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Lucent: Like a Phoenix Rising

Jay Carter, COO of Lucent’s Sales and Marketing organization, was on campus last week to share some of the lessons learned from the recent troubles in the battered technology sector and to layout the turnaround plan for the technology giant. A standing-room-only crowd turned out to hear the talk, which was sponsored by the Manufacturing and Technology Management Club.
Mr. Carter outlined a step-by-step series of events that led to the dramatic fall at Lucent. The cycle began when Lucent was originally spun off from AT&T in 1996. Many people at the time thought that Lucent would never make it, and there was an exodus of employees from Lucent to AT&T shortly before the spin-off. After the separation, however, Lucent scored a number of early successes, and the early wins created a sense of overconfidence in the fledgling organization.

Investors handsomely rewarded the early success, but this led to a disastrous chain of events. Management at Lucent began to use Wall Street expectations to set operational drivers for the company. This resulted in a one-dimensional focus on revenue growth, which sparked a frenzy of equipment discounts in order to meet quarterly revenue targets. Unfortunately, the discounting came at the expense of the long-term business. Hiring and existing business processes could not be scaled at the same rapid rate as sales, and the situation was further exacerbated by numerous acquisitions that had not been well integrated into the company. The end result was that the entire system broke down, and Lucent was no longer able to serve its customers.
The turnaround has already begun according to Carter. The new tag line is: Cash is King! After watching many customers that still owed money on purchased equipment go under in the tech rout, Lucent is now carefully selecting its customers. “Cash friendly customers” or the ones with the long-term ability to pay for telecom equipment are given first priority. Mr. Carter also outlined a seven-step turnaround plan that is aimed at getting Lucent’s cost structure back under control. The plan includes a one-time restructuring charge and a series of cost reductions that are designed to return the firm to profitability.

A number of management changes have also been made to further hasten Lucent’s return to prosperity. The company’s chairman, Henry Schact, HBS `62 has been reinstated as the acting CEO, and most significantly, Vivek Mohan, HBS ’01, was hired as the company’s Director of Customer Satisfaction. The tech woes may finally be over. Stay tuned!

April 17, 2001
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