Turning the Page
Bit by bit, Xerox CEO Anne Mulcahy is digitizing the copier company she helped save.
(Business 2.0) – She was not the obvious choice to lead Xerox through its darkest hour, but four years and one miraculous turnaround later, no one is questioning Anne Mulcahy's leadership anymore. A nearly 30-year veteran of the company, Mulcahy doesn't like to dwell on her much-lauded role in helping Xerox avert bankruptcy. She's too busy trying to get the company growing again.
Long before any of us Googled anything, we all Xeroxed everything. The company's iconic status came despite a scant presence in homes; although Mulcahy had established Xerox's consumer printer business, she shut it down when the company was strapped for cash. (By making tough decisions like that, Mulcahy cut the company's $14 billion debt load almost in half.) Xerox now mostly serves large businesses, not just selling them copiers but managing "information flow" by scanning and storing documents in digital form. And despite the spinoff of its fabled Palo Alto Research Center, Xerox has still managed to innovate: It now gets two-thirds of its $15.7 billion annual revenue from products and services that are less than two years old.
Having turned the company around, what will Mulcahy do next? Many people floated her name as a potential replacement for Carly Fiorina at Hewlett-Packard. A Xerox PR staffer told the New York Times that Mulcahy would "never, ever" consider leaving. "Why don't you just put a fricking lock on the door!" Mulcahy says with a laugh. If she has more successes like the turnaround, Xerox's board had better do just that. Business 2.0 sat down recently with Mulcahy to learn more about her plans.
Are you bored yet with being asked how you turned Xerox around? Yes! It was interesting, but it only led up to the thing we really care about, which is succeeding, not just surviving.
How do you get a culture to move beyond survival and start innovating? The most critical thing—even more critical than getting the company financially stable—was recognizing that nobody's in this just to survive. You have to make sure there's a compelling enough story that the great people will stick with you during the difficult times, that they will hang tight for the possibilities of the future.
Let's talk about that future. What happens to the document on the Internet? Do you consider Google a competitor? It would be terrific if Google's model worked in larger enterprises, but the world those businesses live in has not only tons of digital technology but also vast amounts of manually intensive paper-based processes. Making information more accessible, more personalized, is a huge opportunity. Search as a utility is a wonderful thing, but it's really about the journey from paper to digital for our customers.
So what does going from paper to digital involve? Are you just talking about scanning documents? It's not just digitizing the process. You have to change the process. We have a big insurance company as a customer. We found out that in the way it acquired clients, there was tons of reuse of data—very time-consuming, very manual. We came in and tagged the information at the beginning of the document process so that it can be reused and sorted throughout. This eliminated a lot of the manual handoffs. We cut the cost of client acquisition by 40 or 50 percent. The returns are enormous.
A lot of it is just being able to work within the boundaries of what a client already has installed. Customers are telling us they have spent a fortune on IT that's not yielding. So the answer isn't to replace it. The answer is to figure out how to optimize it and use it better, focusing on how the information flows through the technology, rather than upgrading the technology as the solution.
Xerox Global Services was the fastest-growing part of our business last year. The actual revenue is small—about $300 million last year—but consulting drags behind it tons of technology, software, people. Clients outsource to Xerox, and that is driving about $3 billion of our revenue. Consulting services look small but are driving about a third of our revenue today.
Still, say "Xerox" and people think "copiers." You had a chance to parlay that brand into a consumer business, but you shut it down. Why? The reason is hugely important for us. Part of it is how far a big company can stretch resources. That's one of HP's big challenges: How can you cover all markets for all people? One of the good things about a crisis is that focus becomes critically important. We decided what we're really good at is helping businesses serve their customers better. That's where the innovation of the company and the capabilities of our people can be put to use.
Let's talk about innovation. Xerox's PARC is famous for innovation, but also for not providing much return to its parent. Why did you spin it out? I'm a big believer in research, but I'm not a big believer in captive research. The way you get the best researchers is by not trying to make them captive to corporate interests. The big question is, How can we maintain our investments in research at a time when the company is under tremendous financial pressure? And how do you do a better job of getting a better return on it than we've managed in the past? Spinning it off gave us the ability to do sponsored research with new partners.
So others can use PARC as their outsourced research lab? Yes. They have to be noncompetitive, but PARC and Xerox Research have core competencies in imaging, search, and diagnostics. Fujitsu, for example, pays for PARC teams to do research in ubiquitous computing. It knows that PARC is the best in the world in that space. So now we've got other people writing checks and broadening the reach of PARC's research.
PARC invented the graphical user interface, spawning the Apple Macintosh and Microsoft Windows. Do you think Xerox is in a better or worse position to find the next big thing now? My aspirations aren't to contain it within the company. What we have is really a better commercial model that allows us to be a leader in research and innovation. Some portion of that will play very nicely within Xerox's business. A lot of the search, compression, and optical character-recognition technologies embedded in our services come from PARC.
You're held up as a turnaround artist. Are you OK with that? I am not comfortable with it because in some ways it's exactly the opposite of what I believe in. I don't think that you get to play that reputation out into the future. I think it's something that gets tested every day. To suggest that you've got this nailed ...
But surely you learned a lot from your experiences. We learned the hard way. It's not a good way to learn. We almost went out of business, we destroyed a lot of market value, we let down a lot of customers, we laid off a lot of employees. With that comes a humility from crawling out of the hole. I mean, four years ago, I was the wrong answer for this company. We had a whole set of financial issues, and I was not a financial expert.
The humility that comes from the pain of huge mistakes—not just small mistakes, but huge mistakes—is what gets you to the place where you listen and you're curious about problems. You recognize that the problems will just get bigger and uglier; if you hear about them early, then you have a much better chance. I have to tell you, it's a testimony to the Xerox culture: When I started the job, they jumped out. My people said, "If you don't understand how bad things are, well, we are in really deep shit, and you've got to understand." After going through that, to rest on your laurels would be a very dangerous place to go.
How did you feel when your name came up for the HP job? You know, things change overnight. But people who know me know that what I actually love and have passion for is Xerox. In this case, history and reputation played big in my ability to effect dramatic change. I didn't do this job as a turnaround expert or as a person who wanted to hand it over. I want to see it through. That's the best part—feeling the excitement building now that we've got choices. I can't imagine anything that would be more attractive than seeing those through.