Xerox Corp's Turnaround Strategy

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"Xerox offers a wonderful example of taking knowledge management in too big a dose. The sales force reorganization killed a capability that Xerox had. When you do that, you fall into the same trap that the advocates of business process re-engineering did in the past. It just becomes another good reason to fire people." ¹

- Gabriel Szulanksi, Professor of management studies at Wharton Business School.

"I'm 100 percent confident in this company's ability to return to financial health and build a growth trajectory." ²

- Anne Mulcahy, CEO, Xerox Corp from August 2001.

"Xerox has seen adversity before and rebounded, while also preserving its social community by avoiding layoffs. The company has a strong internal culture that may allow it over time to respond effectively." ³

- Bruce Kogut, co-director of Wharton's Reginald H. Jones Center for Management Policy, Strategy and Organization.

Xerox Makes A Turnaround

Xerox Corp. (Xerox), the world's largest photocopier manufacturer had been in trouble since the late 1990s. Between April 1999, when G. Richard Thoman (Thoman) became CEO, and May 2000, Xerox lost $20 billion in stock market value.

When Thoman warned that there would be a decline in earnings for the third quarter of 1999, Xerox's share price fell to $32.5 on October 8, 1999 from a high of $64 in May 1999. On December 10, 1999, when Thoman said that earnings would decline further in the fourth-quarter, Xerox's share price dropped sharply again, falling to one-third of May 1999's level. Earnings did in fact fall in the last two quarters of 1999, and they continued to fall in the first and second quarters of 2000 too. After this, the company slipped into the red, posting quarterly losses of $167 million and $198 million in the third and fourth quarters of 2000. On December 5, 2000, the stock price fell to $4.69. Xerox blamed the huge salesforce reorganization, a weak economy in Brazil and customers' Y2K fears for the downward turn.

But analysts believed that internal issues such as bad debt provisions and accounting irregularities in its Mexico operations were more to blame than the external factors, for Xerox's bad performance. On May 11, 2000, Thoman stepped down as CEO and Paul Allaire (Allaire), who was his predecessor and the Chairman, took over again. Also in May 2000, Anne Mulcahy (Mulcahy) who was the President of Xerox's General Market Operations was made Chief operating officer (COO) and president. Together, Mulcahy and Allaire announced a turnaround strategy which included cutting $1 billion in costs and raising upto $4 billion through the sale of assets.

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1] "What Xerox should copy, and not copy, from its past", October 25, 2000, www.knowledge.wharton.upenn.edu.

2] "I'm 100 percent confident in this company's ability to return to financial health", November 19, 2001, www.businesswire.com.

3] "What Xerox should copy, and not copy, from its past", October 25, 2000, www.knowledge.wharton.upenn.edu.