As the world waits for Nortel Networks Ltd. to post its fourth-quarter financials, chief executive Mike Zafirovski outlined his plans to overhaul the telecom company, addressing Nortel’s technology focus, organizational structure and supply chain strategy.
Speaking at a conference sponsored by RBC Capital Markets in Whistler, British Columbia, Zafirovski deemed 2006 a transformation year, saying the company was at “ground zero” and cautioned, “We have a very tall mountain to climb.”
Zafirovski, who has been on the job four months, explained that the company has been re-evaluating how and where to spend its $1.9 billion research and development budget.
“We tried to be everything to everybody,” he said. “Now, we need to focus.”
He said the company plans to narrow its focus to concentrate on technology areas where it has a chance to dominate with at least a 20-percent market share. Today Nortel is No. 1 or No. 2 in only five out of the 22 communications equipment market segments where it competes, he noted.
“There’s a lot of work for us to do to look at the other 17,” he said.
Zafirovski said an announcement is coming this week regarding the company’s technology focus, but he divulged that WiMAX, Internet Protocol TV and IP Multimedia Subsystems are areas of future investment.
The company’s metamorphosis will also include more personnel trimming, Zafirovski said.
“We have 10 layers in the organization, which is crazy. We’re going down to six.”
Since 1999, Nortel has shown the door to more than two-thirds of its work force. Zafirovski has infused the executive-level management team with comrades from his former employers, General Electric Co. Ltd. and Motorola Inc.
Specifically, Nortel has been reshuffling its senior managers who oversee the company’s supply-chain and procurement services.
Zafirovski brought over Don McKenna, a 40-year veteran of GE, to serve as vice president of global manufacturing services, along with Joel Hackney, a 14-year GE employee who the company named vice president of global supply chain and quality at Nortel.
However, Zafirovski has also promoted from within Nortel’s ranks. In February, Nortel named long-time employee John Haydon the company’s new chief procurement officer.
Haydon has worked for Nortel for more than 22 years in a number of increasingly senior management positions, having served most recently as the company’s vice president of Global Supply Chain. In his new position, Haydon will report to Hackney and is set to relocate to Hong Kong as he assumes responsibility for Nortel’s $7 billion in annual procurements.
“This appointment is about creating a world-class sourcing organization for Nortel,” said Hackney. “John is a recognized leader and innovator who has brought new levels of collaboration and discipline to supplier selection and management at Nortel. His continued leadership will be critical as we drive Nortel’s market position around cost, quality and speed.”
When asked about its supply-chain strategy and whether Hong Kong is becoming the company’s preferred supply-chain base of operations, Nortel stated in an e-mail: “In today’s global environment, it is important to have a physical presence in high-growth regions to maximize cost structure and to be in close proximity to both customers and suppliers. These are the key drivers behind our efforts to globalize our supply chain and our activities in Hong Kong. John’s move is also strategic in providing the best possible support for our joint venture with LG in Korea.”
Nortel’s joint venture with LG is paying off, and if the company cannot be a leader on its own, partnerships are a legitimate way to tackle the space, said Peter MacKinnon, chairman of LG-Nortel and president of Nortel GSM/UMTS Networks, during the 3GSM World Congress. Nortel hooked up with LG Electronics Co. Ltd. to form LG Nortel Co., a joint venture for wireless infrastructure in which Nortel owns a controlling interest. The strategy gave Nortel an inroad into South Korea and gave LG access to the rest of the world. MacKinnon said Nortel is now No. 1 in South Korea, with a 50-percent market share in UMTS in Korea, which has the highest penetration of third-generation subscribers in the world.
Nortel also wants to be No. 1 in the IMS space, MacKinnon said.
“Nortel will be a leader in IMS by leveraging our technology leadership in 3G wireless, VoIP and SIP and our commitment to interoperability to drive network convergence for all operators, whether wireless, wireline or cable and transform today’s `intelligent network’ into an `intuitive network’ that is device, application and access aware,” the company elaborated.
MacKinnon also pointed to Nortel’s relationship with IBM Corp. as an area where partnering with another company made strategic sense for Nortel. Nortel and IBM last year started a joint development center to collaborate on the design and development of new products and services joining Nortel’s communications expertise with IBM’s server experience. The companies are addressing VoIP, IMS and other broadband wireless technologies.
The likely shaper of any future partnerships, George Riedel was hired recently to serve as the company’s chief strategy officer. Since 2003, Riedel worked as Juniper Networks’ vice president of strategy and corporate development. Prior to joining Juniper, Riedel spent 15 years at consulting firm McKinsey and Co. as a director focusing on telecom and high-tech practices in North America and Asia.
Nortel said Riedel will be responsible for “leading the company’s corporate strategy, including business development and mergers and acquisitions.” In addition, Riedel will focus on emerging technologies, market opportunities and strategic partnerships, the company said.
“This appointment marks my commitment to maintaining Nortel’s technology and innovation leadership,” stated Zafirovski. “George’s extensive knowledge of telecom and technology combined with his business acumen, strategic orientation and M&A experience will complement our strong leadership team and position the company for a successful future as we simplify our business, develop next-generation products and solutions, and focus on long-term, profitable growth.”
The company said Riedel is set to begin his new position Feb. 28 and will be based in Toronto.
Summing up his plans, Zafirovski said he’s telling staff to think “BIG,” explaining that the acronym stands for business transformation, integrity renewal, and growth imperatives.
With plans to settle its accounting lawsuits, streamline its supply-chain and sharpen its technology focus, it’s as if Nortel is ready to move on.
RCR Associate Publisher and Editor Tracy Ford contributed to this article.
