What Can Insurers Learn from the Xerox Turnaround Story?

If there ever was a time when a turnaround story would resonate in the financial services industry, it's now.So I attended the presentation by Anne M. Mulcahy, chairman and CEO, Xerox Corp., on the opening day of the 2008 BAI Retail Delivery Conference & Expo -- a retail banking conference that took place in Orlando this week -- eager to learn more about how this organization overcame financial, operational and competitive failures to transform itself and regain market dominance.

And Mulcahy offered very compelling and interesting insights into the Xerox turnaround, observing, "The best turnarounds never end. We're in a constant state of improvement."

In some ways, the situation Xerox found itself in roughly 10 years ago is similar to the current financial services crisis, in that it resulted from a "perfect storm" of factors -- a weak economy, stronger competition, and internal turmoil. Mulcahy detailed how, upon being named president and COO, she led an effort to halt Xerox's decline by renewing bonds with both customers and employees, improving liquidity (mainly through divesting of non-core assets), reducing costs, and "investing in technology to create customer value."

One of the toughest decisions, Mulcahy recalled, was to "stay the course on research and development. We invest a billion-and-a-half in R&D every year." In fact, she said, even though "R&D is the easiest place to take costs out of, there was no real choice. There was no victory in saving for the short term and trading off the future." Ultimately, Xerox decided to do both, and "we are benefitting today from the power of that investment."

Another point made by Mulcahy that is relevant to the challenges banks and insurance companies are facing today was that "The pace of change doesn't allow you to fix companies in phases. You have to walk and chew gum at the same time." Similarly, she reflected, "There is no question that crisis is a powerful motivator. It enables you to do things you had to do all along." The cost cutting and reduction of waste that was undertaken when Xerox was struggling "was the kind of thinking and restructuring we should have been doing all along," she said.

This relates to another "lesson learned" from the Xerox turnaround. "Use the good times to change," Mulcahy advised. "That's precisely the time organizations can tolerate change, and when you have to time to devote to strategy."

It was too bad that Mulcahy didn't take question from the audience, because it would have been interesting to get her perspective on the current turmoil in financial services. As compelling as the Xerox turnaround story is, it seemed almost idealistic or quaint to think that the principles outlined by Mulcahy are enough to save many of the institutions that are at the brink today.

One has only to think about Citi's CEO Vikram Pandit announcement earlier in the week that more than 50,000 jobs would be eliminated at the bank in an effort to reduce headcount and expenses by 20 percent - part of an ongoing effort to make Citi more competitive and profitable. Is it really a turnaround strategy, built on the strengths of the organization's culture and fulfilling compacts with both customers and employees -- cornerstones of the Xerox turnaround -- or a scramble that trades off the future?

Ultimately, Xerox, under Mulcahy's leadership, was able to control its own destiny. A growing number of insurance companies and banks may not have that luxury in the current financial, regulatory and political environment.In some ways, the situation Xerox found itself in roughly 10 years ago is similar to the current financial services crisis, in that it resulted from a "perfect storm" of factors -- a weak economy, stronger competition, and internal turmoil.

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio