Nortel CEO sets market share goals

On his 99th day as CEO of Nortel Networks, Mike Zafirovski discussed his plans to transform the company this year in a speech at the RBC Capital Markets investment conference today. Promising big changes for Nortel over the next three years, he suggested that he has only begun to enact the fundamental changes he has in store for the company.

"I don't feel any different than I did 99 days ago," he said. "We're at ground zero right now."

One of the key components of Zafirovski's plans to transform Nortel are some aggressive goals for its market share numbers that the CEO mentioned in today's speech ahead of a planned announcement next week. Repeating a strategy he implemented at Motorola, where he insisted that the company be one of the top two suppliers in each of its chosen markets, Zafirovski's goal is for Nortel to have at least a 20% share of any market in which it participates. Where Nortel doesn't believe it can meet that goal, it will pull out and apply those research and development resources elsewhere.

The market share goals alone are "completely changing how we think internally," Zafirovski said, as the company will no longer consider just "playing" in certain markets.

Citing Lehman Brothers data, Zafirovski said Nortel participates in 22 different technology or product markets today but has a #1 or #2 market share position in only five of them.

Nortel has already backed out of the carrier edge router market by repurposing its MPE 9000 product earlier this year. And this month the company sold its blade server switch business. Going forward, the company is sure to invest in IP multimedia subsystem architecture, WiMax and IPTV, the CEO said.

In addition, Zafirovski indicated the desire to increase the portion of Nortel's revenue coming from services and applications. Today, less than 20% of Nortel's revenue comes from this space; it should be 50% to 100% higher, he said.

Zafirovski also placed great emphasis on the importance of having the right leadership team and a good corporate culture. "The companies you really admire … really make investments in people," he said. "Good times, bad times--they really recruit well. We're trying to create same thing within Nortel."

To that end, Nortel has been conducting internal employee surveys recently to determine "not only who can kiss up but who can get along with their peers, who can inspire people underneath them."

Zafirovski has been stocking Nortel's ranks with executives from other firms such as Juniper Networks and his own former outfit, General Electric. But in four or five years, he hopes not to have to hire outsiders, he said. "It's embarrassing to have to go outside [the company] to hire talent."

Nortel's chief assets today are "things most CEOs would kill for," Zafirovski said: a talented workforce, a global footprint, good customer relationships and "an innovation DNA second to none."

However, Zafirovski also identified what he considered to be the company's chief liabilities: low employee morale, a lack of clear focus, poor execution and "terrible" financial performance, including multiple write-offs, restatements and accounting investigations. From a financial perspective, the company's last good year was 1998, he said.

Zafirovski expressed confidence that the company's pending transformation will remedy much of those problems. "It's blocking and tackling," he said. "It's very fixable, but it's not going to happen overnight."