At City Club 03.11.05 NOTES Xerox - The Ultimate CEO Reality Check

Key is sponsor and speaks of importance of diversity and
praises Xerox for their vision on this. Introduction of Anne Mulcahy speaks of her lifetime success
within Xerox and then rising to the top of what was a very troubled company.

Delighted to be here – lots of great relationships and
customers here – thanks – great morning at Key Bank and meeting with Goodyear
CEO, who has faced similar scope of business challenges –points to the
important customers in the room, and she will speak on the “Customer Connection�

But she considers that a tame subject within the scope of
City Club mission, but customer relationships was big factor in Xerox problems
and turn around – had they been focused on markets and customers they would not
have fallen so far – chasing vapor-ware – now grounded and focused right. Anne
started her Xerox careers in sales and never stops selling – part of Xerox DNA
– customers determines if we have job or not and there attitude determines if
we succeed – that legacy saved Xerox from extinction.

Over last few years faced biggest crisis in history – root
cause of problem was loosing sight of customer. When Anne was entering CEO slot
she spoke with Warren Buffett who said she got drafted into a war she didn’t
start, that she must focus on her customers, and lead like her life depends on
it – gallows in sight. Customers were not pleased – employees unhappy and
defecting – May 11, 2000 she was appointed at the nadir.Â

But Xerox had customer base that loved the brand and
products and loyal employees would do anything to save the company. They spent
lots of time LISTENING and learned they had great products but were not
responsive. Employees would do whatever it took but needed clear direction and
plan.

Turn-around plan was dramatic – took $20 billion out of cost
base – outsourced parts of value chain – moved as many jobs as possible with
best in class other employers – reduced dept in half, all customer receivables
– now profitable – generated record amounts of cash – restructured balance
sheet and invested in the company’s future – while they were taking a lot out
of the business they didn’t reduce R&D – introduced 75 new products and
services – customers show satisfaction with their checkbooks.Â

Power of leadership – power of communications – power of
culture… wonderful things that define business results. Must bring people with
you. Learned how to articulate vision. Was asked what they would look like as
they came through the turnaround – needed to have a view – in 2001 they wrote
an article for 2005 on what the company would look like – had legs and to this
day people reflect on vision and ask when will the rest of the dream be
realized (even though it was made up).

Bad leaderships can destroy things quickly but good
leadership takes long time – customer is center of universe – lose sight of
that and everyone suffers. There is research that proves value of customer
services – if you can retain 5% more of your current customers you will
increase bottom line 25-50% and it takes 5X the investment to attract new customers
vs. retain an existing customer. They had lost sight of all that and lost
competitive advantage – have put current customers first and developed
principles

1. Listen
   – innovate with customer in mind rather than next best whatever – current
   problems and opportunities – can’t be delegated – focus of all her travel
   – must have customer focused objective – primary roll of a CEO – exec team
   owns and is accountable for top 500 customers – to CFO – week and a half
   ago she was riding elevator with chief accountant right before filing
   deadline and he was nonetheless totally focused on customers – Xerox
   officer of the day is charged with understanding problems and championing
   resolution that problem doesn’t recur – critical to us in the IT industry,
   considering amount customers invest they need solutions right
2. Even in worst of times must invest for best of times – didn’t cut R&D
   – invest in innovation to solve customer problems
3. Alignment
   toward solving customer needs – meet their strategies – would the customer
   pay for this solution and find it useful – 80% of Xerox people have
   contact with customers – she is on board of Target and had issues with
   direct customer relations like bridal registry – found if they sent 1-1
   mailing to brides after honeymoon listing what they didn’t get and
   offering discount they had huge impact
4. Sell
   solutions to customer problems – focus was always on technology – need to
   focus on “I� of customer experience – then technology is interesting.
   Naked technology sold without people solutions, process and culture change
   management is ineffective – less than half of executives think technology
   makes jobs easier and a third think it makes life harder.
5. Service
   – norm is 75% of customers who defect were satisfied – “very� satisfied
   customers are more likely to repurchase – enemy of great is good – 90% of
   auto customers are satisfied but only 40% repurchase from same
   manufacturers.Â

Have anthropologists and sociologies to make tech slave and
not master – have a long way to go – company has been tested and challenged –
focus is correct – put trust in us.

When we stray from customer focus and business fundamentals
we fail.Â

Q&A – When you speak of problem Xerox had he heard
absent talk of issues with the board of directors – what problems did they
cause and what was done to correct – was it all you to turnaround? A. – the
world of boards has changed dramatically over past few years – few years ago
depth of engagement was too limited – now more engaged with higher level of
responsibility – board felt bad problems occurred on their watch – she is
forever grateful for the 4-5 board members who stuck with her – from P&G,
J&J, Deutsche Bank – took heat from banks – kept board small through reorganization
– now brought in 5 new members and all are very engaged – get lots of feedback
– is good outcome of corporate crisis many companies have gone through.

Q. Xerox has become every day term – verb. What is product
for Xerox now. A. Anne would be happy if everything Xeroxed was on Xerox
machine. They don’t even offer stand alone machines – all networked – color is
huge – manage content – digitize – direct marketing – digital documents space –
services – document technologies as part of people solutions – software –
strongest asset is brand and they work hard to overcome old perceptions and
expand awareness of current focus.Â

Q. How did you make reorg plan successful in company? A.
direct face to face communications and dialogue with your people – used
webinars and virtual collab but made sure to have in person interaction. Very
metrics oriented business – 6-sigma – has most advanced customer metrics in
world (SIGNAL) – gets results to customer in 45 minutes – dashboard metrics
they share with all constituencies – communication and measurement must be
precise.

Q. Harvard president said men excel over women in science – Anne
proves women can lead – asks where women are better than men. A. Anne says if
she had a daughter she wouldn’t be going to Harvard. She feels such
generalizations are foolish – doesn’t see genetic connection with leadership.
An article in USA Today a year ago looked at ROI of five women CEOs vs. men and
women were more effective – Xerox #1 – she doesn’t see that as indicator and
considers diversity as a bigger factor.Â

Q. What about corporate ethics? A. Very important at Xerox –
when that is damaged it is very harmful – restoring reputation has been
critical and challenging – once you lose this you must be very consistent – be
role model of excellence – nothing more important – Xerox has gone down path to
leading ethics pack – all employees sign off – zero tolerance – violate
something you go. Transparency – consistency – no amount of regulation replaces
good leadership – must reflect ethics you want – don’t lose sight of importance
of courage and leadership.