Alcatel's New Operating Officer To Use Innovation To Battle Rivals
Dow Jones Online News, Thursday, August 26, 1999 at 02:11
(Published on Wednesday, August 25, 1999 at 23:08)
By Kevin J. Delaney, Staff Reporter
PARIS - Sitting in his office in Alcatel SA's sumptuous headquarters,
Krish Prabhu is discussing "The Innovator's Dilemma," a management text
that is quickly making its way around executive circles. In Mr. Prabhu's
analysis, the book's message is that it's almost impossible to innovate
and run a business at the same time.
"I'm convinced that a company that is a big company cannot organize
for innovation," he says.
It's a curious statement coming from the man who on Tuesday was named
chief operating officer of the mammoth French telecommunications
equipment company's Alcatel Telecom business, which accounted for 70% of
its 21.3 billion euros in overall sales last year. But, in some
respects, Alcatel is an example of the book's central paradox that an
industry's largest players have a harder time seizing upon high-growth
ideas than outsiders do.
In recent years, the French giant, whose corporate roots go back
almost a century, has found itself fighting a high-stakes battle with
upstarts and the companies that have been devouring them like Cisco
Systems Inc. Alcatel has, of course, been responsible for breakthrough
products, most recently in the area of high-speed Internet access.
But Mr. Prabhu clearly understands the do-or-die challenge ahead for
him and the company: To retain Alcatel's standing in a rapidly shifting
communications equipment sector, he'll need to focus on core businesses
and tap into innovation within the ranks, or in well-placed startups the
company can acquire.
People who know Mr. Prabhu say he's up to the task. The 45-year-old
Indian-born American has held the top position at Alcatel's U.S.
operations since 1997 and has been chief executive of Alcatel USA since
it was created last year. He has played a role in Alcatel's nearly $7
billion (6.65 billion euros) buying spree in the U.S. launched last
summer. And, he earned respect in the industry for creating the
company's broadband networking division, now one of its core strengths,
in Brussels in the mid-1990s.
"He's the man with the golden touch," says Sean Faughnan, a
telecommunications equipment analyst with J.P. Morgan in London.
Mr. Prabhu's appointment is also symbolic of Alcatel's efforts to
focus on its data networking business and the U.S. market, where, until
a few years ago, its sales were relatively meager.
When he takes over the COO post in October, Mr. Prabhu will remain
CEO of Alcatel USA. He will work mostly out of the company's Dallas,
Texas offices, making several trips to France each month.
Mr. Prabhu will replace Jozef Cornu, one of the eminences grises of
the European telecommunications scene, who has decided to cut back to a
part-time schedule. Mr. Cornu, who joined Alcatel in 1987 from ITT
Corp., has his background in the traditional voice-based public
networks, that are fast being swept aside by Internet and data
technology Mr. Prabhu oversees.
"Perhaps it's also the sort of symbol of what I would like the new
Alcatel to be: a younger generation, borderless, global, multicultural,"
says Serge Tchuruk, the company's chief executive.
In addition, analysts say that Mr. Prabhu is more focused on the
bottom line than his predecessor. Indeed, the three main challenges he
outlines for the company are all directly related to shareholder value
rather than to specific technologies.
The first is to have consistent corporate revenue growth of 15%
annually in Alcatel's core telecommunications business -- it has hovered
around that in recent quarters. The second of Mr. Prabhu's goals is to
move operating profit margins as a percentage of revenue for core
businesses into the double digits. That's a slightly more ambitious
target, as they were 4% last year, and the company has publicly
announced the goal of 7% for the year 2000.
Acknowledging that some of Alcatel's current businesses are a "drag"
on such ambitions, Mr. Prabhu said the management is currently trying to
address whether to change their focuses or exit the activities. The
company's energy cables business, with its low profit margins, is among
those traditionally rumored to be ripe for disposal.
Mr. Prabhu said Alcatel's third major challenge is to improve its
image, both with customers and shareholders. He says the company needs
to gain the confidence of the technology community, especially high
growth players like Internet service providers. "These smaller companies
don't see Alcatel as a hindrance, but they see Cisco as the horse they
want to ride."
Investors have been jittery since the company's warning of a sharp
decline in sales ignited a massive sell-off in Alcatel's stock nearly a
year ago. For starters, a strong showing when the company reports
first-half 1999 earnings on Sept. 11 could help soothe some of their
nerves. And, the charismatic Mr. Prabhu's reportedly good relations with
the financial community could help ease some of the tensions.
His American-sounding talk about the need for cost-cutting at Alcatel
should also cheer shareholders. Mr. Prabhu says Alcatel can
significantly shrink its fixed costs and improve the efficiency of its
supply chain, among other things. Already in the U.S., he taken steps to
outsource the manufacturing of established technologies to third parties
to free up production lines for new products.
But Mr. Prabhu's rhetoric will likely come up against some opposition
from Alcatel's entrenched middle-level management and 118,000-person
global work force. Yet, on the face of it, it has the potential to bring
dramatic change to an organization that analysts say remains bloated.
"Everything now hinges on execution," Mr. Tchuruk said earlier this
year. And Mr. Prabhu is clearly the man he's counting on to deliver.
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