Friday, 14 November 2014 03:40

Alcatel-Lucent makes the Shift

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Telco supplier Alcatel-Lucent is 18 months into its vaunted ‘Shift Plan’, designed to recast it from money losing dinosaur to a profitable 21st century telecommunications innovator. Is it working?

I am sitting in the ballroom of the Dolce Hotel, a country club type of place in the rolling hills of rural northern New Jersey. Over 200 IT and communications analysts and journalists have assembled for a two day ‘Tech Symposium’ organised by Alcatel-Lucent.

You know Alcatel-Lucent – the company formed in 2006 from the merger of France’s Alcatel with Lucent of the US. Both companies were struggling, and the idea was that together they would make things work.

They didn’t. The company has never made a profit since the merger, losing a billion dollars a year on average. Two years ago it was facing bankruptcy, and the company had become a case study in corporate mismanagement.

In April 2013 the company appointed a new CEO. Michel Combes, a graduate of France’s famous École Polytechnique, was brought in from Vodafone to fix things. After taking stock for a few months he announced a major new strategy that has shaken the company to its roots. It was a case of change or die.

Now Michel Combes is here in New Jersey to talk about the ‘Shift Plan’, the ambitious three pronged strategy he designed to fix Alcatel-Lucent. He mounts the stage, and I am writing this in real time as he talks.

Combes says that after 18 months the Shift Plan strategy is working. The evidence would seem to indicate he is right. He spent the previous day with financial analysts, the first ‘investor day’ the company has had since 2006 – there has been no good news in the meantime – until now.

Alcatel-Lucent is still losing money, but it has staunched the flow and Combes says it will cashflow positive next year. The numbers bear this out – that is in itself a remarkable achievement.

Combes talks for an hour in fluent but heavily accented English, the urbane 50 something French businessman from central casting. He paints a convincing picture of a company in transformation. “We can now say, with no arrogance, that we have successfully executed our strategy. It has been hard work but we are getting there. We are at the end of the first chapter of our Shift Plan.”

Combes reiterates the three aspects of the strategy: refocusing, restructuring, and refinancing. “We have had to move from being a generalist to a specialist,’ he says. “Even a company of our size cannot do everything. We need to concentrate on new technologies like IP and cloud. It’s working. We have 32 major new wins first nine months of 2014, including the three main carriers in China. We are winning in fibre optics and in software defined networking.

“We have target to reduce costs by €950 million out of €6 billion. We have already seen €645 savings, so we are well on track given that we are only half way thru the journey. It’s not just cost reduction, it’s about redefining the model with things like procurement optimisation. Reducing costs has given us the ability to reinvest in innovation and growth.”

Read on ...


Combes says that in early 2013 Alcatel-Lucent was a company in severe financial distress. “We have since totally refinanced the business, bringing in €5.5 billion in 20 transactions in last 12 months to fix the balance sheet, through a combination of equity and loans. Now none of our assets are under security. That has removed any concerns about our financial situation.

“We have assembled the ingredients of a successful transformation. Things are exciting again, we are regaining our leadership position. We have the right products, we have never had such a strong alignment, we can seize the opportunities. We are ready for Chapter 2 of the Shift Plan.”

Combes said he is confident about the future largely because long term market fundamentals are strong, with massive increases in video and data traffic. “We have a lot of room to manoeuvre for the foreseeable future.

“Networking is becoming critical part of every industry, but service providers – and our non service provider customers – are not yet getting the full business value from their networks”

Combes says there are three major constraints, which he also says translate into three major opportunities for Alcatel-Lucent.

The first is limited connectivity. “There are many existing and emerging connectivity technologies - FTTX, G.fast, small cells, IP, optical – but there are concerns about where to put the switching layer and how to reach the terabit speeds that will be needed in future.”

The second is the increased complexity of managing networks. “OSS (operational support systems) are a major issue. Our customers need networks that can scale quickly. Out leadership in software defined networking means we can help people remove complexity from network operations.” 

 

The third is unfulfilled commercialisation – how to monetise new types of data. “We can add value based on our ability to help customers connect the front and the back of the network and to undertake analytics.”

Combes says virtualisation is at the heart of the second chapter of the Shift Plan. “We will now focus on driving the future of communications through innovation, transformation and growth.”

Combes says he was very concerned when he joined Alcatel-Lucent that the company was under so much financial stress it would not have enough money to innovate. “But we are continuing to invest €2.2 billion in innovation, shifting from legacy technologies to be even more relevant with new technology. It’s about speed, orchestration, and aggressively challenging new technologies.”

A key aspect of Alcatel-Lucent’s new approach to innovation, says Combes, is an increased emphasis on technology partnerships. “This has changed a lot in the last 12 months. We were once reluctant to be too open, now we have a number of co-investments. We cannot do it all on our own.”

He mentions deals with Qualcomm (small cells), Intel (cloud), and Freescale (mobile), and says the company will look to make many more similar investments.

“We have restructured, but we need to be agile on permanent basis. We have to have a disruption mindset, a change culture. That has to become the Alcatel-Lucent way.

“We have stabilised revenue and reset the basis of the company. Now we have strong foundations to take new directions like consulting and managed services. We have new alliances and channels and we are diversifying our customer base beyond service providers.

“We have a strong commercial partnerships with HP, with more announcements about combined offerings to come. We have a deal with Accenture on customer care, and we will be announcing other alliances – leveraging more service providers as a channel for our products and services. We have not done this consistently in past “

Combes says services are an important aspect of Alcatel-Lucent’s growth, with a strong practice to help customers migrate from legacy to new technologies. “We lost a lot of money in managed services in the past, but we have reset portfolio so we are ready to move where it matters and bring value to customers.

“The flavour is reinvention. We are back in the game to win. Chapter 2 of the Shift Plan will give us all we need to be a winner in next five years.”

This is reflected, says Combes, in the company’s renewed brand positioning, and its new corporate motto: ‘Every success has its network’.

Graeme Philipson travelled to New Jersey as a guest of Alcatel-Lucent

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Graeme Philipson

Graeme Philipson is senior associate editor at iTWire. He is one of Australia’s longest serving and most experienced IT journalists. He is author of the only definitive history of the Australian IT industry, ‘A Vision Splendid: The History of Australian Computing.’

He has been in the high tech industry for more than 30 years, most of that time as a market researcher, analyst and journalist. He was founding editor of MIS magazine, and is a former editor of Computerworld Australia. He was a research director for Gartner Asia Pacific and research manager for the Yankee Group Australia. He was a long time weekly IT columnist in The Age and The Sydney Morning Herald, and is a recipient of the Kester Award for lifetime achievement in IT journalism.

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