Xerox Corporation - Cause of Failure Competition - Essay Example

Xerox Corporation - Cause of Failure - Competition Effective marketing depends upon effective competition system employed by a company. In the 1990s Xerox Corporation was a dynamically evolving entity operating within a dynamically evolving environment. The example of Xerox Corporation shows how competition strategies can cause failure and loss of market shares. It should be noted that competition in the 1990s was cause by globalization processes, economic integration, removal of barriers to business on the global scale. These factors increased competition enhancing the need of new technological innovations and new ways to compete. "In the 1980s, Xerox Corporation's revenue share of the copier business declined from 90 percent to 43 percent as a result of increased competition from Ricoh, Sharp, and Canon in Japan and Kodak and IBM in the United States" (Contemporary Trends in Human Resources Management, n.s.). The industry of competition can be characterized as follows: "Xerox compete in the market for service of Xerox high volume copiers" (Xerox Corporation. Creative Copier services. 2004). In general, competition theory has been developed, described and analyzed by such gurus as M. Porter, C.K. Prahalad and G. Hamel, R.M. Hodgetts, H. Mitzberg, R. D'Aveni. They describe that to be effective, competition should not always be a formal process. Studies of the planning practices of actual organizations suggest that the real value of competition may be more in the future orientation of the planning process itself than in any resulting written strategic plan. The failure Xerox Corporation proves the fact that competition is not always "a safe" way to obtain a strong market position. Michael Porter contends that a corporation is most concerned with the intensity of competition within its industry. "The collective strength of these forces," he contends, "determines the ultimate profit potential in the industry, where profit potential is measured in terms of long-run return on invested capital." (Porter, 1980). The stronger each of these forces is, the more companies are limited in their ability to raise prices and earn greater profits. According to the case study "started from year 2000, Xerox's share price had fallen below $4, from a high of $64 a year earlier. Moreover, the copying and printing giants around the world were taking chunks of its market share" (Case Study: Xerox Corporation, n.d.). This failure was caused by the fact that intense competition and management strategy aimed to overcome "temporal" decline resulted in failure. A strong market position obtained by Xerox Corporation resulted in "less concern for US competitiveness" (Kato, n.d.). Globalization and international integration presents Xerox Corporation with enticing opportunities and challenges to reconfigure itself. New horizons allowed Xerox Corporation to maximize its global sales, in the belief that those that offer a global service and have a worldwide success through regional policy will be in the strongest competitive position (Xerox Corporation, 2005). Nevertheless, Xerox Corporation paid less attention to such important issues as technological changes and innovations. In his book "Competitive Advantage" Porter identifies five forces that drive competition within an industry: 1. The threat of entry by new competitors. 2. The intensity of rivalry among existing competitors. 3. Pressure from substitute products. 4. The bargaining power of buyers. 5. The bargaining power of suppliers (Porter, 1985). It is important, that a strong force can be regarded as a threat because it is likely to reduce profits. In contrast, a weak force can be viewed as an opportunity because it may allow the company to earn greater profits. In the short run, these forces act as constraints on a company's activities. In the long run, however, it may be possible for a company, through its choice of strategy, to change the strength of one or more of the forces to the company's advantage. The company states that: "We developed a comprehensive process for taking back end-of-life products from customers in the early 1990s, establishing a remanufacture and parts reuse program that fully supports our Waste-Free initiatives. 90% of all Xerox-designed product models introduced in 2004 were developed with remanufacturing in mind" (Xerox Equipment Remanufacture & Parts Reuse, 2005). But this tendency took place only after competition failure. The strong force of Xerox Corporation, which can be called a "monopoly", became s weakness of management unable to analyze and foresee environmental changes. It means that instead of new product development following the needs of the customers, Xerox Corporation went "with the flow" and past success. In general, Xerox Corporation "failed to continuously innovate and bring to market new products and provide good services to customers. Xerox lagged behind their competitors, because the competitors developed new and even better copier technology with new technology (without infringing on Xerox's patents), and provide customers with faster delivery and better service) (Case Study: Xerox Corporation, n.d.). This situation vividly describes the concept of Porter who stated that if the players in an industry produce differentiated products customers are brand loyal, then potential new entrants will encounter resistance in trying to enter the industry. A substitute can be regarded as something that meets the same needs as the service of the industry. The extent of the threat from a particular substitute will depend upon the following two factors. Close substitutes whose performance is comparable to the industry's service and whose price is similar will be a serious threat to an industry. The more indirect the substitute, the less likely will the price and performance be comparable (Hodgetts, 1986). Buyers will be more willing to change suppliers from one industry if switching costs are low or if a competitor in another industry offers a product or service with a lower price or improved performance. This is also closely tied in with the extent to which customers are brand loyal. The more loyal customers are to one supplier's products (for whatever reason) then the threat from substitutes will be accordingly reduced (Porter, 1985). Xerox Corporation was not able to sustain competitive position and followed requirement dictated by its competitors. On the other hand, brand loyalty (which Xerox had) was also important factor in increasing the costs for customers of switching the products of new competitors. Existing competitors were already obtaining substantial economies of scale, this have them an advantage over new competitors who are not able to match their lower unit costs of production. Porter states that new competitors may find it difficult to gain access to delivering service, which will make it difficult to provide their service to customers or obtain the inputs required or find markets for their outputs (Porter, 1980). Nevertheless, competitors of Xerox Corporation (for instance Canon) were able to substitute Xerox products and services. It is important to note that "The main competition to Xerox copiers came not from industry competitors like IBM and Kodak, but from new Japanese companies like Canon and Sevin, who had nibbled away its monopoly starting from the lower end" (Shukla, 1994). The view of competitive strategy formulation accepted by Xerox shows the human tendency to continue on a particular course of action until something went wrong. This fact can be explained by the fact that being a market leader Xerox Corporation had tended to follow a particular strategic orientation for decades before it was forced to make a significant change in direction. As Mintzberg suggested, the various approaches to strategic management can be regarded as "complementary, representing two different forms of analysis both of which must be brought to bear for improving the quality of strategic thinking and analysis". (Mintzberg, 1987). Competition cased failure for Xerox Corporation, because it did not see that the nature of competition had been changed by new competitors, especially Canon and Sevin. The problem was that (as it was mentioned above) Xerox Corporation considered to be a monopolists which established rules of competition, and its competitors, IBM and Kodak, just tried to manoeuvre. A Japanese based company Canon brought new vision and strategies in competition policy. Its main advantage was technological innovation and quality, which Xerox did not achieve. Also, Xerox competitors reduced manufacturing costs through continuous optimization of production, and "conscious buyers abandoned high-priced Xerox for low-priced Cannon and Ricoh" (Case Study: Xerox Corporation, n.d.). In this case, rivalry kept the industry dynamic and created continual pressure to improve and innovate. Rivalry forces competitors of Xerox to develop new products, improve existing ones, lower costs and prices, develop new technologies, and improve quality and service. For instance, Canon was the first company developed the full-color copiers. For Xerox, competition took place on a price and a non-price basis, which caused dramatic lost of market chares. Price competition involved competitors trying to undercut prices, and able to reduce their costs of production. Non-price competition took form of branding, advertising, promotion, additional services to customers and product innovation (Prahalad, Hamel, 1990). For Xerox competitive rivalry was fierce, and it failed to meet new requirements. Research generally supports Porter's contention that a firm that fails to achieve a generic strategy is going to be stuck in the middle with no competitive advantage. But there are some companies that attempt to achieve both a lower cost and a differentiation position. The ground transport company is one of possible firm who is able to achieve both of these generic strategies. Proposing that a company's sustained competitive advantage is primarily determined by its resource endowments, Cravens proposes a five-step, resource-based approach to strategy analysis: 1. Identify and classify the firm's resources in terms of strengths and weak nesses. 2. Combine the firm's strengths into specific capabilities. These are core competencies: the things that a corporation can do exceedingly well. 3. Appraise the profit potential of these resources and competencies in terms of their potential for sustainable competitive advantage and the ability to harvest the profits resulting from the use of these resources and capabilities. 4. Select the strategy that best exploits the firm's resources and competencies relative to external opportunities. 5. Identify resource gaps and invest in upgrading weaknesses (Cravens 1982). Analysis of Xerox performance allows to say that it failed to meet all these steps being aware of firm market position. It was found that: "For the multifunction peripherals (MFP), the competition is in the following three segments: 1) the personal segment: HP held the biggest market share; 2) the work group side: the competition is among Xerox, Canon, Ricoh and Panasonic; 3) the production segment: Xerox once ruled, Canon has jumped ahead by claiming 49% of the market, Xerox only holds 45%" (Case Study: Xerox Corporation, n.d.). D'Aveni suggests that competition consists of a set of "dynamic strategic interactions in four arenas: cost-quality, timing and know-how, entry barriers, and deep pockets. Each of these arenas is "continuously destroyed and recreated by the dynamic maneuvering of hypercompetitive firms" (D'Aveni, 1994). Xerox was not able to foresee changing environment and was not ready to react on the strategies implemented by its competitors. It should be noted that Xerox followed some competitive strategies to sustain its position. For instance, "Customer acceptance of reused/recycled parts was a significant challenge for Xerox's program throughout the 1990s" (Xerox Equipment Remanufacture, 2005), but it was not enough too compete on the global scale. Another important force which caused competition failure is that Xerox's competitors distributed through dealers instead of spending costs on direct sales. Competitors established an after sale service departments as an obligatory requirement of their policy, instead of national service network proposed by Xerox Corporation. Another important factor of Xerox Corporation failure is product substitution, which was caused by new computer technology. Many companies did not need expensive Xerox equipment which was substituted by PCs. Digital revolution had the company "over the barrel". Xerox Corporation had not been ready to propose low-cost products to compete with its direct competitors and computer technology, which altered industry structure and objectives and demanded certain types of new products. It is evident that competition required to produce the response wanted in the target market. No past success is guaranteed to sustain strong position in future. The failure to compete depicts that even if a company obtains competitive position and follows competitive strategies in some cases, it could not sustain the strategy. Each of the competitive strategies has its risks. On the one hand, for Xerox Corporation cost leadership was reduced by competitors, and by technology changes. On the other hand, differentiation was also imitated by competitors. To conclude, competitors' efforts may range from reverse engineering to new marketing techniques. A core competency can be easily imitated to the extent that it is transparent, transferable, and replicable. An organisation can only perform effectively through interactions with the broader external environment of which it is part. Competitors of Xerox employed resource-based view to gain competitive advantage by developing resources, which add unique value. To avoid failure any company should pay attention to the changing environment in order to react to it effectively. References 1. D'Aveni, R. (1994). Hypercompetition: managing the Dynamics of Strategic Maneuvering. New York: Free press. 2. Case Study: Xerox Corporation (n.d.). Retrieved from: www.chinamc.org.cn/upload/1126413463661.doc [Accessed 14 Nov, 2005] 3. Contemporary Trends in Human Resources Management. (n.d.) Retrieved from: http://www.prenhall.com/divisions/bp/app/russellcd/PROTECT/CHAPTERS/CHAP08/HEAD03.HTM [Accessed 14 Nov, 2005] 4. Cravens, D. W., (1982) Strategic Marketing, Homewood, Irwin. 5. Hodgetts, R.M., (1986). Management: Theory, Process and Practice, 4th Edition, Academic Press, College Division, Orlando. 6. Kato, M.. Role of Research. www.soe.ucsc.edu/classes/ ism101/Fall03/Katoroleofresearch.pdf [Accessed 14 Nov, 2005] 7. Mitzberg, H., (1987). Five Ps for strategy. California Management Review. Fall. 8. Porter M.E. (1980). Competitive Strategy: techniques for Analyzing Industries and Competitors. New York, Free Press. 9. Porter M.E. (1985). Competitive Advantage. New York, Free Press. 10. Prahalad, C.K., Hamel, G. (1990). The core competence of the corporation. Harvard Business Review, May - June. 11. Ries, a., Trout, J., (1982), Positioning. The battle for your mind. Warner Books, New York. 12. Shukla, M. (1994). Corporate Failures. Retrieved from: http://www.geocities.com/madhukar_shukla/corpfailures.html[Accessed 14 Nov, 2005] 13. Xerox Corporation. Retrieved from: http://www.hoovers.com/free/co/factsheet.xhtmlCOID=11657&cm_ven=PAID&cm_cat=OVR&cm_pla=CO4&cm_ite=xerox_corporation [Accessed 14 Nov, 2005] 14. Xerox Corporation. Creative Copier services. (2004). Retrieved from: www.ctd.uscourts.gov/Opinions/ 111504.SRU.CreativeCopier.pdf[Accessed 14 Nov, 2005] 15. Xerox Equipment Remanufacture & Parts Reuse. (2005). Retrieved from: http://www.xerox.com/go/xrx/template/020e.jspview=Programs&cat=Equipment+Remanufacture&Xcntry=USA&Xlang=en_US [Accessed 14 Nov, 2005] Read More