Nortel's George Riedel laughs wholeheartedly when asked exactly what a chief strategy officer does.
When the chuckles subside, his explains that the job has four distinct areas of responsibility: Leading the overall corporate strategy, mergers and acquisitions, business development, and "perception shaping" – getting the company's messages to interested parties, such as shareholders, partners, and customers.
Mr. Riedel took on the responsibilities about seven months ago from Juniper Networks, where he was vice-president of strategy and corporate development. He spoke to the Ottawa Business Journal last week during a visit to its Carling Avenue campus.
(What follows is an extended cut of the article published on the front page of the Oct. 16 issue of the OBJ.)
OBJ: Regaining shareholder and investor confidence must be something that's still taking up a lot of time. What is your sense about how they feel about the direction the company is taking and has it been difficult to get buy-in from investors and shareholders after the events of the past few years?
RIEDEL: The second part of that is sort of a rhetorical question – it's been a long journey for folks and they are anxious to see a new Nortel. I guess thinking about the first part of the question, to me there are pockets of enthusiasm and early signs of support and excitement. But I think there is a large part of the world that is still in wait and see mode. It's: "Let's see if these guys can deliver on the kind of business transformation program, the follow though in getting to profitability, the portfolio being reshaped, and a range of things we have said we are going to do."
(Chief executive) Mike (Zafirovski) has a phrase that we all like, the "say do ratio." OK you said you were going to do that now can you deliver? So pockets of enthusiasm with a healthy and understandable wait-and-see approach.
OBJ: Over the past year or so, Nortel's plan has included cost cutting, shedding assets, and re-tuning focus. How is that proceeding and how does Ottawa fit into that plan?
RIEDEL: We have made a number of decisions with the most notable being the decision to sell the Universal Mobile Telecommunications System (UMTS) access business to Alcatel where we inked the memorandum of understanding a few months ago as an example of a fairly major decision where after looking at the scale and the momentum we had in the business we posed the question of whether we could see a path to leadership and a path to attractive returns with that business and the answer was no. So, it was a decision that we took to find someone who would be a more natural owner of that.
And, that's a good example of a tough decision – a milestone on the journey to reshape the portfolio. That's on the negative side, if you will, about getting out of a particular space.
On the positive side, activities that we point to are the creation of a business unit in May that we called metro-Ethernet networks, which we added significant investment to and we are launching a number of products and services around it. That's a big growth area that has a lot of engineering talent in Ottawa driving it. Secondly, we had a large launch of products at WiMAX World in Boston and third would be the Microsoft partnership we announced in July trying to redefine part of the enterprise voice business in partnership with Microsoft.
Those would be three big areas of activities in reshaping the portfolio on the offensive side and the UMTS transaction would be more a divestiture in terms of the access business not fitting the needs for both leadership and attractive returns in the world going forward.
OBJ: Nortel chief executive Mike Zafirovski said that Ottawa is the heart and soul of Nortel's R&D efforts and that one of his priorities would be to put together the company's fractured R&D operations. Does that mean expansion and hiring in Ottawa?
REIDEL: It's fair to say that over the years, we spend a lot on R&D as a company – $1.9 billion last year in terms of total R&D – and we recognize that we have an opportunity to get more productive for that $1.9 billion we invest. For instance, a set of common software platforms, a more disciplined approach to leveraging technology across business units, and looking at how many folks do development in different locations.
We've got an effort under John Roese, who is our chief technology officer, around R&D effectiveness. Think of that as getting more productivity out of the investments that we are making. It's a combination of process and approach and tools and methodologies to do that. Some of that has implications as to where it gets done and how it gets done, which we are working through as we speak.
But to go back to the broader question, one of the things we haven't done in a long time is going back to universities and start to recruit young talent into the company in a number of locations and certainly Ottawa would be one of those.
OBJ: The leadership at Nortel has made it clear that acquisitions are not an immediate focus. Can the company's strategy be executed without them?
RIEDEL: We have several objectives and one is to re-establish the financial foundation, which is a combination of improving the operating profits of the existing business and you may have heard us talk at length about this program called "business transformation," which is targeted to take about $1.5 billion out of the cost structure in six areas over the next several years.
That would translate in the neighbourhood of 300 to 500 basis points a year of operating profit improvement and we have been pretty public about that and in terms of the areas of focus and who's driving each of those areas and the multi-year nature of that. So, that's objective No. 1 in terms of the financial situation and it's not just on the profit and loss side also there's a cash flow aspect to it in terms of working capital improvement, looking at receivables, inventory levels and all that.
The second building block is picking three or four areas where we think we can be distinctive, where there's growth and where we think we can win: next generation mobility and convergence, which is looking at 4G networks because of the demands of applications like video and the like that are going to drive not only the infrastructure but in many cases the business models of a large number of players.
The second theme is transforming the enterprise where we see an opportunity to take our enterprise business and work either on our own or with partners to re-invent some of the product areas like we have done with Voice through our partnership with Microsoft, and third is services and solutions building a professional services organization to deliver solutions to customers in a range of markets.
In each of those areas, we are investing a lot of our own organically but we are also looking at partnerships, again there's the one with Microsoft, but there's another with IBM and others, and we are using partnerships in these areas where we think we can get leverage on the development side or the go-to-market side, and if and when the right acquisition came along and it makes strategic sense and financial sense, we would look at it, but it certainly isn't holding up the show.
OBJ: So, partnerships right now are much more important than finding an acquisition, to put it bluntly.
RIEDEL: Acquisitions are a tactic, it's a means to get to someplace whether it's a product gap or a foot print or a scale benefit, it's a means to an end and not a strategy. You sort of have to start with what you are trying to accomplish first and see what role do either organic or inorganic activities – partnerships or acquisitions – play in that. I think what we see in the foreseeable future is a lot of improvement potential in just getting our basic business in order, expanding partnerships to transform some of these businesses, and sure over time we will look at acquisitions but it's not as I say holding up the show.
OBJ: On the other side of the equation, if Nortel becomes a lean company that's profitable and very efficient, does it become an attractive takeover target?
RIEDEL: That's a fair question. We are a pretty sizable company in the scheme of things, but certainly others are bigger. Our belief is that the best thing we can do is improve the performance of the business and not spend a whole lot of time worrying about what might happen.
OBJ: Can you talk about the next six to 12 months? What should we expect to see from Nortel and in Ottawa in particular?
RIEDEL: The WiMAX development team is largely in Ottawa and everyday that goes by, we are increasingly more excited about the potential that business represents. And we aren't just drinking our own Kool-Aid here – we are out talking to customers, they are coming into the lab, we are in trails and we are having the reality test of, is this stuff as good as we think it is?
... the products will start to get into general availability next year and 2007 is a building year and 2008 is when we will start seeing material revenues.
It's not just the infrastructure that you are going to see and part of what we are working on is what we call the ecosystem: Working with chip vendors, terminal and device providers, and application providers, and a range of folks who are going to bring products and services onto these new networks to drive value.
There's sort of a chicken and egg problem here: The device guys are saying are the network guys going to build this and the networks guys are saying I don't know, are the device guys going to build it? We are playing a catalyst role or facilitator role to try to get both groups together to understand the size of the opportunity and timing to go and exploit it. You will see a lot of activity around working with people outside of Nortel to broaden and develop this ecosystem as part of the WiMAX story.
OBJ: And that seems to be the way things are going more ands more and companies need to think more broadly about the entire system rather than you one application.
RIEDEL: It's true and we saw this in the UMTS opportunity years ago where we built great base stations and had wonderful technology but the handsets weren't there in time, so we have been down this path before. The thing that's distinctive for us is that we are not conflicted – we are not in the handset business, we are not in the commercial silicon business, and we are not in the content aggregation business – so we find it very easy to have partnership discussions with people.
In doing that, we have also recognized that – and I will use WiMAX as an example – as we have gone through and developed these technologies over the past seven years, we have invented some neat stuff. For example, we have created things like filtering that helps reduce interference in the different frequencies that people operate on and part of the partnering and ecosystems discussions we are having is whether folks will find this technology valuable to imbed in their devices and offerings. That's a way for us to capture some of the intellectual property return on the investment we made and to make their products more distinctive.
So, it's an interesting by-product of the development effort as we've gone through the journey with WiMAX as one example, but it has turned out to be a very pleasant find, particularly in the labs at Carling, of little nuggets of technology that are seen as attractive to some of the people developing these solutions.
OBJ: It sounds like you think Nortel is back on track.
RIEDEL: It's still early days but we are working hard. The difference is that we have a plan, there's a team at the top that's focused on that plan ... and there's no confusion about what we are trying to do, why we are trying to do it, and what has to happen. We are in execution mode and that takes time to prove out the results, whether it's in major customer wins, profitability returning, top line growth accelerating, partnerships, so I think it is back on track, albeit early days.
We are all cognisant of the fact that this is a multi-year effort to fully achieve the kind of potential that we see in front of Nortel. And frankly, it means opportunity for Ottawa.
By Jeff Pappone
Special to the Ottawa Business Journal
