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Fri 13 Oct 2006 08:00 PM

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The BIG strategy

Nortel’s CEO Mike Zafirovski believes that he and his management team can bring the good times back to the Canadian network giant. Tawanda Chihota reports

For the past few years now Canada’s Nortel Networks has been making the headlines for all the wrong reasons. Restatement of financials, allegations of financial impropriety, and speculation that it appears a prime candidate for a takeover have plagued the telecoms equipment supplier.

Given the pace of consolidation in the telecoms supplier space and imperative to build strong, long-term relationships with operators and corporates, Nortel’s perceived instability has been a real threat to the company’s continued existence.

Mike Zafirovski, Nortel’s president and CEO, was appointed to the position in November last year having moved from his position as president and chief operating officer of Motorola.

He has taken it upon himself to reassure the market that Nortel is turning the corner and is moving back to a period of stability and growth.

“The thing I feel best about is the management team we have put together,” said Zafirovski, at a specially convened press briefing in London last month.

“Issues arising from litigation and financial restatements are largely behind us,” he added.

Zafirovski has always held a burning ambition to head a multinational cooperation and mould it into something that reflects his own values of efficiency, profitability and focus.

Having lost the race to become CEO of Motorola to Ed Zander, Zafirovski’s arrival at Nortel appears tinged with even more determination to turn around a once impressive organisation, and make it resemble its former self.

Six-point plan

Nine months into the job and Zafirovski and his senior management team are implementing a strategy they describe as BIG — ‘B’ standing for business processes, ‘I’ standing for integrity renewal and ‘G’ standing for growth. “We are instituting a six-point plan to recreate a great company. We used to be there, we are not there right now, but we are looking to return there,” Zafirovski acknowledges.

Three of the six action points are related to growth, and like most other equipment suppliers, Nortel is looking to generate significantly more revenues from services and applications as opposed to just hardware.

Things do appear to be improving, aided by the injection of new blood into the senior management team. Orders for the first half of the year were up 22% year- on-year, with revenues up five points. The firm’s primary plan to regenerate itself is to focus on the business areas in which it enjoys strong positions and to jettison the other remaining areas that are a drain on cash.

As such, Nortel pretty much acknowledges that it missed the 3G boat, and this is reflected in its sale of its universal mobile telecommunications service (UMTS) radio business to Alcatel last month. Instead, Nortel is looking to assume a leadership position in next-generation networking and 4G deployments, having backed the development of WiMax and orthogonal frequency division multiplexing (OFDM) as definite evolution paths for network operators.

“We are focussing on next-generation mobility and convergence,” Zafirovski suggests, emphasising that within this, the delivery of enterprise solutions plays a significant role. Nortel sees enormous benefit in targeting enterprises as well as carriers. In July, the company displayed just how seriously it was targeting the enterprise market when it announced it had entered into a strategic alliance with Microsoft based on a shared vision for unified communications. By engaging the companies at the technology, marketing and business levels, the alliance is set to allow both companies to drive new growth opportunities and has the potential to ultimately transform businesses’ communications, reducing costs and complexity and improving productivity for customers.

The aim of the alliance is to combine Nortel’s world-class network quality and reliability with Microsoft software’s ease of use, thereby accelerating the availability of unified communications — an industry concept that uses advanced technologies to break down device- and network-centric silos of communication (such as e-mail, instant messaging, telephony and multimedia conferencing) and makes it easy and efficient for workers to reach colleagues, partners and customers with the devices and applications they use most.

“We believe the tie-up with Microsoft will bring over US$1 billion of revenues to Nortel,” estimates Zafirovski.

“VoIP is a US$65 billion business and growing at 6-10% annually. I believe we can target half of that,” he adds.

Long-term view

What is refreshing about Zafirovski’s style of management is that he appears willing to face facts and accept the work that still needs to be done going forward. He describes Nortel as a developing story, which is not yet complete and forecasts that it will take at least another three to five years to put things right.

“We have been pretty quiet for the last eight or nine months on purpose as we were building momentum,” Zafirovski states.

Darryl Edwards, Nortel’s president of Europe, Middle East and Africa (EMEA) has been in the job for about two months and is excited about the prospects the region offers Nortel for further growth.

“I am excited at this point by the momentum generated in the first 30 days in my job,” Edwards said last month. “50% plus of Nortel’s revenues in Europe come from next generation technology, and 50% plus of Nortel’s global revenues are generated outside of North America.”

Zafirovski says he loves what is happening in the EMEA region for Nortel, having a business that grew over the last six consecutive years despite the trials and tribulations.

Of Nortel’s 30,000 staff, 7,000 operate out of 30 countries across the region, and Nortel executives feel confident to expect ever-improving results from the region, which accounts for 25% of global revenues.

Despite its difficult recent past, Nortel intends to remain very much an independent company, and while it can clearly see the wave of consolidation occurring around it, is determined to continue charting its own course.

“Nortel plans to continue as an independent company, and we will be able to add to our assets over time,” Zafirovski claims confidently.

Mike Zafirovski, President and CEO , Nortel
Zafirovski, 52, is a 30-year business veteran who has held high level positions at General Electric and Motorola before joining Nortel in November 2005.

Prior to his current role at Nortel, he was president and chief operating officer of Motorola from July 2002 to February 2005.

Zafirovski joined Motorola in June 2000 to lead its mobile devices business, which during his tenure returned to profitability and increased market share through the introduction of exciting new products and the Moto branding campaign.

Before his leadership positions at Motorola, Zafirovski spent 25 years at General Electric (GE), including 13 years as president and chief executive officer of five businesses in the industrial, financial services and insurance businesses.

Prior to that, he held a number of increasingly senior positions in finance, auditing, marketing and strategy/business development at various GE businesses.

Zafirovski holds a B.A. in mathematics from Edinboro University in Pennsylvania where he also captained the intercollegiate soccer and swimming teams.

In 2002, Edinboro University awarded Zafirovski with an honorary doctorate degree.

A native of Macedonia, he received the Ellis Island Medal of Honor in 2004.

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