Charting the rise and fall of Nortel Networks

Every Tuesday Techvibes will be republishing an article from Business in Vancouver newspaper.

This article was originally published in issue #1020 – May 12-18, 2009.

In September 2000, Jules Meunier knew that Nortel Networks Corp. was in trouble.

The former president of Nortel’s wireless division had returned from a summer vacation to find a company that had lost its ability to innovate.

“We had lost track that our business was telecom technology, that we were in the business of getting better products to market,” said Meunier, now a Vancouver-based consultant for the telecom industry.

On April 28, he sounded a stark warning to Vancouver’s technology cluster during a luncheon hosted by the British Columbia Technology Industry Association: any technology company risks meeting the same fate as Nortel’s if it fails to nurture its innovators.

Nortel, now in bankruptcy protection, is selling off its assets, as speculation abounds that the Ottawa-based company, whose origins date back to 1895, is in its final days.

Meunier, who had a 20-year career with Nortel, including such lofty roles as CTO, left the company in 2001, along with a number of executives, as Nortel began its race to the bottom.

While the company didn’t file for bankruptcy protection until last January, Meunier knew that Nortel was a sinking ship when he left.

He said the company had, among other things, put innovation on the shelf, focusing more on managing its image as a publicly traded company.

“It was all about the numbers, it was all about the stock price, it was all about marketing and presenting the company,” said Meunier.

Over its more than 100-year history, Nortel reinvented itself several times under different owners.

In 1949, it became an innovation company, rather than merely a manufacturer, when a key owner and design supplier divested its holdings in Nortel.

The company began doing its own research and development, and for the next half century, would have bragging rights for a number of “firsts” in the technology arena.

For example, in 1968, it developed the Contempra, the first phone to have the dial-pad in the handset. It would end up in 3.4 million homes.

In 1979, Meunier had a large role in designing the DMS-100, one of the world’s first digital telephone exchange switches, and one of Nortel’s largest technological achievements.

However, by 2001, Nortel’s “firsts” were becoming fewer and farther between.

The company’s milestones were more frequently related to contracts won and partnerships made, than they were about technological innovation.

“When people worked at Nortel, they wanted to work there because we thought we were the best,” said Meunier.

“We really thought that we could do things differently, that we could innovate.”

In 2000, Nortel was the world’s largest supplier of telecom technologies, accounting for about 40% of the Toronto Stock Exchange’s value, with annual revenue of $30 billion.

“But some of us already knew that things were breaking down,” Meunier said, “that innovation was being stifled, that products were not coming out.”

He noted that other companies in the telecom space were also struggling, but were being more proactive about their situation, seeking mergers and forging new relationships to survive.

Downsizing was necessary, said Meunier, but Nortel downsized indiscriminately.

It failed to account for what markets were growing (such as wireless) and what were shrinking.

Divisions that were deemed non-essential, such as the industrial design division, which developed the Contempra, were dropped.

And whereas innovators like Meunier were previously given free reign to innovate, new projects were given the go-ahead only if they could directly contribute to the company’s bottom line.

Meunier said that by 2001, the company’s key innovators – a typically eccentric, but brilliant lot – were marginalized, frustrated or had already been let go.

“Technology people love technology first,” said Meunier.

“They really want to work on things that are fascinating. Those are the guys you have to nurture.”

The company attempted to make up for its growing innovation shortcomings through acquisitions, but failed to properly integrate acquisitions. It also failed to nurture new innovators that were brought to the company through deals.

Meunier recalled that, when he left Nortel, the company’s many missteps had left it with a small product portfolio that couldn’t be taken to market with confidence.

“When you can’t inspire anybody – when it’s just a job – then you’ve lost the company.”