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Mike Zafirovski had gathered 200 senior managers at Nortel Networks' lush, 34-acre campus in Richardson, outside Dallas — a long way from headquarters in Toronto. The two-day leadership meeting, which began on Sept. 12, was a chance for the troubled telecommunications equipment company's executive team to lay out what progress was being made on a range of issues — from Nortel's strategic direction and its plans for targeting new technology markets and major contract wins, to the myriad internal programs broadly categorized as its "business transformation" initiatives. For CEO Zafirovski, it was showtime.
He had a full agenda, and a lot for his senior managers to digest, especially since most people in the conference centre were still getting their occupational bearings, 10 months after Zafirovski came on board after five years at Motorola. At one point early in the meeting, Zafirovski posed a question: How many in attendance were new to the company or had started a new position within the prior 12 months? A forest of hands went up. Nearly four out of every five people had new responsibilities.
That show of hands represents the tip of the iceberg. A vast organizational overhaul is underway inside Nortel, flattening the structure of the company's workforce of 35,000. The project began in late winter; eight months in, it's less than a third of the way to completion. The long-term goal is to reach a formula that some experts say is an ideal structure for a company of Nortel's size: 10 by six. In other words, on average, 10 people should report to a single manager, and there should be only six layers of employees from front-line sales forces or engineers up to the CEO. For middle managers, meeting that goal means some will take on new responsibilities, some will no longer be managers — and some will no longer work for Nortel.
But the restructuring is just one way Zafirovski and his new-look executive team are reshaping Nortel. After years of financial mismanagement and strategic drift, the company that made a dirty phrase out of "right-angle turn" — former CEO John Roth's description of Nortel's redirection into Internet mode, which ended in 2001 with a head-on collision with reality — is reinventing itself yet again. It's a complex undertaking, made more challenging by the uncertain industry in which Nortel plays. The managers in the conference centre in Texas were just as curious as everyone else connected to the company — customers and suppliers, investors and analysts — about where Nortel is going, and what it is becoming.
On Nov. 15, Zafirovski will mark his anniversary as CEO of Nortel with an investor conference that, along with the release of third-quarter financial results on Nov. 7, ought to further dissipate the fog that surrounds his company. It better. In public appearances, Zafirovski has always been careful to note that no one should harbour illusions of a quick fix at Nortel. He describes efforts to "recreate" the company into a world-class operation as a three-to-five-year project. But 12 months in, investors don't seem to have much of the one thing Zafirovski was supposed to provide: hope. As of Oct. 31, Nortel shares (TSX: NT) had lost a third of the value they had on his first day as CEO.
Zafirovski came to the job with the right credentials. During a 25-year career at General Electric, he led a series of divisions in Europe and North America under the watch of uncompromising chief executive Jack Welch. The Macedonia-born American joined troubled communications equipment maker Motorola for a five-year stint beginning in 2000, during which he turned around the cellular phone business and became chief operating officer. Zafirovski is, clearly, a more savvy and battle-hardened corporate warrior, with deeper experience in the communications industry than his predecessor, retired four-star U.S. Admiral Bill Owens. Zafirovski also has a reputation for unwavering corporate ethics — a necessity for a company still tainted by financial restatements and an accounting scandal that led to the firings of several executives in 2004, including then-CEO Frank Dunn. If Zafirovski can't fix Nortel, probably no one can.
But he can't do it alone. Upon arriving at Nortel, he quickly set about recruiting a fresh senior team to execute the turnaround — people that would look at the business with new eyes. What they found: a deeply dysfunctional company that had lost its way in the sector's boom, bust and the aftermath and would have to be methodically rebuilt. For the man known as Mike Z and his band of corporate renovation experts, the task is huge and the stakes high. But the opportunity to re-engineer a company of Nortel's size and former pedigree is too juicy to pass up. By the time they're done with it, Nortel will never be the same. But will it be enough?
When Zafirovski took over as CEO, his first recruit was Joel Hackney. In the mid-1990s, the two worked together in GE's mortgage and insurance business, where Hackney was running daily operations and Zafirovski was chief executive. Their careers crossed paths within GE several times before Zafirovski packed off to Motorola, but they kept in touch, and when Zafirovski needed a sounding board to think through Nortel's job offer, one person he called was Hackney. From those conversations, Zafirovski came to recognize an opportunity to apply the kind of discipline he and Hackney had managed at GE — and it only made sense to bring in his old colleague, who was still working with GE in Barcelona as general manager of a US$1-billion electrical components division. Hackney's appointment was announced three weeks into the Zafirovski era. He started the next day.
His title, senior vice-president of global operations and quality, belies his real influence. He oversees 10,500 of Nortel's 35,000 employees and is responsible for everything that happens after a sale is made — order fulfillment, inventories, delivery, installation, customer support. He is a trusted lieutenant of Zafirovski's on many of the key initiatives inside the company. "At the end of the day, leaders have to build high-performance teams, and he has a tremendous skill in doing that," says Hackney. "I didn't come to Nortel only for Mike Zafirovski, [but] that was a big piece of it."
Four weeks after starting at Nortel's Raleigh, N.C., campus, Hackney, who had no prior experience in the communications industry, was on a plane to Beijing to meet with an important customer: Li Mofang, then chief engineer of China Mobile, the world's largest wireless carrier. For seven hours, Li took her guest through all the details of the companies' business arrangement. Hackney listened intently. The meeting left a lasting impression. "You can boil it down to one sentence," Hackney says. "'Too slow, too costly, too expensive.'"
Solving those problems is why the company has adopted Lean Six Sigma — a variation on an approach to managing that was popularized by GE, and a big reason why Hackney and four other new executives have experience from that company. Lean Six Sigma is a rigorous methodology for analyzing internal processes, with the goal of improving customer satisfaction through the elimination of flawed practices and — here's the lean part — by improving speed. Specialized teams run projects with specific targets. One example: it can take Nortel as much as 72 days to confirm delivery after a customer orders an optical product; a project is now underway to reduce that time by 50%.
By the end of the year, 76 such projects will be in gear. Each targets an aspect of customer satisfaction, cash flow, cost of poor quality or time to market. Each involves completely redesigning a process to remove duplication and wasted steps. For instance, customers have told Nortel that the 18 weeks start-to-finish it takes the company to deploy and install a VoIP network is too long. Installers, product engineers and managers worked together to dissect the process for a single base station, identifying steps that could be eliminated to save time, as well as steps that could be completed concurrently. They also examined the product itself, to find ways to speed up the process — like clipping cables instead of screwing them in. By combining all those small measures, the team estimates that a redesigned process will halve time of installation to nine weeks. That's a big improvement, but it will still only put Nortel roughly on par with its competitors, which include Ericsson, Cisco Systems, Siemens and Lucent. "If we get the 50% reduction, we'll be slightly ahead of industry norms, but not a lot," says Hackney. "That's how far behind we are."
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