‘I believe in global coordination and local action‘

By Darryl Danielli, Monday 10 October 2016

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While by the usual Xerox metrics chief executive in waiting Jeff Jacobson is still very much the new kid on the block, having not even reached his fifth anniversary, with almost 30 years’ industry experience, he’s no greenhorn.

jacobson

Jacobson: "what I tell the team is: hold up the mirror – our biggest competitor is us"

And in three months’ time that experience will be put to the test when the Xerox of old will be no more and in its stead will emerge two businesses: $11bn-turnover Xerox Corporation focused on document technology, with Jacobson at the helm, and the $7bn business process outsourcing operation Conduent.

Despite still technically being president of Xerox Technology – he doesn’t become chief executive until Xerox’s legal seperation is complete – he took time out of his whistle-stop European tour to share his strategic vision for the post-split business and explain how listening to customers is the only way to ensure Xerox’s new document business turns elegant decline into rude growth.

Darryl Danielli So how’s the European tour going?

Jeff Jacobson It’s going well. I’m trying to get out in front of the employees as much as possible while we’re going through the separation, to keep people informed and head off any rumours before they start.

And I guess in an organisation the size of Xerox Chinese whispers can be a problem?

Exactly.

In terms of the ‘new’ Xerox you will be heading up though, what will it look like – just to set the scene?

Essentially it will be Xerox as most people know it, but with document outsourcing. When we publish results today we actually separate document outsourcing and report it in services, so now Xerox will be a document technology business, with document outsourcing.

So what will it include?

It will be all of our print machines, managed print services, graphic communications, our channel partners, our European channel group – so based on our 2015 revenues we’ll be an $11bn business with around 35,000 people.

You’ve been confirmed as the chief executive of Xerox Corporation, but you won’t officially step up until the split happens, so it must be a bit of a strange position to be in right now, a bit of a hiatus?

Not at all. In essence I’m doing two jobs, because I’m very involved in the separation of the businesses and at the same time I’m running the day-to-day business. If you think about it, most of what I’ll be doing [when I become chief executive] from an operational standpoint will be the same thing as now, except that I’ll have board relations and investor relations – more of the corporate functions. But in terms of the operations – take Europe as an example – the European channels group, large enterprise organisations, graphic communications they all report to me today anyway, so that won’t change. So the comfort level will be knowing all the operations, the new things will be the investor relations, shareholders, working with the board, things of that nature.

But I suppose you have experience of those from your former lives?

Correct, from being CEO of both Kodak Polychrome, which was privately owned but had a board of directors, and then Presstek, which was a public company.

So on that, perhaps you could give me a potted history of your career?

I joined the industry in 1987 with Polychrome, which was then a division of Sun Chemical. I actually started my career in human resources and became a labour and employment attorney. Then in 1993 when I was going to go and practice law fulltime, the chairman of Sun Chemical, Ed Barr, convinced me to go into operations rather than go into law.

Did you join on some sort of graduate trainee programme?

No I was working fulltime as director of human resources and went to law school at night, when I was at Sun Chemical. But when I was ready to leave, Ed said to me that anyone that could work all day long as director of HR and go to night school and get by on three hours sleep for four years was the type of person that he wanted running one of his operations – so that’s what I did. I eventually became vice-president of sales, then the head of all operations and then Sun spun off the Polychrome division in 1998 and Kodak also spun off its graphics division, and they created Kodak Polychrome Graphics [as a 50/50 joint venture] and in 2000 I became CEO – at the time it was the largest plate manufacturer in the world. Then in 2005 Kodak bought out Sun, and I ran Kodak Graphics for two years. At that time, it was $3.6bn division that had Polychrome, NexPress, Creo and Versamark. I had always told Kodak I would stay two years, because after you’re bought it’s not quite the same as when you run your ‘own’ company. So I joined Presstek as chairman and CEO and then I joined Xerox in February 2012 as president of graphic communications, which is when I think we first met. Then in January 2014 I become chief operating officer of the technology business, and then president in July 2014.

So what do you think were your key learnings at KPG and Presstek that will help prepare you for the role of Xerox chief executive?

What I’ve learned is that innovation is very important and you need to stay ahead of the curve and always listen to your customers. If you get out in the field as the CEO you learn so much from customers. I know that I learn as much from customers as I do from being ‘inside’ my business, and if you can shape your business to where the market is going then you will have a very successful company. And that’s what I fully intend to do here.

Running an $11bn business and still being able to get out to see customers is going to be quite tough though, isn’t it?

You always have that, so there’s no question that I’m underestimating how much time I’ll want to spend with the board or investors, but at the end of the day, and this is the exciting thing about the separation, we won’t be a separate corporate entity.

How do you mean?

Well if you look at Xerox today we’re an $18bn business that has two big divisions, so there truly is a corporate function that’s not necessarily involved with the operations, when you separate the businesses then the CEO will be inside each of those businesses. What I mean is that my direct lines will be inside the business, so we’ll be driving it every day and, as everyone knows, delayering any organisation enhances the decision making. You get rid of all the bureaucracy, its transformational.

Is your senior management team in place now then?

We’ve started naming some of it. Where we have lines of businesses today, I mean verticals like graphic communications, channel partners, large enterprise, etc, we’re still going to keep the benefits of those large verticals, but we’re going to go to something of more geographic model, more by country.

So in simple terms you mean an overarching person per country?

Yes, we’ll have a head of the UK for example, whereas today there’s not one head of the UK, there’s a head of European channels, a head of enterprise a head of graphic communications, etc. So we will have one person who can see all of it, take a country and market view and ask if we should acquire that customer through a reseller or direct, is it purely a graphics customer or can we help elsewhere. We think we’ll have much more focus that way.

Interesting, so it’s almost like each country will be run as a standalone business?

Absolutely.

And when is this being announced?

I think we’ll probably announce it in the next few weeks.

Is that a significant change in strategy?

The biggest part of all of this is how do we change the revenue trajectory. This industry has been in decline, and as a business we’ve been declining around 3%-4% and this all about how we can get this business back to growth. So the leaders we’re putting in, they’re going to be pushing and driving growth. And anyone running a country after the split, I’m going to be expecting to see them out in the field in front of customers three of four days a week.

On the subject of decline, Ursula Burns [Xerox chairman and chief executive] mentioned previously that your part of the business, if you like, was the profit generator, whereas the BPO side was the growth generator, so they balanced each other out. Whereas post-split, there will be nowhere to hide.

Exactly and this is what’s exciting and invigorating, because you’re right, we were asked to be the profit generator, the cash generator, but much of the investment in terms of acquisitions went on the services side. Now I can look a customer in the eye and say that every dollar that comes into this company will be dedicated to our customers, our employees, R&D innovation and acquisitions, and that’s the really exciting part – our destiny is in our hands.

Was that part of your pitch when you went for the role?

It was. We’re going to continue to manage for profits and cash, but we’re going to drive revenue a lot more. So, I don’t think it’s any secret that in office, for example, that almost everybody loses money when they sell the box on entry. So we will come out with a new portfolio, so that we can get the post-sale revenues.

Broadly speaking, how does it work regarding the revenue split between kit sales and annuity, it must be heavily weighted to annuity?

Over 70% of our business is annuity, so if you look at what will be our $11bn business, then 70%-75% will be annuity, so our goal is to always put more equipment out there. We have a very big managed print services business, we’re the clear leader. If you take the number two and three, Ricoh and HP, they just about [collectively] match our share and it’s an area that that we’ve really invested in. There are still opportunities for growth though. Where we have opportunities is in the SMB [SME] managed print services because our [market] share in the SMB market is a lot less than it is in the enterprise market.

So what’s the short-term plan then, as I guess getting back into growth is more of a long game?

Because of where we are with [reliance on] annuity it would be very difficult to get to growth next year, but we have a three-year plan to get to growth. Some of that will be organic, some will be inorganic.

So will you be looking at acquisitions?

Absolutely. We’ll be looking in the areas of managed print services, workflow automation, professional services, production inkjet, channel acquisitions. Another thing we’ll be doing is that we’ve always more or less separated the ‘R’ in R&D from the day-to-day development and engineering, we’re going to put those together under our chief technology officer Steve Hoover who today is the CEO of PARC (Palo Alto Research Center).

And in terms of M&A, are any of your previous employers on the list of potential targets? Kodak’s Prosper business, perhaps?

You know I can’t speculate on acquisitions [laughs].

I’m not asking you to speculate, I’m asking you to just tell me.

[Laughs]. Here’s the deal, if we announce something, I’ll tell you the day after.

You’re too kind. Where do you see some of your other key growth opportunities?

We see them in adjacencies. I see them in the high-end of packaging, that’s a huge growth area. We’re involved to some extent in 3D printing, I’m not saying that we’re going to be heavily involved in 3D printing or printed electronics, but those are going to be the kind of things from a high end that we would also be looking at.

So come 1 January, after the split has happened, what are the key things you want to change in the business?

Because of what we asked our teams to do in the past, and I don’t want to say that we didn’t want to grow, but perhaps growth wasn’t the emphasis, it was more that whatever we do don’t sacrifice margins. What I’ve told the team is that changing the revenue trajectory is very important to us, because that’s what will allow us to generate more profits, more cash and as we do that we will be able to reinvest more back into the business. This will be a business that generates strong profitability, strong cashflow and that will give us options in acquisitions. If you look at the past five or six years, other than some channel acquisitions and Impika we haven’t really done much – day one [post-split] will be about making sure that people understand that what we want to do is take the best of the heritage of Xerox, but also understand that this is a brand new company, with brand new opportunities.

Does that mean taking a long hard look at the business and making some tough decisions?

Absolutely. When I get our teams together that’s the exact sort of conversations we’re having. When we come out on 1 January we don’t just want a duplication of what we’ve been doing, we want to be energetic, passionate, accountable, committed and in front of our customers. We want our customers to see us as a trusted partner, someone that they can depend on for innovation and service. I believe that our best sales people are those that think of themselves as being part of their customer’s business. 

What are the threats post-split? There must be some.

We’re very fortunate, because other companies go through these splits and the businesses that split really co-mingle, they’re really intertwined with their supply chain and order-to-cash systems. That’s not the case with us, the two businesses don’t use the same order-to-cash systems, they don’t use the same manufacturing systems – so really when we separate we’re simply separating legal entities, tax structures – it’s really more the governance areas. Customers shouldn’t see any disruption whatsoever. 

What about competitors though, surely they will sense it’s a vulnerable time?

We respect all our competitors, but what I tell the team is: hold up the mirror – our biggest competitor is us. If we drive the business every day the way we’re capable of, then we can unleash TPOX, that’s the power of Xerox. It’s the only Xerox acronym I like, by the way. But if I and the team can get that into the hearts and minds of all the employees so that they think thank god it’s Monday, rather than thank god it’s Friday, and love this business so much that sometimes they forget to get home for dinner, then that’s a great thing.

Is that your biggest concern then over the split then, internal buy-in?

If we get internal buy-in from the team, then customers will see it. I always tell my team that there are a few constituencies you can’t fool: animals because they can tell what you’re feeling, children because they’re so honest they know, and customers. If you don’t love the company you represent, if you don’t believe in it – then you can’t be in front of a customer without them knowing. They’re going to see it. We have to represent what we believe in. What I say to my team is that if you have your mother, father, sister or brother, somebody you really love, would you have them buy from us 100% exclusively? And if the answer’s no, then we have to fix something.

So in 10 years’ time, or whenever you step back from the business, what will a great Xerox look like?

I think the way that people look at Apple or Facebook today, they picture an energetic team, a bit edgy perhaps. I feel very comfortable about how this business is going to look in the next five, six, seven years, what I want to build is a business that students coming out of university will look at and say ‘I could spend the next 30 years in this place and have a thriving career and be part of something special’. When my tenure as CEO is done, that would be the greatest thrill.

So make Xerox look sexy basically?

Sexy, growing and very profitable so that we can continue to reinvest in innovation. When I competed against Xerox years ago I knew I had to outsell them, because customers knew they were innovative. I used to ask customers sometimes why they did business with Xerox and they said it was because ‘we just know they will come out with something new and we need to be part of that’.

Since those days the landscape has changed and you have the likes of Canon, Ricoh, Konica established in the production print market.

That’s true, we have good, strong competitors and now the market is starting to consolidate, which is a good, healthy thing. When I joined this industry on the litho side, there must have been 16 companies or more competing on plates. So when I look at the digital market I think there aren’t as many competitors as I’m used to.

But surely you’re not thinking of a last man standing model?

Not at all. Look at digital today: 50 trillion pages printed a year, less than 5% are digital. So the world is going to come to us. Sure we’re going to need to have the technologies that go into the offset space, we’re going to have to play appropriately in packaging – but look at what we introduced at Drupa, Trivor and Brenva inkjets, they’re going to be special.

Do you think that toner technology has reached its apex then?

It all comes down to run lengths. Toner technology is 85% of the way there, but there are still developments we’re making, whether it’s a fifth station on the iGen or metallics or clear, there’s still so much we can do with the workflow too, it’s not just about the boxes, it’s about things we’re doing with Freeflow or XMPie. Certainly it’s much further along than inkjet, but it still has legs in it and production colour is still growing 7% from a market standpoint.

But do you think that it will migrate to inkjet?

It will over the time. But if you excuse my American analogy, if it were a baseball game we’re still in the first of nine innings. There’s still so much more to be done in inkjet [before it replaces toner].

And that’s probably one of the criticisms of Xerox: you were quite late to production inkjet. Are you playing catch-up?

We are. I recognised that when I came here four-and-a-half years ago there were three companies that basically had the billion-dollar buy-in to inkjet, so when I came here I knew we had to do something different and Impika was the start of that. But at Drupa you would have seen Trivor running high-yield, high-density inks on offset coated paper not pre- or post-treated. You would have seen the cut-sheet Brenva, which takes the beauty of the iGen frame, with Impika marking systems. Then you have the Rialto roll-to-sheet inkjet. So we have three new high-end inkjets in spaces where not many people are right now.

And was that the plan, to introduce products targeted only where you saw a gap in the market?

It was. We listened to what our customers told us and it was clear that they needed technology in spaces that were not that well served. Sure we could have developed a $3m-$4m machine that we might sell 25 a year, but we focused on where other people were not right now, spaces where we can develop the credibility and the Xerox name again. If a customer is making a bet on inkjet, do they really want to spend $3m-$4m on a machine that in two years’ time might be replaced by a newer technology? But if you look at the Brenva, that has a price point of around $750,000 – that’s pretty good. We’re also working with KBA on packaging, partnering with Macsa and DataLase and there’s the direct-to-object printer.

Do you see collaborations as becoming more important to the ‘new’ Xerox?

Absolutely. 

Because the old Xerox was perhaps seen as this great big beast that either did it on its own or not at all?

I just don’t think you can do that anymore, and I don’t think we should. If you look at the folding carton market, people wouldn’t expect Xerox to develop a press. So we work with KBA, a company that’s known for its understanding of transport systems in machines of that ilk, combined with what we bring to it – then it’s a powerful combination, it’s fantastic. Generally speaking, you can come to market so much quicker when you partner too. We’re going to continue to do what we do very well, no question, and then look to work with best in class partners in areas that will benefit from that extra expertise.

Does that help with R&D too? You spend the best part of half a billion dollars on R&D and I guess post-split that budget will be under pressure?

How do you mean?

Well will you be able to carry on spending that kind of money?

Sure. Don’t forget we partner with Fuji Xerox and with that together we collaborate and spend around $1bn on R&D. And as we change the revenue trajectory we will only spend more.

How does the Fuji Xerox relationship work then?

It’s multifaceted.

You’re probably best off explaining it in simple terms then.

Fuji Xerox almost looks like Xerox, but in Asia. So all xerographic products sold in Asia, with the exception of India, are sold by Fuji Xerox. We sell them in the Americas and EMEA regions, but we co-develop the xerographic products. So we’ll make products for them and they’ll make products for us, we have our own budget, they have their own budget and we try not to duplicate. On inkjet we’re a little separate.

So Fuji Xerox is a joint venture in essence?

Exactly, Fujifilm owns 75% and we own 25% and we have an equity relationship in earnings.

Does that add a layer of complexity to the business?

Complexity, but also strength because it gives us industrial diversity and the best brain power around the world. Plus, the joint venture has been going for over 50 years, so we’re kind of used to it [laughs].

One of Xerox’s strengths is its history, its corporate credentials– it’s solid and reliable – but sometimes customers might feel it’s little bit tough to work with for the same reasons, compared to say some of its newer rivals. How do you change that perception?

It has to come from the top. What I mean is that’s the beauty of the separation, because when you have two giant divisions then the CEO and corporate staff, I don’t want to say they’re a holding company, but they have people actually running the business for them. After the split as CEO I’m going to be deep in the business. As you can imagine I do a lot of travelling, but wherever I am I do a business review, have breakfast with customers, dinner with customers and I see their operations and I think the more you do that and the more your team see you doing that the more they feed off it.

And I suppose by divesting the power back to countries, as you mentioned earlier, it will help them feel more like entrepreneurial businesses?

Correct. I want them to be empowered, I don’t want them on conference calls, I don’t want them in the office – I want them talking to and learning from customers.

You’ve talked a lot about technology and people – which is the more important for the future of the business?

It has to be about both, I’ve seen business made or gone the other way because of their leadership. That’s why it’s so important to establish a winning culture that is based on customer orientation and you have to live and breathe that. If you do that you work from the marketplace back and you better understand what you need from an innovation standpoint. Back to your earlier point, I’ve certainly heard from customers that we’re not the easiest to deal with, so I’ve told my team that we’re going to take the customers’ top five pain points and fix them in 2017. Every company has those barriers and we have to break them down.

You can’t do that alone though, so how will you drive that?

Of course, my role is to create the vision, show leadership and empower people. What I believe in is global coordination and local action, because being in Connecticut I can’t make decisions for people in the UK or Germany or France. Xerox people when focused have done some of the most incredible things I’ve ever seen in 30 years in the industry. My job is to get that working 365 days a year and create an infectious positive attitude – there’s nothing better than being part of a winning team.

How will it work, stamping your vision on the business though, because your current boss, Ursula Burns, will be your chairman after the split, will that be a challenging relationship dynamic?

Not at all. Ursula is amazingly supportive and she will function as chairman of the board, which is a different role to operating as CEO.

I’m just picturing the scene in a board meeting a year from now and you mention something that you’re planning to do and you see an eyebrow being raised at the head of the table...

[Laughs] You have to remember that Ursula went through this herself when she succeeded Anne Mulcahy. We actually joke about it.

Fair point. Final question, you said earlier you were going to tell me if you were going to buy Kodak’s Prosper business?

[Laughs]. I think it’s time to take the photos... 

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