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The Not-So-Quick Fix

When Anne M. Mulcahy took over as president of Xerox, the copier giant was in shambles. Her mission? Figure out how to institute some big changes — without wrecking the company in the process.

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?

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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.

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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.

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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.

But, I was amazed at the reaction we got. While it was painful for employees, they clearly understood the rationale for the decision, and as tough as it was, they knew that it was right. They understood that we know the business and that we were handling things as sensitively as possible. And I think that makes a difference.

People understood that we had worked every option and that the decision wasn’t just a fly-by-night one. Now we have people signed up to help make change happen, instead of having a real fight on our hands.

History and relationships help when you have to deliver tough decisions. It helped that I knew every part of the company, and every general manager around the world, when it came to winning the alignment that’s required to do tough things.

Good relationships tell you what’s possible, what’s culturally permissible.

Absolutely. You have to listen. You don’t back off from tough things, but you have to know where to stop and take a time out to make sure that you’re not doing stupid things. You have to allow for diverse opinions and then make some balanced judgments about what you can do.

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Leading change is also about reducing the risk in your implementation plan. Part of Xerox’s problem in the past was that we didn’t have the execution plans to reduce the company’s risk given the amount of change we were facing. It’s a lesson I learned as I watched some of the things that haven’t worked for the company.

I’ve really tried to be diligent about the precision of our execution plans, which are hard work to do well. We’re now in the process of totally restructuring our manufacturing operations. We’re outsourcing our office manufacturing and resizing our remaining operations in dramatic ways. We’re reducing square footage by 80% and maintaining only the things we do really well.

In advance, we spent six months doing a deep, competitive assessment with a critical view of where we could retain expertise, competency, and competitiveness. We had to admit where we were disadvantaged, and where we could find partners who had capabilities that we could never hope to replicate. We had to have consensus on what we didn’t do well.

There was enormous pressure to do all this as quickly as possible. But I believe that when it comes to the critical parts of your value chain, you have to be damned careful. We will not do it before we have the best possible solution. We have announced that we will do something, but not what — and we’re taking our time getting there.

The flip side of urgency is that you operate in a fishbowl, with every twitch of your face subject to interpretation.

I’m not terribly astute in terms of delivering messages that are contrary to what I feel in my gut or what I’m passionate about. There are times when you can’t share as much as you want to; you have to hold back and be stoic — and that’s hard. It’s stressful having to play a role for your employees when you know certain things that they don’t.

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It’s been a difficult time for Xerox publicly. It’s been painful to watch the company go through the difficulties it has and to receive the negative press it has, sometimes unfairly. Xerox is a big brand name, and there’s been a lot of coverage of the story’s negative aspects, rather than coverage of any light at the end of the tunnel.

It’s a challenge for us to manage the news. Our 88,000 employees can read about a bankruptcy crisis within hours of its being printed. Whether there’s any legitimacy or not, you’ve suddenly got a big problem. You need to address those things quickly, so you don’t lose people’s hearts and minds.

How did you handle those reports of bankruptcy?

People need to hear things personally to gain confidence in the company and its management. During the first few months of my job, I lived on planes. I spoke to thousands and thousands of employees. During one three-week period, Paul Allaire and I reached nearly 60,000 of our 88,000 employees, either live, by phone bridges, or in massive town meetings.

In the early days, we made sure that we were highly visible and in constant communication. It was pretty wearing, but if people understand your leadership style and you earn credibility, you get permission to take a lot of actions. People say, “I’m okay with that because I saw her, I heard her. I’m confident it can work because of her leadership.” When you’re in a situation like ours, that confidence dramatically affects your ability to pull off change.

Do you still have permission? For how much longer?

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My goal is to never lose it. I want to have an environment that allows us to keep pushing the company, to be better and more competitive.

But it’s not practical to keep up the level of intensity we’ve had for the past year. The turning point for us is the return to profitability. We’ll continue with cost restructuring, and we’ll finish disposing assets. And we’ll continue to engage employees in “turnaround talk,” keeping them abreast of progress and enlisting their support throughout the balance of this year. After that, “the turnaround” may not be the mantra for moving forward. But I think that we’ll be positioned to create a new Xerox with new rules and an operating style that will allow a much greater level of intensity than in the past.

If you stop using the word “turnaround,” you’ll have to find a new mantra.

[Laughing] Yeah, I look forward to that.

Keith H. Hammonds (khammonds@fastcompany.com) is a Fast Company senior editor.