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Summary

By the end of 2016, Xerox will have joined the growing list of large technology companies that have opted to split themselves in two. Following in the footsteps of HP, CSC, and Symantec, the company is separating out its business process outsourcing (BPO) operation from its document technology business.

Xerox has struggled to build on the acquisition of ACS

The move comes almost exactly six years after Xerox significantly expanded its BPO division with the $6.4bn acquisition of ACS. At the time, Xerox boasted that the combination of process management expertise with document technology experience would create a new class of service provider, but it has now admitted that the two sides of its business "serve distinct client needs, have different growth drivers, and require customized operating models and capital structures." Hence the decision to split.

With annual BPO sales of $6.9bn, Xerox can lay claim to being the second-largest player in the global BPO market, but the company has struggled to maintain the momentum it gained through the takeover of ACS. The sale of its IT outsourcing arm to Atos in 2014 was an attempt to refocus the services side of the business around BPO, but results have continued to disappoint. In 2015, BPO revenue dropped 5% (or 3% in constant currency), while the overall services sales pipeline declined 15% in 4Q15, compared to the same period of the previous year.

A major challenge for Xerox since it made its big push into services has been that its brand, while strong globally, is not predominantly associated with outsourcing. The split should afford it the opportunity to create a new identity for the BPO business, free from (ultimately unhelpful) connections to printers and photocopiers. Greater independence should also enable the new firm to make targeted investments, building on the expansion of its automation software portfolio, which was announced last year. Xerox's CEO Ursula Burns, announcing the split to investors, spoke of the need for BPO providers to be adaptive and innovative, but making that a reality will be easier said than done. The split is a positive step for Xerox BPO, but it is just that – one step. Plenty more needs to be done to reinvigorate this vendor.

Appendix

Further reading

"CSC splits into two: a pre-cursor of future industry consolidation?" IT0019-003453 (May 2015)

"Atos goes for US growth with Xerox ITO acquisition," IT0019-003404 (December 2014)

"Symantec splits in two as it moves to reinvent its security business," IT0022-000221 (October 2014)

Author

Ed Thomas, Senior Analyst, IT Services

ed.thomas@ovum.com

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