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It has been a long time since anyone considered Xerox an innovation powerhouse. On the contrary, Xerox typically serves as a cautionary tale of opportunity lost: many obituaries of Steve Jobs described how a fateful visit by Jobs to the Xerox Palo Alto Research Center in 1979 inspired many of the breakthroughs that Apple built into its Macintosh computer. Back then, Xerox dominated the photocopier market and was understandably focused on improving and sustaining its high-margin products. The company’s Connecticut headquarters became the place where inventions in its Silicon Valley lab went to die. Inevitably, simpler and cheaper copiers from Canon and other rivals cut down Xerox in its core market. It is a classic story of the “innovator’s dilemma.” Xerox struggled to defend against threats at the low end of its business, failed to create growth in new markets, and found itself on the brink of irrelevance, if not extinction.

But now Xerox is turning things around. In the fall of 2009, the first order of business for its new CEO, Ursula Burns, was to buy Affiliated Computer Services for $6.4 billion. The 74,000-employee services company had built a powerful new business model by taking over document management from corporations, state governments, and law firms, typically using non-Xerox equipment. For companies, outsourcing was simpler and cheaper than doing it themselves.

Under Burns, Xerox was now redefining its mission. “I kept asking people: What is it that we do?” she said in a recent speech at the Churchill Club. “The answer was always: ‘We’re a copier company, a printer company, a document company.’ ‘No, that’s not what we do,’ I said. ‘We help companies transform very complex and burdensome business processes.’”

As Burns plunged Xerox into the services business, she devoted R&D resources—at the storied PARC lab and elsewhere—to developing simple, Web-based document tools such as BlitzDocs, which enables banks to streamline the mortgage approval process, and CategoriX, which helps law firms increase their analytical capabilities and manage millions of documents.

This is disruptive innovation—making the complicated simple, making the expensive affordable, driving growth by transforming what exists and creating what doesn’t. And it appears to be working: profits in Xerox’s services business rose to $911 million in the first three quarters of 2011, up 13 percent from a year ago. Within three years, Burns expects two-thirds of Xerox’s revenue to come from the services side of the business, compared to around half now.

In the past, Xerox’s success would have been an anomaly. Less than a decade ago, when we were finishing the book The Innovator’s Solution (Christensen as primary author and Anthony as his research associate), we highlighted the fact that disruptive innovations are typically introduced by startups, the rebel forces in the business universe. The book named 100 companies that had successfully created disruptive businesses since the 1870s in industries from accounting software to excavators. A full 85 percent of them were new companies formed specifically to commercialize disruptive technologies.

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Credit: Innosight

Tagged: Business, Business Impact, Xerox

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