Nortel’s rise and fall, as seen by their CTO

Jules Meunier, the former CTO of Nortel Networks, explained to an engaged audience at the British Columbia Technology Industry Association’s luncheon at Sutton Place on Tuesday how Nortel, one of Canada’s former tech darlings could fall so far, so fast.

Meunier started his career at Nortel in 1977, in a career that spanned everything from design to engineering, to acting as the President of Nortel Wireless Networks in 2001. He even wrote the code that allows landline phones to use call display (even to this day). The main drive of working at Nortel was the desire to innovate, he said. Even Nortel’s precursor, Bell Northern Research, moved to a “campus” model in 1971, a pioneering concept at the time.

By June 2000, Nortel was the world’s #1 telecommunications supplier and accounted for a third of the value of the TSX. But even then, Meunier said, some at Nortel could see that innovation was drying up.

So what happened? Meunier said Nortel lost control of costs, downsized inappropriately, lost its ability to innovate, and then lost its ability to recover.

In a retreat in California in the midst of the tech bubble, the company had management guru Peter Drucker talk to the company. His advice, Meunier said, was that “If you make shoes for a living…it’s all about the shoes.” The stock price, revenue…none of these things mattered compared to creating great phones people wanted, Meunier said.

Other problems cropped up because of resentment between Northern Telecom and Bell Northern Research, even though the two were divisions of the same company. BNR’s emphasis on research was regarded as frivolous by Nortel, but without the innovation coming out of BNR, Nortel couldn’t drive growth forward.

Regardless, centralized R&D was dismantled and what R&D remained had a short term focus. Industrial desgin, which Nortal was lauded for, was jettisoned, and the systems network also got short shrift. But other functions, such as finance, human resources and manufacturing were centralized.

All this change functioned to kill the innovative spirit at the company, Meunier said. By marginalizing technology opinion within the company, the net effect is to destroy the “esprit de corps” of the company. Other stumbles included buying Xros, an untested company, for upwards of $2 billion. By contrast, Meunier said, United Arab Airlines bought United at the same time for $4 billion. Nortel also bought routers from Bay Networks, which couldn’t be integrated and was the wrong technology at the wrong time.

In terms of personnel, Meunier said, innovative leaders generally say what they think, are quirky, and can be flat out weird, but they are essential and indispensable to a technology company. Their passion drives the company forward, but by 2001, most innovation leaders at Nortel were either fired for not being team players or left because they were frustrated or marginalized.

Nortel lost sight of its tech roots, believed that it could acquire innovation, and lost the ability to inspire its technology people. That, Meunier said, is why they failed.