Xerox Corporation
Get the cow out of the ditch.
The following is based on a speech that Xerox CEO, Anne Mulcahy, delivered to the Detroit Economic Club in September of 2002.
As Anne sees it, one of the most critical leadership skills is the abilityto lead an organization out of a crisis and turn negatives into positives quickly.
“Xerox has been through a period of enormous crisis,” says Anne. “But we’re back, and getting stronger every day.”
She says that as a new CEO, she got her best advice from a customer in Dallas, a prominent businessman who is active in civic and political life.
“He delighted in telling me that I reminded him of a farmer whose cow got stuck in a ditch.” So she asked him what she could do about it. “He said, ‘You’ve got to do three things. First, get the cow out of the ditch. Second, find out how the cow got in the ditch. Third, make sure you do whatever it takes so the cow doesn’t get in the ditch again.’”
Mulcahy used this simple three-step process in leading Xerox’s turnaround—although she found it helpful to reverse the first two steps, and understand first how Xerox got into trouble so she could better formulate a strategy for “getting the cow out of the ditch.”
“In 1999 and early 2000, we attempted too much change too fast,” she says. Competition stiffened, while economies at home and abroad weakened. Accounting improprieties in Mexico led the SEC to investigate Xerox, taking up a lot of precious management time. All of these and other problems—and some actions Mulcahy says were just plain “dumb”—hit Xerox simultaneously. And the cow fell into the ditch.
By May of 2002, Xerox was in deep trouble. Revenue and profits were declining. Cash on hand was shrinking. Debt was mounting. Customers were irate. Employees were defecting. And Xerox share price was cut in half.
Right around that time, Anne was promoted to president and COO of Xerox. Her immediate task: Get the cow out of the ditch—and make sure it doesn’t stumble into the ditch again.
She and her team immediately laid out a recovery plan with three major components:
Focus on cash generation to improve liquidity. To increase liquidity, Xerox sold more than $2.5 billion in non-core assets, outsourced office manufacturing, and exited its small office/home office business. Operational cash generation was increased through disciplined management of inventory, receivables, and fixed capital. The company also entered into agreements with GE Capital and other sources to outsource the financing of customer receivables
Take $1 billion out of the cost base to improve competitiveness. Xerox reduced inventory by about $600 million, a one-year improvement of 30 percent. Selling, general, and administrative costs were lowered by 15 percent. Capital spending was cut in half, and the workforce was trimmed by 15 percent worldwide. Total money taken out of the cost base: $1.3 billion
Strengthen the core businesses to ensure future growth. About $1.6 billion was invested in R&D. In 2002, Xerox brought out more new products than any time in its history, including a third-generation color digital production publisher, new color multifunction office devices, and solutions and services in areas ranging from print-on-demand to book publishing.
What advice does Anne offer to other executives whose cows have fallen into the ditch?
“First look before you leap,” she says. “There’s a tendency to think you know all the answers. Take the precious time needed to truly understand the problems.” Even though she has been with Xerox for over 25 years, when the crisis hit, Anne spent three months “settling the troops and understanding the problems.” Second, communicate. During the crisis, she did a dozen live television broadcasts for Xerox employees, conducted 80 town meetings, sent out 40 “letters to the troops,” held hundreds of roundtables, and logged 200,000 miles visiting employees in more than a dozen countries.
“The response was overwhelming,” she says. “Defections slowed to a trickle. Hope rekindled. Energy returned.”
Ironically, being promoted during a business downturn actually worked to her advantage.
“Crisis is a powerful motivator. It enables you to do things you should have been doing all along. Whoever said that nothing focuses the mind like the sight of the gallows had it right.”
She concludes: “Poor leadership can do serious damage virtually overnight. Good leadership—leadership that is consistent, honest, and forceful—can move mountains.”