Lexmark International, Inc. History

Address:

55 Railroad Avenue
Greenwich, Connecticut 06836
U.S.A.

Telephone: (606) 232-2000
Fax: (606) 232-2300

Public Company
Incorporated: 1991
Sales: $2.16 billion (1995)
Employees: 5,000
Stock Exchanges: New York
SICs: 3579 Office Machines; 3577 Computer Peripheral Equipment

Company Perspectives:

Lexmark's laser printer strategy is to target fast-growing segments of the network printer market and to increase market share by providing high quality, technologically advanced products at competitive prices. To enhance Lexmark brand awareness and market penetration, Lexmark will continue to identify and focus on customer segments where Lexmark can differentiate itself by supplying laser printers with features to meet specific customer needs.

Company History:

Lexmark International, Inc. is one of the world's fastest-growing designers, manufacturers, and suppliers of laser and inkjet printers and related supplies for both the office and home markets. The company has quickly become a leader in the development and production of an extremely broad line of office imaging items, such as color inkjet printers, dot-matrix printers, inkjet cartridges, wheelwriter typewriters, coated paper, cables and adapters, memory chips, computer keyboards, and supplies for original equipment manufacturers (OEMs). Lexmark has manufacturing operations in Lexington, Kentucky; Boulder, Colorado; Orleans, France; Sydney, Australia; Rosyth, Scotland; and Juarez, Mexico. As a spinoff from IBM, the company inherited a worldwide distribution network which management has built upon and expanded dramatically to include sales offices throughout the United States and Canada, and in such far away locations as The Netherlands, Denmark, Belgium, England, France, Italy, Spain, Norway, Austria, Hong Kong, Singapore, Taiwan, Japan, Argentina, Mexico, and Brazil. With such a strong demand for its products, and an aggressive international sales force, it is not surprising that Lexmark's revenues have catapulted to $2.2 billion in just five years.

Early History

The birth of Lexmark International was a result of IBM's attempt to remain competitive in the intense atmosphere of the late 1980s, when so many smaller firms began chipping away at Big Blue's market share in the computer industry. When IBM initiated a strategic downsizing campaign to cut its workforce by selling or spinning off its peripheral businesses, the Information Products Division was designated as one of the targets. In the early part of 1991, IBM completed a deal to sell Lexmark ("Lex" stands for "lexicon" and "mark" stands for "marks on paper"), its newly renamed Information Products Division, to the private investment group of Clayton, Dubillier, and Rice for approximately $1.5 billion. The leveraged buyout, arranged largely by Martin Dubillier, one of the founders of the investment firm, was financed mostly through bank loans which left the newly created company $1 billion in debt. Dubillier, knowing that Lexmark required astute and aggressive management if it was to survive and prosper with such a heavy debt load, hired Marvin Mann, an IBM vice-president with 32 years of experience, to serve as Lexmark's chairman, president, and chief executive officer.

Intimately knowledgeable about the successes and failures of IBM's business, Mann jumped into his new position with unbridled enthusiasm. Working 18-hour days, and starting with the outline of an organization, he began to reinvent a $2 billion operation. The leveraged buyout included the transfer of IBM's Lexington, Kentucky plant to Lexmark. Mann made the plant the focus of the company's production facilities and immediately implemented a strategy to streamline its workforce. By means of generous benefits for voluntary retirements, transfers, or separations, including one-time assistance payments of $25,000, and one-time career retraining payments of $2,500 (also part of the agreement with IBM), Mann was able to reduce the plant's workforce from over 5,000 to only 1,200 employees. This downsizing significantly reduced Lexmark's operating costs.

At the same time, Mann began to hire virtually all of his management team from IBM. Part of the deal with IBM gave Mann the authority to approach IBM employees to work for Lexmark, and the new president had absolutely no qualms about bringing in experienced managers who were willing to reshape the business. Ultimately, Mann managed to recruit the heads of IBM's research and development, sales, marketing, production, and human resources departments. In order to increase efficiency and smooth the workflow, Mann decided not to establish the traditional "contention system," where staff members from different departments within the company challenge each others' proposals, a primary management strategy at IBM and its subsidiaries. Instead, Mann wanted his managers to focus their energies on positive suggestions that would keep Lexmark ahead of its competition.

Perhaps the most innovative management restructuring occurred in the area of manufacturing operations. Initially, small teams of employees were formed in order to make the production lines more efficient and to eliminate problems related to quality control. However, the process of transferring responsibility for decision making from management to workers was not always a smooth one. In one instance, early on in the reorganization, a team of employees redesigned the laser printer production process and then presented their recommendations to management who asked the group to sign an approval form for the design. Realizing that the decision making process, and all the responsibility that goes with it, was completely in their own hands, the group of workers shied away and refused to sign the document that would change the production process. One month later, the same group of workers returned with a more detailed redesign of the laser printer production process, and immediately supported it with their signatures. The two lessons Mann and his management team learned from this experience were that, first, empowerment doesn't work until workers believe that they can actually take ownership of the production process and, second, that involving employees in decisions that affect the production process takes time. These fundamental changes in management-employee relations went a long way toward establishing a highly motivated and effective workforce at Lexmark.

Growth and Development

After having reduced numerous layers of management, created highly independent product development teams, organized a brand new, extremely aggressive sales force, and discarded IBM's traditional appraisal and suggestion program, Mann was ready to take Lexmark to new heights. In 1992, as the company improved its product development time cycles and made its manufacturing processes more and more efficient, a new dot matrix printer was introduced for use at both work and home, along with an extremely lightweight battery-powered printer for portable personal computer users. Later that year, Lexmark introduced a PostScript-compatible inkjet printer, and also began to make a mark in the field of laser network printing. These laser printers were manufactured for Macintosh and were the first products bearing the Lexmark, rather than the IBM, name. At the same time, however, Lexmark retained its right under a licensing agreement to manufacture printers under the IBM logo.

In addition to expanding its product line with such items as color printers, Lexmark significantly increased the number of its original equipment manufacturer (OEM) printer customers, and was well on the road to doubling that number within its projected timetable of one year. Lexmark also aggressively expanded its IBM PC-compatible keyboard business, which, by the end of fiscal 1992, had grown to include over 40 original equipment manufacturers besides IBM. Lexmark was able to double its operating profits after only two years of operation. The company produced $1.8 billion in revenues during fiscal 1992 and, with a good cash flow and astute management of its financial resources, Lexmark was able to dramatically reduce its debt from $1.15 billion to approximately $700 million, an impressive accomplishment within such a competitive industry.

In 1993, Lexmark significantly enhanced its presence in the Pacific Rim with the acquisition of Gestetner Lasers. Arranged through its subsidiary, Lexmark Australia, the print maker Gestetner was the company's first acquisition and, like all subsequent purchases, was fully incorporated into the company's manufacturing operations. At this time, the company made a commitment to increase its business operations in the international sector and, after a restructuring plan implemented in 1992, improved manufacturing operations in France and built up distribution, marketing, and administrative operations throughout Europe. As a result of these measures, sales from the company's European business shot up to approximately $500 million. Through astute pricing and product sourcing decisions, management was able to minimize the effects of exchange rate fluctuations on the company's European revenues. Other major events during 1993 included the introduction of a new series of network laser printers, and a licensing agreement with Interlink Electronics to develop joystick technologies for a burgeoning market.

By the beginning of 1994, Lexmark had made its name in the laser printer industry. The sale of inkjet printers increased 27 percent over the previous year, much of this due to the entry of the company into the low-end color inkjet market. Associated printer supplies increased by 28 percent, attributed primarily to the continued growth of the company's installed printer base. Keyboard revenues increased only six percent, but the company's notebook computer line proved to be one of its most popular products in the retail market. In fact, Lexmark's presence in retail stores was growing at an astounding rate, with over 20 percent of the company's total revenues generated from retail sales. By the end of the year, Lexmark was ranked fourth in the retail market, closing in on such giants as Hewlett-Packard, Epson, and Canon Computer in inkjet sales. A study conducted during this time indicated that consumer recognition of Lexmark and its products had grown from 36 percent to 41 percent in just three months.

In addition to the increase in revenues, Lexmark received a major endorsement from Microsoft when the software titan picked the company as its first partner for the WindowsAtWork printing environment. Pleased with Lexmark's innovative and aggressive style, Microsoft subsequently chose the company to work on a second generation of products which would be optimized to run in a Windows environment. The close of 1994 marked a milestone in Lexmark history as the IBM logo was finally removed from all company products to be replaced by the Lexmark name. Perhaps the most satisfying moment for Mann, however, arrived when Lexmark was able to reduce its debt to a mere fraction of the total amount by the end of 1994.

Into the Future

In 1995, Lexmark introduced one of its most successful products, MarkVision, the most thorough and comprehensive printer management system designed up to that time. Local Area Network (LAN) users within large corporations significantly increased their efficiency by installing MarkVision, which allowed staff to view all the available printers and check the print job status of each of them without leaving their desk. Another feature of MarkVision provided network administrators with access to the same information so that printer settings could be easily changed through a unique remote operator panel. The click of a mouse gave individuals the ability to remotely perform multiple tasks from their desktop, and simultaneously control and manage all printers across the entire network, regardless of whether the printer was on another floor in the building or across the country. Within a very short time, MarkVision had developed into one of the most popular network and systems management applications, used by many of the leaders in the network industry. With the success of MarkVision, Lexmark was able to introduce related applications such as the MarkNet IR, or infrared adapter. This highly compact product enabled a mobile printer to print, synchronize, and transfer files from an infrared-equipped notebook or laptop computer without the use of switch boxes or cables that required extensive hook-up procedures.

By the end of fiscal 1995, Lexmark was able to report nearly $2.2 billion in revenues, with approximately 70 percent of sales generated from printers and associated supplies. Nearly 40 percent of Lexmark revenues came from sales outside the continental United States, mostly derived from countries in Europe and around the Pacific Rim. With international sales up 25 percent over 1994, the company planned to continue expanding its presence overseas through a strategic effort to manufacture more competitive products, improve marketing and intensify sales efforts.

According to the trends within the industry, Lexmark management was confident that most of the company's revenues through the end of the 90s would be generated from its consumable supplies business, especially in the area of replaceable cartridges for printers. Because cartridges must be replaced two to three times per year, the demand for laser and inkjet cartridges increased at a much higher rate than initially expected. Lexmark planned to meet this need into the next decade by increasing its production facilities in the United States, Europe and Latin America. During the mid-1990s Lexmark management decided that, for the foreseeable future, the company would be the only supplier for new print cartridges of its laser and inkjet printers, thus contributing to the stability of Lexmark's earnings.

Principal Subsidiaries: Lexmark Australia.

Lexmark International, Inc. History

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