Earlier this year Xerox announced it would split into two publicly traded companies: A Document Technology company retaining the traditional hardware and software business and a Business Process Outsourcing Company focused on Xerox’s professional services business.
In a similar vein HP completed a corporate split toward the end of 2015 that had been in progress for about a year.
Drivers for the Split
One major factor in the Xerox decision was to allow the two new companies to focus on their strengths. Both companies should be able to more clearly articulate their identity and their differentiators. One of the main achievements of Lou Gerstner when he took over the helm at IBM was to articulate what IBM stood for. IBM had evolved into a complex business offering computers from mainframes to PCs, software, services and more. Gerstner made it clear that IBM were a services company with hardware and software that supported those services. He brought a clarity that Xerox and HP are clearly striving for.
Another factor is that it is easier to gear your business model up to either a product led or a services led organization than a hybrid company. There are different margins associated with both, differing complexities of sale, marketing strategies etc.
Implications for the Channel
One aspect that should not be overlooked is that this move reinforces the channel “best of breed” messaging http://www.gartner.com/it-glossary/best-of-breed. The current Xerox model (certainly for large customers) offers a one stop shop. We can provide your hardware and software and then we will manage your infrastructure on your behalf. The channel message is based around an offering that states we will provide the best in class hardware, software and peripherals and combine those to give you a solution that we can manage on your behalf.
In many respects it simplifies the relationship. The product arm of the new Xerox should not be competing with the dealers to provide managed services as they will focus solely on product.
Most dealers are already sensibly trying to move their business to a more services centric model: this is where both the growth and profitability sit (the managed services market is forecast to grow from $100 billion in 2014 to $293 billion in 2019 according to research firm MarketsandMarketshttp://www.marketsandmarkets.com/Market-Reports/managed-services-market-1141.html).
Unlike Xerox dealers don’t need to split their business in two to achieve growth in the next few years. Xerox and HP are huge tankers that take a long time to turn; the dealer should be more agile and able to adapt more rapidly. But the dealer does require the clarity that Gerstner brought to IBM. Are you a Managed Services Business that has hardware to support that business or alternatively a product based company with some services to support this. Both are fine but require a different cost base, skill set etc.
One key driver that led Xerox to split the business was the ability to then focus on their strengths. This should be key for the dealer also. That ability to identify your strengths and articulate them is critical in a competitive market.
I have spoken with a number of dealers recently who believe they have that message nailed; but when I look on their website they all talk about X number of years in business, great quality, competitive pricing, lots of satisfied customers…. These are not differentiators if we are all using them.
CEO Juice and SalesCoach put together a program to help dealers identify and then articulate their message so they can stand out from the crowdhttp://youtu.be/L26iYR2xnEw. Talk to us if you are interested. link here to my mail?