Financial Post:Clarence Chandran Meet NT's No.2, future No.1
nationalpost.com
World makes COO go round
Nortel's No. 2 guy travels constantly on way to top
David Olive, Senior Writer
Financial Post
It has been half a year since Clarence Chandran was named second in command at
Nortel Networks Corp., becoming the logical candidate to succeed John Roth when he
retires as chief executive. Meantime, Mr. Roth now had a chief operating officer to
help shoulder the load of running a company that has roughly tripled in size over the past
six years.
nationalpost.com
MAN OF MANY MOVES: 'I'm probably the most virtual Nortel executive,' says
globe-trotter Clarence Chandran.
So what distinct roles have these two men carved out for themselves -- Mr. Roth, the
soft-spoken engineer who radically transformed a staid telecom supplier into an Internet
trailblazer, and Mr. Chandran, 51, an ebullient salesman, deal maker and details-oriented
administrator?
nationalpost.com
Clarence Chandran, Nortel's chief operating officer, says there is no problem getting rid of
operations once revered in the company.
"You know, we've never actually sat down and discussed that, which I guess is a bit of an
odd thing," Mr. Chandran said in discussing at length this week, for the first time, his
agenda at the company.
And there's a good chance they never will.
"We're intuitively on the same page," Mr. Chandran says of his relationship with Mr. Roth,
whom he has known pretty much since his first day at Nortel, 15 years ago.
"We might sometimes tackle problems from different perspectives, but we generally come
to the same conclusions," says Mr. Chandran, who could easily be mistaken for a clone of
his boss.
After all, many of Mr. Chandran's career successes, from 1985 to Mr. Roth's decision to
appoint him last year as chief operating officer, have originated with tough assignments
handed to him by the current CEO. "Let's just say I've caught more than one Hail Mary pass
from John," Mr. Chandran allows.
Both men have a laser-like focus on Nortel's future as a leader in all-optical networks, a
jarring departure from the company's pioneering work in circuit-based switching
equipment. And they are equally committed to the heresy of using acquisitions to quickly
get their hands on technologies that Nortel's own legion of in-house researchers could have
developed if given enough time.
The Wall Street Journal this week described Nortel as a "monster" company, along with
such merger-inspired giants as Bank of America, WorldCom Inc. and DaimlerChrysler AG
-- firms that have struggled to manage rapid growth.
The expansion strategy plotted by Messrs. Roth and Chandran has similarly put Nortel at
risk of growing too big too quickly. That's what happened at Nortel's crisis-stricken rival
Lucent Technologies Inc., based in Murray Hill, N.J., where explosive growth was
accompanied by cost overruns, infighting among research and development teams and
confused reporting lines as the number of managers and business units proliferated.
As Nortel's own revenue soared to US$30.3-billion in 2000, Mr. Roth and Mr. Chandran
have subjected their company to repeated rounds of layoffs in a bid to keep the firm
streamlined. And neither man appears to have any qualms about shedding businesses that
once formed the bedrock of the company but that top executives came to regard as a
distraction.
"One of the things that's in our genes is that we have absolutely no reluctance about tearing
down things we've built if they're no longer relevant to our core mission," says Mr.
Chandran. He has been Mr. Roth's point man in Nortel's unprecedented Canadian raid on
talent-rich U.S. firms, but has also spearheaded the disposition of operations once revered
within the company.
"We are good, and getting better, at letting go," he says. "You've got to be able to let go."
Bay Street has been startled by some of the workplace cuts, coming so soon after a
takeover blitz that saw Nortel lavish more than US$15-billion on the purchase of more
than a dozen tech firms in the United States and Canada. Nortel seems to be a company that
is growing and shrinking at the same time, an apparent contradiction that has spooked some
investors, contributing to the sharp decline in Nortel's share price, from a peak of $124.50
last summer to yesterday's close of $46.20.
Mr. Chandran's promotion to chief operating officer was greeted with enthusiasm by
stock-market analysts, who saw a lack of similar succession planning at Nortel rivals
Lucent and Cisco Systems Inc. as a liability. When the mounting troubles at Lucent
prompted its board to fire CEO Richard McGinn last year, there were no candidates ready
to step into the breach. Mr. McGinn's predecessor as CEO was recalled to serve as
interim leader.
But the activities that won Mr. Chandran his promotion have kept him out of the spotlight,
and he has continued to be something of an unknown quantity, unable to readily assist Mr.
Roth in reassuring investors during the subsequent collapse in telecom-related stocks.
The new No. 2 at Nortel is not, as it happens, an exact copy of Mr. Roth, the man who has
relied heavily on Mr. Chandran to lead the company's push into Internet-related
communications, and in particular to become the world's dominant supplier of fibre-optic
networks.
While Mr. Roth continued to serve as the public face of the company, Mr. Chandran has
kept up with his behind-the-scenes work in negotiating takeovers and, in an unusual role
for a dealmaker, in remaining on the scene to integrate the newly acquired firms into
Nortel's R&D, product development and marketing structure.
After the takeovers have been put to bed, and the headlines are all gone, someone's got to
stick with these acquisitions and make them work," says a Nortel insider. "That has been
one of Clarence's strengths, but it has been nitty gritty work that didn't get much attention
outside the company."
In the months since Nortel began its latest drive to rationalize its operations, competitors
such as Lucent and Cisco have seen their sales go flat or tail downward as the North
American economy has weakened. The sudden halt in the dynamic growth that
characterized the industry over the past two years has exposed faulty growth strategies,
most notably at Lucent. In contrast to the deliberative pruning of assets at Nortel, the
cutbacks and asset disposals at Lucent have been haphazard and more drastic.
At its Canadian rival, outsourcing of low-margin manufacturing tasks has been largely
offset by continued hiring in fibre optics, the key technology
in the US$1-trillion project to
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build a next-generation Internet that will be more reliable, functional and easier-to-use
than the current version.
"We always knew this would be a painful transition for our industry," Mr. Chandran says.
"What we're talking about is not a paradigm shift, which merely creates new markets. This
is paradigm violence. People are skeptical about exactly which new technologies are
required, and whether they will work."
In the next breath, however, Mr. Chandran reveals himself as a true cyberspace believer.
"The Internet is already pervasive," he says. As it becomes more rugged and reliable, like
today's phone system, the Internet will absorb more conventional telecommunications
systems -- as early as five years from now. "The first to disappear," he says, "will be the
internal corporate and institutional networks, that horrible word 'Intranet.' The internal
data networks used by businesses, hospitals, governments and libraries will be abandoned
as the public Internet is brought right into every organization."
Today's coaxial cable networks will likewise be subsumed, as "news and entertainment
are delivered over the Internet to your personal computer, TV set and handheld devices,"
says Mr. Chandran. "Telephone area codes and fax addresses will disappear, they'll be
hidden as Internet protocol (IP) addresses. So when you're trying to reach me, you'll no
longer be hunting around to find my phone number at home, or at the office, or on the road.
You'll just use a typewritten or oral command, 'Find Clarence Chandran.'"
This is going to require a tremendous increase in bandwidth capacity, which is already
strained by the current doubling in Internet traffic every 100 days. It's going to require the
elimination of bottlenecks and speed bumps in the existing Internet, in which the retrieval
of data requires a signal to make 15 to 20 hops through routers, switches, servers and other
equipment. "The history we're going to make at Nortel is to perfect the all-optical network
so that we eliminate those hops, expanding the bandwidth and driving the cost of
transmission through the floor," says Mr. Chandran.
"Our competitive advantage is a world-class ability to take a technology that's new and
untried and make it bulletproof, so it can work without fail in critical applications" for
Nortel clients that include the U.S. Federal Reserve Board, the New York Stock Exchange
and airline reservations and logistics systems around the world.
Born in Pakistan of Indian parents, Mr. Chandran was an army brat whose father, an
officer in the Indian military, relocated the family every year and a half before he retired,
at which point he brought them to Canada.
Nortel plucked Mr. Chandran from Bell Canada for his skills in salesmanship, and it
wasn't disappointed. He had barely arrived when Mr. Roth, then in charge of global
product lines, challenged him to find a way of cracking the market for switching systems
among non-telco clients. Mr. Chandran landed a contract to install a private branch
exchange at Sheraton's flagship hotel in Toronto, and it wasn't long before Sheraton
ordered PBXs for the hundreds of other hotels in its chain.
Promoted to head Nortel's sleepy Caribbean and Latin America operation, which Mr.
Chandran now recalls as suffering from "a country club atmosphere," he again responded
to Mr. Roth's insistence that Nortel make inroads in a market it had long neglected.
Mr. Chandran, often with Mr. Roth at his side, called on potential clients whom they lured
away from Ericsson in the wireless market. One of his proudest moments, in the early
1990s, was to persuade a skeptical Nortel board to expand in Brazil, despite its volatile
currency and 1,000% inflation rate. "I was getting walloped in that meeting, they thought I
was crazy, until a couple of outside directors who had worked in Brazil and both spoke
Portuguese agreed with me about Brazil's dynamic potential," he says.
During his tenure in Latin America, Nortel's sales grew from $100-million to $1-billion.
Mr. Chandran was dispatched to bolster sales in the Pacific Rim and then Europe, where
Nortel is now the second-largest builder of third-generation wireless networks.
The career salesman then gained a reputation for sharp administrative skills after being
parachuted into Nortel's flagship manufacturing facility at Research Triangle Park in
Raleigh, N.C., the then troubled global centre for many of Nortel's switching devices.
Many of those devices, the bread and butter of the pre-Internet Nortel, were threatened
with obsolescence by the disruptive shift to IP-based equipment, and Mr. Chandran
oversaw a drive to upgrade them for the Internet world. In doing so, he clashed with
engineers and marketers who were resistant to change, and many of them parted ways with
the company. "Chandran has been given a succession of difficult assignments," says one of
his Nortel colleagues. "He bucked tradition in shedding outdated products and
streamlining businesses through layoffs. He comes across as a gracious, diplomatic man,
but he also made the tough calls."
Mr. Chandran also "paid a price," he says, for a peripatetic career that even now keeps
him in an "office in the sky" much of the time, spending only two days a month at Nortel's
headquarters in Brampton, west of Toronto.
Mr. Chandran doesn't talk about a 1997 incident in which burglars invaded the Singapore
home of a Nortel executive with whom he was staying, in which he was repeatedly
stabbed in the chest and stomach. "I'd just as soon close the book on that one," he said soon
after. He does express concern about not spending enough time with his wife Beverley and
their three sons, all of whom were born in Canada.
But "the clients aren't here," he said this week in Brampton. He makes three customer calls
a day, on average, and more clearly resembles globetrotting Nortel CEOs such as Walter
Light and Edmund Fitzgerald than Mr. Roth, a Lethbridge native and relative homebody
who turned down offers of foreign postings. "I'm probably the most virtual Nortel
executive," Mr. Chandran says.
Mr. Chandran feels vindicated in his most recent assignment, negotiating the high-priced
acquisitions of firms that provided Nortel with the components that back Nortel's claims of
being better suited than rivals to build the industry's most rugged and flexible networks.
"A significant number of acquisitions that companies make never achieve their potential,
never see the light of day, because the acquirer has not been able to commercialize the
product," says Mr. Chandran. "Our track record in ramping up our acquisitions has been
unmatched."
These advances spur Mr. Chandran on in his speculations about, for instance, the day when
entertainment giants such as AOL Time Warner and Vivendi Universal, a new Nortel
client, will launch a strategy for storing their wares in thousands of substations, or storage
area networks, as a more cost-effective means of delivering content and personalizing it
for their subscribers. "AOL Time Warner is going to be the world's biggest Internet hog,"
says Mr. Chandran.
"But other content providers, along with financial services companies, retailers and
public-sector institutions, won't be far behind. You look at a small revolution such as the
decision by Harvard University to put its 93 libraries on line so that students can access
miles of stacks from a laptop in their dorm and you appreciate the voracious demand for
bandwidth that we're confronted with. And only an all-photonics network holds the
promise of delivering that."
Mr. Chandran says he's having less trouble now in finding the "disruptive customers who
want you to help them break all the rules, who have a sense of urgency.
Today we have customers who won't wait,
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and we have to stay ahead of them.
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It's like clay-pigeon shooting,
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which I first learned when I was 12.
"If you shoot directly at the target, you will miss it for sure. It's the same with new-product
development, you have to shoot ahead of the target, to where the customer is going to be,
not where he is now. You can't start late with a brilliant idea.
Customers are moving too fast to let you do that."
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