Article Tools
As corporate turnarounds go, Xerox Corp.’s transformation over the past nine years qualifies as a modern miracle. In 2000, the eponym of photocopying was bloated, slow and on the verge of bankruptcy because of mounting losses and ballooning debt. Within a year, the SEC was investigating its accounting practices. One of the crucial decisions that helped CEO Anne Mulcahy save and fundamentally renew Xerox was to reaffirm its commitment to R&D, despite pressures to cut costs.
So it should be no surprise that now, as the economy batters Xerox’s revenue (down 18% in January and February compared to a year ago) and profits (Q1 earnings forecast was slashed 75%), R&D remains sacrosanct. The company is freezing salaries and suspending contributions to retirement plans as part of about US$550 million in cost savings. But R&D? Untouchable. It is Xerox’s lifeblood, says chief technology officer Sophie Vandebroek:
“Easily 75% of our new product sales are things that R&D launched in the last three years” Vandebroek says. “If you stand still, you get commoditized.”
But as the Belgian-born Vandebroek made clear on a recent swing through Mississauga, Ont., to mark the 35th anniversary of the company’s Canadian research centre — one of four major facilities globally — success has come not just because Xerox spends about 5% of revenue on R&D (US$884 million last year). It’s how that money is spent.
As chief engineer of Xerox prior to her promotion to CTO in January 2006, Vandebroek made sure the company’s R&D is more efficient and effective. (Xerox’s Palo Alto Research Center — better known as PARC — famously failed to reap the rewards of two seminal advances it made in personal computing in the 1970s: the mouse and the graphical interface.) And it starts with an important distinction between mere inventions and actual innovations — the latter term only applies to those new ideas that delight customers.
It’s a good definition, and one that has pushed Xerox’s R&D teams to work more closely with customers at every stage of the innovation process. “We’ve always had smart, creative researchers, but we used to be more self-contained,” says Vandebroek. “There were all these secrets, and we couldn’t talk to anybody about them. Now we open the door and have the dialogue, so we can get feedback about what people would like to see different about an idea, and embed it from the beginning.”
For instance, Xerox regularly holds intensive “dreaming sessions” with customers. Sounds hokey, but it’s a chance for researchers to hear what troubles their customers, as well as present them some early projects. Xerox also employs anthropologists and ethnographers to observe how customers’ employees actually use paper in their day-to-day jobs, among other things.
But the most fundamental change at Xerox is how it approaches its business more as a service these days. That provides a more stable annuity stream to fund innovation. Approximately 85% of Xerox’s cash flow in 2008, and 73% of its revenue, was generated by annuity streams from both products and services. A service approach also transforms how Xerox interacts with customers.
Because, ultimately, new ideas only matter if a customer thinks they do. And that’s true in good times, and bad.
Rate this article
