The Not-So-Quick Fix

How do you right a massive, sinking corporate ship? What do you do when the red ink runs to hundreds of millions of dollars, when your costs are out of control, when key executives are sprinting for the lifeboats, and when your aggressive accounting comes under regulatory scrutiny? How do you act when your cash reserves drop low enough to spark talk of bankruptcy?

You change everything fast -- but not too fast.

When Anne M. Mulcahy was appointed president and COO of Xerox Corp. on May 11, 2000, she leaped into a whirling, violent organizational vortex. Richard Thoman, hired by Xerox chairman Paul Allaire from IBM a year before to take charge of the iconic copier maker, had just been fired after presiding over a $9 billion loss in the company's market value. And the Xerox board had subsequently reinstalled Allaire as CEO.

More to the point, Xerox's core businesses were in shambles. The company had completely misjudged the potential of compact desktop-computer printers from rivals like Hewlett-Packard to grab market share. Sales were evaporating -- and Thoman's botched reorganization of his sales team had created confusion and discord.

Mulcahy was a popular Xerox veteran who most recently had led the company's $6 billion general markets operations, following a variety of sales jobs and a stint as senior vice president responsible for communications, government relations, and human resources. Over the course of her 25-year career with the company, she had earned plenty of internal credibility. She and Allaire set to fixing the ailing company. But over the next nine months, things only got worse. Xerox's loss for 2000 totaled $384 million, and by January 2001, its cash had dropped to perilously low levels. Its stock had also sunk to $5, from a high of $64. Almost unbelievably for this legendary company, analysts began speculating about bankruptcy.

Now, about a year after Mulcahy's appointment, the bankruptcy talk has stopped. Xerox has slashed expenses, exited businesses, sold off assets, and cut thousands of jobs. Mulcahy and Allaire predict that the company will be profitable again in the second half of the year; its stock price has rebounded to around $10.

In June, Mulcahy spoke with Fast Company about her harrowing first year as Xerox's president and COO and about the task of changing a big company fast -- but not too fast.

Your predecessor, Rick Thoman, was criticized for trying to change Xerox too fast. At a time when everyone seems to aspire to speed, that's a fascinating criticism. As a leader, how do you judge an organization's capacity for speed? How fast can Xerox change?

You can move a company too fast -- but you can create a bigger problem by moving it too slowly. Finding the right "clock speed" for change is all about judgment, about knowing what you can accomplish and who you need to accomplish it. And it's about really understanding the implications of what you're implementing.

I look at Xerox and think that we've changed more in the past 12 months than in all the 25 years I've been here. We've taken on the most dramatic change I can imagine. We've announced a $1 billion cost restructuring. We've already reduced our cost base by $600 million, eliminated 7,000 jobs, and are outsourcing some of our manufacturing. There's nothing we haven't touched in this company in the past 12 months to position it for a better future.

Doing all that has required judgment and leadership. You have to know: Do you have a team in place that can pull off that amount of change? Do they understand the company's culture well enough to use it to facilitate change? Implementing change successfully is about understanding how to get 88,000 people going in the same direction -- which is what you need to get change that sticks. It's much more about judgment and experience than it is about sheer pace.

If the perceived urgency is greater, you can move an organization faster, right? If a company can go 50 MPH when business is good, maybe it can go 65 MPH when there's a crisis.

Crisis definitely helps you push change. That's why it's so important to be relatively aggressive in a short period of time. That's why we had to be ahead of the curve in all aspects of this turnaround plan -- so we didn't lose the momentum that comes when people believe that the company and their jobs are at risk.

So, in terms of organizational change, two years ago, we couldn't have done what we've done in the past year. But crisis only creates context: Leaders still have to make effective change themselves. I recently had to announce the closure of the small office-home office business. It's a 1,500 people business, and it's a business I ran for two years -- so I know the people, and I had no good news for them: We had to lay off 300 of them.