Lexmark CFO: Reinventing a Company

February 14, 2014, 12:14 AM ET

Lexmark CFO: Reinventing a Company

The invention of the iPhone and iPad meant the decline, and eventual sale, of the consumer inkjet printing business for Lexmark International Inc. Over the past three years, Chief Financial Officer John Gamble has played a key role in reinventing the Lexington, Ky.-based company through strategic acquisitions and divestitures.  He spoke with CFO Journal Editor Noelle Knox about Lexmark’s transition into a solution, services and software company.

Q: When did you see the writing on the wall?

We started seeing the consumer print business declining quite some time ago (in 2007) and we started focusing our imaging business on managed print services (MPS) and the enterprise segment, which have much better market characteristics.  Anheuser Busch, for example, is one of our MPS customers. We manage their print environment, which includes the printers and toner, as well as consulting services to improve effectiveness while minimizing costs.

Q: Can you describe your evolution?

We are becoming a solutions, services and software company that helps customers manage their unstructured information and unmanaged imaging device environment.  Unstructured information is basically images that do not easily fit in the rows and columns of a structured database. For example, paper documents are a form of unstructured information. Today, documents are paper and electronic. We bought Perceptive Software in 2010 to extend our capabilities into content management and document workflow. With Perceptive, we can deliver a much more complete solution, enabling us to expand beyond our MPS offerings. Enterprise content management is both a stand-alone offering and an extension to our MPS offering.

We invested heavily internally to enhance our imaging hardware, printers and multifunction printers, and services capabilities.  Growing our MPS capabilities and revenue is a key part of our strategy, and ensuring our software strategy supports MPS growth is key to our transition.

In terms of software, after Perceptive Software, we acquired Pallas Athena and Brainware.  These two acquisitions were generally focused on transactional processes, such as management of invoices, accounts payable and receivable or bills of lading. A company receives lots of invoices, sometimes electronically as a Pdf-file or spreadsheet, or as paper. We can now capture the invoice, store it in a content repository, and with intelligent extraction software can effectively read the document, understanding it is an invoice and pulling the relevant information to integrate with a customers’ ERP system.

Q: And your other acquisitions?

We moved to add search capabilities (ISYS), and to be able to manage a broader set of unstructured information, such as photographs, medical images, audio and video. For example, we acquired Acuo Technologies, Twistage and Pacsgear over the past year to allow us to access, store and manage this type of complex content in a common repository. So, as an example, we can help a healthcare institution manage and make easily available the medical images from radiology and other sources, photographs, audio and video needed by clinicians.

Q: What is your acquisition strategy now?

We are focused on companies that can expand our content and process technology, domain expertise for instance in healthcare, and geographic reach. Where there are synergies between both our existing managed print services business and our Perceptive Software business.

Our technology and marketing teams help us understand our gaps, as well as our partners and competitors. And from that we get acquisition ideas. We also use investment banks, which bring us ideas. Our targets tend to be private companies and not very large, in terms of revenue. We have a fairly good reputation for executing and closing rapidly. We are able to show companies we are talking to how they fit into the overall strategy. The companies have tended to fit well and we’ve done well at integrating them and retaining key people.

Q: What has been the biggest lesson?

Recognizing this is a transition that takes a lot of endurance. You need to be well focused on the strategic goal, and all of the decisions you make, even the small ones, need to stay highly focused on the transition to a solutions, services and software company. We’ve made sure every organization within Lexmark had a strategy to transition at the same time. Our IT department, for example, had a strategy to transition our core systems to better support services and now software. Our front-end systems, such as sales and pricing, are all global and in the cloud. The back-end systems – finance, HR – are global and migrating to the cloud this year.

Q: Can you detail your cost-cutting efforts? Where have you seen the biggest savings?

We saved $85 million in fiscal 2013. We expect to save another $25 million this year and $30 million next. The biggest savings came from exiting the inkjet printing business. We’ve also seen significant reductions in support organizations. We shifted as high a proportion of spending as possible to front-line sales.

Q: What is your biggest obstacle?

Truthfully, it is just a lot of work and therefore maintaining focus across the organization. It is something that takes a lot of sustained effort on a very detailed level. Can we go fast enough? There are tremendous opportunities and we need to move as fast as possible.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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