Benchmarking: how Xerox regained its competitive edge
This paper examines the benchmarking initiatives taken by Xerox as a part of its 'Leadership through Quality' program during the early 1980s. The case discusses in detail the benchmarking concept and its implementation in various processes at Xerox. It also explores the positive impact of benchmarking practices on Xerox. The history of Xerox goes back to 1938, when Chester Carlson, a patent attorney and part-time inventor, made the first xerographic image in the US. Carlson struggled for over five years to sell the invention, as many companies did not believe there was a market for it. Finally, in 1944, the Battelle Memorial Institute in Columbus, Ohio, contracted with Carlson to refine his new process, which Carlson called 'electrophotography.' By 1976, the company's revenues stood at $ 4.4 billion with $ 407 million profit. As Xerox grew rapidly, a variety of controls and procedures were instituted and the number of management layers was increased during the 1970s. This, however, slowed down decision-making and resulted in major delays in product development. In the early 1980s, Xerox found itself increasingly vulnerable to intense competition from both the US and Japanese competitors. According to analysts, Xerox's management failed to give the company strategic direction. It ignored new entrants (Ricoh, Canon, and Sevin) who were consolidating their positions in the lower-end market and in niche segments. The company's operating cost (and therefore, the prices of its products) was high and its products were of relatively inferior quality in comparison to its competitors. Xerox also suffered from its highly centralized decision-making processes. As a result of this, return on assets fell to less than 8% and market share in copiers came down sharply from 86% in 1974 to just 17% in 1984. Between 1980 and 1984, Xerox's profits decreased from $ 1.15 billion to $ 290 million (Refer Exhibit I). In 1982, David T. Kearns (Kearns) took over as the CEO. He discovered that the average manufacturing cost of copiers in Japanese companies was 40-50% of that of Xerox. As a result, Japanese companies were able to undercut Xerox's prices effortlessly. Kearns quickly began emphasizing reduction of manufacturing costs and gave new thrust to quality control by launching a program that was popularly referred to as 'Leadership Through Quality.' As part of this quality program, Xerox implemented the benchmarking program. These initiatives played a major role in pulling Xerox out of trouble in the years to come. The company even went on to become one of the best examples of the successful implementation of benchmarking. ABOUT BENCHMARKING
Benchmarking can be defined as a process for improving performance by constantly identifying, understanding and adapting best practices and processes followed inside and outside the company and implementing the results. The main emphasis of benchmarking is on improving a given business operation or a process by exploiting 'best practices,' not on 'best performance.' Simply put, benchmarking means comparing one's organization or a part of it with that of the other companies. Companies can adopt one or more of the following types of benchmarking - •
Strategic Benchmarking: Aimed at improving a company's overall performance by studying the long-term strategies and approaches that helped the 'best practice' companies to succeed. It involves examining the core competencies, product/service development and innovation strategies of such companies. •
Competitive Benchmarking or Performance Benchmarking: Used by companies to compare their positions with respect to the performance characteristics of their key products and services. Competitive benchmarking involves companies from the same sector. •
Process Benchmarking: Used by companies to improve specific key processes and operations with the help of best practice organizations involved in...
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