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Anne Mulcahy: Leading XEROX through the Perfect Storm (A)

Submitted By: Group 5

Amit Baweja (306)Neeraj Gupta (320)Nishant Kumar (335)Kshitij Shukla (356)Marie Françoise Marcaggi (386)Tamara Mareschal (389)

Contents

INTRODUCTION1

XEROX: HISTORY2

REINVENTION3

NEW STRATEGY4

NEW LEADER5

CHANGING LEADERSHIP AGAIN6

ANNE MULCAHY7

SURVIVAL?8

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Contents

THE OCTOBER 23 MEETING9

THREE STRATEGIES10

TURNAROUND STRATEGY11

EXECUTING THE PLAN12

THE BANKERS14

FINANCIAL CONDITION15

LEADERSHIP16

STRATEGY IMPLEMENTATION17

S.E.C13 Q n A18

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Introduction

• Anne Mulcahy: COO of Xerox Corporation• First Annual loss in 5 years• “Xerox’s business model is unsustainable”• Rumours by Reuters about company going to

declare bankruptcy• Stock prices fell to $6.88• Facing liquidity crunch• $ 18 bn in debt• Market capitalization dropped to $5 bn

• Outside advisors pressurizing to file bankruptcy to relieve Xerox from debt

• Mulcahy trying to avoid bankruptcy and get time to implement plans to restore the company’s former image

The Perfect Storm

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XEROX: History

• Started in 1959 with the model 914 copier

• 95% share of the plain-paper copier market share by 1970

1959 1968

Sales $32 mn $1.1bn

Employees Strength 900 24000

Get me 5 Xerox of my resume !!! Get the

notes Xeroxed !!!

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XEROX: History

• Xerox’s focus on its • customers, • value-based leadership

and • roots in the community

• Heavy Investment in R&D• Research scientist dream

job• Palo Alto Research

Center (PARC), 1970, Computer Sec.

XEROX: HistoryCompany Logo

PARC

Idea of “Windowing” Computer Application

GUI

Computer Mouse

Ethernet Protocol

Laser Printing

Bit Mapping

OOC Languages

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Entry of new player like Canon, Minolta, Ricoh and Sharp

Monopoly of XEROX gone

Lawsuit Filed in Federal Trade Commission

Due to Overwhelming Success

REINVENTION

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Entry of new Players

License tech to Competitor

Lawsuit Filed

Anti-Monopoly Pressure

REINVENTION• XEROX unprepared for price competition

• Unable to adapt smaller margins• Headed for insolvency in 1980

• CEO, DAVID T. KEARNS, introduced initiative• Benchmarking,• Employee Involvement• Quality

• Between 1984 to 1993 share for • low-end increased from 8% to 18% and mid and • high-end increased from 26% to 35%

TEAM XEROX

Leadership through Quality

REINVENTION• Profit growth very low, stalled in early 1990s

• Finding difficult to cut cost because• Employment level fixed by Union Contracts• Production was vertically integrated

• CEO Paul Allaire in 1992 created • Three geographically defined sales organizations selling

products from nine product divisions organized around market segments

• Individual balance sheet, income statement • Eliminated 10000 jobs and divested insurance business.

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REINVENTION

• In next 5 yrs, the nine division were reduced to four and identification of absence of skills required for • Market development• Attracting customers• Training Sales person

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NEED OF NEW LEADER &

STRATEGY

NEW STRATEGY

Organized into four business division.

Production Printing and Retail channels business were two new division

Each Division used latest technologies in networking, color ink and digital processing

XEROX desktop printing business in direct competition with H-P

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NEW LEADER Late 1990’s investor expectation for XEROX ran high

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To Spark Profit & Stand

Expectation

Investor Expectation

High

Board brought Richard

Thoman as president

Get rid of slow and cumbersome bureaucracy at

XEROX

Thoman excellent

performance at IBM

NEW STRATEGY

Richard Thoman (CFO IBM) appointed as President.

4 Geographically oriented customer administration consolidated into 3 customer business center

Build service business through acquisition and buy out partners stake in overseas joint ventures

Fuji shares of Fuji Xerox

Stock price went up from $30 to $ 60.

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NEW STRATEGY

Issues due to reorganization: Sales reorganization led to

• Disrupted customer relationship• Sales team member lost year old client relationship• Sales team members left XEROX for another company

Administration Changes led to• Increased billing issues• More complicated pricing plans

Sales team looking for new business, had to cut prices sharply leading to decrease in profitable contacts

External Issue End of domination in production printing (Heidelberg, canon etc) Global financial crisis (ASIA to Latin America) Market Shift towards less margin product

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Early 2000 Stock declined from $60 to $20

CHANGE OF LEADERSHIP

AGAIN

Thoman was just elected so there was no successor

Allaire suggested the name of Alan Mulcahy, president of General Marketing Organization (GMO)

Allaire resumed as CEO and Mulcahy as new President and COO

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CHANGING LEADERSHIP AGAIN

ANNE MULCAHY

Started in sales (10 yrs) Early 1980, promoted to Management,

charged with organizing a sales team Promoted to VP HR in 1992 Joined Barry Rand (VP Worldwide Ops)

team in 1996 Became Chief Staff Officer in 1997,

reporting directly to CEO, Allaire Not much interested in the role of Chief

Staff Officer so grabbed an opportunity at GMO (Web & Retail sales)

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ANNE MULCAHY Launched SOHO (Small office and home

office) Venture in Desktop Printing Competed with Industry Leader H-P

Became COO in May, 2000 Assembled the team – met 100 top

executives (Leadership) Extensive fact-finding tours Visiting employee operations & major

customers Except SEC, dealt with everything Realized that everyone was unaware of

the seriousness of the situation XEROX was in

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ANNE MULCAHY

Leadership traits of Mulcahy Be informed Be calm and confident Provide clear direction Develop an action plan Leverage your supporters

Initial plan Save each dollar Personal attention to customer Incentive and benefits to sales team

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SURVIVAL?

• Liquidity crisis increased due to shrinking profits

• XEROX turned to short term debt to shave interest expenses

• The tactic of taking short term debt vehicles backfired due to drying up of commercial paper market

• Standard & Poor cut the company’s bond rating to A- and then to BBB, 1 step above junk

• Mulcahy publicly stated, “ The Business Model of Xerox is Unsustainable.”

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THE BUSINESS MODEL OF XEROX IS

UNSUSTAINABLE

SURVIVAL?

• Reuters reported rumors that Xerox was planning to file for bankruptcy protection

• Despite every setback, Mulcahy was firm on her stance to save the company

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Company chose not to comment on this

THE OCTOBER 23 MEETING

• Allaire, Mulcahy, and the executive team along with key advisors attended the meeting

• Agenda – Discuss ways to generate cash, restructure the business model, and invest for the future

• Opinions– CFO Romeril: Cut dividend from 20 to 5 cents, saving $ 400 mn

per year– External Advisors: File Chapter 11 bankruptcy– Ursula Burns: Less chance of protecting Xerox’s R & D budget

and field sales force

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THE OCTOBER 23 MEETING

• According to chief strategist Jim Firestone, Xerox faced “The Perfect Storm”.

• Suggested 3 options:– Sell assets and cut costs, continue to fund R & D and field sales

and service, to save the brand Xerox– Make deep cuts in R & D, product development, and field sales

and service– Declare Chapter 11 bankruptcy and then come up with an

aggressive turnaround plan

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LOGO

Anne Mulcahy: Leading XEROX through the Perfect Storm (B)

THREE STRATEGIES

Implement asset sales of ‘live wood’ and painful cost cutting while continuing to fund R&D and field sales and service

Make deep cut in R&D, product development and field sales and service in order to save the company

Follow the recommendations of outside advisors to file for Chapter 11

TURNAROUND STRATEGY

Sale of Productive assets to generate $2 -$4 billion in cash Sell China operations to Fuji Xerox Sell Portion of Fuji Xerox Sell equity stakes in its inkjet business Sell equity in PARC Sell Xerox financing division

TURNAROUND STRATEGY

Cost Reductions Cut dividends Cut SGA by $600 million Cut $200 million in supply chain and

manufacturing cost. Eliminate world-wide service staff

organization. Restructure R&D cost. Cut Infrastructure and overhead by $200

million

TURNAROUND STRATEGY

Strategy focused on Improved cash flow and profitability Strengthening core strategy Future focus on high-value, high-end

business

EXECUTING THE PLAN

Senior Management focused on Gaining alignment around goals Implementing a clearer decision-making

process Communicating to employees Stopped issuing statements if nothing concrete

to say Establish clear responsibilities and lines of

accountability Hired consulting firm to analyze their business

• Early 2001 announcement of cumulative $170 million in charges to correct accounting issues.

• Former employee sued Xerox for wrongful termination.

• He also informed SEC that wrongful accounting practices were being practiced throughout the company.

• Failed to file its 2000 Annual report on time.• Restatement of accounts from 1998 to 2000• After second quarter of 2001, eliminated

quarterly dividend• Fired KPMG as auditors and hired

PricewaterhouseCoopers.

Securities and Exchange Commission (SEC)

THE BANKERS

$7 Billion credit line was held by a consortium of 58 banks.

Fully Utilized the credit line, and only a year left to renegotiate the revolving credit line.

Bankers petitioned to shut down the R&D.

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XEROX: Financial Conditions

FINANCIAL CONDITION3rd QUARTER 2000

PROFITABILITY RATIO

SHARE PRICE MOMENT

PROBLEM

Xerox' total debt is $17 billion, including a $7 billion credit line

$2.6 billion in debt comes due this year

Cash in hand only $1.7bn

FACTORS AFFECTING PROFIT

External Factors1) The strength of the dollar against

European currencies.2) High competition from Japanese rival3) Y2k fear4) Severe economic downturn in Brazil

ASSET DISPOSITION

Goal:- To generate $2 to $4 bn in asset area

Option Revenue

1) Sell China and Hong Kong operation to Fuji Xerox

$550mn

2) Sell portion of Fuji Xerox to Fuji Photo film

$1.3bn

3) Outsource parts of manufacturing operations

4) Sell around engineering service business

5) Leverage asset of PARC by seeking Joint Venture with non-competitive partners.

COST REDUCTION

Goal:- To reduce additional $1 billion in costs

Option Revenue

Cut dividend to 5 cents $ 400 Million

Cut infrastructure and overhead

$ 200 Million

Cut in supply chain and manufacturing costs

$ 200 Million

Cut SGA $600 Million

Narrow down research and development investment

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LEADERSHIP

A Leadership Story A group of workers and their leaders are set a task of clearing a

road through a dense jungle on a remote island to get to the coast where an estuary provides a perfect site for a port.

The leaders organise the labour into efficient units and monitor the distribution and use of capital assets – progress is excellent. The leaders continue to monitor and evaluate progress, making adjustments along the way to ensure the progress is maintained and efficiency increased wherever possible.

Then, one day amidst all the hustle and bustle and activity, one person climbs up a nearby tree. The person surveys the scene from the top of the tree.

And shouts down to the assembled group below…

“Wrong Way!”

(Story adapted from Stephen Covey (2004) “The Seven Habits of Highly Effective People” Simon & Schuster).

“Management is doing things right, leadership is doing the right things”

(Warren Bennis and Peter Drucker)

Personal Characteristics of an Excellent Leader

Anne Mulcahy was an excellent leader. This is because she had following traits of a leader.

She had: A vision and purpose Clear goals Strong commitment An understanding of change Active listening skills Confidence to take risks

She was: Excellent communicator / listener Able to speak clearly and effectively Resourceful Realistic

The Art of Listening – Rather than wasting time on putting out fire, find out the source of fuel leakage

Instinct – Create clear accountabilityVision – Never forget real goalsResearch and Development – Keep

focusing on innovationCustomer Focus – Even in bad times,

talk to customersCommunication – Get people aligned

around a common set of objectives

Personal Characteristics of an Excellent Leader

Behavioral Leadership Theories:Lewin Studies

Assume that there are distinctive styles that effective leaders use consistently, or, that good leadership is rooted in behavior.Basic Leadership Styles

Autocratic Style - the leader uses strong, directive, controlling actions to enforce the rules, regulations, activities, & relationships; followers have little discretionary influenceDemocratic Style - the leader takes collaborative, reciprocal, interactive actions with followers; followers have high degree of discretionary influenceLaissez-Faire Style - the leader fails to accept the responsibilities of the position; creates chaos in the work environment

Anne Mulcahy used democratic style of leadership, as evident by her way of decision making. Even in dire circumstances, she used to consult every opinion.

Behavioral Approach: Michigan Study

High consideration(employee centered)

and

Low structure(job centered)

High structure(job centered)

and

High consideration(employee centered)

123

4Low consideration

(employee centered)

and

Low structure(job centered)

High structure(job centered)

and

Low consideration(employee centered)

Initiating structure(job centered) HighLow

Con

side

ratio

n(e

mpl

oyee

cen

tere

d)High

Low

Fiedler’s Contingency Theory

Fiedler’s Contingency Theory - classifies the favorableness of the leader’s situation. Leader’s effectiveness is based on situational contingency which is based on 2 factors: Leadership Style and Situation Favorableness

Least Preferred Coworker (LPC) - the person a leader has least preferred to work with over his or her career.

Task Structure - degree of clarity, or ambiguity, in the group’s work activities. Position Power - authority associated with the leader’s formal position in the

organization.

Leader-Member Relations – quality of interpersonal relationships among a leader and group members

Contingency Leadership Model

Question 1Are leader-member

relations good or poor?

Question 2Is the task

structured or unstructured?

Question 3Is position power strong or weak?

AppropriateStyle

Situ

atio

n

1 Task

2 Task

3 Task

4 Relationship

5 Relationship

6 Relationship

7 Either

8 Task

EndStart

Strong

Weak

Strong

Weak

Strong

Weak

Strong

Weak

Structured

Structured

Unstructured

Unstructured

Good

Poor

Hersey-Blanchard SituationalLeadership Model

ImmatureEmployees

Low High

High

Low

MatureEmployees

Willing/Able Unwilling/able Willing/unable Unwilling/unable

4 3 2 1

Leader’s concern with task

Leader’s concern

with relationship

SOURCE: Adapted from P. Hersey and K. H. Blanchard, Management of Organizational Behavior: Utilizing Human Resources, 3rd ed. (Upper Saddle River, N.J.: Prentice-Hall, 1977),170.

As a transformational leader,

I inspire and excite followers to high levels

of performance.

Developments in Leadership Theory

As a transactional leader, I use formal rewards

& punishments.

Evans and House Path Goal TheoryThe theory states that a leader's

behavior is contingent to the satisfaction, motivation and performance of his subordinates

Identifies 4 types of leader behaviors: Directive Path Goal Clarifying Achievement Oriented Participative Supportive

Leadership

“Good leaders don’t ask more than their constituents can give, but they often ask–and get–more than their constituents intended to give or thought it was possible to give.”John W. Gardner,Excellence, 1984

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STRATEGY IMPLEMENTATION

• Strategy for sustainability– Helped prioritize activities which looked at long term

effects rather than short term gains.

• Implement asset sales of ‘live wood’ and painful cost cutting while continuing to fund R&D and field sales and service.– Sale of Productive assets to generate $2 -$4 billion in

cash– Cut $200 million in supply chain and manufacturing cost.– Cut dividends, Restructure R&D and service staff.

Q1)What strategy is the general manager trying to achieve?

• Marketing– Service staff and sales staff

• Manufacturing– Reduce costs– Stream line R&D– Focus on high end high value products

• Finance– Sell assets and equity in profitable ventures to generate

cash– Reduce dividends.

Q2)Which functional policies need to be implemented?

• Making people aware of the situation at hand.• Made people publicly accountable for results and

established realistic goals.• Encouraged senior management to engage each

other directly.• Gave full support to sales staff.• Offered generous development and training benefits.• Started “Customer Officer of the Day” initiative at

corporate headquarters on a monthly basis.• Focus on remanufacturing.

What management systems and organization processes needs to be implemented?

What misfits exist in the company?

• Not all the stakeholders were aware how big and serious the situation was.

• Did not plan for the competition in time i.e. strategy did not change.

• Reorganized sales force from geographic focus to industry focus.– Led to disgruntled staff.– Unhappy customers.– Loss of big clients.

Strategic Survival of company

Organizational

Interpersonal People should not feel demotivated

What are strategic, organizational and Interpersonal considerations?

Company was in a big trouble, where its survival was at stake.

All decisions and implementations had to be done immediately.

The number of stakeholders were huge.

Thus decision should not be taken alone.

Should the general manager make key implementation decisions alone?

Turning Great Strategy into Great Performance

The strategy of the company should be clearly stated in a simple way and communicated to all the stakeholders

As Xerox is going through a rough patch, the turnaround strategy should be based on real achievable goals keeping into mind the core competencies

Resource deployment should be monitored regularly

Mulcahy should continue motivating the people so that they can work towards saving the company

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