Making a Merger: How Fujifilm Adapted While Xerox Faltered

Earlier this year, Fujifilm announced it would be taking control of Xerox in a $6.1 billion deal for just over half of the company’s shares. Xerox, under the name Fuji Xerox, will become a subsidiary of Fujifilm, which hopes to create nearly $2 billion in synergies by 2022.

 

Xerox, the storied maker of photocopiers founded in 1906, has struggled to maintain its core business as demand for legacy photocopying solutions has evaporated. The New York Times recently published something of a eulogy to Xerox, which introduced its first copying machine in 1959.

 

The company has struggled, however, to respond to the rise of digital technologies, which provide cheaper and more scalable alternatives to Xerox’s historically bulky machines. This type of path dependency is common to many once-great brands that achieve market supremacy only to become self-assured and too narrowly focused. When a company — or people for that matter — become really good at one thing, they often find it difficult to do anything else. This inertia inhibits a company’s ability to pivot and adapt, obfuscating looming threats under layers of complacency and bureaucracy.

 

What we find more interesting than Xerox’s decline, however, is Fujifilm’s resilience. Founded in 1934, Fujifilm is far from an innovative upstart. Yet, the company has managed to survive when other close competitors like Kodak have failed.

 

The secret to Fuji’s success was a combination of foresight, vision and courage. The company knew the digital revolution was inevitable and began extending its brand into new markets before the digital threat became acute. At the same time, the company made the bold decision to milk its core film business dry, using the cash flow to fund acquisitions and product development. In the early 2000s, when film accounted for 60% of its net income, Fujifilm acquired 40 companies to augment its shrinking film revenue while buying exposure to new markets. It also recognized that its core strengths were not the same as its core business. It’s core business was film, but its core strength was in celluloid materials science and photochemistry. This strategic insight drove investments in LCDs, cosmetics and its now hugely successful line of medical imaging devices.

 

“The secret to Fuji’s success was a combination of foresight, vision and courage. The company knew the digital revolution was inevitable and began extending its brand into new markets before the digital threat became acute.”

 

These actions stand in stark contrast to Xerox, which was never able to escape the shadow of its dying core business. Although it tried to enter the personal computer market, its devices and pricing model was heavily influenced by its experience with copiers. Rather than draw on its true strengths — which have less to do with what you make and more to do with the talent of who makes it and the uniqueness of how it’s made — Xerox drew on its physical property rather than its “intellectual” property.

 

Cannibalizing your core business to support innovation and adaptation is never an easy task. It requires giving up what’s worked in the past for something that may or may not work in the future. To successfully execute these types of pivots like Fujifilm requires disciplined leadership, visionary strategy, resolute execution and a modicum of bravery. Harnessing change, rather than being steamrolled by it, will always involve risk. But risk is inherent to business, and those who don’t embrace it intelligently may soon find themselves out of it.

 

 

About the Author
Remington Tonar is a Partner at Brandsinger, where he specializes in strategic innovation, change management and technology strategy.