Blogs & Comment

Nortel postmortem

Why did Nortel fail? There are probably several valid perspectives on this, one being the bad luck to have an once-in-a-lifetime global financial crisis come along in the middle of a turnaround effort. A different political party or coalition in power may have also stepped in with a loanto tide the former Canadian tech icon over.
But lets focus for now on the management variable. In the past, hiring an accomplished executive from the top ranks of Corporate America usually worked when there was a crisis to overcome. In the 1970s, it was John Lobb — the Mr. Fix-it from ITT Corp. In the early 1990s, it was Paul Stern from Unisys Corp. Both were highly capable and demanding executives who were in line to become CEOs of their firms but were bypassed. A psychologist might argue they were out to prove their doubters wrong by accepting the CEO job at Nortel (besides make a mint on stock options).
Mike Zafirovski fit the same mold, a capable senior executive overlooked for the CEO position at Motorola. The stage looked set for a repeat of the magic formula. So what went wrong?
Both Lobb and Stern had a sense of urgency that drove them to make big changes fast — even though radical change can scare people and risk rebellion. Indeed, in his departure speech, Stern said the reason for his image as a tyrant was due to his refusal to slow the pace of change. He defended his bold moves with the frog-in the-boiling-pot metaphor (as quoted from Nortel Networks: How Innovation and Vision Created a Network Giant)
If you turn up the heat slowly, the frog will get comfortable in the warm water and he will die when it starts to boil. But if the water is boiling and you toss in the frog, hell jump right back out. I believe in dramatic change. It keeps you alert, alive. Incremental change doesnt succeed; the bureaucracy kills slow change. Youve got to make the bold move.
It could be argued that the collapse of the world banking system and consequent severe recession was what tripped Mr. Zafirovski up. But if he had been imbued with a sense of urgency similar to his predecessors, maybe Nortels turnaround would have been completed before 2008 and Nortel could have avoided bankruptcy protection and the likely dismemberment to come.
Then again, to be fair, Mr. Z. was operating without the safety net of BCE Inc. Over the 1970s to 1990s, BCE was a source of capital, revenues, and manpower for Nortel. But by 2000, the year BCE disposed of its stake in Nortel, it had become too big to be backstopped. Indeed, BCE more or less lost that ability when it lost its status as a regulated monopoly in local telephone service, depriving it of a guaranteed source of cash flow. We could probably go on with more perspectives, but lets leave it at that for now.