This is a Xerox metaphor.
Xerox, up through the mid-1970s, enjoyed a virtual monopoly on plain paper copiers. Xerox did not sell its machines at the time. Rather, it leased them, sold paper and toner customers must use compulsorily on the machines and earned revenues on every copy made on these machines. Sales and profits from leasing machines, and those of supporting paper and toner, were large and growing.
But customers, apart from concern about high copying costs, for which no ready alternative was available, were disgruntled about the high breakdown rates and malfunctions of these expensive machines. Rather than redesign the machines so that they would break down less frequently, Xerox executives saw an opportunity to enhance their financial results even further. They permitted direct purchase of their machines, and then established an extensive field service force as a separate profit centre, to repair broken machines at exorbitant charge to the customers. Given the demand for its services, this division soon was a substantial contributor to Xerox’s profit growth. Furthermore, since no output could be produced while waiting for the service person, companies bought additional machines as backups, so sales and profits grew even higher. Thus, all the financial indicators – sales and profit growth, return on investment – were signaling a highly successful strategy.
But customers were unhappy; customers were surly. They did not want their supplier to excel at having a superb field service force, but instead cost-efficient machines that did not break down.
Eventually, Japanese and other American entrants were able to break in to offer machines that produced comparable or even better quality copies, that did not break down, and that were lower priced. And they were embraced by Xerox’s dissatisfied and disloyal customers. Xerox, one of the most successful U.S. companies, almost failed. Only under a new CEO, with a passion for quality and customer service that he communicated throughout the organization, did the company make a remarkable turnaround.
Source: The Balanced Scorecard by Robert S. Kaplan & David P. Norton
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