Nortel’s fresh-blood-letting

In reading the news of Nortel Networks’ reorganization initiatives this week, readers may have noticed that all of the top executives being dismissed as part of those reform efforts (the ones we know about so far, anyway) were brought into the company within the last two years as part of previous reform efforts.

(Two years is not a bad run at Nortel, actually; that’s how long the previous CFO lasted.)

Nortel employees and shareholders have probably grown a little weary of these corporate recalibrations. In 2004, the company switched from product groups to customer groups. A year later, it switched them back into product groups. In 2005, a new COO and CTO came in from Cisco, only to leave again three months later.

Each of those moves came before Mike Zafirovski, the current CEO, came on board in late 2005. Shortly after he was installed, Zafirovski shook up the management team, bringing in outsiders from GE – people like Dennis Carey, Don McKenna, Joseph Flanagan and Joel Hackney. A few months later came a pair of IBM veterans: Chief Marketing Officer Lauren Flaherty and Global Services President Dietmar Wendt. Nortel even added an Air Force General to run its government solutions business. And a few months after that came its new chief technology and strategy officers, John Roese and George Riedel, both outsiders. This infusion of fresh blood was just what Nortel needed, analysts said, after longtime company man Frank Dunn (who had literally never worked outside Nortel in his career) led the company into disaster.

Zafirovski had a reputation as an “operations guy,” a no-nonsense fat-cutter who would make Nortel lean again. During his previous gig as CEO of Motorola, he boosted operating margins from negative 19% to positive 11% in three years. He’s cut a lot out of Nortel, too, and will continue to. But today – before the recently announced departures, Nortel’s management team includes 8 officers, 5 vice presidents and 8 presidents – 23 people in all, while Alcatel-Lucent lists 18.

A day after Roese was named CTO, he admitted to me that there was a lot of overlap between his role and that of Chief Strategy Officer Riedel. “I don’t want to call this a two-headed beast,” he said then, “but in a Venn diagram, there [would be] a relatively large overlapping circle.” In the final post of his Nortel blog yesterday, Roese admitted that a CTO is not needed in the new corporate structure. “I was brought into Nortel to help correct many years of neglect on R&D and to get it into a position from a technology perspective where it could go forward,” he wrote. “I believe that has been accomplished.”

While a big focus of Zafirovski’s first two years at Nortel was to infuse its top management with the fresh blood of outsiders, two of the three executives he is now placing at the heads of the company’s new business units – Richard Lowe and Philippe Morin — are longtime Nortel insiders. Only Joel Hackney, who will head Nortel’s enterprise group, was brought in by Zafirovski from GE.

What do you think Zafirovski has done right and done wrong in his time at Nortel? Post your opinions below.

UPDATE: RBC Capital’s Mark Sue wrote in a Nov. 13 note, “Without government intervention or major financial sponsors, Nortel may run of out cash before its $1B 2011 bonds mature…bankruptcy is a distinct possibility down the road.”

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