1. What micro environmental factors have affected Xerox's performance since the late 1990s?

2. What macro environmental factors have affected Xerox's performance during that same period?

3. By focusing on the business services industry, has Xerox pursued the best strategy? Why or why not?

4. What alternative strategy might Xerox have followed in responding to the first signs of declining revenues and profits?

5. Given Xerox's current situation, what recommendations would you make to Burns for the future of Xerox?

Xerox introduced the first plain-paper office copier more than 50 years ago. In the decades that followed, the company that invented photocopying flat-out dominated the industry it had created. The name Xerox became almost generic for copying (as in "I'll Xerox this for you"). Through the years, Xerox fought off round after round of rivals to stay atop the fiercely competitive copier industry. Through the late 1990s, Xerox's profits and stock price were soaring.

Then things went terribly wrong for Xerox. The legendary company's stock and fortunes took a stomach-churning dive. In only 18 months, Xerox lost some $38 billion in market value. By mid- 2001, its stock price had plunged from almost $70 in 1999 to under $5. The once-dominant market leader found itself on the brink of bankruptcy. What happened? Blame it on change or-rather-on Xerox's failure to adapt to its rapidly changing marketing environment. The world was quickly going digital, but Xerox hadn't kept up.

In the new digital environment, Xerox customers no longer relied on the company's flagship products-standalone copiers-to share information and documents. Rather than pumping out and distributing stacks of black-and-white copies, they created digital documents and shared them electronically. Or they printed out multiple copies on their nearby networked printer. On a broader level, while Xerox was busy perfecting copy machines, customers were looking for more sophisticated "document management solutions." They wanted systems that would let them scan documents in Frankfurt; weave them into colorful, customized showpieces in San Francisco; and print them on demand in London-even altering for American spelling.

This left Xerox on the edge of financial disaster. "We didn't have any cash and few prospects for making any," says current Xerox CEO Ursula Burns. "The one thing you wanted was good and strong leaders that were aligned and could get us through things and we didn't have that." Burns didn't realize it at the time, but she would one day lead the company where she had been groomed for over 20 years. In fact, she was on the verge of leaving the company when her colleague and friend, Anne Mulcahy, became CEO and convinced Burns to stay. Burns was then given charge to start cleaning house.

Task number one: outsource Xerox's manufacturing. An often criticized and unpopular move, outsourcing was critical to Xerox's cost-saving efforts. Burns oversaw the process in a way that preserved quality while achieving the desired cost benefits. And she did so with the blessing of Xerox's employee union after convincing the union that it was either lose some jobs or have no jobs at all. With the restructuring of manufacturing, Xerox's workforce dropped from 100,000 employees to 55,000 in just four years. Although this and other efforts returned Xerox to profitability within a few years, the bigger question still remained: What business is Xerox really in?