After 24 years, it’s adios ACS (er… except in Asia/Pac)

Any BPO veteran will recall Affiliated Computer Services (ACS) as one of the early darlings of BPO, which existed right at the top of the competitive tree in the early 2000′s, whenever a large Finance & Accounting, HR or call center deal was up for grabs.  They were also a pretty handy domestic IT services shop before the Indian offshore pureplays arrived on the scene. It would always give Accenture and IBM a run for their money in BPO pursuits, and had a compelling client-focused culture and engagement methodology for many of the old world BPO engagements (i.e. a lot of lift and shift and staff re-badging).

Two years into its $6.4 billion acquisition by Xerox, management has finally decided to phase out this famous old brand… HfS Research’s Tony Filippone and Phil Fersht take a closer look into why Xerox brass has now decided to do this, what it means to this heritage business, and where it needs to focus in the future to strengthen its market position.

ACS finally gets its re-brand as Xerox zeros in on integrating the businesses and cultures

Corporate-naming consultants must have pitched ACS a dozen better names, but none better than the one it interred today. The fact is, straight-talking ACS has never spent the billions its competitors have on branding. In fact, even their unremarkable logo remained nearly identical for the company’s 24-year history. All this makes us believe that today’s announcement that ACS will now market itself as Xerox, rather than “ACS, a Xerox company” is a sign of opportunity and synergy.

As its branding has reflected and its customers know, ACS’ success is not because it is smarter than everyone else.  Rather, ACS simply outhustles its competitors. Its Midwest American values make the company the likeable, down-to-earth service provider that gobbles up government deals one after the other. Moreover, it is focused on technology-based outsourcing solutions, not headcount. Its vertical experience is a marvel, with strong positions in government, healthcare and financial services.

The acquisition announcement had analysts everywhere wondering exactly what the offspring of a toner cartridge mother and a call center father would be like. Mixing this capability with Xerox’s traditional business has clearly not been easy. Our discussions with buyers suggest that Xerox’s aggressiveness has put off clients who don’t want to hear sales pitches, while Xerox’s recent acquisition of the Breakaway Group indicates that Xerox is supporting ACS’s industry-focused approach. However, we’ve also heard that Xerox’s rigid financial management process at times conflicts with clients’ needs for flexibility.

When the acquisition was announced, it was obvious that Xerox saw Dell’s Perot acquisition and HP’s EDS acquisition as examples of technology manufacturers entering the services business. “With ACS, we take another step forward, expanding our leadership to include business process outsourcing that helps simplify document-driven work,” claimed Xerox CEO Ursula Burns at the completion of the acquisition.

Well, a lot has happened over the last few years that shows just how difficult corporate transformations can truly be:  IBM’s transformation from a manufacturing company to a services organization continues to much ballyhooed success, HP’s public leadership brouhaha has held the firm back, and Dell Services (formerly Perot) continues to grow, but it’s clear that Dell remains a technology product organization.

Xerox’s 2011 Q4 earnings release held a mixed bag as it relates to services revenues. While its BPO earnings increased 8 percent, its ITO earnings dropped 6 percent. When compared to its competitors in the BPO arena, Xerox has slipped further from the top tier into the middle of the bunch since the Xerox buy-out.  Accenture and Infosys’ recent quarters featured increases of at least 20 percent in outsourcing revenues, while IBM showed a 3 percent improvement and HP stayed flat.

The easy story this tells is simple: printers and ink relationships aren’t going to win you an outsourcing engagement given the aggressive ADM marketplace and sophisticated sales approaches of their competitors.

The harder story to decipher is the development of the marketplace for document management outsourcing. While companies clearly don’t want to print more, they certainly want to redesign processes in a manner that eliminates the need for documents to manage. Based on numerous discussions with buyers, we’re confident that buyers want to redesign their processes to reduce the source of costs, instead of simply managing them more cost efficiently. The question is how Xerox will cope with the more complex projects this shift generates.

The Bottom Line: The hard work starts now for Xerox

Having two names confused the marketplace and hid any synergies from view. Having one name suggests that there aren’t two different teams providing services to buyers (buyers hate multi-party deals and the politics they cause). The elimination of the ACS brand will clarify Xerox’s account management strategy and should encourage groups to continue to work together. Xerox also needs to complete the naming soon and eliminate the decision to keep the ACS brand in Asia Pacific. This sort of decision confuses the marketplace of global buyers.

Xerox needs to pursue the vertical focus that its competitors, such as Cognizant, have mastered. Xerox has long maintained a geographic focus, but they need to refocus on global industry leadership as ACS does (did). The elimination of ACS’s brand is one step down this path, but it would be a mistake to stop here.  Xerox should organize its services team by vertical and focus its effort on strengthening vertical expertise through acquisition and internal development (Xerox is well-known for its R&D capability).

Document management isn’t a growth horizontal, it’s a cash cow. If Xerox wants to demonstrate leadership, it will need to develop strong consultative skills to help clients alleviate their reliance on documents as part of solutions. Positioning ACS’s industry leaders and improving their internal thought leadership is a critical step. Hard work is important, but this effort takes the type of intelligence the Indians love to exhibit – and Xerox will compete against them heavily. ACS needs to focus on thought leadership to battle the brainy Indians and smart consultant-wielding Accenture and IBM. They need to hire more consultative resources, invest more in their services leadership team, and be bold in their R&D efforts.

Build on ACS’ strengths in healthcare, government and financial services.  Xerox needs to bring more consultative skills and technology to the table, beyond what it inherited from ACS. While its competitors are hurriedly investing in developing business platforms that combine their business process and technology (Cloud) capabilities, we are yet to see Xerox put a stake in the ground to develop solutions beyond document management that can set the industry alight.

Revitalize ACS’ horizontal BPO businesses.  While ACS’ position in F&A BPO has slipped in recent years, it has a great chance to leverage the Xerox brand and significant customer base in document management to open up more client conversations and opportunities.  Adding more consultative capability in finance transformation would help elevate Xerox’s differentiation  from much of the competition- solely relying on brand isn’t going to fly for many customers.  Xerox has also inherited a stellar HR outsourcing capability, with the respected Buck consulting division helping cement its position in the market in recent years, while also developing a strong business line in benefits administration services. Like F&A, Xerox needs to give its HR business plenty of investment in terms of sales acumen and market awareness, but is well positioned to challenge for market leadership with many of the leading HRO providers struggling to grow their businesses in today’s environment.  Procurement BPO is also a market where Xerox has a belated opportunity to make a push, with such strong internal manufacturing competency, but needs to make some specific investments in platform development, category expertise sales and marketing to make up for lost ground against the likes of IBM and Accenture.

Its ITO business needs a serious overhaul. Losing revenues in a growing market indicates a real weakness. While ACS still had a strong ITO business two years ago, today’s ITO environment is too commoditized to be a “me, too” player. Xerox needs to differentiate its ITO offerings through development of business platforms, build on its strong US domestic capabilities, get aggressive in search of strong acquisitions (such as Genpact’s acquisition of Headstrong), or exit the business. ITO cannot be built on the back of toner cartridges and multifunction devices, while other service providers show aggressive tenacity to win marketshare.

Xerox has a market awareness problem when it comes to services.  When you talk to Xerox, what are you talking to them about?  What is the company focused on today – are they selling a machine or a business platform?  Xerox needs to develop some real thought leadership in the markets it chooses to go after.

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10 Comments

  1. Terry Fuller
    Posted January 28, 2012 at 11:01 am | Permalink

    Very good article. What amazes me is why it took them 2 years to make this decision, when they could have phased out the ACS brand quickly, such as Dell with Perot. Plus, keeping the ACS brand in APAC is going to maintain a split culture and a diluted message to clients.

    As you mentioned, Xerox still seems to be in a quandary as to whether they are products or services,

    Terry Fuller

  2. Ramesh
    Posted January 29, 2012 at 1:54 pm | Permalink

    I have to agree with Terry here: why wait two years to make this step? It merely highlights how slow moving this company is to make decisions. If they take this long to integrate the brand, how long will they take integrating the two businesses?

    Ramesh

  3. Jean-Paul Binot
    Posted January 30, 2012 at 12:37 am | Permalink

    Insightful, perceptive, concise, balanced, to the point. This article is a gem !

    Naturally, it always delights me to read that a BPO?ITO provider needs to invest heavily on thought leadership and high-end consulting, for it is an obvious truth, however self-serving I might sound writing it myself. My own experience though is that it is easier said than done, for several major reasons.

    One is that consultants need to be independent if their advice is to be taken seriously by clients ready to pay big buck for it, but that is hard to achieve when as a consultant you share a brand name like Xerox (or IBM or Infosys, or many others) and even more so when your advice is about stuff that the rest of your company sells. In truth, it is a permanent careful balancing act for the consultants.

    Second, it is a rather expensive long term venture to invest into a credible consulting arm. With less than assured prospects of speedy return to promise, it is often an uphill battle to secure patience, continued support and funding against internal rivals (I mean colleagues) from more established business units or service lines.

    Third, consultants are more than ever birds on a wire. There is a worldwide scarcity of talent. Attracting the best and brightest to a company like Xerox is a challenge second only to retaining them for an extended period of time. One can seduce and lure them into it (and Xerox has a very good story to tell because I for one believe in enabling technologies to help make it happen in BPO for example), but a rigid, cumbersome, short-term driven, insensitive management and work atmosphere will disenchant many in a matter of months. Then they will leave and it will be back to square one.

    Really I’d like to read a piece about that sort of things from the sharp minds of the Horses for Sources team someday.

  4. Posted January 30, 2012 at 10:34 am | Permalink

    Thoughtful comment, JP.

    I’m not sure the ITO and BPO players need dedicated, high end consultants that sell pure consulting. Frankly, the commentary from buyers when they engage in pure consulting with outsourcing teams goes something like this, “$400/hour? My contract says $25/hour! Isn’t he the same guy?” It is particularly hard on the Indian-based firms who have tried.

    And thought leadership doesn’t need to come from consultants to be credible :)

    Organizations like Accenture and CapGemini have proven that sophisticated, experienced consulting teams can be a benefit to clients planning and executing a transformation and major process improvement initiative. Their thought leadership earns them the credibility to be in the C-suite, even if to start the conversation.

    As it relates to Xerox, I’m certain they want to compete at the same level. Frankly, if you spend a couple of weeks with them in their sweet spot, you’d be impressed because there is real depth there. And, because it comes from experience earned in the trenches, it becomes tangible to clients. If Xerox invested more in thought leadership, they’d open new doors and win more opportunities, as well as change market perception.

    IBM’s transformation from elephant to creator of Watson is an example. There’s a real opinion among today’s buyers that IBM is innovative because of this and their relentless investment in thought leadership which is frequently expressed through acquisitions.

  5. Posted January 30, 2012 at 11:40 am | Permalink

    As usual, good job guys. It’s obvious what companies “get it”, and those that just can’t seem to articulate a cohesive go to market strategy. Unfortunately, xerox still does not have a clear mission direction. Just my two bits…….

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  6. Jean-Paul Binot
    Posted January 30, 2012 at 9:53 pm | Permalink

    Tony,

    I agree. Consulting does not equate thought leadership per se. Today’s (and even more tomorrow’s) landscape of outsourcing is about transformation. You guys at HfS have demonstrated that time and again. Transformation requires thought leadership to be successful. However, there still is the very real issue of who is going to pay for what. In the ideal world of a market leader of outsourced services, their overall clout, brand recognition, impeccable track record and indeed their unique thought leadership should win them fantastic new deals with the blue chip companies they target without much distraction from competitors. I hear that some actually manage to do so occasionally. But more often than not, a willingness to outsource any significant part of a company’s operations will trigger a competitive bid process, which means that success will not be certain and that margins might be dragged down, raising the risk profile of the deal. Thought leadership under all its forms, thrown- in consulting and all sorts of pre-sales activity are expensive enough if you win such a deal, but if you don’t then you will not be in a good shape to try the same thing again too often. And at all times there is the risk that thought leadership, given for free to a not-yet-customer, might serve to prepare the way for a deal eventually won by an arch-rival.

  7. Posted February 2, 2012 at 10:13 am | Permalink

    BPO as we see it is going through some major transformation and an earlier article in HFS on platform based solution is a harbinger of things.

    In my opinion ACS and ADP do not just share common first letters but also a similar business model, where both had a significant focus on federal business. This does provide a stable long term revenue, but a consequence can be a slower growth rate compared to its peers.

    Xerox and ACS have the benefit of a similar culture and they should not face the challenges that some corporations face of integrating operations.

    Focus for Xerox Services should be to identify high growth business in which it can invest in to better compete with some of the earlier adapters of offshore outsourcing.

    Mrinal Singh

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  8. tom dobis
    Posted February 7, 2012 at 6:46 am | Permalink

    Xerox is no IBM or HP. the printing business is a lost leader. look at what happened to Kodak? for success to be realized Xerox would need to have former ACS employees go into Xerox shop and work miracles and change the landscape with new technologies and demonstrate success to elverage on their printing document management portfolio. this would take years. they dont have years. remember xerox was bankrupt long before Kodak due to the struggling business opportunity and lack of internal controls and processing capabilities.
    “a former ACS and Kodak employee”

  9. David Tordoff
    Posted March 5, 2012 at 7:06 pm | Permalink

    Being an alumnus of the ACS hustle machine it is a bit saddening to see the change happen. Granted a singular customer facing presence is easier to maintain and market but I do have to question the wisdom of the assimilation of an articulated outsourcing offering into a culture that can’t shuffle quickly enough to make a determined position on brand over 2 years. ACS had a culture of “Hustle” that was a mantra throughout the entire comapny and served them well.

  10. optifan
    Posted December 21, 2012 at 6:09 am | Permalink

    Heck, two years to decide to drop ACS’s name is lightning speed for XRX. They began their decision-mulling (‘mulling’ being much more entertaining and safer than ‘making’) process to acquire such a player in 1995 on the strong recommendation of a highly respected consulting firm, some fifteen years before they finally pulled the trigger in their panic to follow suit with HPQ and Dell.

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  1. By Why did iGate erase the Patni name? on April 21, 2012 at 2:10 pm

    [...] has already seen three major outsourcing provider name-dumpings with Xerox phasing out ACS, in addition to procurement outsourcers Buying Team and ICG Commerce re-branding themselves [...]

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