On Jan. 31, 2018, Xerox Corporation died as an independent company at the age of 115.
“Xerox Cedes Control To Fujifilm, Ending Its Independence” is how Bloomberg.com reported the news about a Japanese photography and imaging company acquiring a 50.1 percent stake in an American company that was once a corporate powerhouse, a symbol of this nation’s technological pre-eminence, and an iconic part of American culture.
“Xerox: 1903-2018” would also have been an appropriate headline, because the news about its sale was also a story about a company that ultimately failed although it had the resources and technological know-how to thrive in the 21st century. The Norwalk, Conn.-based company was one of the world’s most successful companies for decades, but it aged badly in recent decades because it lacked the vitality and flexibility to adapt to changes in technology and society.
Xerox’s death as an independent company is a lesson for business executives, entrepreneurs, small businesses, and anyone who is interested in why and how some amazingly successful companies prosper for generations while others flounder after decades of prosperity. Wealth Authority has decided to take the opportunity presented by Xerox’s “death” to find examples of old-time companies that adapted and flourished as well as companies like Xerox that didn’t adapt and essentially died as great companies.
Let’s look first at Xerox, which is on this list of “10 Companies That Failed To Innovate and Change.” The company’s 1959 invention, the Xerox 914 plain photocopier, revolutionized how copies of anything on paper were made, symbolized the advances in office technology, improved the efficiency of companies all over the world, and changed the culture of offices, which often had copy rooms that became a focal point of social interactions.
The Xerox 914 became the No. 1 selling business machine of all time. Xerox copy machines were so omnipresent that the word “xerox” became a verb.
Xerox Quashed Its Work
You might be familiar with the success of Xerox’s copy machines, but you might not know that the company was at the forefront of a wide range of office technology in the 1970s and 1980s as well via its Palo Alto (Calif.) Research Center.
The New York Times reported that Xerox employees at the Palo Alto lab refined the computer mouse and graphic-user interface and built the prototype of the personal computer. Do you know who benefited the most from Xerox’s work? It wasn’t Xerox. It might have been Apple Inc. — because company co-founder Steve Jobs visited the Palo Alto lab in 1979. He used the ideas he saw to help develop the Apple Macintosh PC and other Apple products while Xerox decided its own inventions would reduce copier sales so they remained in the lab.
“Xerox had enough inventions in its Palo Alto Research Center (PARC) to single-handedly usher in the PC age,” reported the “10 Companies That Failed To Innovate and Change” article. “But the company kept those under the rug, fearing that they would cannibalize the sales of its lucrative photocopier business. Worse, Xerox gave away PARC’s innovations to Apple Inc.”
When Xerox entered the PC market, it sold its Xerox Star PC for more than $16,000. It failed while IBM and Apple PCs were a hit at $1,600 and $2,500. In the decades since, Xerox failed to adjust to a world where people emailed documents rather than copying them and its financial services and business services supply businesses were far less successful than its copier business.
Xerox never duplicated its success in the copier business precisely because its copier business was so successful, many business experts have said. It became far less innovative.
“How Xerox fell so far is a case study in what management experts call the “competency trap” — an organization becomes so good at one thing, it can’t learn to do anything new,” The New York Times article reported.
Falling Behind the Times
Xerox didn’t adapt to technological and societal change, but many companies have — and have flourished because they adapted.
The educational website HowStuffWorks published an article entitled “10 Companies That Completely Reinvented Themselves.” The companies are Apple, American Express, National Geographic, Wipro, Western Union, Nintendo, Nokia, Royal Dutch Shell, Berkshire Hathaway, and IBM.
The article compares the above companies to others that failed. The company that publishes National Geographic, for example, is thriving while Life, a magazine that also featured characteristically attention-grabbing photographs, folded in 2000. Today, the National Geographic Society still publishes the magazine, but the magazine is part of a media platform that includes a TV channel which broadcasts traditional nature documentaries and “an eclectic mix of reality series.”
Similarly, Western Union could have died when cheaper phone services and the Internet killed its telegram service, but it was more diverse than Xerox. Today, it has the world’s largest money transfer service. Apple, of course, could have relied as much on its personal computer as Xerox relied on its copy machine, but instead it became a pioneer in hand-held devices.
“Over the years, Apple has had its own ups and downs,” The New York Times article noted. “But whenever Mr. Jobs became convinced that something new was afoot, he moved forcefully and refocused the company. He did not fall into the competency trap, and today Apple is the most valuable corporation in the world.”
The article “10 Great Companies That Lost Their Edge” lists three “traps” that can cause great companies to fail. The “physical trap” prevents companies from making new investments because the investment that led to the growth of their company was so successful. The “psychological trap” prevents company leaders from being aware that their great product might soon be displaced. The “strategic trap” prevents them from understanding the future marketplace.
Xerox is not on this list of companies, which includes two companies that are frequently mentioned in stories about Xerox’s demise — Eastman Kodak and Motorola. Kodak created the first digital camera in 1976, but shelved it because it was afraid that its digital camera sales would hurt its film sales. This was a very Xeroxish decision. Motorola had the best-selling phones of the 2000s, but was unprepared for the smartphone market just as Xerox was unprepared for the digital revolution.
As mentioned previously, Xerox is on the list of “10 Companies That Failed To Innovate and Change.” Kodak and Motorola are on both lists. So is Blockbuster, which did not make the transition from people buying videos at stores to people watching videos online.
Conclusion
If you’re an investor, you might want to be able to project which great companies will adapt and which won’t. One way to ascertain this is to scrutinize a company’s leaders. Are they regularly exploring new products and services while their current best-selling product or service is thriving? Are they taking risks?
“Adaptive functioning in the world requires not only knowing when to hold back from acting but also knowing when action is required,” notes the article “Even Great Companies Need to Evolve.” “Companies that built on initial success, such as Microsoft and Apple, were led by people willing to take major risks, while the great misfortune of Xerox was that it stayed too long in its comfort zone, not understanding that eventually a comfort zone can become a danger zone.”
Whether you’re an investor or a business owner yourself, you should never shy away from taking these type of risks and breaking new ground. If the fall of Xerox has taught us anything, it’s this.
Regards,
Ethan Warrick
Editor
Wealth Authority
