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Paper Jam at FedEx Kinko’s
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News Item
06 May 2007 09:53 AM
    Paper Jam at FedEx Kinko’s
     
    Brian Harkin for The New York Times

    Kenneth A. May, the chief executive of FedEx Kinko’s, is experimenting with different store sizes, formats and merchandise mixes.

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    Published: May 5, 2007
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    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.

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