Breathing new life into Xerox

Less than five years ago, a number of industry watchers were ready to write the obituary for Xerox.

Poor sales, huge debt and an accounting scandal were sucking the life out of the document expert. But then in stepped Anne Mulcahy, a Xerox insider who started out as a saleswoman in 1976 and had slowly worked her way up through the company's ranks.

She was named CEO in mid-2001 and chairman less than six months later. Mulcahy has worked relentlessly since then to resuscitate the company.

Today, Stamford, Conn.-based Xerox is well on the road to recovery, though it has suffered setbacks along the way. Net income in the first quarter of 2006 was down 4.8 percent year over year, and revenue was down 2.1 percent. But Mulcahy still expects the company to return to full health, especially once its transition from analog to digital technology is complete.

CNET News.com recently sat down with Mulcahy to discuss Xerox's strategies, the company's future, the role of female CEOs, and her long tenure at one of the tech industry's stalwarts.

Q: You pulled Xerox out of a near-fatal slump back in the early 2000s, but it's been a hard recovery. In the most recent quarter, the company's net income and revenue were down. When do you think you can return Xerox to a consistent growth curve?
Mulcahy: First of all, I probably would say I didn't pull Xerox out of a near-death slump. It was a whole population of Xerox people who did extraordinary work in a relatively short period of time, and I think we have been making great progress.

It's been a pretty consistent, positive curve up over the last three years in terms of earnings improvements and consistent progress on revenue. We're in the process of a transition from analog to digital...We're just about there, meaning that our analog business is now de minimus, but it's still a drag on overall revenue.

We're just going to continue to do what we are doing--and that is set expectations, meet them and deliver.

If you take out the analog business, our revenues have been growing for a while now...This last quarter we had some challenges on the cost side more than on the revenue side...But we're quite confident that we really do have a business model that's been delivering very predictable, improving returns and that we will be on that track for the full year.

Xerox's strategy emphasizes color printing and lucrative consulting services. Is that not a hard place to be in because of competition from Hewlett-Packard, Kodak, Canon, Dell and the like?
Mulcahy: There's no question we've got some pretty noble competitors out there in terms of our business. But I think...our value proposition is the integration of great technology, very good services and support--now including document-management consulting--and certainly a set of embedded software capabilities that differentiate our technologies.

So it's that kind of total value proposition that solves a customer problem that really does separate us from the rest of the pack. You look at the traditional competitors, Canon and Konica and Ricoh--all those folks are still very much in the hardware space and really have not been able to develop the kind of global solution and services capabilities that Xerox has.

I think our focus on the document management space has been also a great value to our customers. It's an area that hasn't been focused on by the traditional IT consultants. And it really does provide a level of expertise to our customer that's somewhat unique in the world of consulting services.

Do you have any competitors in that specific field?
Mulcahy: We actually have more partners than we have competitors. We work with EDS and IBM and Accenture. And we are very much turned to as the expert in imaging and document management with the broader IT consultants.

I think the good news is, is that there's not really a direct face-off competitor. Maybe HP would be the closest, but we've been building up a set of direct global resources in the services and consulting business of document management for a long time now.

Services now make up 25 percent to 30 percent of Xerox's business. You said last fall that you expect this figure to grow to 50 percent in the next few years. Does that assessment still hold?
Mulcahy: I think it does. Services grows faster than the core business, and we do find that our customers want us to be services-led, particularly major enterprise customers where they really want to buy the service capabilities--not necessarily acquire the technology.

On his show, "Mad Money" host Jim Cramer has been a consistent critic of the Xerox leadership. What do you think critics like Cramer are missing?
Mulcahy: Well, I must admit we kind of stay focused on our business and delivering returns to our investors. But I think (criticism comes when) you don't know our business well, you don't understand the business model, you don't understand the transition from analog to digital, the transition from black and white to color, the transition from offset to digital technologies--all of these trends are ones that provide enormous growth opportunities for Xerox.

Transitioning out of the old and into the new sometimes disguises, or certainly buries, the underlying opportunities. So I think people who look at the superficial metrics and see perhaps what were declining revenues--now flat revenues--may not see the opportunities for growth that we see with the emerging trends that we're really chasing with our strategy and investment.

I think it takes a deeper look, and we're just going to continue to do what we are doing--and that is set expectations, meet them and deliver. We think these trends are going to emerge as a very powerful engine of growth and profitability.

CNET News.com interviewed Carol Bartz about two months ago before she stepped down as the Autodesk CEO. In that interview, she talked about a double standard when it came to selecting and judging female CEOs. First I want to ask, do you agree that there is a double standard? And second, do you expect to see substantially more female CEOs in the tech industry in the next five or 10 years?
Mulcahy: Well, the answer to the second part of that question will be, I certainly hope so. You know, there's no place to go but up because it's not a very well-represented area.

It would be a shameful, missed opportunity if there are not more women CEOs in the tech industry over the next five to 10 years.

And what about the double standard?
Mulcahy: I think there are lots of challenges that women have in the workplace, but I don't really sense a double standard as a CEO.

This is a job that you're put in with a very clear set of metrics every 90 days to judge your performance, like it or not.

This is a job that you're put in with a very clear set of metrics every 90 days to judge your performance, like it or not. And I think that that is a standard when people are investing their money. I'm not sure that they're all that concerned about the gender of the CEO; I think they are interested in great returns.

What I do think is a challenge is that there is a disproportionate amount of visibility on women CEOs that sometimes can be helpful and sometimes can be hurtful. There's an unnatural amount of attention that doesn't necessarily help you do your job and focus on your priorities and create an even playing field in terms of the way you're judged.

I think that getting the job and keeping the job is all about performance, and I don't see that so much as a double standard. But I do think that the challenge of visibility is one that's really tough.

Your tenure at Xerox is so rare today. What has made you stay at the company for 30 years?
Mulcahy: You know, it is rare. But I've got to tell you, I think it's fabulous. I think it's gone out of vogue, and it's something that I'm really trying to restore at Xerox that when someone comes into the company that we have the intent to make it a lifelong partnership that's good for the employee, good for the company.

It may not work out, but I think there is a difference between beginning that relationship with an intent for it to be something that's meaningful over a long period of time, versus a check-mark experience. I mean, I've always hated when companies say that their job is to make you employable.

And for someone like me, I was able to raise my kids, have a life outside of work. Xerox was a partner, and I think it had a lot to do with why I'm able to be where I am today. This is a company that wanted to keep me and worked hard to make sure that I had the opportunities to develop. But I also had the space to be more than just an employee.

It's a big deal, and I think for people who want to make sure that their lives aren't 100 percent defined by work--that the idea of having a relationship and a partnership with a company over a long period of time often provides a road map that allows you to have...a great career and also have a life.

In your eyes, what are the most interesting or innovating consulting services that Xerox now offers?
Mulcahy: I think a lot of the work that we do in terms of our imaging services and our storage of information and retrieval services have become certainly renowned in terms of the technology and the capabilities that we're bringing to our customers.

The assessment services we bring to our customers in terms of really being able to get a more efficient infrastructure for output management are really unmatched in the marketplace. A lot of them are Six Sigma-based assessment services that give our customers the ability to reduce their (document-related) costs by 30 percent and really improve the overall efficiency of their infrastructure.

People tend to know what they spend on IT. They might even know what they spend on hardware, but the area of document management is really not well-understood, and it's a huge part of the cost that companies spend to really manage information--pretty conservatively, it's about 3 percent of revenue, so it's a big number. But because it's kind of a horizontal versus a functional spend, it's very difficult to get your arms around it.

We put a set of Six Sigma methodologies together that really track, if you will, the document processes throughout an enterprise, and track where they go, certainly what the costs are--not just the costs of the hardware itself but consumables and service and manual steps, and a whole set of costs that are somewhat hidden to the normal way you look at cost management. There's no soft cost. These are all hard costs.

All in all, it's a way to come in and re-engineer the output infrastructure to provide the customer with a lot of great productivity and savings based upon the facts we get through this document assessment process.

You describe documents as "dumb." Describe your efforts to "smarten them up" and specifically the concept of self-managing documents.
Mulcahy: I think a lot of what we're trying to bring to our customers is this transition from the kind of dumb paper document to the intelligent digital document and what that means is, is the ability to use the information within documents, to be active versus passive.

The impacts are extraordinary when that document becomes smart in terms of being able to really close the gaps in the processing time to get to it to be an actual revenue contributor to an organization.

You can embed digital documents with instructions and codes, and you can tag information in documents for reuse. You can literally use the digital content in ways that don't make it just a single-purpose document, that allow, for example, documents to be routed intelligently to the next person who needs to sign off on those documents.

And you want to be able to ensure that documents can be protected from a security perspective to not be available where they shouldn't be--so to have secure access to documents as appropriate.

You're talking about hard copies?
Mulcahy: It can be hard copy, but it would have been digitally input at some point. In other words, it's embedded with, if you will, the digital capabilities. So when you scan that hard-copy document in, it has literally the capability to be then managed through the network to certain destinations. It has tagged parts of its content that might be reused in other applications, so it's a document where the information is able to be actively used in the document process. (It includes) things like glyphs, which are little embedded codes within documents.

When those documents are scanned in, those glyphs become active instructions for where that document gets transported to, what's done with the information in the document, and can even recreate the information in the document if part of the document is destroyed.

So, yes it's the ability to use what has been available in the digital world, now within the document itself, so that you can cut out lots of manual steps.

We look at things like mortgage applications that today are very manual, very paper based. What we do is we help our customers get them into digital form, tag information that gets reused at several points down the road, so people don't have to go through the experience of constantly redoing, refilling out.

It's reusing information that's already available in the process. It's being able to route it to the next person who needs to touch that mortgage application. You can reduce large percentages of time in these processes. And for a bank, that is tied to revenue; it's huge.

The impacts are extraordinary when that document becomes smart in terms of being able to really close the gaps in the processing time to get to it to be an actual revenue contributor to an organization.