Ben Verwaayen’s first morning as the new managing director of Alcatel-Lucent on September 2, gives a clue as to how quickly things will change within the very troubled Parisian telecom equipment manufacturer.
When Verwaayen asked for his business cards, he was told they would be ready in three days. Too long. He demanded and obtained a three-hour deadline. Verwaayen, 56, recently left his position as Chief Executive Officer of the giant British Telecom (BT Group) after leading a solid turnaround, transforming P&T into a leader in broadband internet and IT services.
A native of the Netherlands, Verwaayen previously ran the historic Dutch telephone operator, then called Royal PTT and later renamed KPN, giving it the means to be more competitive. He also served as vice-president of Lucent before its merger with Alcatel.
Unanimously recognized as a direct and hurried leader, Verwaayen will not work alone to save Alcatel-Lucent. The company also announces the appointment of a vice president, the Frenchman Philippe Camus, known for his political dexterity and his skill in mergers. Camus was a key designer of EADS (European Aeronautics Defense & Space), a Franco-German merger carried out in 2000, where he shared the position of CEO with the German Reiner Hertrich.
INIMIDATING PROBLEMS
Some analysts and investors are disappointed that the board did not retain Mike Quigley, former chairman of Alcatel, as chief executive. However, many of them believe that Verwaayen and Camus, with their respective experiences in telecoms and the French business world, constitute an almost perfect team.
The problem that arises is whether the company can be turned around.
Alcatel-Lucent was hit hard by the global economic crisis, faced fierce competition from its Chinese counterpart Huawei Technologies, and realized weaknesses in its product line.
Moreover, integrating the French and American parts of the company proved to be much more difficult than expected, thus creating cultural and management conflicts.
This has resulted in colossal losses and a drop of more than 50% in the financial markets since the merger.
The most recent financial results, dated July 29, 2008, underline the extent of the work that the new management will have to do.
Alcatel-Lucent reported a loss of 1.7 billion dollars in the quarter, including a loss of 1.3 billion dollars for the North American branch alone, inherited from Lucent. Revenues for the quarter are down 5.2% compared to the same period the previous year, or $6.5 billion and the company has already warned that the economic slump in Europe could further affect its sales.
The group’s tragic results prompted CEO Patricia Russo and CEO Serge Tchuruk to resign. Tchuruk will be stepping down on October 1, but Russo is still occupying his 7th-floor office at the company’s headquarters on rue de la Boétie in Paris. Verwaayen, Russo’s former colleague at Lucent, is literally camping out in a meeting room during the transition, a transition that is expected to take several weeks.
WORSE THAN THE OTHERS
Obviously, the other telecom equipment manufacturers are facing the same difficulties, but they haven’t sunk like Alcatel-Lucent.
Around the world, investment in telecommunications is expected to increase by 2.5% to 5.5% this year, and during this time Alcatel-Lucent expects its sales to decline.
Verwaayen and Camus announced during a press luncheon on September 2 that they would enter all senses into their functions. “We must restore profitability and do everything possible to be more competitive,” insisted Camus. By an unfortunate coincidence, Alcatel-Lucent was removed from the Dow Jones Stoxx 50 on the same day due to its fall in the market. This accentuated the fall in the value of the share on the Paris stock market (despite the announcement of the new management), a share which at the close posted a drop of 3.6%. In New York the shares lost 4.69% ending at $5.89.
Despite everything, Verwaayen remains optimistic. “I have studied our strengths for a long time, and I think I can achieve it,” he confided in an interview with businessweek.com. “The problem lies with the management of the company and I can fix it”.
GOODBYE WIRELESS?
Some analysts agree. Despite the bad press given to Alcatel-Lucent in recent years, and despite being “mismanaged” according to Richard Windsor, an analyst at Nomura Securities, the company is among the world leaders in fiber optics, ADSL, CDMA procedures ( Code Division Multiple Access, in French multiple access by code division), submarine cables and wireless equipment. Windsor is convinced that Alcatel-Lucent can bounce back but it needs “a new way of thinking”. Given the current economic environment, Alcatel-Lucent should not be able to improve its results before 2009 at the earliest according to him, which implies that the value of the share should remain low.
To improve the company’s performance, according to Thomas Langer, analyst at WESTLB, Verwaayen will have to make difficult decisions and get rid of certain sectors, such as wireless, which currently accounts for a quarter of the firm’s sales. About half comes from systems used to implement CDMA standards, a market that is expected to decline 20% by next year according to Langer.
He is also skeptical about the proposed partnership between Alcatel-Lucent and NEC that would allow them to share the burden of research and development of 4th generation mobile phones.
Langer predicts that Alcatel-Lucent will bounce back, but rather by focusing on fiber optics, fixed telephony and data transmission technologies.
Verwaayen’s email and answering machine were literally overwhelmed on September 2 with messages giving him lots of unsolicited advice for his first day on the job. He declined to announce a date when Alcatel-Lucent would return to profitability, but he outlined a 5-point program to revive the company: the payment of dividends promised to the merger, a larger share for innovation ( to break with the group’s “was-not-invented-at-home” syndrome), banishing the “us-against-them” mentality within Alcatel-Lucent by emphasizing the fact that the company thinks and acts as one person, leaders will be held accountable for results, and ultimately choose the best in their fields regardless of their nationality.
The former BT CEO says he has no plans to bring back his own team, redundant or completely revamp the group. He reported that while he made changes quickly at BT, he did not institute major changes until he had spent four years with the company. Verwaayen also insisted that he had no intention of cutting any of Alcatel’s business lines, merely announcing that the company needed to refocus on services, showing a similar approach to that of the giant Nokia.
Like Nokia, Alcatel will have to constantly adjust and improve its equipment, but will also have to offer convincing services.
Why return to service, especially in a particularly perilous exercise, instead of taking time for yourself after a long career? Verwaayen replies that he had been bored by his swimming pool for the three months following his departure from BT. His wife guessed right, he added, when she told him he was in his element behind a desk.
In fact, Verwaayen admits to having received many proposals over the past three months, including from communication companies and both public and private companies.
However, he denied having initially refused Alcatel’s offer as announced in the press. “I never refused,” he says, explaining that he found the idea more and more appealing as he discussed with Camus during the month of August.
“The most important thing for me was the choice of Philippe Camus as general manager,” notes Verwaayen. “He masters the French environment while having a deep knowledge of the business world”.
NEW YORKERS AT HEART
This experience obviously stems from Camus’ position at EADS.
Despite the initial skepticism linked to their unusual sharing of power, Camus and Rainer Hertrich formed a homogeneous association, a partnership broken by Noël Forgeard, former president of Airbus, who used his links with Jacques Chirac, then President of the Republic, to oust Camus. in 2005. Unlike the easy-going Camus, Forgeard sidelined the German leader, igniting a leadership crisis after reports of A380 delivery delays cost billions of dollars. to the group.
The two-head steering system was permanently abandoned last year.
Compared to the majority of French group leaders, Camus has strong ties to the United States. He is a partner at Evercore Partners, a New York consulting and investment firm, and he is also a co-director at Lagardère Groupe, which owns telecommunications subsidiaries in the United States, including magazines such as Elle and Road & Track.
He announced on September 2 that he would continue to live in New York and that he would keep his other functions at the same time as he would work for Alcatel-Lucent.
Verwaayen said he had more than interesting conversations with Camus over the past few weeks. “We talked about the roles of leaders and their responsibilities,” he says. Both claim to have the same vision for the future of the company and share a certain sense of humor, he confides.
However, it was only on July 29 that Verwaayen accepted Alcatel’s proposal. He made his decision at his vacation home in the Luberon, near the Rhone Valley, just before spending a weekend in Scotland with new BT chief executive Ian Livingstone to watch a football match. Verwaayen returned to France last Sunday “to put on a clean shirt” and he met the board of directors of Alcatel-Lucent on September 1st. Before that, he says, he visited the company’s headquarters only once as part of the Lucent team that was to work on the merger, and hadn’t set foot there again until he became CEO. .
As CEO of Alcatel-Lucent, Verwaayen will receive an annual salary of 1.2 million euros, as well as a substantial equity portfolio, not to mention an annual bonus set at 150% of his fixed salary.
However in an effort to please shareholders, Verwaayen refused severance pay. “If they want to get rid of me, they can do it in a split second. I’m here to accomplish a specific task, not to make a career,” he says. What if things don’t go as expected? “I kept my bathing suit” he quips.
