February 2, 2010

David T. Kearns

By Gerhard Gschwandtner

Last November, U.S. President George Bush shook hands to congratulate David T. Kearns, chairman and chief executive officer of Xerox Corp., when Xerox was officially named a winner of the Malcolm Baldrige National Quality Award. During a brief ceremony at the White House, George Bush described the chief reason behind quality products and services: “It’s the result of a certain can-do, no-excuse attitude – an aggressive impatience with the status quo, even in the best of times.” Bush predicted that many firms will learn a great deal from the examples set by companies like Xerox.

David Kearns has many reasons to be proud. He started his career as a salesman for IBM in 1954 and sold supplies.

The Biggest Growth Step – Overcoming the Fear of Failure
Like many other Superachievers, David Kearns had to learn how to overcome the fear of rejection and failure through trial and error. Equipped with the insight to learn from his own experiences, he used fear as a positive force which helped him grow and reach higher.

Kearns: “I think that the fear of failure is a tremendous motivator. It was for me. Getting out of the Navy, getting married and then going to work were big steps. I was afraid I would get fired if I didn’t perform. Later I worried about making presentations to senior management. I remember, one time, I was at the office at IBM in White Plains at 1:30 a.m. I was preparing for a presentation, writing on a big chart. As I was getting to the bottom of the chart, I had to get down on my knees and at that moment a maintenance man came in and said, `Mr. Kearns, I know things are difficult, but I didn’t realize you were in here praying at night.’

“I think that preparation and action are the best ways to get over anything. Do your homework, prepare yourself and then go after what you’ve set out to do. Remember the saying, the best way to overcome the fear of failure is by doing the thing that you fear. For example, not many salespeople like cold calling. They tend to gravitate towards the customer they already know. It’s just a matter of courage and discipline. I remember when I first started selling, I used to walk around the block to build up my courage to knock on the door. I was always afraid they would throw me out.”

Role Models
Accelerating Career Success
Throughout his career, David Kearns developed a natural ability to look for mentors to help him achieve the next growth step. His first mentor was his father, his first role model was IBM chairman Thomas Watson.

Kearns: “My father had a wonderful attitude about learning. When he retired at age 65, he said, `If I can live to be 80, then I think I can learn as much in the next 15 years as I learned in the first 65. He read all the time and that really kept his mind going. He lived to be 85.

“My father taught me that working for a living is a serious event. You can’t do it part time. He was a disciplinarian, a no- nonsense type. I remember talking to him about buying stocks. He said to me, `I don’t think that you’re good enough to do two things. Buying and selling stock is for someone else. Why don’t you concentrate on doing your work at IBM? If you’ve got some extra money, put it in a savings bank.’ It was not a message about stocks and bonds, but a message about focusing. He wanted me to concentrate my energies.

“I did concentrate on my work at IBM and was fortunate to learn the basics of selling and managing. They also sent me to outside training classes like the Dale Carnegie Course. I was very nervous before giving speeches. I think a certain amount of uneasiness is good, because it gets your adrenaline going. I remember making a presentation to the IBM management committee which was assembled in the boardroom around a large circular table. Working for IBM is like working for a German or Austrian company. You know who the leaders are and you are very respectful. As I presented my plan, I was nervous and poured myself a glass of water. At that moment, Mr. Watson started to ask a question. I looked up and continued to pour the water. Mr. Watson said, `Young man, you’re pouring the water on the rug.’

“Eventually I conquered my nervousness and learned a lot from Mr. Watson. He got a lot of his ideas from his father who was the sales manager at NCR.

“A lot of people don’t know that most of those ideas, like the white shirts, the milk drinking and the `think’ signs, came from John Henry Patterson, the founder of NCR. Patterson was the role model for many successful American business executives. Tom Watson also learned from his father to project an image that was a little bigger than that of his company. Joe Wilson (president of Xerox from 1946 to 1966) did much the same. He sponsored much of the good television in this country when Xerox was a tiny, little company.”

Joe Wilson

A risk taker who bet the company

Xerox owes much of its success to Joe Wilson, who became president of Haloid-Xerox in 1946. Haloid sold photographic equipment and supplies. The company was barely profitable and sales were slightly below $7 million. Wilson raised $4.3 million over a seven year period to bet on a new process called xerography. Many doubted that xerography would work since IBM and many others had turned down the opportunity to buy the basic patents. In 1950 the first Xerox model was introduced which was used for making paper plates for offset duplicating. In 1953, Wilson showed his first meager profits from his xerography operations ($53,000). Two years later, the first semi-automatic xerographic printer hit the market.

Kearns: “Wilson was a very interesting man. When I came to the company in 1971, I read a lot of his speeches. He really thought in an intellectual and a broad way. He was also a visionary. One of his favorite quotes was, `Imagination begets the event.’

“His major concern during the early days was that somebody else would come along and cash in on this invention. He feared that the success would disappear just as fast as it appeared. As a result, he continually kept searching for other things which, in retrospect, diluted his efforts. It’s difficult to seize an opportunity and focus on it 100 percent when conventional wisdom tells you not to put all your eggs in one basket.”

Birth of a Giant

The legendary 914

In 1956, a new, automatic office copier, the now legendary model 914 was on the drawing board. The machine was designed to produce seven copies per minute on ordinary paper. Wilson, a Harvard Business School graduate, knew that to manufacture and market the new machine, a large amount of cash and sophisticated engineering know-how was necessary. Strapped for cash, he went to IBM and offered to license the manufacture and sale of the 914 in exchange for royalties. IBM executives commissioned Arthur D. Little to study the proposition, however the market researchers saw little profit potential for the new office copier. When IBM turned down the idea, Wilson raised more money to move ahead with the production of the 914.

Kearns: “I’ve been told about a famous meeting that took place in Florida, where they discussed the new machine. The engineers said that they had difficulties; the manufacturing people said that even if the engineers could finish the design, they could not make it; and his salespeople told him that they couldn’t sell it. But Mr. Wilson said, `Full speed ahead.’ He had tremendous courage and vision; his leadership inspired everyone to overcome the enormous obstacles.”

Xerox’s marketing strategy was brilliant. According to Kearns, C. Peter McCullough, who had rejoined Xerox in 1954 and eventually became Chairman and CEO, is credited with developing the idea of renting out the office copier on a monthly basis and selling the copies instead of selling the 625-pound machine. Xerox customers loved the new copier. The machine rented for only $95 a month and the first 2,000 copies per month were free. Each additional copy cost only four cents. It is estimated that the machine cost only about $2,500 to produce, while the yearly rental income (including the average income per copy) was approximately $4,000. In 1961, sales went to $59.5 million. Wilson’s 15 years of hard work began to pay off in a big way. Each year sales skyrocketed. In 1968, sales hit an astounding $1.125 billion with pretax profits of nearly twelve percent.

What Causes Selling Slumps?

How Kearns searched and found the surprising key

After a decade of record breaking sales growth by Xerox that led to a worldwide market share of an astounding 86% by 1974, Japanese competitors wrestled the lead away from stunned Xerox executives who were left holding pale copies of their once glorious balance sheets. At first, they denied that there was a competitive problem. Then they thought that currency translations made the difference, or perhaps Japanese Government support. However, upon closer analysis, Xerox management realized that the Japanese were simply doing a better job. When top executives studied the facts, they realized with mounting anxiety that their Japanese competitors were able to sell some small copiers for less than it cost Xerox to produce similar models. David Kearns, who made countless trips to Fuji-Xerox in Tokyo, isolated one impressive characteristic that would explain the major cause for the enormous gap in productivity between Japanese and American operations.

Kearns: “One day, after boarding an airplane in Japan – it was about my 25th trip there – I started to write down the differences between the Japanese businessman and the United States businessman. I wrote down a lot of things, but I finally wrote down two words – expectation level – and circled them. I concluded, based on visits I had made and what I had learned in Japan, that the Japanese businessman had expectation levels for success that were substantially higher than I had for my business. Their expectations also were higher than those of our customers, our non-Japanese and non-Far Eastern competitors, and other business leaders whom I dealt with on a regular basis.”

Dantotsu – `Best of the Best’The starting point for gaining back market share lost to the Japanese

Committed to revitalize the company, Xerox formulated a new way of doing business that included, among other measures, the strategy of competitive benchmarking. No longer satisfied with established internal standards for measuring productivity, Xerox required each business area to compare itself to its best counterparts in other leading companies worldwide. This search for external standards is a time tested idea expressed by the unique Japanese word “dantotsu,” meaning “striving to be the best of the best.”

Kearns: “We use benchmarking in every single thing we do. The personnel department, for example, must benchmark itself against three companies identified as the best in the world. In distribution, we think L.L.Bean, Inc. is number one. It doesn’t matter that it’s not in our industry. We found out very quickly that many of the best examples were not in our industry. We use American Express as our benchmark on collections. We use American Hospital Supply Corporation as our standard on automated inventory control.

“We made a few errors in the benchmarking process. In the early 1980s we were bragging about making seven to eight percent productivity improvements per year in unit manufacturing costs. But we were not tracking the progress our best competitors were making, and we soon found out we needed seventeen to eighteen percent productivity improvements per year. We quickly stopped bragging. Obviously, our numbers were not nearly good enough. Today, every function must benchmark itself against world-class examples. Employees in each function need to look not just at where they are, but also look at the progress they will need to make to stay competitive.”

Quality – Road to Recovery

How “Leadership Through Quality” cascaded down to revitalize the entire organization.

David Kearns is often seen as a tough taskmaster in demanding excellence, and yet he has a high concern for his employees. He appears relentless in his pursuit to move people out of their comfort zones by continually raising expectation levels. In 1983, Kearns became convinced that in order to regain market share from the Japanese, a long-range, comprehensive quality strategy was essential.

Kearns: “I read Phil Crosby’s book Quality Is Free, and Crosby came to some of our meetings. I also went down to his school in Winter Park, Florida. It was invigorating; I returned to Xerox and put together a small group of our 25 senior people. After six months of preparation, we hammered out every single word of the Xerox quality statement.

“We said that quality is the basic business principle for Xerox, and that quality means providing our external and internal customers with innovative products and services that fully satisfy their requirements. Quality improvement is the job of every Xerox employee. Our quality statement, and subsequently our quality process, came out of that meeting. We debated every single word of it, and it has become our credo.”

The quality process became known throughout the organization as “Leadership Through Quality.” The process called for training employees worldwide in interactive, behavior group skills, problem-solving techniques and quality principles. Starting in 1984, Kearns and the executives reporting directly to him launched the process by undergoing training together as a team. As part of the training, Kearns and other senior executives used a training technique Xerox called LUTI; these letters stand for learn, use, teach, and inspect. Senior management people were the first to learn Leadership Through Quality, then used it, then taught it to the next lower management level, then inspected their own usage. This way, quality leadership began cascading from the top down.

Establishing Clear Priorities How to sell 100,000 employees on playing from the same sheet of music…

David Kearns knows only too well that complexity creates confusion while simplicity creates customers. It’s been said many times that if you can’t write a good idea on the back of a business card, you can’t sell it. Successful companies condense their priorities down to a few words. (Federal Express = People, Service, Profits; IBM = People, Products, Service.) Kearns, an experienced leader, struggled at first with these issues, but quickly responded to his organization’s needs for clear priorities.

Kearns: “One of the major mistakes we made from the beginning was not looking hard enough at our external customers. That is one reason we did not focus well. As a result, we made a mistake in setting our priorities. For years, people have said to me, `David, you’ve got too many priorities. Just tell us which one is the most important one and we’ll work on that.’ We chose customer satisfaction, market share and return on assets as the operating priorities. Originally, all three were equal. But that was confusing to our people because they really believed that return on assets was number one, because we wrote that down first. So we changed the order of our priorities. Today the top priority is customer satisfaction. You must strive for customer satisfaction and have the confidence that if you do succeed, the market share will come. Then, the combination of these two factors will give you superior returns on assets.”

Change – A Race Without a Finish Line

The noted psychologist, Eric Ericson, once defined the key conflict of aging as a struggle between stagnation and generativity. Under David Kearns’ leadership, Xerox, an 84 year-old company, is acting with the agility of an eighteen year-old. To stay ahead in the race towards progress and profits, Kearns does his part of regenerating his own visions of excellence. He regularly meets with top business leaders, consultants, educators, politicians and CEOs of America’s leading corporation to sharpen his perceptions. He is a fan of John Akers (Chairman of IBM) and has closely studied the leadership methods of Jack Welch (Chairman of General Electric).

Kearns: “When you think about the success of a company, you find that it is really determined by how good the people feel about the business. But when you look at the huge amount of change that will take place within the next five years, and the impact it will have on people’s feelings, then you’re in a real dilemma. I recently went over to General Electric to visit with Jack Welch who runs a very successful company. There are a lot of differences, but one of the things we agreed on was that our people keep asking us the same questions about change. They ask us to tell them to go ahead and do it, so they can get it over with and know that it’s done. But they’re all missing the point. To be successful we must make change an ongoing process.

“Change is often stalled by a diligent search for brilliant solutions. Change doesn’t happen through research or rhetoric, only through decisive action. To me, change is a race without a finish line. In order to make change satisfying, exciting and non threatening, we all must address the critical questions, `What meaning can we find in change?’ and `What will be the consequences of not changing?’ The answers hold the key to progress. What we are going to do now is tell our people that `we want you to change, but we’re going to give you the training and provide you with the tools to manage change.’

“To stretch our capacity for change, we’re rewarding and promoting people who have demonstrated change through action and new behavior. These people are the change masters, the new role models for the 1990s. I want us to be the best in everything we do…including change.”

LearningThe Ultimate Challenge

David Kearns learned many, many hard lessons on his way from salesman to chairman. Not all of them by choice. One of the hardest lessons to learn is that as companies rise to the top, management tends to relish the position of the champion with all the glory and arrogance that comes from looking down from too many pedestals.

When we arrive at a leadership position, whether in life or in the marketplace, we are teaching our competition more than we can learn from them. David Kearns teaches us to keep striving, to stay focused, to remain disciplined and, above all, to keep learning. Without ongoing learning, we grow complacent, our quality suffers and we inevitably lose our competitive edge. What’s worse, as the tide shifts from winning to losing, we tend to blame the world for changing the game and often ignore our responsibility and our capacity for changing. David Kearns’ biggest lesson is that the closer we climb to the top, the more we will be earning, but the longer we plan to stay at the top, the more we must be learning.