One day after announcing the layoffs of 2,900 more workers, Nortel's CEO lays out his six-step program for recovery.
Published: Friday, February 09, 2007
The gospel according to Mike Z
The contrast in his demeanour could hardly have been sharper.
Four months ago, Nortel CEO Michael Zafirovski gave a brief talk over breakfast to several hundred guests of the Ottawa Centre for Research and Innovation. His delivery was stiff, the message was peppered with business cliches and his words emerged so quickly they often tripped over one another.
Yesterday, a much warmer Zafirovski entertained a smaller breakfast crowd, most of them University of Ottawa alumni. Nortel's top gun spoke for more than 40 minutes and stuck around to answer questions, also a change in behaviour from the OCRI session. Zafirovski was remarkably candid, offering insight into his history, what motivates him and where he intends to lead this region's largest private sector employer.
Zafirovski's performance was all the more remarkable in light of his announcement the day before that Nortel would be trimming another 2,900 positions by 2008 -- a move he characterized as tough, but necessary.
Indeed, Zafirovski was not in the least apologetic. Instead, he offered up the six-point program that guides his thinking and explains why the staff reductions are vital to Nortel's future well-being.
The first three imperatives are meant to repair the company's foundation. They involve hiring and developing new talent, fixing Nortel's balance sheet and creating a competitive cost structure. The last bit is where the staff cuts come in.
The other three parts of Zafirovski's program are aimed at re-creating a growth machine. Two components are fairly obvious. He said Nortel should invest in profitable growth and increase the emphasis on technical solutions and services, rather than on telecommunications hardware, the company's traditional strength.
It was Zafirovski's mantra on profitable growth that led him last year to kill a Nortel program to sell wireless gear to India at less than cost.
His sixth guideline, which urges Nortel to target truly significant markets, may prove the most telling. "I'm not interested in just small skunk works," Zafirovski said, using the engineering term for offbeat R&D projects.
By way of example, he cited his decision last year to get out of the business of building wireless networks based on the UMTS technical standard.
Zafirovski said his UMTS managers last year surprised him during a regular company review of the business. The managers told Zafirovski there was no way Nortel could create a world-beating UMTS business. The surprise came when the managers nevertheless concluded the UMTS technology was interesting enough to justify additional R&D investments and to keep plugging along. "Wrong answer," Zafirovski told the U of O crowd with a smile. His philosophy: If you can't win or at least have the prospect of winning, then get out.
It's a notion made famous by one of his former bosses, Jack Welch, the legendary former CEO of General Electric, the U.S. conglomerate. Welch was notorious for selling off divisions that didn't quickly measure up.
Zafirovski by now has two decades of high-level executive experience to draw upon. But he also carefully studies other business leaders. He cited several examples yesterday of formerly great companies that lost their way and found their way back again -- IBM, Apple, Harley Davidson and Air Canada.
Zafirovski acknowledged that orchestrating such corporate U-turns is hugely difficult, but declared that Nortel one day will be considered "one of the great turnarounds in business history."
For a man who vied unsuccessfully to become the top gun at Motorola (and was rumoured to have gone after the CEO slot at computer-maker Hewlett Packard) it's easy enough to understand the motivation. If Zafirovski can rebuild Nortel, he can write a ticket to anywhere. Along the way, he would demonstrate to the board members of Motorola and HP they were wrong to bypass him.
The notion that Nortel could be great again is a comforting one for the firm's remaining employees. Even so, there remains a large disconnect between Zafirovski's goals and the analysts who cover the company. A majority of analysts tracked by Bloomberg continue to rate Nortel a "hold" or "sell" (though several have recently upgraded their view of the company).
In view of Nortel's long history of disappointments, it's hardly surprising most analysts want to see something real before rushing back in. Nortel's share price has been on a bit of tear lately yet remains below the level it reached in mid-October, 2005, when the company first revealed Zafirovski would become CEO.
Zafirovski was modest enough yesterday to acknowledge he and his team "have not proved to anybody that we are up to it," in reference to the turnaround. However, his words and his body language suggest he is a lot more comfortable with the idea the job can actually be done.
E-mail: jbagnall@thecitizen.canwest.com
© The Ottawa Citizen 2007
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