Mulcahy Took a No-Nonsense Approach to Turn Xerox Around
STANFORD GRADUATE SCHOOL OF BUSINESS—When Anne Mulcahy was named CEO of Xerox Corp. in 2001, many people were surprised—but no one was more surprised than Mulcahy herself. "I took on this position feeling equal parts excitement and dread," she recalled. On the day that her appointment to CEO was announced, the stock dropped 15 percent. "That was a real confidence builder," she joked.
Addressing a packed auditorium as part of the 2004-05 View from the Top speaker series, Mulcahy described the strategy behind the company's return to profitability, or—as it was dubbed by Money magazine—"the great turnaround story of the post-crash era."
Mulcahy candidly admitted that she had never planned on becoming the CEO, let alone one who was expected to reverse the company's fortunes after a sustained period of underperformance. Although she had been at Xerox for 24 years when she was appointed to the role, she had spent 16 of those years in sales, and much of her remaining tenure as the head of human resources and the chief of staff for former CEO Paul Allaire.
"I certainly hadn't been groomed to become a CEO," Mulcahy said. "I didn't have a very sophisticated financial background, and I had to make up for my lack of formal training. I had to make up for it with intense on-the-job learning."
That was an understatement. When Mulcahy took the helm in 2001, Xerox was teetering on the verge of Chapter 11 bankruptcy. The company had over $17 billion in debt and had recorded losses in each of the preceding six years. A recent reorganization of the company's sales force had not gone according to plan. Customers were unhappy and the economy had started to falter. On top of all of that, Xerox found itself in the middle of a protracted investigation by the Securities and Exchange Commission of accounting improprieties in its Mexico unit. "I like to say that we were 'early adopters' of SEC scandal," Mulcahy joked.
From the beginning, Mulcahy and her team devised a bold plan for recovery. Almost immediately, she addressed the company's liquidity issues and quickly raised $2.5 billion in cash. Through a "back to basics" approach and a renewed focus on operational efficiency, the company cut its capital expenditures by 50 percent; reduced its sales, general, and administrative expenses by one-third; and slashed its total debt in half. All the while, Xerox strengthened its core business by maintaining an organization-wide focus on innovation. "Even with all of the cost cutting we did, we didn't take a dollar out of research and development," Mulcahy said.
Mulcahy said that effective communication was perhaps the single most important component of the company's successful turnaround strategy. "I feel like my title should be Chief Communication Officer, because that's really what I do," she said, emphasizing the importance of listening to customers and employees. "When I became CEO, I spent the first 90 days on planes traveling to various offices and listening to anyone who had a perspective on what was wrong with the company. I think if you spend as much time listening as talking, that's time well spent."
In addition to soliciting honest feedback, Mulcahy said both honesty and confidence are critical to effective communication, especially during times of crisis. "When your organization is struggling, you have to give people the sense that you know what's happening and that you have a strategy to fix it. Beyond that, you have to tell people what they can do to help." In return, Mulcahy accepted nothing less than total support from her executive team—or from any other Xerox employee. "I gave people a choice to make: Either roll up your sleeves and go to work or leave Xerox." Her no-nonsense, no-holds-barred approach left her with a dedicated workforce uniquely aligned around a common set of objectives.
Even when Mulcahy wondered if her aggressive turnaround plan would work, the resilience and optimism of Xerox employees fueled her resolve—and her vision. When employees asked her to describe what Xerox would look like when it emerged from the turnaround, Mulcahy initially was incredulous. "I would think to myself, 'Why aren't you asking me whether or not we're going to make it?'" Nonetheless, she committed her vision of the company's future to paper: not with a traditional vision statement, but with a fictitious Wall Street Journal article describing Xerox in the year 2005. "We outlined the things we hoped to accomplish as though we had already achieved them," said Mulcahy. "We included performance metrics—even quotes from Wall Street analysts. It was really our vision of what we wanted the company to become."
Xerox has gone a long way to making its vision a reality. "Looking back on the article now, I'd say we've already accomplished about 80 percent of things we set out to do," she said.
When a student in the audience asked Mulcahy what keeps her up at night these days, her response reflected both her honesty and her resolve. "I think I am more motivated by fear of failure than a desire to succeed," she admitted. "My experience at Xerox has taught me that crisis is a very powerful motivator. It forces you to make choices that you probably wouldn't have made otherwise. It intensifies your focus, your competitiveness, your relentless desire to attain best-in-class status. I want to do everything I can to make sure that we don't lose that now that we're back on track."