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3 brand lessons from the Xerox/ACS split

When your brand is so well known that it becomes a verb, it’s incredibly hard to change the definition.

Xerox has been synonymous with copying for decades creating a brand that was worth an estimated $17 billion in 2008. The next year it acquired ACS, a $6.5 billion business process outsourcing (BPO) company, in an attempt to increase revenue. The move confused employees, customers and shareholders alike. How did BPO services fit with the copier brand they had known forever?

Fast forward to 2016. After seven years of trying to make sense of the acquisition, Xerox announced it’s spinning the BPO business back out into a separate public company. It seems the market just never accepted the extension of the copier brand into the business services category.

The Xerox experience is a high profile example of what can go wrong when the business and brand strategies are not tightly integrated. On a smaller scale, a $50 million company that acquires a $5 million startup can encounter the same issues, so it’s helpful to take away a few lessons from the Xerox experience. Here are three:

1. Business and brand strategies must be aligned to create value

The Xerox saga started with the launch of a new brand identity and architecture in January 2009. It was the first major rebranding of Xerox in more than 40 years and it reflected the company’s history of innovation in the document technology business.

The ink had not even dried on the brand guidelines when the company acquired ACS – a business move that felt completely disconnected from the Xerox document technology brand. It appeared as though the business and brand were going two different directions.

Christa Carone, Corporate VP and CMO of Xerox, reflected on the experience in Ad Age several years later. “As I watched each morning through the lens of a harried professional with one ear on CNBC and another listening to the woes of a tween, I couldn’t quite make sense of why Xerox – a brand we all think we know so well – was talking about call centers.”

The market clearly never made sense of it either. The Wall Street Journal reported that in 2015, company revenue was 18% lower than Xerox had estimated it would be at the time of the merger, and the market valuation had dropped 37% since 2010.

This dynamic is no different for a smaller company. A merger or acquisition can cause confusion among employees and customers if it is not consistent with what people expect from the brand. The result is a slower, more difficult integration process.  On the other hand, if the business strategy is aligned with the brand, M&A transactions will make sense to the stakeholders and the company will enjoy a faster return-on-investment.

2. The brand strategy should take the lead

Needless to say, the Xerox marketing team must have felt a bit blindsided by a business strategy that was inconsistent with the major rebranding they just completed. They now had to find a way to rationalize the acquisition and shift perceptions from being a copier company to a business services brand.

“Our approach didn’t come without some internal frustration and healthy debate”, said Carone. “Ultimately, we stopped resisting it, started embracing it and – through our latest ads – started leading with it.”

The company launched its new “Work Can Work Better” brand platform in 2015 combining the value propositions of the two lines of business under a “work-solutions provider” position. Unfortunately for the marketing team, five months later Xerox announced the separation of the businesses into two companies again. (Time to dust off that 2008 document technology brand manual!)

The lesson here is to let your brand take the lead. A clearly defined brand guides the decision-making process for an organization and extends the brand into businesses that connect back to the core value propositions. The brand development process should be out in front of the business strategy, not reacting to it, so that employees and customers have the context to embrace changes as they happen.

3. The right brand architecture helps extend a business into new areas

There is also a lesson in this story about the usefulness of brand architecture in guiding a business. The Xerox architecture features a dominant corporate brand where every offering is designed to build the value of the master brand.

However, the acquired BPO service offerings did not fit under a corporate copier brand that served fundamentally different markets. As the company later acknowledged in its press release announcing the split “… it has become increasingly clear that the Document Technology and BPO businesses serve distinct client needs, have different growth drivers, and require customized operating models and capital structures.”

Xerox tried to make it work anyway by redefining the master brand to make everything fit underneath it.  But it took six years to launch the brand platform and, by then, it was clear the market was not embracing the acquisition.

The takeaway is that any company considering a merger, acquisition or brand extension needs to consider how all the offerings work together to build value. Does the new line of business align directly with customer expectations of the brand? Or does it offer a unique value proposition that requires some separation from the company brand? Answering these questions before making an investment in a new offering will help you build lasting brand value for the company.

Learning from the gorillas

While it’s easy to use 20/20 hindsight to show where a huge, high profile company like Xerox went wrong, it’s a whole other challenge to avoid a brand-business disconnect in the first place. The most successful brands avoid the problem by clearly defining the brand, building it into the DNA of the organization, and using it as the guidepost for business decision-making.

Of course, this is easier said than done, but the payoff in terms of long-term business value is clear. And, unlike Xerox, making that investment will keep your company from having to redefine its brand every time the business changes.

 

 

Posted by Grant Kimball
November 15, 2016