One of a series of case studies about companies over the last century that have transformed impossibilities into “repossibilities” . They attained greater success because of – not despite – the crisis they faced.
This case study examines the lessons from one such “Number One”, Xerox, which realized that its size and market position were actually acting as a hindrance to growth. Specifically, it offers the reader useful lessons in:
- How success can breed complacency and lay the ground for a fall
- How to bring together employees to re-build a company and
- How to truly be customer-driven and innovative
The low rumble of the plane’s engine was having a soporific effect on Mulcahy. She could feel her eyes growing heavier and her grip on the notes she had been going over loosen. She knew she should just give in and indulge in a few well-deserved moments of rest, but there was too much to be done. There was a lot of expectation to live up to as the company’s first female CEO – especially as pundits were waiting in the wings, ready to pounce on the fact that she came from sales and HR, which didn’t exactly fit the traditional profile of a corporate leader. Not too mention the pressures of reviving a company $17 billion in debt, facing an SEC scandal, and on the brink of filing for Chapter 11. No, sleep was not an option.
Mulcahy straightened up in her seat and reached for the complimentary coffee. There was no way she was going to give the nay-sayers the smug satisfaction of watching Xerox fail, which was precisely why she had spent nearly 90 days flying from meeting to meeting, speaking with CEOs, and industry analysts. It was also why she had arranged countless public forums and focus-groups for customers and was actively encouraging them to send in feedback. She wanted to know as much as she could before devising a strategic plan – from outsider perspectives on Xerox products and client service to financial solutions and crisis-response techniques. Anne Mulcahy was going to revive Xerox and make it, once again, a company known for cutting-edge innovation that provided the top-of-the-line products customers wanted.
Memories of the Glory Days
Xerox had been the undisputed leader in document duplication. After launching the first plain-paper photocopier in 1960, the Xerox 914 Copier – the company quickly made a name for itself. Xerox products were not just part of the office machinery — they had revolutionized office culture. The product was named the Fortune 500’s “product of the year” and the company was hailed as one of the “most important technological innovators of the century”.
Over the course of the next eight years the copier line earned the company over $1 billion in profits! By 1969, Xerox had grown to become one of the 100 largest corporations in the United States. During the 60s, it seemed as if you could never go wrong buying Xerox stock.
The Fall of Goliath
By the end of the next decade, however, Xerox had already begun to lose its hold on the market, largely due to shifting focus from what had earned the company its laurels in the first place – customer-oriented, creative innovation. Through the 80s, the company shifted its attention from its core business, spending much time and effort on unrelated acquisitions in insurance and financial services. Despite the brilliance of its world-renowned PARC (Palo Alto Research Center), Xerox employed little of its work (although other companies famously did)!
Part of the problem was Xerox’s success in photocopying. The field did not stay empty for long. Soon, enterprising competitors began to capitalize on the new document-duplication technology and launched their own – improved – versions of Xerox’s photocopier. Japanese companies such as Ricoh and Canon posed the stiffest competition with their less expensive, smaller, and more reliable models.
Xerox, meanwhile, was entering a period of developmental stagnation. There was little focus on improving products to keep the customers returning. Xerox had become virtually synonymous with photocopying, so the company believed they would continue to be leaders without doing anything particular to keep that title. In fact, by 1985, Xerox’s plain-paper copier market share collapsed from 85% in 1974 to 40%.
Night of the Living Dead
Xerox continued to plod along for the next decade, although no longer the industry leader. In the late 1990s, however, the company faced a crisis that made it clear that the hazy glow of its golden past was in its final hours. In the last months of 1999, Xerox stock plummeted after the company was forced to announce that profits were going to fall far short of what industry analysts had predicted. Although several external factors precipitated the crash, it was internal issues that really ushered in the crisis.
Efforts to radically change the company culture had gone awry. Multiple restructuring changes led to countless botched sales and shipping orders, dissatisfied customers, and a disgruntled workforce.
One foot in the Grave
As a result, the company ended up accruing some $16 billion in debt. The following year, Xerox’s stock fell to 60 percent from its level in 1999 and in October 2000 the company reported a third-quarter loss of $167 million. As if the bottom line troubles were not enough, that winter, the SEC began investigating Xerox’s accounting practices for the period from 1997 to 2000, which further eroded public confidence in the company. It seemed certain that the company was headed right for Chapter 11.
Preoccupied with these issues, Xerox was blind to the new opportunities opening up in the market. At this time, office printers were threatening to take over some of the turf traditionally occupied by copiers. In 1999, when U.S. inkjet printer sales reached $5.2 billion, Hewlett-Packard controlled 50% of the market, while Xerox managed a paltry 2%.
‘THE FIRST SHALL BE LAST AND THE LAST SHALL BE FIRST’
Out of the Ashes: Rebuilding from the Ground-Up
That was the point at which Anne Mulcahy was called in. The board ousted the former CEO and brought in a company veteran who had risen through the ranks from sales to HR management to become COO in the course of her 24-year tenure. There was such widespread shock at the announcement that Xerox stock fell by 15%. Not an auspicious start.
Because of her unconventional background, Mulcahy brought a fresh perspective and openness to creative solutions. She recognized that the real problem was more deep-seated than the Brazilian economic crash and poorly implemented restructuring that were frequently cited as performance anchors.
Ironically, Xerox had a kind of internal superiority complex – an assumption that Xerox had cornered the market for a reason and that was enough to keep the ship afloat. While the company paid lip service to the customer demand for new products, in reality, older product lines were rarely upgraded significantly. She believed Xerox was in dire need of a hearty dose of humility and the willingness to give customers what they actually wanted rather than the outdated models the company felt were “good enough”.
This was why the first thing Mulcahy did as the new CEO was hop on the plane and begin meeting as many people with an interest in Xerox as possible. She wanted constructive criticism – the kind that had been ignored too long by previous executives.
The resurrecting power of a good crisis
After opening the lines of communication and returning from her 90 days of soliciting input and advice, Mulcahy began to implement strategies that reflected the feedback she had been given. Doing so meant making some radical changes. And as it was a time of crisis, she realized that it was the perfect opportunity to do so. With the company facing bankruptcy, there would be more willingness to try solutions that in other, more stable, periods might have been vetoed or received with reluctance. Her intuition was right. When taken into confidence, most Xerox employees agreed to do whatever it took to save the company, so long as they were given a clear direction.
“A CRISIS IS A TERRIBLE THING TO WASTE”– PAUL ROMER, STANFORD UNIVERSITY
Part of this meant taking a “back to basics” approach that focused on operational and structural efficiency as well as cutting expenditures by 50%. This required knowing what areas of the company were no longer viable and had become resource drains. If interest hadn’t been expressed in a product-line, it got cut. For instance, she oversaw elimination of nearly all product lines aimed at the small office/home office business segment. She also sold off the subsidiaries in China and Hong Kong to Fuji Xerox for $550 million and then halved its ties to Fuji for another $1.3 billion. There were also significant reductions in other sales and administrative expenses.
From internal hubris to customer-centric Innovation
Most importantly, however, Mulcahy aggressively went after lost markets by focusing on development of new products. As she later said to the Stanford Graduate School of Business, “Even with all of the cost cutting we did, we didn’t take a dollar out of research and development.” However, this emphasis on innovation was based on the customer and employee feedback calling for improved digital and color copiers and enhanced multifunction devices capable of printing, copying, scanning, faxing, and e-mailing. Under her direction Xerox debuted 38 new products along with a wide range of new document-related services in 2002 and 2003 alone.
At the same time, the company realized that customers were not always technologically savvy enough to tell them what they wanted. The company therefore began involving customers in its R&D labs, to show them what was possible, and therefore make the development process itself customer focused. Senior managers were no longer preoccupied solely with the P&L or with internal issues. Instead, each senior manager was assigned as a “focused executive” for a key customer. Mulcahy believed that unless top management walked the talk when it came to customer experience, other employees would not follow.
Mulcahy’s strategy of open communication and receptivity to improvement proved to be exactly what the doctor ordered. The company’s new willingness to innovate based on actual input rather than being driven by assumptions led to soaring revenues. Although it took a few years to fully emerge from the hole, Xerox went from annual losses of over $200 million to grossing over $1 billion in less than five years. Forbes declared Mulcahy to be one of the top ten “Most Powerful Women in America” in 2005.
Today, Xerox continues to swear by its culture of customer experience led innovation. The company no longer defines itself by its products but considers itself a “services led technology company”. In 2009, two-thirds of the company’s revenues came from new products introduced in the prior two years and the company continues to be bullish on investing in areas such as green technology that will make a significant difference to future consumers.
Lessons For Your Business
- Focus innovation on serving customers, not products. Rather than working for your company, imagine that you have been hired by the customer to develop products that solve their problems… oh, sorry – that’s actually what you’re doing!
- Innovation and Improvement are essential: As Mulcahy knew, even in times of crisis, continuing to develop cutting-edge products is key to maintaining an edge in the market. As Jeff Bezos says, “Every day is day one” in innovation.
- Don’t just listen — respond to feedback: Communication with customers, employees and industry experts can provide critical insight into how to improve existing products or to move in new, more high-demand directions. In the age of empowered customers, paying lip service to input will backfire – especially in motivated, educated technology markets!
- No change can happen without employee consent: It wasn’t as if Xerox hadn’t tried to change before. However, radical change worked only when employees truly saw the need for change and participated willingly in the process.
- Top Management must walk the talk: Customer service and experience can easily become buzz words that no one truly cares about. While compensation is important, employees are motivated to serve customers only when they see top management following the same principles.
A Fallen Empire of “impossibilities”
An Empire of “repossibilities”
How to Get There
What does it take to achieve gains like these?
We introduced this case with a bold claim that companies can actually become exceptionally successful by learning how to transform impossibilities into “repossibilities”. But the opportunity to do this is not the same as actually doing it. There needs to be a process and a catalyst to actually make this happen. Of course, a challenge does not need to be life-threatening for a company to become remarkably more successful from overcoming it.
Based on learning from this and other companies, we have created a 90-day process for identifying and implementing the kind of change that is right for your company. We call this Repossibility™ Planning:
- Repossibility Assessment: This one-day overview of your company’s marketscape helps your leadership team think about its existing challenges in new ways, finding several areas for exploration into new ways to grow revenue.
- PropspectScan: Our creative exploratory research with both your “near” customers and “next” prospects identifies revenue opportunities by finding new ways of connecting with them. We distill and communicate this in Prospect Personas powered by the Key Buying Insight.
- Repossibility Workshop: We bring intelligence from your customers and their customers to identify directions that will enable your company to exploit the opportunities turned up by the downturn. The workshop infuses your team with opportunistic energy and vision, building momentum to take action.
- Direction Selection: Based on your target’s reactions to your potential directions, we refine and select with you the strongest single direction for re-engaging direct and end customers so you drive a greater share of your industry value chain.
- Market Activation Plan (M.A.P.): Using our unique web-powered CollaborAction™ process, the MAP engages employees in your company to embrace an exciting new way of engaging direct and end customers in a way that overcomes fear, builds buy-in, generates energy, and taps employee passion that overcomes the traditional barriers to implementing success.
Of course, a company can accomplish all these changes on its own. In fact, no amount or quality of consultants can change a company. But an outside catalyst can accelerate and enhance the adoption of a new revenue-generating customer strategy. These five characteristics are indicators that working with an independent, focused, and experienced partner would help:
- You believe that what worked for your company in the past is not necessarily the best path for you now. Many companies continue to do what worked in the past, even though those strategies have little chance of success in the current environment, simply because inertia makes a change too risky for internal employees to recommend.
- You believe the infusion of fresh, independent, outside perspective could have a catalytic impact on your entire company.
- You believe the smart, experienced employees already in place are the best to help form and implement the vision that will take your company from where it is to where it needs to go.
- But you are busy running your company as it is. You don’t have internal people sitting around who can take your management team through a proven process.
- You want to get started in the right direction now, before more of your resources, time, and energy are depleted and give yourself the most time to reap the benefit of your turnaround effort.