Tough choices at Alcatel-Lucent

In her book Tough Choices, Carly Fiorina, former CEO of Hewlett-Packard, recounts the way she helped cement the cultural integration of one of telecom's largest acquisitions using nothing more than a pair of cowboy boots and a knot of men's socks.

In 1999, after Lucent's $20 billion purchase of Ascend Communications — at the time, the data networking sector's biggest merger ever — Fiorina, then president of Lucent's global service provider business, knew that Ascend's hard-charging sales force viewed Lucent as too staid and bureaucratic, perhaps none more so than the start-up's brash, macho head of sales, Mike Hendren. Hoping to speak his language, Fiorina capped off an early sales meeting with the Ascend team by revealing a bulge in the front of her trousers from the rolled-up socks and saying in defense of Lucent, “Our balls are as big as anyone's in this room.”

It's a cute story, but it doesn't end there, of course. The Ascend-Lucent merger was a famously fractious clash of corporate cultures. Almost every Ascend executive left inside a year — and Fiorina left with them.

Pat Russo had a front-row seat for the Ascend-Lucent fireworks and presumably learned a lot about merger integration hazards in the process. These days, though, she may lament the fact that blending Alcatel and Lucent together isn't as easy as Fiorina's sock stunt. After recently lowering the company's annual earning expectations for the sixth time in eight quarters — a streak that began before the merger — analysts questioned the ability of Russo and her team to lead the combined company. (These doubts weren't helped by the departure in August of Mike Quigley, a pre-merger candidate for CEO, or by recent reports in the Financial Times that Alcatel-Lucent is losing UMTS revenue from AT&T to rival Ericsson.) Low morale at the company likely won't improve “until [the company] starts hitting numbers or new management takes over,” UBS analysts said last week, adding that Russo herself needs to present a “bold plan” to the board in order to keep her job.

Russo may take some comfort in the fact that none of her contemporaries have yet written the book on how to successfully run these new telecom megavendors. Motorola's CEO has faced harsher scrutiny. Peter Loescher, the new CEO of Siemens, said this month he was “absolutely not satisfied” with his company's joint venture with Nokia. And after a string of acquisitions, Ericsson lowered its expectations last week amid a surprise lull in spending.

If Russo ever writes a book about her own “tough choices,” she would have to describe this month as a turning point. In the meantime, the company's directors have some tough choices to make, too.

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