Xerox jumps on the outsourcing bandwagon

A guarantee to customers of 25 per cent savings may seem ambitious, but that's what Xerox promises with its new document outsourcing scheme, writes Karlin Lillington.

Signing contracts with organisations that guarantee a 25 per cent savings in costs might seem risky - and at worst, a recipe for disaster - but Xerox is confident this approach will benefit them as much as their clients.

According to Mr Shaun Pantling, director and general manager of Xerox Global Services Europe, which runs its 700-employee European customer support centre out of Xerox's Ballycoolin campus, from 5 to 15 per cent of annual company revenue is spent on office services.

Yet, a survey by analyst International Data Corporation of 900 company managers found that only 10 per cent had any idea of how much is spent on documents, or where that money goes.

That's where Xerox sees a sweet spot. The self-described "document company" is eager to move more comprehensively into services, says Xerox Ireland director and general manager Mr Bob Horastead. And what better service for a document company than to manage the entire document production and storage process?

In other words, the company is looking for a slice of the growing outsourcing market to capitalise on the trend for companies to let other specialist companies look after non-core areas of their business.

Xerox says that these days a document no longer refers to a printed piece of paper, but hard or soft copies of faxes, emails,presentations, web pages, communications - and can include music, image or video files.

And document outsourcing is a significant area. According to Mr Brian Millar, senior consultant with Infotrends/Cap Ventures, document outsourcing is a $3 billion opportunity in Western Europe, including the accession countries. The area is expected to experience 6 per cent annual growth over the next five years, he says.

IDC research director Mr Jamie Snowden says the document outsourcing market has two distinct tiers - organisations that haven't outsourced and are waiting for costs to reach the point where they would need to, and those who are outsourcing and are looking for significant advantages and cost savings from doing so.

"The area where a lot of service providers haven't got it right" is in making outsourcing more transparent and simple, he says.

"You've got to make it easy for [ customers] to make that decision [ to outsource]."

Mr Pantling claims that's where Xerox - which competes with other computing and services giants like HP and IBM in the document outsourcing space - thinks it has an advantage.

The company will send in a team to trace the whole document production and management area as it currently exists in an organisation, from mapping out where peripherals such as printers are located within a building, to examining existing maintenance contracts for hardware and determining overall costs.

With the average employee producing 979 pages per month, and little knowledge among management about the costs associated with such activity, "we estimate we can save a business up to €300 per office-based employee per year," says Mr Bernie Gooch, Xerox office services development manager.

That's why the company is prepared to negotiate contracts - typically, for five years - which guarantee a 25 per cent cut in costs in the office documents area to the company's bottom line, says Mr Gooch.

Such guarantees still leave room for "a significant opportunity for revenue" for Xerox, he says. Xerox gets an initial push of revenue when the contract is signed, and then has opportunities to sell its own devices to the client as its existing fleet of copiers is replaced.

If Xerox does not have a product that suits a customer's needs, it will source a competitor's product, insists Mr Pantling.

He points out that Xerox, in taking over the management of all devices in an organisation, takes on service contracts and the overall management of competitor products already used by the organisation.

Sun Microsoystems is one large customer that has signed an agreement with Xerox for this type of document management service.

"I'm embarrassed to see we couldn't actually tell you how much we spent on documents," says Mr Larry Matarazzi, director, workplace resources, Sun Europe, Middle East and Africa.

According to a company survey done in 2000, Sun knew it had 1,744 devices, including printers, copiers and fax machines, of which 65 per cent were Xerox machines. These made some 64 million documents per year.

Sun also had over 19 suppliers in this area, and over 100 different vendor contracts, with no centralised support organisation for this area within the company, says Mr Matarazzi.

Closer examination revealed 8 per cent of the devices weren't working, and device utilisation was only 4.9 per cent on average.

The company was producing over 1,000 invoices monthly, with the typical US cost to process an invoice estimated to be $39, according to analysts.

"It was a bit shocking when we found what was going on," he says.

Having turned document management over to Xerox, Sun is seeing an initial reduction in costs of about 10 per cent - which translates to €5 million in hard savings annually - and estimates this could rise as high as 40 per cent, says Mr Matarazzi.

Some cost savings come from such basic actions as reducing the number of copiers.

"In Italy and the US, we found that having a personal printer is more of an ego thing," he says. Unless there were compelling reasons to leave a personal printer, they were replaced by printing stations scattered at key points around a building, he says.

In particular, he says, Sun has been pleased with the results seen in handing over support desk tasks to Xerox rather than handling them internally. He adds that the switchover in management involved no job losses at Sun.

He says that if cost reductions to Sun don't remain in the realm of the agreement, Sun can terminate the contract. "If at the end of the day the contract doesn't work, Xerox collect all their toys and go home."

As Xerox charges for its services by the number of documents produced, what happens if a client works to reduce the number of documents?

"If the volume goes down, the revenue [ for Xerox] goes down. But then, the cost goes down for the customer, and there's an opportunity to sell them something else," says Mr Pantling. "It's a matter of trust."