The Road to Success of Xerox Corporation

According to Slatter, there are six major sources of cost disadvantage which can lead to a firm having to charge higher prices than its competitors. Let us analyze and apply the six factors illustrated by Slatter, to the Xerox corporation to get a better picture of the negative consequences of high overhead costs:
Due to staggering assets and international ventures that this long-standing company had accumulated over the past few decades, Xerox’s cash position had become tenuous. Its liquidity had deteriorated to the point where capital markets froze Xerox out. Cash is king in an economy in recession. like in 2000, and Xerox was crippled with assets without cash flow. High overhead costs piled up due management’s obsession with expensive quality control measures during a fairly weak financial position. A perfect quality index while being admirable, costs a lot of money. The trade-offs associated with 100% quality proved to be too large, leading Xerox to increase its pricing scheme, thus creating a negative competitive position. Some international and even local markets were not willing to pay the price for quality especially when Japanese low cost, high-quality products began invading the market. Xerox’s biggest weakness proved to be its financial situation, and specifically the heavy debt and the low profitability.
The organization was too large leading to huge overhead costs. Unlike its competitors who were concentrating on more advanced and diversified technology, Xerox employees were living in the past in spite of Xerox’s attempts at diversification. They still were focused on being a copier company rather than a profitable documentation company or a modern information technology company. This resulted in a loss of direction. Like all giant companies, it was difficult for talented innovators and entrepreneurs to survive, and instead, the mediocrity had taken over and threatened the company from the inside. The once-thriving copier division was still too influential and vetoed other innovative projects. (Johan Olsson, January 1996). This made Xerox have weak credibility on the IT-business side lending it a less sophisticated image than its competition.
Absolute cost disadvantages which result from competitors controlling strategic variable not available to the firm itself:
Let us take the example of the Japanese company Canon, which proved to be Xerox’s biggest and cleverest opponent. As a late entrant in the copier market, Canon was forced to concentrate on niches where Xerox was weak. One of these was the low end, which Canon attacked with a series of progressively smaller machines, culminating, in 1982, with the launch of the personal copier. Copiers were notorious for breaking down, a propensity Xerox exploited by charging for service calls. Canon realized that to be successful, a personal copier would not only have to be cheap, it would also have to be virtually service free. Canon’s revolutionary solution was to include all the key components – drum, charger, toner, and cleaner – in a replaceable cartridge.

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