Thank you Russel for that gracious introduction and thanks to all of you for your warm reception. My thanks also to Ernst and Young for sponsoring today’s luncheon. E & Y is an excellent Xerox partner and it’s gratifying that we could team up on today’s event.

I must say it’s a little intimidating to stand before this group. I took a look at your website. If I have this correct, The Canadian Club of Montreal was formed on October 19, 1905. Next week you will celebrate your one hundredth anniversary!

Over your first century, more than two thousand people have had the privilege of addressing this club - - people like Winston Churchill, Rudyard Kipling, Lord Northcliffe and Prince Philip. Talk about tough acts to follow!

In any event I’m thrilled to be here and equally thrilled to have the opportunity to talk about a subject near and dear to me – the customer. Some people may think that this is a rather ordinary subject. To me, it’s endlessly fascinating - - and, I believe, critical to the successes of our companies and institutions.

You would know better than I, but I have a strong hunch that The Canadian Club of Montreal has endured because it provides value to its members, remains true to its core mission and continuously adapts to the changing needs of the people it serves. In a century that has been marked by the most breathtaking pace of change in human history, your Club has emerged as vibrant today as it was on October 19, 1905, when you welcomed your first visitor to the podium.

There’s a lesson there for all of us. Take care of the customer and the customer will assure your success. I believe that with all my heart and it’s something I’m trying to put into practice at Xerox.

I came by my passion for the customer quite naturally. I began my Xerox career in 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 man 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. What you may not know is that we got into trouble by losing sight of the customer and we got out of trouble by renewing and redoubling our focus 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.
• And discuss what we are doing to keep those customers and attract new ones.

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 favorite 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 that “nothing focuses the mind like the sight of the gallows.” All of us at Xerox could clearly see our gallows being erected back in 2000.

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. Frankly, I accepted my new responsibilities 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 workforce who love Xerox and would do anything to help save the company and return it to greatness.

And so 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 $3 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 dramatically reduced our debt – by nearly $9 billion. In 2000, Xerox lost $273 million. In 2004, we made $859 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 and maintained gross margins.

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 seven percent … 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 richer and deeper way something we all know, but all too easily take for granted. The customer is the center of our universe. Forget that and nothing much else matters. Employees lose jobs. Shareholders lose value. Suppliers lose business. 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 five percent more of your customers than you currently do, your bottom-line profit will grow anywhere from 25 to 50 percent.

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 realize 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 - - really 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 down with some of our key customers. In fact, someone just looked at my calendar for 2004 and estimated that I spent more than 25 percent of my time in direct contact with customers.

Today is a good example. While I’m in Montreal, I’ve had one-on-one meetings with two of our customers and met several others here at the luncheon. This afternoon I’ll have a Town Meeting with our local employees. As I always do, I’ll encourage a good dialogue around our customers - - what I expect our people to do to create great customer experiences and what they need to do to help them. I find that if you really listen to customers and employees, you will always come up with a few good ideas.

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 marshaled 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 day. 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 out 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 scores of new products as well as a rich portfolio of smart document-related services. In 2003, we launched 35 new products. Last year we announced another 40 new products with a similar amount coming to market this year. These investments are already paying off. In fact, three-quarters of our revenues are coming from offerings that were introduced in the past few 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 payoff – streamlined costs and customer focus.

From top to bottom, Xerox people are tightly connected to our customers and their businesses. In fact, 80 percent of our people interface directly with customers as a regular part of their job. One in five - - that’s 12,000 people - - actually work at our customer’s place of business. 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. And, of course, we help our customers communicate with their customers as well.

One example I love is a large retail customer who has a lot of bridal registries. After the couple returns from their honeymoon and settles into married life, they receive a special sales promotion of all the products they had on their registry and didn’t receive. Direct mail people consider a one percent response rate to be very good. This promotion runs about 40 percent. That’s the power of one-to-one marketing.

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 “I-T 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 I-T is made up of a big “I” 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 percent 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.”

I’m a fan of Jim Collins, author of 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. Take the automotive industry. Satisfaction scores average around 90 percent. In today’s world, that’s a danger sign. Guess how many satisfied people repurchase cars from the same manufacturer? Only 40 percent. This should set off alarm bells.
In today’s world of increasing competition and escalating expectations, standards like “good” and “satisfied” just don’t cut it. I saw recently that the average life of a Fortune 500 company is 40 years. Then they go belly up or are acquired or merge. I have a hunch that the cause of this short life cycle is that they lose touch with their customers, stop creating customer value and begin a slow death.

Now, I would be the first to admit that we’re 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. We realize that your expectations continue to escalate. We know that our competitors continue to improve.

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.

I’m going to end where I began – by refuting the notion that an idea as basic and old as putting the customer first is somehow quaint or obvious. I would argue that it has never been more powerful and that we stray from it at our own peril.

Xerox is all the proof you need. Our troubles a few years ago all stemmed from a few decisions that appeared to be right for Xerox. The customer perspective was never considered. We nearly went bankrupt. And our more recent successes have all stemmed from putting the customer at the center of decision-making. That focus has put us back on track.

We are hardly unique. So my argument is that if we get back to basics, our companies will grow. Our economies will grow. We will create jobs, increase tax revenues, and enable investments in the quality of life for all our citizens. That’s a prize worth seeking - - and its pursuit starts and ends with the customer.

If anyone has learned that lesson, it’s The Canadian Club of Montreal. You’ve survived and thrived for a century because you provide customer value.

“Best of luck for your next century!”

“Bonne Chance P Votre Prochain Siècle!”