Xerox copies Dell’s example and acquires ACS, but again, where’s the fit?

Is there a recurring theme here?  US-based giants with faltering commodity business models from yesteryear, making very late plays to get into the IT-BPO services business?

While I could see some synergies between Dell and Perot, this one's even tougher to fathom, unless Xerox has further plans to marry ACS with a stellar IT services acquisition. 

ACS was one of the early darlings of BPO, and was 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.  It would always give Accenture and IBM a run for their money in BPO pursuits, and had a compeling culture and engagement methodology for many of the old world BPO engagements (i.e. a lot of lift and shift and staff re-badging). 

Sadly, ACS has rather fallen away in recent times, and has struggled to cope with the aggressive entry of the Indian-centric global competitors into the BPO space.  The new generation of global services providers are bringing passion and combined IT-BPO prowess into the mix, in addition to global sourcing models that are driving down the price-points.

Xerox, on the other hand, has been eyeing broader business services for a while, and I can see why they'd find part of the ACS portfolio attractive – a broader client-base, great presence in healthcare, government, hi-tech and consumer business, a strong BPO brand and global delivery presence.  ACS also has a strong IT services business, but not on the same scale as the top tier. 

The real challenge for this combined entity, is to cope with the new throng of competitors in this space:  Cognizant, Genpact, Infosys, TCS et al., and not solely the incumbents such as Accenture, Capgemini and IBM.  The combined Xerox-ACS business will have a short-term potential to consolidate a commanding position in back-office BPO areas such as document management, call center, payroll, benefits admin and accounts payable. 

However, clients today are spoiled for choice with other service providers which can offer the same services at lower cost.  Xerox also needs to make a quick move to push a utility delivery model, based on common processes and standards, with compeling industry-alignment.  Continuing to push old-world BPO, where the customer shifts existing processes with limited transformation, is not a recipe for success. 

My take?  If this combined entity were to merge with a strong IT services provider and develop a coherent IT-BPO strategy, then we really have something to talk about.  Funnily enough, if you combined the new Xerox with the new Dell, then you'd be looking at a company with a lot of future potential…

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9 Comments

  1. Posted September 28, 2009 at 12:43 pm | Permalink

    Sure, there are sales synergies, and Xerox is experienced enough to cross-sell hard. Very hard.

    However, it is hard to see the operational synergies. Reorganizing around services unrelated to making/maintaining copiers is probably going to be one heck of a cultural change. Especially for a company like Xerox, which is well known for long term employees…

    …and to engage in the Indian BPO market’s aggressive pricing is going to be a huge learning lesson for Xerox. Pray the ACS leadership sticks around instead of taking their long awaited liquidity event into retirement…

    Agree completely on the Dell comment…if Dell had bought Xerox, Dell and Xerox would have gained substantially. However, the cultural fit would have been even more challenging given their “coop-etition” positions in the current market.

    Wish Xerox luck – choice is great from a customer perspective and Xerox has some good ideas and market offerings. Existing ACS customers definitely don’t want deteriorating service…

  2. Posted September 28, 2009 at 1:17 pm | Permalink

    This is a good move by Xerox. The ACS acquisition complements & Strengthens Xerox Global Services division.

    Xerox is one of the big vendors for Managed print services, and has multi year contracts with many utilities, Banks, Credit Card companies.

    They will leverage this relationship to offer other platform based services to their existing clients.

  3. Posted September 28, 2009 at 3:01 pm | Permalink

    @Tony – good call re the ACS leadership. This is a nice deal for them, and you would have thought most of the ACS staff should be safe for a while. Xerox need to ensure they keep the critical staff onboard and retain / hire some leadership to build out the ACS business. Definitely a curious fit, let’s hope Xerox has the resources and drive to transform the ACS portfolio, add to their own before it’s too late.

    PF

  4. Posted September 28, 2009 at 3:28 pm | Permalink

    Phil – Let me offer the opportunity to help with the fit between Xerox and ACS. While there has been a lot of movement on the services front lately and competition in the BPO space in particular is heating up, we firmly believe this move is spot-on, differentiating Xerox from the other players in the space. What differentiates this deal from others: our combined companies will focus on the business process – the data, documents and business process touchpoints. Not solely the software applications or IT infrastructures that other companies address. You’ll now think of Xerox for document and business process management. In short, Xerox is accelerating its roadmap in the services space with what is arguably the premier provider of BPO in the U.S. The end result? Dramatically enhanced value for our shared customers and other stakeholders.

  5. Posted September 28, 2009 at 4:17 pm | Permalink

    @Rebecca: thanks for chiming in. (For all you visitors here, Rebecca Scholl is CMO for ACS and a great former Gartner analyst). These business services mergers always thorw up a number of questions – culture, integration, sales synergies etc. Always a lot more complex than a straight software / IT play. Time will tell if it’s successful…

    I guess many of the major positives are that there are not many areas of overlap from the service-side, so the potential is there if you guys can figure it out, leverage the global scale that you both bring and the sales channel effectively. My concern is how quickly you can build the newly integrated business, stave off very tough competition and leverage the IT capabilities globally. Judging by the drop in Xerox shares this morning, the strategic fit is not viewed as that compelling – but let’s hope you can prove the Street wrong.

    I think everyone in the business wishes both firms luck.

    Cheers,

    PF

  6. Posted September 28, 2009 at 6:12 pm | Permalink

    Phil – thanks for the post. We see this move as a signal that ACS and Xerox are moving down the IT services food chain. http://blog.equaterra.com/ And, it’s not necessarily a bad thing. The data and data entry oriented process, document management, transaction-based services provide huge market opportunities for the combined firm.

    Our real question lies in how effectively ACS will be able to compete in the fiercely competitive high-end ITO space. We see a real opportunity for a new player to emerge in the enterprise infrastructure space based on the declining number of options. Will it be Xerox/ACS? Time will tell.

  7. Rand Havens
    Posted September 29, 2009 at 12:16 am | Permalink

    For FAO, this is a refreshingly good idea and the operational synergies are huge. The document management services from Xerox have been evolving into end-to-end data management, but Xerox needed something to further develop this pre-Process BPO concept. With the Xerox behind them, ACS will be able to strengthen the end-to-end processing (purchase-to-pay, quote-to-cash, record-to-report) and walk into the potential clients with one of the biggest questions already answered: Who will handle the front end? I really think Finance Organizations will respond well to this.

  8. Dave Hilton
    Posted September 29, 2009 at 6:38 am | Permalink

    Phil,

    I think that this is a pretty cool move for both of them. Xerox is obviously very interested in increasing and locking down their footprint in the multi system market and wants to be able to compete with HP, Dell, and many others. Part of what occurs in the BPO services industry is at the back end where there can be much copying, printing, scanning, and faxing in terms of the completion of the business process. While many of the other BPO service providers may have some second thoughts about working with the ACS part of Xerox, locking in all of ACS’ customers maybe a very good thing. I really don’t know when the math on the upside is done compared with the downside math, whether this is a gain or not, but it should at least lock in Xerox customers.

    This may also help to straighten out some of the balance sheet issues that ACS has had, where they even considered going private to help resolve them.

    Dave

  9. Rebecca Scholl
    Posted September 29, 2009 at 12:59 pm | Permalink

    Lee Ann, while the deal has received a lot of coverage from the BPO perspective, I would like to clarify that Xerox cares a lot about the ITO portion of our business as well. Xerox will boost the global reach of our ITO business and will allow us to expand our services to their Managed Print Services customers. I also agree with the posts by Dave and Rand about the opportunities in end-to-end processing!

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