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Paper Jam at FedEx Kinko’s
DALLAS — Tag along and marvel as Kenneth A. May, the chief executive of FedEx Kinko’s, works a roomful of employees.
“How’s your dad?” he knowingly asks a young woman whose father just had surgery. “How’s your rock band coming?” the manager of a Dallas store hears. “Hi, my name is Ken, we haven’t met,” he says to a new hire at another store, extending his hand.
The employees seem genuinely glad to banter with him. One could almost think that the integration of Kinko’s into FedEx is going off without a hitch.
It is not.
Profit margins at Kinko’s have fallen, revenue has barely grown and employee turnover, which was 42 percent in 2005, was still a daunting 27 percent last year. Paul Orfalea, who was nicknamed Kinko for the full head of curly black hair he sported in 1970 when he founded the company — originally to serve students at the University of California, Santa Barbara — says he will not step inside the stores now.
“It gives me a stomachache to see what’s happened to the place,” Mr. Orfalea, now balding, said.
But what, actually, has happened?
It depends on who is talking. Indeed, the tale of Kinko’s metamorphosis from a free-wheeling group of copy centers to a buttoned-down subsidiary of FedEx plays like a corporate version of the classic Japanese movie “Rashômon.”
To a customer wandering through FedEx Kinko’s stores, it feels pretty much like business as usual. But delve a bit deeper, and this merger could serve as a case study of the problems that crop up when companies with synergistic strategies but wildly disparate cultures try to meld.
No one disputes the facts. Mr. Orfalea expanded Kinko’s through partnerships. He sold a large stake to Clayton, Dubilier & Rice, a private equity firm, in 1996.
Then, in 2003, Clayton sold Kinko’s to FedEx, which is turning the stores into one-stop shops for shipping packages, printing and mailing brochures or sending data over computers.
But there, the agreement ends. Some say Clayton, Dubilier massacred Kinko’s, and that FedEx can never repair the damage. Others say Clayton added discipline to the ’60s-style Kinko’s atmosphere, and that FedEx is continuing that process.
“We’ve got three cultures at play here,” said Brian D. Philips, Fedex Kinko’s chief operating officer.
But most see cultures at war. “At Kinko’s, there’s a thin veneer of professional folks riding herd on a vast platoon of semitrained people,” said James E. Schrager, clinical professor of entrepreneurship and strategy at the University of Chicago Graduate School of Business. “That’s just not the FedEx way.” A result, said Robert Boyden Lamb, a management professor at the Stern School of Business at New York University, is that “these cultures do not gel, they do not hook together at key points.”
Even Mr. May, who has been with FedEx for 24 years and has run FedEx Kinko’s for two, acknowledges the vast gulf. “Kinko’s was a way station where you stayed a few years, but you build a career at FedEx,” he said. “The Kinko’s people are hip, they’re fun, but they needed oversight.”
Kinko’s workers, many of whom still tell tales of the annual picnics Mr. Orfalea gave for co-workers (he hated the word “employee”), describe an entirely different situation.
Kinko’s coddled its workers, they say, who in turn coddled customers. “I had cornrows and green hair, and no one seemed to mind,” recalled Sharon A. Robinson, once a worker at a Kinko’s in Laramie, Wyo., and now a product specialist.
Employees speak of carnage under Clayton, Dubilier — of slashed training, mass firings, store closings and policies that discouraged helping customers in any way but by the book.
“They killed our culture,” said Kayt A. Schaefer, a documentation specialist at FedEx Kinko’s.
Clayton saw it as necessary euthanasia, not murder. “It was the People’s Republic of Kinko’s, a place where store managers thumbed their noses at corporate and ran the stores as they saw fit,” said Gary M. Kusin, a retailer who was recruited by Clayton to run Kinko’s in August 2001.
That became troublesome as Kinko’s began seeking corporate business. “Customers could not count on getting the same thing at different stores,” said Jon Cannon, who opened a Kinko’s in 1992 and is now a senior vice president at FedEx Kinko’s.
Mr. Orfalea concedes the point. “Headquarters was operating like a cooperative,” he said.
So he and his partners sold 30 percent of the company to Clayton, Dubilier. Clayton formed a central organization, and proceeded to do what buyout firms do best — cut costs, streamline operations, and groom Kinko’s to go public.
But it went too far, in Mr. Orfalea’s view. “I told them that our biggest asset was the sparkle in our peoples’ eyes,” he said. “But they threw away senior people like garbage.”
Clayton, Dubilier centralized procurement and put in stricter controls, requiring store managers to get permission to try anything new. “They just stifled us,” Ms. Robinson said.
Mr. Kusin, who joined Kinko’s five years after Clayton bought it, concedes that the buyout firm may have been ham-handed. “You can’t impose a command-and-control approach on a company like Kinko’s and expect it to work overnight,” he said.
So he tried diplomacy, visiting more than 250 stores his first month. He introduced Web-based training. And he played with the terminology: workers became team members and the corporate support organization became the field support organization. “I wanted them to feel like a team that is supported by headquarters, not hassled by it,” he said.
But he pushed hard, too, for standardization. He ranked similar stores — say, ones near colleges — by revenue and costs, and then insisted that poor performers emulate better ones. To many staffers, he came across as another numbers cruncher from the much-hated Clayton, Dubilier. “Gary added efficiency, but he was not an inspiring leader,” Mr. Cannon said.
In 2001, Mr. Kusin delivered perhaps the biggest blow: he moved headquarters (O.K., the support organization), from Ventura, Calif., to Dallas. Of 800 or so people, only 70 moved. Some chose not to go; most were not asked.
“We had a series of going-away parties that felt like funerals,” Ms. Schaefer said. “Our culture was already dying, and Gary killed it off.”
Mr. Kusin is bewildered by the venom. He says that surveys show that morale went up on his watch.
“When I left, a huge number of people told me how good I’d made them feel,” he said. “If their business isn’t going well, I wish they wouldn’t blame it on culture problems.”
Paradoxically, FedEx and Kinko’s actually have much in common.
FedEx, too, was founded by a charismatic but hard-charging entrepreneur, Fred Smith. And the original business models of both companies were trampled by technology. The documents that FedEx once transported often now move as e-mail attachments, and people who once made copies at Kinko’s now can easily print them from their desks. At the time they merged, FedEx was emphasizing package delivery, and Kinko’s was chasing corporate accounts.
Even before it bought Kinko’s, FedEx had drop-off counters for packages in 134 Kinko’s stores, and the idea of putting them in what was then 1,200 stores (today there are more than 1,600) was tantalizing.
Mr. May is experimenting with different store sizes, formats and merchandise mixes. He is setting up a kind of hub-and-spoke system — one large store will handle big print jobs for surrounding small ones.
But the bumps remain. FedEx, based in Memphis, has always been a highly structured company.
“The bigger the dollar impact, the more likely the decision will be made in Memphis, and that grates,” said Peter D. Rudenberg, senior manager for equipment service.
FedEx is also imposing uniformity where serendipity once reigned. All stores use a computerized system to track work, and all will soon have a uniform system for scheduling jobs. Kinko’s managers used to do their own hiring; FedEx employs trained recruiters to prescreen applicants. FedEx is insisting that criteria like the on-time record for customer jobs be regularly assessed.
“We’re really into measurement, and that’s been a culture shock for them,” Mr. May said.
It is a lot for employees to swallow, but Mr. May has tried to sweeten the pill. He acknowledges birthdays and notes the births of children. He awards “beacons” — pins shaped like the FedEx logo — for stellar service.
He has sent most employees for training and . started a program to help workers plot their careers. More than 13,000 of the 20,000 employees have signed up, he said.
Still, rivals like the United Parcel Service and superstores like Office Depot also offer copy, print and shipping services; thousands of mom-and-pop print shops cream off business. “People can get these services with such ease, I just don’t see how FedEx is going to make money from Kinko’s,” Professor Schrager said.
Perhaps it does not have to. “Maybe FedEx Kinko’s won’t generate a lot of income on its own,” said Kenneth Hexter, an analyst with Merrill Lynch. “It is still a great distribution network for packages.”
