Sunday, May 17, 2009

Good to Great Author Reflects on Xerox - Back from the Precipice of Doom

From the book, How the Mighty Fall and Why Some Companies Never Give In By Jim Collins.

On the Business Week site, excerpts from the new book, talk about the five warning signs of impending, corporate doom, the "Five Stages of Decline". How to recognize them and what to do when you do.

As an example, the first sign "STAGE 1: HUBRIS BORN OF SUCCESS", can be applied to everyone from AIG, the failed dot.coms, automotive union leaders, and all the way back to manufacturers of buggy whips.

I found his reflection on Xerox and Churchill poignant beyond the five indicators.


"...When Anne Mulcahy became chief executive of Xerox (XRX) in 2001, she inherited a company mired in Stage 4. With Xerox's debt-to-equity ratio above 900%, Moody's (MCO) rated its bonds as junk. With $19 billion in debt and only $100 million in cash, Mulcahy described the situation as "terrifying."

Mulcahy had never planned or expected to become CEO, describing her ascension as a total surprise. The consummate insider, she'd worked for nearly a quarter-century at Xerox, never drawing outside attention. For Mulcahy, it was all about Xerox, not about her. In fact, we found only four feature articles about Mulcahy during her first three years as CEO, a surprisingly small number given how few women become CEOs of storied companies.

Some observers questioned whether this insider, this unknown team player who had Xerox DNA baked into her chromosomes, would have the ferocious will needed to save the company.

They needn't have worried.

Their first clue might have come from reading her favorite book, Caroline Alexander's The Endurance, which chronicles how, against all odds, adventurer Ernest Shackleton rescued his men after their ship splintered into thousands of pieces as Antarctic ice crushed in around it in 1916. Drawing inspiration from Shackleton, Mulcahy didn't take a weekend off for two years. She shut down a number of businesses, including the inkjet-printer unit she'd championed earlier in her career, and cut $2.5 billion out of Xerox's cost structure.

Not that she found these decisions easy— "I don't think I want them to get easy," she later reflected—but they were necessary to stave off utter catastrophe. During its darkest days, Xerox faced the very real threat of bankruptcy, yet Mulcahy rebuffed with steely silence her advisers' repeated suggestions that she consider Chapter 11. She also held fast against a torrent of advice from outsiders to cut research and development to save the company, noting that a return to greatness depended on both tough cost-cutting and long-term investment. She actually increased R&D as a percentage of sales during that bleak period.

For 2000 and 2001, Xerox posted a total of nearly $367 million in losses. By 2006, Xerox posted profits in excess of $1 billion and sported a much stronger balance sheet. And in 2008, Chief Executive magazine selected Mulcahy as CEO of the Year. At the time of this writing in 2008, Xerox's transition has been going strong for seven years—no guarantee, of course, that it will continue to climb, but an impressive recovery from the early 2000s..."

So as you can see, the author has a firm understanding of historical, Xerox recovery - and he uses Bank of America as a blaring example of the Five Indicators of Doom - if we drop all the names, all the big companies, we can apply these Five Indicators to our individual situations.

In sales, the Hubris from Success, can bring the "best" down.

Striking a chord, the author reflects that "failure is a state of mind". Meaning, failure is not total until you refuse to get up again.

Another excerpt, inspired by Winston Churchill:

"...Never give in. Be willing to kill failed business ideas, even to shutter big operations you've been in for a long time, but never give up on the idea of building a great company. Be willing to evolve into an entirely different portfolio of activities, even to the point of zero overlap with what you do today, but never give up on the principles that define your culture. Be willing to embrace loss, to endure pain, to temporarily lose freedoms, but never give up faith in your ability to prevail. Be willing to form alliances with former adversaries, to accept necessary compromise, but never—ever—give up on your core values.

The path out of darkness begins with those exasperatingly persistent individuals who are constitutionally incapable of capitulation. It's one thing to suffer a staggering defeat—as will likely happen to every enduring business and social enterprise at some point in its history—and entirely another to give up on the values and aspirations that make the protracted struggle worthwhile.

Failure is not so much a physical state as a state of mind; success is falling down—and getting up one more time—without end..."

This phrase: "...Be willing to kill failed business ideas, even to shutter big operations you've been in for a long time, but never give up on the idea of building a great company..." rings bold, harsh and reminds me of HP.

Remember, Xerox once sold workstations and invented the mouse.

1 comment:

  1. Perhaps Mr. Collins needs to also reflect on the 11 good to great companies referenced in his book which includes Fannie Mae, which is now ours as taxpayers, and Circuit City, no longer with us. Or perhaps even better come out with the sequel, "Good to Gone."