CIO Priorities: Xerox Corporation

By Guest Author Narayanan Raman

In today’s post, I speak with John McDermott, CIO of Xerox Corporation, the global document management company.

Like most CIOs, John’s foremost priority is to manage the IT costs of his organization. Although Xerox’s IT costs have been declining by an average 8% per year for the past six years, this year*, for obvious reasons, the company’s revenue drop will push IT costs as a percentage of revenues to a level that is considered inappropriate by the senior management. There is thus an even stronger emphasis on reducing IT costs at Xerox. John has various levers that he is pulling to accomplish this, one of which I will describe in detail in this article.

An important area that John is focusing on is sustaining operations costs, or costs that are incurred to keep the businesses operational and running. Such costs constitute about 75% of Xerox’s total IT costs (the remaining 25% represent “investments” in IT that are in line with the strategic objectives of the organization). Specifically, John focuses on reducing much of the portion of sustaining operations costs that are outsourced, and he does this using a multi-vendor sourcing strategy. Xerox is a company that has a long tradition of and experience in outsourcing, and John is leaning on that experience to buy outsourced services in a new way. Instead of signing large-scale contracts with a few companies, Xerox IT is now working on smaller contracts with a larger group of vendors, selecting each vendor for a service area in which it performs the best. For example, John chooses one firm for mid-range processing business, another for application support, and a third for application development. Xerox IT also takes care to group similar services and applications with a single supplier. For example, application support for the company’s SAP platform is given to one supplier, while that for an Oracle platform is given to another. Cross-application issues that crop up with this approach are handled through careful coordination among the vendors. This strategy has cut the cost of Xerox’s outsourced services by nearly 25%, a result of market competition among the best-of-breed suppliers and Xerox’s understanding and acceptance of new ways to deliver services.

The idea of a multi-vendor outsourcing strategy to lower costs might sound counterintuitive, since one would expect costs to increase due to the increased need for integration when not one or a few, but many outsourcing vendors playing together. John clarified that the concern is valid and genuine, and Xerox IT has in place an initiative called the “multi-vendor supplier integration capability” which deals with this very challenge. This initiative helps Xerox to make the necessary investments to manage vendors across the various IT layers, such as infrastructure, application development, and application support, and Xerox IT has adopted an ITIL approach for doing this. John says that with good thinking, the amount of investment necessary to build this capability is modest, but the capability must be built before the transition to new suppliers takes place, and not after.

John illustrated this with a specific example that helped me to better understand how the company makes it work. Xerox IT had a data center that had a major power issue that forced the center to run its recovery processes. The recovery processes required the IT department to coordinate a lot of activities with different groups of new suppliers that were managing different aspects of the data center such as the processing environment, applications, and networks. Using the “multi-vendor supplier integration capability,” Xerox IT was able to recover the data center exactly within the processes and procedures and within the recovery time.

The discussion with John shows how Xerox’s multi-vendor outsourcing strategy, an interesting and what seems to be a counterintuitive way to tackle the challenge of lowering IT costs.

* “This year” refers to 2009 and not 2010

This segment is a part in the series : CIO Priorities