolonged decision-making, Daewoo decisions made quickly be few top executives.

Efficiency (Value Creation) Nature of Perceived Shortfall

Mismatch of sources of value External imbalance created: appropriation: GM relies on US Daewoos desire to be a Equity sales, Daewoo wants to shift technology leader to compete (Value focus to compete directly against against Japanese leads to Appropriation) Japanese. technology sharing deal with Suzuki Motor Co.

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In both the Xerox-FX and GM-Daewoo cases, the perceived and actual lack of value creation through both shifts in internal and external factors, and how each company handled these shifts, ultimately led to their respective success and failure. The Xerox-FX joint-venture succeeded because of the ability to understand the value creation/appropriation link between the two, which lead to significant levels of cooperation. By clearly understanding the value creation role of FX within Xerox as a generator of novel ideas and approaches with product design, R&D, and manufacturing a reciprocating exchange of ideas, resources, and information began to flow throughout Xeroxs organization. By the same token, the GM-Daewoo venture failed because of the lack of appropriate responsiveness to internal and external shifts in the value creation framework. The partnership did not necessarily form through an advantageous merging of distinct capabilities between the two companies, but rather was dependent on external market conditions. The value proposition based on market conditions suggested South Korea as an advantageous location based on low-wage labour but when such conditions were no longer present due to a fledgling economy and poor vehicle quality, the relationship became increasingly strained. Instead of both companies resolving to work through these conditions each had different aspirations of the joint-venture which further widened the expectations shortfall. While Xerox-FX was successfully able to respond to value creation challenges induced by internal/external factors, GM-Daewoo did not ultimately leading to contrasting outcomes.

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References 1. B. Gomes-Casseres & K. McQuade: Xerox and Fuji Xerox. Harvard Business Review, 1991, 391156. 2. A. Arino & Y. Doz: Rescuing Troubled Alliances Before its Too Late. European Management Review, 2000, 18, 2, 173-182.

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