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Don't cut back on innovation

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By Anne Mulcahy, CEO, Xerox
April 22, 2009: 11:57 AM ET

The R&D investment pool looks tempting, says Mulcahy, but it's not the place to trim costs.

(Fortune Magazine) -- I'm an eternal optimist. Of course the economy will improve, and when it does, the businesses that will be best poised to succeed are the ones that didn't mortgage their future.

Seems pretty obvious, but these days companies small to large are looking under every stone to cut costs and meet short-term demands. I know from experience one of the biggest mistakes that can be made right now is to slash investments in innovation. And by innovation, I don't just mean product research and development. It can also be innovating in new markets, launching new businesses, and even disruptive innovation in work processes. To be sure, a company's R&D investment pool looks tempting in tough times. And draining it might save a few jobs or help make the quarterly results less painful. However, if you fail to fund the future, all you'll be left with is a really lean company trying to churn old ideas into new business.

When Xerox (XRX, Fortune 500) went through a downturn of its own making earlier this decade, everywhere I went, lenders and investors were demanding I cut our R&D spending. But to me, Xerox innovation was sacred. Why avoid financial bankruptcy only to face technological bankruptcy down the road?

I can't say I got everything right back then, but investing in innovation was indeed the best decision I've ever made. Here's why: Despite the economic slowdown in technology spending, Xerox is still the prominent player in our industry, with a No. 1 revenue share. And at a time when we had a bunker-like mentality to save our company, we also empowered a small but entrepreneurial team to create our services businesses. Good thing we did. The offerings from Xerox Global Services have never been more relevant for our customers, who are knocking on our door looking for any way to save money. We're answering with solutions that save them up to 30% on their document-related costs. We're able to move quickly on these opportunities right now because we decided to fund innovation back then.

I'm sticking with the same decision today. Sure, like most companies, we're being extraordinarily tough on costs, taking painful actions that impact our valuable people, and prioritizing cash to offset declines in revenue. But we're also being as extraordinarily disciplined in decisions on where to invest, with innovation high on the list.

These days we're inviting more and more of our customers into our labs to help us see if our research is on the right track. As industries like financial services, publishing, and health care change, we're fine-tuning software applications and services that decrease paper use and speed up access to customized digital information. We know some clients are just not in a position to spend today, but we're using this time to get them thinking about what's to come and to keep our innovation investments aligned with the emerging trends in their marketplace.

In the cost-cutting discussions we're having right now - and there are many - I remind my team that the next generation of technology and services will be born out of decisions we make at this unique moment in time. With that, we're banking on the advice of Alan Kay, a former Xerox researcher, who said, "The best way to predict the future is to invent it."

Anne Mulcahy is CEO of Xerox.

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