The Customer Connection: Strategies for Winning and Keeping Customers

Rev. Dr. John S. Niles, Victoria Park United Church and 3rd Vice-President, The Empire Club of Canada; Olivia Hannigan, Grade 12 Student, North Toronto Collegiate Institute: Rev. Vic Reigel, Honorary Assistant, Christ Church, Brampton; Doug Lord, President and CEO, Xerox Canada Ltd.; Thomas MacMillan, President and CEO, CIBC Mellon; Verity Craig, Principal, Carmichael Birrell & Co. and Director, The Empire Club of Canada; Dave McCamus, Former President and CEO, Xerox Canada Ltd.; Earle O'Born, President and CEO, The Printing House Ltd.; and Sharon Rudy, Vice-President, Spencer Stuart.

Introduction by John Koopman

It was the Xerox machine that slew the Soviet Union.

In the late '80s. a prominent scientist from the Soviet Union spent a sabbatical year at a western university. The Russian was the vice-president of the Soviet Academy of the Sciences. He was a member of the nomenklatura, a big cheese in Soviet life, he had his own chauffeur-driven limo, permission to travel abroad, and a dacha outside Moscow.

At the end of his sabbatical year a Canadian acquaintance asked what he would miss most about the West. "That's easy,' replied the Soviet scientist. "The Xerox machine. Back home I spend clays copying out articles from scientific journals."

Incredibly photocopiers were one of the most tightly restricted privileges in the former Soviet Union. In a regime obsessed with the control of information a copier is a dangerous instrument. This attitude doomed the Soviet Union; it could never make the transition to the information age. You cannot have a knowledge-based economy without freedom of information.

The mighty Xerox machine had modest beginnings.

Xerography, as it was then called, was invented by Chester Carlson, who did all his research in the New York Public Library. To his wife's great aggravation, he conducted experiments in his kitchen.

But it was an invention nobody wanted. The National Inventors Council dismissed his work. IBM, GE, RCA, Kodak and 20 other companies turned down the opportunity to commercialize the invention. His wife, thinking she deserved some kitchen privileges too, left him.

Years went by and Carlson nearly dropped the idea.

A decade later a tiny company named Haloid agreed to try to develop the idea. The rest is history. Chester Carlson became a very rich man, although in the great American philanthropic tradition, he gave away most of his millions to charity.

Ms. Mulcahy was named Chief Executive Officer of what was Haloid and is now called Xerox, in July 2001. When she took over, Xerox was eyeball-deep in red ink and mired in controversy. Three years later the company is one of the great turnaround stories of the post-tech crash era. She has a BA in English from Marymount and joined Xerox as an entry-level sales representative in 1976.

Ladies and gentlemen. please join me in welcoming Ms. Anne Mulcahy to the podium of the Empire Club of Canada.

Anne Mulcahy

Thank you for that terrific introduction and thanks to all of you for your warm reception. It's a pleasure to be here and to see so many good and loyal Xerox customers in attendance. To all of you, thank you for your business. It's something we never take for granted, always work hard to earn and deeply appreciate.

Thanks also for being such a hospitable neighbour. Our partnership with Canada couldn't be stronger. One of our major research centres is located just outside Toronto and we consider it to be one of our crown jewels--a centre of innovation that helps keep us on the cutting edge of technology.

We're pleased also with the dramatic growth of our teleweb centres out in Halifax and St. John. Our operations there are helping to fuel Xerox growth throughout North America.

So, for a whole host of reasons, it's great to be in Canada.

It's been suggested that I speak on the subject of the "customer connection" and I'm delighted to do that. I began my Xerox career in Xerox sales. Some would say I never stopped selling Xerox--a charge to which I happily plead guilty.

Staying connected with customers is part of my DNA and I'm trying hard to keep it a part of the Xerox DNA as well. The founder of our company--a Rochesterian by the name of Joe Wilson--used to say: "Customers determine whether we have a job or whether we do not. Their attitude determines our success."

I believe that this legacy is what has helped us save Xerox from extinction the past few years. Unless you've been living on another planet, you undoubtedly know that Xerox has recently emerged from the worst crisis in our history. And we did it by focusing on the customer.

So I thought what I would do with our time together is: • Give you a brief overview of the situation Xerox found itself in back in 2000.

• Briefly describe how we got out of it by focusing on our existing customers.

• Discuss what we are doing to keep those customers and attract new ones.

• And leave plenty of time to answer some of your questions.

Let's start with where Xerox was just a few years ago.

I was thrust into the leadership of Xerox in May of 2000. It seems like a lifetime ago. One of the first things I did was pick up the phone and call Warren Buffet to get his advice. He invited me out to Nebraska and over steaks at his favourite restaurant, he told me this: "You've been drafted into a war you didn't start. Focus on your customers and lead your people as though their lives depended on your success."

What a sobering thought! Oscar Wilde once said: "Nothing focuses the mind like the sight of the gallows." All of us at Xerox could clearly see our gallows being erected. The prospect of bankruptcy loomed over us. Revenue and profits were declining. Cash on hand was shrinking. Debt was mounting. Customers were irate. Employees were defecting. By May 11, 2000, the value of Xerox stock had been cut in half and was continuing to head south.

That was the day I was named President and Chief Operating Officer and typically the point in a talk like this when I would say that it fulfilled a life-long dream. In truth, it did not. This was clearly a case of the responsibility being thrust upon me. And I accepted it with equal parts of pride and dread.

Fortunately, I had not one but two aces in the hole. The first was a loyal customer base that wanted Xerox to survive. And the second was an incredibly talented and committed work force who loves Xerox and would do anything to help save the company and return it to greatness.

We went to work. We spent lots of time with customers, industry experts and employees, and most of that time was spent listening. Customers told us we had great technology, but our response to them had slipped badly. Industry experts told us our technology was leading-edge, but we had to focus on doing a few things extremely well. And employees told us they would do whatever it took to save the company, but they needed clear direction.

We laid out a bold and ambitious plan to turn Xerox around. The results have been stunning in both their magnitude and their swiftness.

We've taken more than $2.5 billion out of the cost base. We've outsourced major parts of our value chain--parts that can be done more effectively by others. We've drainatically reduced our debt by nearly $8 billion. In 2000, Xerox lost $273 million. In 2003, we made $360 million.

Everywhere you look today the signs are positive. This past year, we generated near-record amounts of cash from operations, significantly reduced both debt and cost, maintained gross margins and recapitalized the company.

Even more importantly, we brought to market an expansive armada of innovative technology and services, won market share in key segments of our business, grew equipment sales by 7 per cent and won scores of large customer contracts, many of them in direct face-offs with our best competitors.

Leading Xerox these past few years has been the opportunity of a lifetime. And in what may be the understatement of all time, I've learned a lot along the way:

• I've learned about the power of communications. You can't do enough of it.

• I've learned about the power of culture. You need to change the bad and leverage the good.

• I've learned about the need to articulate a vision of where you are taking the company. Employees especially need to know what they are signing on for.

• I've learned a lot about the power of leadership. Bad leadership can ruin a company overnight. Good leadership can move mountains over time.

• I've learned a lot about the power of people. Good people aligned around a common set of objectives can do almost anything.

But mostly I learned in a new and deeper way something we all know, but all too easily take for granted. The customer is the centre of our universe.

Forget that and nothing much else matters. Employees lose jobs. Shareholders lose value. The brand deteriorates. The firm spirals downward.

There are two pieces of research that speak to the value of customer service with stunning clarity.

Fact Number One: Across industries and around the world, if you can retain 5 per cent more of your customers than you currently do, your bottom-line profit will grow anywhere from 25 to 50 per cent.

Fact Number Two: It takes five times as much money and effort to attract a new customer as it does to retain an old one.

You're probably all nodding your heads in agreement. All of us in the business world know these things to be true. We instinctively know that the customer is the reason we exist. Yet we don't always behave that way.

That's one of the things that got Xerox in trouble a few years ago. We made some decisions that didn't have the customer in mind. We weren't listening to the customer as closely as we should. We started to take our customers for granted. And we learned a very powerful lesson--the hard way.

Since then we've been on a mission to make the customer our priority among priorities by focusing on five simple strategies. There's nothing magic about them, but I thought they would provide a few insights to what we're doing to keep the customer at the forefront of everything we do. So here goes.

Strategy Number 1: Listen!

Find out what your customers are facing--what their problems and opportunities are. It's not something you can delegate to the Customer Relations Department. It starts at the top. Not a week goes by that I don't personally sit clown with some of our key customers.

I had lunch on Monday in New York City with a large commercial printer and a good customer. On Tuesday, I made two customer calls in Minneapolis. I had a meeting with a large Canadian customer earlier today. And, of course, I'm having this opportunity to speak to the Empire Club--a room filled with customers and potential customers. That's a pretty typical week. I meet with customers every chance I get.

Our entire leadership team at Xerox shares the same passion. Our 500 major accounts around the world are assigned to our top executives. All our executives are involved--including our Chief Accountant, our General Counsel and our head of H.R. Each executive is responsible for communicating with at least one of our customers, understanding their concerns and requirements and making sure the appropriate Xerox resources are marshalled to fix problems, address issues and capture opportunities.

All of our corporate officers at headquarters do something else to keep in touch with customers. There are about 20 of us and we rotate responsibility to be "Customer Officer of the Day." It works out to about a day a month.

When you're in the box, you assume personal responsibility for dealing with any and all customer complaints, that come in to headquarters that clay. They are usually from customers who have had a bad experience. They're angry. They're frustrated. And they're calling headquarters as their court of last resort. The Xerox "Officer of the Day" has three responsibilities--listen to the customer, resolve their problem and assume responsibility for fixing the underlying cause.

Believe me, it keeps us in touch with the real world. It grounds us. It permeates all of our decision making. It impacts the way we allocate resources. It keeps us passionate about helping our customers.

Strategy Number Two: Invest!

Even in the worst of times, invest in the best of times. As proud as I am of our financial turnaround at Xerox, what gives me even greater satisfaction is the progress we have made on strengthening our core business to ensure future growth. Even as we dramatically reduced our cost base, we maintained research and development spending. In fact, we didn't take a single dollar out of R&D in our core business--not one.

As you might imagine, this was not a universally applauded decision. Our financial advisors thought that slashing R&D was a no-brainer. The bankers thought I didn't understand the problem. But our customers had it right. They knew it would have been a hollow victory if we avoided financial bankruptcy today only to face a technology drought tomorrow.

So we bit the bullet and continued to invest in innovation. We're glad we did. Over the last two years, we have brought to market more than 40 new products as well as a rich portfolio of smart document-related services. These investments are already paying off. In fact, more than half of our revenues last year came from offerings that were introduced in the past two years.

Strategy Number Three: Align!

Focus all your employees on creating customer value. A CEO I met with during our turnaround had a very provocative thought that has stuck with me. His guide for streamlining costs in his business was simple. Just ask the question: "Would the customer pay for this? Would the customer think this was helpful?"

I've tried to use that as a guide. It has a double pay-off--streamlined costs and customer focus. From top to bottom, Xerox people are tightly connected to our customers and their businesses. In fact, 80 per cent of our people interface directly with customers as a regular part of their job. For us, it's very personal. Our customers are not faceless names, but real people with aspirations and needs and dreams that we want to help them realize.

We believe we do. We treat each customer as an individual--using our own technology to communicate with them on a one-to-one basis.

By the way--if you'll pardon a plug--we can do the same for you. In a growing list of marketing companies, our digital printing solutions are enabling our customers to communicate with their customers more effectively. We are helping hundreds of our customers find what up-to-now has been the elusive Holy Grail of marketing--the ability to communicate with large customer bases with one-to-one precision at just the right time with just the right information while eliminating the need to maintain inventories of marketing materials that quickly become obsolete.

Strategy Number Four: Deliver value!

Don't sell the customer your products; offer them solutions to their problems. This is especially key for those of us in the technology industry.

Over the past half-century, businesses, universities and governments have poured hundreds of billions of dollars into technology. And let's be frank--the return on that investment hasn't always lived up to the promise. That's because the old world of "IT was made up of what I like to call a little "i" and a big "T" The focus was always on the technology.

We're changing that. Our view of IT is made up of a big "1" and a little "t." The focus is on what really matters--information and what our customers do with it.

Those of us in the information industry need to focus not on hardware and technology for the sake of technology, but on reducing cost and complexity while improving the customer experience. And the customer experience is more about solving problems than acquiring technology. Strategy Number Five: Serve!

Provide service above and beyond the customer's expectations. There has been a norm around for many years that somewhere around 75 per cent of customers who defect say they were "satisfied." Our own research bears this out. When our customers tell us they are "very satisfied," they are six times more likely to continue doing business with us than those who are merely "satisfied."

Some of you have probably read a book by Jim Collins called "Good to Great." One of his more profound insights is that the enemy of great is good. If you're just providing your customers with service that's good, they're probably just satisfied. This should set off alarm bells. Take the automotive industry. Satisfaction scores average around 90 per cent. Guess how many people repurchase from the same manufacturer? Only 40 per cent.

In today's world of increasing competition and escalating expectations, standards like "good" and "satisfied" just don't cut it. One way we're ratching up the service we provide is through the use of Lean Six Sigma tools.

Currently we have more than 50 Lean Six Sigma projects underway with our customers. Joint teams are figuring out ways to help our customers reduce costs, increase revenue and boost productivity. It strengthens the partnership between us and our customers, makes them more successful, helps move them from satisfied to very satisfied and us from good to great. Now that's what I call a win-win.

We are not perfect and we do not have all the answers. But little by little we're getting better--and we are developing a passion about customers. We realize that all of you have choices about whom you do business with and we realize that your expectations continue to escalate.

We don't shrink from those challenges; we embrace them. We know that our success is totally dependent on your loyalty. You put a lot of trust in us. And we're on a crusade to give you a good return on that trust. You should expect no less. And we intend to deliver no less.

Thanks for your business. Thanks for your attention.

And now let's open it up for questions.

The appreciation of the meeting was expressed by Verity Craig, Principal, Carmichael Birretl & Co. and Director, The Empire Club of Canada.