During an interview with Knowledge at Wharton following her Wharton Leadership Lecture presentation, Anne Mulcahy, chairman and chief executive of Xerox, talked about the challenges of turning around a company on the brink of bankruptcy. She emphasized, among other things, the role that an “environment of crisis” can play in spurring a company to action. “We took full advantage of [that environment] in terms of really getting people to think about the business differently during that time,” she said. Mulcahy also discussed Xerox’s new products, new partners and strategies for entering new markets.

Knowledge at Wharton: One striking thing about the turnaround is that you talk a lot about making Xerox a more customer-facing company. But every company hearing that would say, “Oh, we want to be a more customer-facing company.” Can you give us some specific examples as to what you did to make that happen?

Mulcahy: Part of it is definitional in terms of how many of your people touch customers directly. For us, 50% to 60% of our people are actually in customer-facing jobs — a lot higher than it [used to be]. For example, we have “focused executive” programs where all of our executives “own” customers whom they are responsible for [when it comes to] communicating, solving problems, getting resources…. With regard to the channel, clearly, we have done many things that demonstrate the customer-centric approach. We now have a world class tele-web center that interfaces with our customers every day … [so that they] always have access to our people and answers to questions. We also do all the typical things of measuring and making sure that our processes are customer-friendly.

But I think more than anything, it’s a leadership-driven approach. I spend a lot of time with customers. My team spends a lot of time with customers — that’s our thing. A big part of our role is marketing, getting out there and working in the field on key customers.

So we have created an expectation across the entire company that nobody gets to sit back and say it’s someone else’s job. It’s their job. Part of that is more cultural and leadership driven than it is process driven in terms of how you manage a customer-centric approach.

Knowledge at Wharton: But, historically, isn’t corporate culture the hardest thing to change?

Mulcahy: You know what? I often wonder how much this crisis helped to reshape the company in positive ways. Can you make some of these changes without a significant crisis? 

During the very difficult days, we separated the company into two parts. There was a small set of people who worked on the issues. And then there was a large set of people whose responsibility was maintaining customer loyalty. So we “fenced off” and insured that our customer communications were flawless, that our customers didn’t feel the impact of the crisis. It became everyone’s responsibility.

I think people “got it.” It became definitional as to whether we would be a company or not. If customers bought in and kept their business [with us], if we could stop the defections … then we could actually have a future going forward. People understood it in a very personal way: Maintaining customer loyalty in the company was going to be key in terms of going forward.

So perhaps the environment of crisis is just very conducive to making significant cultural changes that are really tough to do in normal times. We took full advantage of it in terms of really getting people to think about the business differently during that time.

Knowledge at Wharton: When you, personally, started going out in the field to talk to customers, what was the most surprising or shocking thing that you heard from a specific customer?

Mulcahy: I never started because I never stopped. My whole life at Xerox has been interfacing with customers. I always have been in touch with what our customers are thinking.

What was probably most shocking was that even though the company was literally on the front page of the newspapers every day and threatened to go out of existence, the vast majority of customers stuck with us and wanted the company to be successful.

I found a tremendous amount of loyalty to the brand. Xerox is a great brand. There was something symbolic about it that customers hooked on to. They worked with us during some very difficult periods of time…. You would have thought that they would have been running for the hills. That didn’t happen. And that did surprise me.

Knowledge at Wharton: And you think a big piece of that was the brand equity that had been built up over the years?

Mulcahy: Yes, I do. Company reputation, brand equity and clearly the people, which are, I think, part of the brand. The people were dedicated. A lot of them had fabulous relationships with their customers — and it was personal. That gave us a chance to fix some of the other stuff that was going on in the company while we maintained some decent customer relationships.

Knowledge at Wharton: The other aspect of the turnaround that is intriguing — and you spoke about it briefly [in your presentation] — is when you are under that kind of pressure to fix the cash situation immediately, how do you avoid the temptation to cut R&D and try to find cost savings in areas that aren’t going to return any immediate growth but may be critical for the long-term?

Mulcahy: There really are tremendous opportunities for cost efficiencies in companies that return fairly quickly. Some of these opportunities were things like outsourcing with more efficient partners. Some of them were really obvious — where you could make significant changes and save bottom line very, very quickly.

On the R&D side, we hadn’t brought new products to market in a long time… and it was really a big problem. For me it was the recognition that if [getting new products out] wasn’t a big part of the solution going forward, then — while we may not die overnight — we would bleed to death. And that was something I wasn’t willing to deal with.

You don’t get a chance to live through lots of crises. You’ve got to do it, you’ve got to do it once, [and] you’ve got to have light at the end of the tunnel or else you will lose people, you will lose talent, you will lose customers. The R&D piece was the light at the end of the tunnel. If we didn’t have that, then everything else would just be temporary.

So it was quite clear that we had to keep that in place while we got pretty ruthless about everything else. We had to deliver immediate returns on things other than R&D. We shut down businesses, there were layoffs, there were [people who left] voluntarily.

Our employees were extraordinary. They personally came up with thousands of suggestions as to what we could do to save money. Everyone took it on. And we reduced costs in the company dramatically. It was just amazing, the kinds of things that happened — purchasing efficiencies to the tune of half a billion dollars, things that came out of support structures, infrastructure, systems costs — you name it.

People got incredibly innovative about taking costs out of the business. Some of it was in arms and legs, unfortunately — because that’s where most of the cost is — but a lot of it was just in waste. And there’s a ton of waste in big companies.

Knowledge at Wharton: Was this a conscious program to solicit input from employees throughout the organization on these efficiencies?

Mulcahy: I would say it wasn’t. We have all had suggestion boxes. That never works. This was actually just empowering people to go do it…[telling everyone to be] thinking big numbers, big reductions…and then just go make it happen. The reward is that we get to see another day here in terms of our ability to pay the bills.

People were blowing the whistle on each other, [saying things like] “How could they possibly….” It was amazing. There was a real consciousness about incredible things, silly things, but they were symbolic. There was no longer any free coffee. They cut off all the people who watered plants… anything they could think of. There were literally no free meals. We did not do anything that included a meal at the company for 18 months. No lunches, no breakfasts. But we tried to make it consistent throughout the company, up and down, as well. There weren’t “haves” and “have nots.” Everybody was on the same deal.

Knowledge at Wharton: Let’s look forward now. Much of your recent success has come at the high-end of the market — such as DocuTech and iGen3 — although you recently announced an agreement with OfficeMax that seems to mark your return to the mid-range and low-end of the market. Are you going to go after that market as well?

Mulcahy: We have been. Low-end color — that’s really where we are focused, not so much on trying to gain share in low-end black and white, because it’s just not profitable — and it’s going away anyway. All our focus and our investments have been in color. For us, both color printing and color multi-function have been pretty successful. That’s the OfficeMax deal.

The office multi-function business is absolutely hot, in terms of a product that we just brought out that I think is world class, and it will be the product leader for the year — something called DocuColor 40 and 50.

Knowledge at Wharton: For SOHO [Small Office/Home Office]?

Mulcahy:  It’s actually above SOHO. We don’t do anything in the home. We don’t try to go back into the desktop. As a matter of fact, we outsource, through Dell, Fuji-Xerox engines. We get a benefit from Dell’s performance. But we’re not good at servicing and supporting SOHO, so we actually work with partners who do a better job of that. Everything we have at the low end we will do through indirect channels, through Dell, and…make a lot of money. But it’s a great way to know what you’re good at and what you’re not good at.

Knowledge at Wharton: With that in mind — historically, your strengths have been at the end of the document life-cycle such as printing and copying —  to what extent do you plan to broaden that and go upstream to document creation, storage, security, management? Will this become a core competency of your company? And, if so, is it one you will do yourself or with partners?

Mulcahy: It already is [a core competency]. Our services business now is largely upstream versus downstream. What had been a usual managed services business has gone upstream in terms of the kind of work that we provide. We now have three large hosting centers around the world where all we do is host content, do scanning and imaging and storage of customer content, and manage it for them.

As a matter of fact, the multi-function devices that we sell — because of the scanning functionality — are becoming the on ramps to moving paper into the digital world, creating the pathway, if you will, from paper to digital. The vast majority of what we sell right now is multi-function and networked for that purpose to provide the digital pathway.

We work with partners on storage and retrieval. We also have a lot of proprietary software that we use — particularly in the areas of search and imaging, which are real core competencies where we have some of the best technologies in the world. We do a lot of that ourselves. But we’ll partner on it and manage the solution for the customers. EMC is a partner. Sun is a big partner of ours. We work with everyone.

We also go to market with EDS on a formal basis. We do all the document management in the EDS IT consulting world. We have taken on the expertise [with regard to] document management around some of the broader IT outsourcers, like IBM and EDS.

So we’re getting there. And that will continue to be the direction in which we invest.