People tend to overcomplicate strategy. Yes, they often do.
Take a look at this case of Xerox's turnaround. What is the real reason behind the turnaround?
Photo by Raysonho from Wikimedia Commons.
Xerox in trouble
In 1998, Xerox, the US giant copying and printing solutions company, thought it was in a good place. After all, it had successfully fended off the attacks from the Japanese competitors in the 1980s, its share prices were rising, its profits were healthy, and a new CEO was in place.
But, by 2000, Xerox was already entangled in deep problems: New and opportunistic competitors emerged; economic growth was slowing down; regulatory problems were arising; internally, there was too much change, distracting the people; and a series of poor decisions from the company's executives. As a result, Xerox saw slumped revenues and soaring debt to $19 billion, while customers ran away and employees resigned en masse. The company was on the verge of bankruptcy and closure.
New CEO saved it
In 2001, Xerox's board appointed Anne Mulchachy, a long-time Xerox veteran, as the new CEO. She immediately made some changes that turned around Xerox's situation. Between 2000 and 2006, the share price doubled, and costs were down by $2 billion. The company made profits in four consecutive years, rising to $1 billion in 2005. In addition, with a growing brand reputation, Xerox gained a loyal customer base, an in-flux of talented employees, and market recognition.
When asked the reasons behind this phenomenal comeback, Anne gave multiple reasons behind Xerox's turnaround:
Building a flexible team culture that understands what is happening and can move fast.
Ensure nimbleness and flexibility by aligning resources and processes.
Invest in the future and innovation. In 2005, two-thirds of Xerox's revenues came from products recently launched.
Learn and apply six sigma. At Xerox, its use improved both costs and customer service by providing a disciplined way to make process improvements.
Listen and never lose contact. This can be accomplished by creating a culture of good critics and being aware that managers can be out of touch, even within their own organization.
Provide a clear, exciting, and compelling vision of what the future will look like. People like a guiding light and a greater degree of certainty.
Providing leadership that is not afraid to take risks, setting priorities, and communicating them.
Recognize the need to be curious. Constantly looking for ways to improve.
Remember that your business relies on its people. Therefore, there needs to be a common set of goals, strong leadership, and diligence in recruitment.
Win back market share with a competitive range of new products.
Well, all of those points make sense. But it sounds like a long list of vague things to do.
Simple Focus on One Thing
The actual strategy Anne used was actually much simpler, i.e., cost-cutting. Yes, no magic, no fluffy stuff. Just a simple and intense cost-cutting.
From the beginning, Anne and her team devised an aggressive cost-cutting for the recovery plan. Labeled as the back to basics approach, the company focused on cost-cutting, i.e., Xerox cut its capital expenditures by 50%; reduced its sales, general, and administrative expenses by 33%; slashed its 25,000 people from its workforce; and sold $2.5 billion in non-core assets. The result was a higher focus on operational efficiency and sharper product offering.
But Anne was not senseless in cost cutting. To protect Xerox's future, not a single dollar was cut from the R&D budget, and later (after the cost-cutting) she changed Xerox's strategy and refocused the company on innovation.
As you can see, a winning strategy is often much simpler.
But then, why don't people do this simple cost-cutting from the very beginning? Because a crisis forces you to make a sharp strategy.
In Anne's words: "My experience at Xerox has taught me that crisis is a very powerful motivator. It forces you to make choices that you probably wouldn't have made otherwise. It intensifies your focus, your competitiveness, your relentless desire to attain best-in-class status."
If you would like to learn more about how to do a turnaround, check this turnaround guide.
If you are interested in simple strategy, check out this post about why strategy must be simple and how a one-word strategy can do wonders.
Alternatively, continue to explore the secret of winning strategy here.