Changing Captains on a sinking ship - Xerox
"Burns Succeeds Mulcahy at Xerox in First Big Woman-to-Woman CEO Transition" is the Forbes headline. It's only too bad that this headline took until 2009 to happen. It's also too bad that gender issues, such as women CEOs, are worth headlines. But the truth is that the CEO job is still dramatically dominated by men, even though women are half the workforce and been in managerial positions for at least 30 years. Just goes to show it takes a long time for to change old Success Formulas - and its been true that Boards of Directors, and CEOs, tend to replace an outgoing executive with one much like themselves.
"Ursula Burns: An Historic Succession at Xerox" was the Businessweek headline. And not just because the new CEO is a woman. She's also African American. African Americans have achieved much in the USA, including prominent political positions - such as America's Presidency. But even though African Americans comprise about 10-15% of the U.S. population, it's been a very long and arduous climb from the depths of slavery to the CEO suite. Again, old Success Formulas are repeated again and again and again - and for decades that blocked many women and African Americans from achieving the top job in America's biggest companies.
So kudos to Xerox for building a culture that achieves parity in reviews. They've allowed the best and brightest in their organization to rise to the top, unencumbered by old notions about gender and race. And that is a fantastic accomplishment. We should deservedly praise the executives and Board at Xerox for adapting their human resource policies so that promotions are both gender and color blind.
But that doesn't fix the problem at Xerox. And unfortunately, promoting another insider is likely to be the end of this once great company.
Xerox almost single-handedly killed the small offset lithography business. In the 1960s every major company had several printing presses in the basement. And print shops were everywhere to support the need for duplicate documents. Small offset press manufacturers, and support products like plates, were a huge growth industry. Until Xerox came along with a better technology, and a better pricing scheme. Xerox sold "clicks", or paper passes through the machine, rather than the machine itself. And this allowed companies to buy far more copiers than they ever imagined. In the 1970s Xerox was THE model sales organization; itself duplicated wherever companies wanted to achieve tremendous growth.
But desktop printing spelled the end of growth for large copiers. Xerox actually had a major impact on the invention of desktop printing, with researchers at Xerox's Palo Alto Research Center (PARC) creating many of the pieces critical for product viability. But Xerox Locked-in on its copier business, and in the 1980s when the market started shifting Xerox didn't. By the 1990s, instead of selling millions of small printers, Xerox turned to selling complex copy centers that cost over $100,000 each and took training to operate. While personal printers popped up in offices like popcorn, the large copiers were replaced by smaller and simpler machines on each hall, or went away entirely. Xerox sales started slipping, and by century's end Xerox was in real danger of disappearing.
The 30 year employee that stopped a complete failure was Ms. Mulcahy. She stopped the cash bleeding, and dealt with the huge debt. Xerox did not go into bankruptcy, but the company saw its revenue drop dramatically and new product launches shriveled up - or were ignored by customers looking for different solutions. Ms. Mulcahy was like the captain on a damaged submarine. She was able to plug the leaks and batten down the hatches so some of the crew survived. But in doing so the submarine kept falling further and further toward the bottom of the ocean. Xerox may be "settled in" on the ocean floor, but how is it supposed to survive? How is it supposed to grow? How is it supposed to accomplish its mission of generating high rates of return year after year?
The market for copiers is not growing, and competition in that marketplace is intense - with machines from Japanese manufacturers such as IBM, Canon and Sharp dominating the market today. Xerox cannot consider its lack of collapse a big win, because in the process it watched the market shift to a raft of new products in both desktop printing and copying where Xerox does not even compete. Competitors have launched machines that are more cost effective to use, and often have better capability. While Xerox was cutting cost, these competitors were gaining share and developing new products. These shifts have left Xerox far removed from competitive viability, even if it is less in debt and cash flow is better.
We commonly see this sort of behavior in companies after a growth stall. They appear on the brink of collapse. But then a smart leader takes dramatic action to stop the bloodletting and "firm up the balance sheet." The company goes from huge losses to small profits, aided by financial engineering that brings forward costs to pad later P&Ls. Employees and investors breath a sigh of relief, figuring the badness is behind them and everyone can return to the good old days of making money. But these respites are short-lived. Fast enough the company comes face-to-face with customers that demand the new technology and more productive solutions. Rapidly managers realize competitors have made inroads to previously loyal customers, and price erosion is a constant fact of life. In short order, profits again turn to losses and more cutbacks happen as insufficient resources are available for funding new product development and new product launches. What looked for a bit like a big improvement in the business is quickly forgotten as the company falters again.
Americans are an optimistic lot, but there's nothing in this executive transition that should lead us to be optimistic about the future of Xerox. Ms. Mulcahy was a long-term company veteran who did not change, or even Disrupt, the Xerox Success Formula at all during her tenure. She followed traditional practices of a company in the Swamp, taking draconian actions to delay failure. But she didn't "fix" the revenue or new product problems. The new CEO is also a 30 year company veteran, and one even less likely to attack the old Success Formula. Where Ms. Mulcahy was from sales, and we might have expected her to undertake a market-focused set of actions, Ms. Burns is from operations and gained her success as someone who looks internally for improvement rather than toward the marketplace.
Again, congratulations to Xerox for being gender and race neutral in selecting its CEOs. But don't expect a dramatic improvement in the fortunes at Xerox. Xerox is in big, big trouble. It needs to be in new markets it has long ignored, and it needs products the company has long eschewed. The brand has become tainted due to expensive pricing and declining sales. Xerox is so far into the Whirlpool that it is almost infeasible to think of the company becoming "great" again. It would take incredible Disruption and results from very rapid White Space. But Xerox is not skilled in these capabilities, and it doesn't show the depth of market savvy or product innovation that would be required to make the company a leading competitor. Unfortunately, even though Xerox has successfully changed captains, it is highly unlikely the new CEO will save the ship.