Wednesday 4 June 2014

The Nortel Story - Lessons from a Canadian Darling Gone too Soon

It was standing room only yesterday at the Marshes Golf Club in Kanata, where University of Ottawa Business School Professor, Jonathan Calof and team stood up to present their key findings from a 3-year study on the demise of Nortel (Telfer Nortel Study).

"First, put up your hand if you ever worked at Nortel," Calof said to the packed room. At least 90% of the arms went up, including my own. It was clear to see that Nortel holds a place dear to the hearts of the Ottawa community.

I had my very first real job as a Business co-op student at Nortel in Toronto, back in 1996. It was the hey-day of University internships, where hundreds of eager students got to learn the ropes of business and technology every four months in a very open, rewarding and learned environment complete with the latest technology (an Apple duo-dock laptop!). The coordinated group activities and pizza lunches with the President didn't go astray, either. I know my own expectations of working life were set pretty high from that first week on the job.

So where did it all go  horribly wrong? How could the largest public company in Canada go from the heights of success in the year 2000 with 93,000 employees, to bankruptcy nine years later?

Failure is complex, the report concludes. It wasn't just one thing that led to the failure, but rather a combination of factors broadly categorized as 1. Misreading the External Environment, 2. Ignoring The Black Cloud of customer doubt and 3. a Lack of Resilience around strategy, financial management & people/culture.

Calof and team have taken a true Management Consulting approach to digging in to the details of the Nortel business to uncover some 100+ lessons learned in the hopes that the business world can learn what to look for and how to behave to prevent another such collapse. Through in-depth personal interviews with executives, employees and customers, and detailed financial analysis, the Nortel Study Executive Summary Report is a must read.

Highlights from the Study:

  • When approaching growth, make sure strategy and culture are aligned - Nortel had a very strong culture of innovative R&D through its centralized BNR facility. A dramatic shift from developing its own technology, to poorly assimilated acquisitions led to the company becoming a market 'follower' rather than a leader.
  • In a technology-driven company, senior management needs to listen carefully - The external market forces and competition were changing, and a culture of arrogance at Nortel impeded decision-making. "We created the market, so how can it be taken away from us?"
  • Customers pay attention to how suppliers behave - A 'Black Cloud' of customer doubt formed, where Nortel's customers felt alienated by the company and didn't trust its vision or resilience for the future, and the company did nothing to dispel their fears.
  • Knowing when to retrench is essential to build resilience and reduce customer doubt - Nortel had several opportunities to sell-off business units and 'get back to basics,' but hubris led them not to.
  • Financially-driven incentives must align with the strategy for growth - Nortel Management failed to maintain adequate financial controls, and introduced a system that favored legacy products (high margins) over higher-risk innovation. They were entirely focused on the stock price, rather than the bottom line.

Related articles:

Jonathan Calof: The strength of Nortel was its people - The Ottawa Citizen

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