Restructuring At Lucent Technologies

Chapter 3

3.1 Restructuring At Lucent Technologies (A Success Story)

Lucent Technologies was a technology company composed of what was formerly AT&T Technologies, which included Western Electric and Bell Labs. It was spun-off from AT&T on September 30, 1996.

About Lucent Technologies

In September 1995, the US based telecom giant AT&T announced that it would be restructuring itself into three separate companies- a services company(AT&T), a products and systems company (Lucent technologies) and a computer company (NCR).
In February 1996, AT&T divested Lucent off into a separate company
At the time it was spun off, Lucent was already a major player in many business-mobility, data, optical and voice networking technologies, professional network designs and consulting services, web-based enterprise solutions which linked public and private networks and optoelectronics and communications semiconductors
By 1997, Lucent was the leading telecom equipment maker and was lauded as one of the biggest success stories of the 1990s.
Lucent had acquired many technology companies in the late 1990s.

Surfacing of the Problems

In the late 1990s, as the internet and data traffic businesses gained ground, Lucent lost its competitive advantage in its core business of telecom equipment.
Though Lucent invested in a few Internet and wireless companies after 1996, the company focused more on its core competencies and failed to evolve in line with the changing market dynamics towards convergence of voice, data and internet.
With the growing popularity of wireless technologies, Lucent began to lag behind its competitors, who were quick to recognize the potential of Internet.
Compared to its competitors, Lucent had been very slow to respond to it customers? need for higher-speed optical networking equipment which resulted in a severe blow to its revenue as well as its market reputation
By late 1999, Lucent's high priced acquisitions were not earning reasonable profits and the company was also unable to integrate the operations of the acquired companies effectively, leading to problems on the corporate culture front.
The poor integration of corporate cultures led to a major exodus of talent from the acquired companies, as a result of which, Lucent could not launch new technologies to match its competitors
Besides, Lucent had diversified workforce of over 1,38,000 people across its businesses, and the workforce at each business unit had its own unique culture. Lucent became a hub of diversified cultures and varied service delivery models. This made it difficult for the HR staff to integrate the HR functions across the business units and to develop and implement efficient retention strategies.
In 1997, Lucent launched a major strategic initiative called "GROWS" an acronym for its key elements - Global, Results, Obsessed, Workplace and Speed. This initiative promoted an open supportive and diverse workplace at the company. However, by late 1999, under McGinn's leadership, Lucent's focus on HR diminished.
When Lucent had increased its sales to customers, many of them defaulted on their payments as the technology and telecom industry reeled under an unprecedented slump in 2000, which threw Lucent into a deep financial crisis.
Analysts and industry observers attributed Lucent's miserable performance to the wrong strategies and mis-execution by the top management.

In 2001, Lucent announced a new restructuring plan. The plan concentrated on the following things:

Elimination of product lines
Significant cost cuts to the extent of $2bn a year
Workforce reduction by 10,000 jobs
Reduction in working capital

Restructuring Activity

In 2001, Lucent came up with the Service Delivery Project Team. The major objective of this team was to simplify and standardize global HR policies and processes, in order to improve efficiency throughout the organization, giving HR management a position of strategic importance in the entire transformation process.

Tiger Team

In Feb 2002, Lucent selected six HR leaders from its domestic and global operations to serve full-time for six weeks on HR restructuring exercise. The major objective of this team was to create a road map indicating how the company could meet the financial challenges of its various businesses, without disrupting the company's day-to-day Hr operations. The Tiger Team undertook an analysis of Hr operations. The team also studied the possibilities of making HR activities more efficient through policy changes, automation and process improvements.

Expert Help

Lucent established a Project Management Office to oversee the implementation of findings and suggestions of the Tiger Team. During the implementation period, the PMO was assisted by Hewitt Associates.

Focus on IT

Lucent also focused on IT to save on the costs and time consumed in transactional and repetitive HR activities by transferring them to global IT platforms and regional HR operating centres.

Workforce Reduction

Between 2000 and 2002, Lucent resorted to workforce reduction By early 2003, Lucent had cut its workforce from 1,35,000 in late 2000 to 45,000 through various means like outsourcing, spinoffs and lay offs.

Service Delivery Model

Lucent consulted the experts in compensation strategies and policies, staffing and talent management and also other companies which had been through similar organizational transformations. Lucent then went through a rigorous strategy setting phase, which helped it to lay the foundation for its long-term HR vision.

Effects of Restructuring

1. Since the function of the HR organisational segments were clearly defined the decision making process became very easy and quick.
2. The focus on IT, enabled the company to:

Manage HR functions efficiently.
Reduce workforce costs
Drastically reduced the need for manual interfaces.
Encouraged employees to take advantage of various online training programs offered by the company.
Helped HR business partners to align their working closely with senior managers.

3. A strong shared vision, leadership support and clear communication was responsible for the success Lucent
4. Lucent not only met cost reduction target but also exceeded its targets through its cost-cutting initiatives.

Analysis

Proper planning phase: As goes the phrase "Well started is half done" - Lucent went through a rigorous three-month strategy setting phase, which helped it to lay the foundation for its long-term HR vision. Because of this Lucent could develop a detailed HR organization structure i.e. the "service delivery model" which led to its success.

Proper Implementation: Implementation was done only after communicating the changes to the workforce and in consultation with the employees. This enabled the employees to accept the change easily.

Strong shared vision and full support of their top management greatly expedited the decision making process.

Aligned Hr activities to Strategic Business Goals: Lucent tried to standardize global HR policies and processes, to align it with strategic business goals thus giving HR management a position of strategic importance in the entire transformation process.

Clear definition of functions: Since, function of the HR organisational segments were clearly defined, the decision making process became very easy and quick.