Lucent Tries On That Startup Look

Can Lucent Technologies Inc. (NYSE: LU) walk and talk like a startup? Many of the executives in its optical networking group seem to think so.

Through a number of corporate management changes, including brutal job cuts, outsourcing programs, a new bonus program, and efforts to work more closely with Bell Labs, Lucent executives say they're trying to embrace change and shed some of the baggage of years past. And some analysts say they're starting to see a change.

“It’s like trying to turn an oil tanker. It takes ten miles to do it,” says Simon Leopold, an analyst with Merrill Lynch & Co. Inc. “The evidence of change I see is coming from Lucent’s competitors. Six months, a year ago, they weren’t seeing them in accounts, and now they are. That’s a good sign.”

Lucent executives say that radical change is essential to the company's turnaround. One of the most interesting adjustments is a new "experimental" employee bonus program designed to create the environment of a startup while at the same time extracting valuable technology out of the company's world-class research unit, Bell Labs.

“The reality is that a company like ours can’t resist change,” says David J. Bishop, optical research vice president at Bell Labs. “It was like Gulliver’s Travels. Each of our products was being attacked by about 100 different startups all focused on that one thing. We had to respond.”

Bishop's involvement with the optical networking group is part of this change. Long before Lucent and Bell Labs were spun out of AT&T Corp. (NYSE: T), the number one criticism of the company was that it had a terrific research department, but it did a poor job of bringing that technology to market. Bishop is now part of an ambitious effort to get the two sides working in sync -- through direct involvement on the product side.

One part of these changes is the new bonus program, the Sunrise STIP, (short term incentive program). It's now being implemented in four product areas in optical networking: OptiStar, LambdaRouter, LambdaUnite, and LambdaXtreme.

Here's how it works: A worker, whether he or she works in Bell Labs or another part of Lucent, is asked by management to be part of a new project. Once the product makes it to market, a small percentage of the revenue from the product is set aside for employee bonuses. Later, it's doled out among those participating in the program. The idea is to inspirit employees as if they were working at a startup.

“The idea is that the engineers share in the success of the product,” says Bishop, who has worked for Bell Labs for 24 years, ever since he received his PhD from Cornell University. “That’s how it works in a startup. Every individual does whatever it takes to get the product done. That means some days I’m running out to get the pizza, or I’m driving switch fabrics up and down the Parkway to customers.”

Traditionally, Lucent employees have received bonuses on a yearly or quarterly basis based on the overall performance of the company. Individuals participating in the Sunrise experiment are not eligible for Lucent’s regular bonus program.

The program was officially launched about a year ago, but employees may now just be starting to collect the cash. The LambdaRouter was the first of the four products to go to general availability, and others will shortly follow, say Lucent officials.

Kathy Szelag, vice president of marketing for the optical networking group, says that despite the market downturn, the new incentive plan has resulted in the products being brought to market in roughly 18 months -- much faster than new products of Lucent's past. Szelag says that there is talk of expanding the program, but she admits that it won’t be rolled out to the entire company.

“It’s really only for divisions that are working on cutting edge technology,” she says. “It’s difficult to explain that to the rest of the company that isn’t able to participate.”

Sunrise is just one way Lucent is trying to extricate itself from the debris of the last several years, especially some of the bad cess associated with the Rich McGinn era. Officials say the biggest shakeups began back in 2000 when Lucent first started restructuring its corporate hierarchy. CEO Rich McGinn was booted out of his position in October of 2000, and Jeong Kim, former head of Yurie Systems, acquired by Lucent in 1998, took over the optical division (see McGinn: McGone and Lucent Shakes Up Optical Group).

“I think when Jeong Kim came in and restructured things, both sides [research and marketing/sales] were reinvigorated,” says Szelag. “He came in and changed a lot of things. He got rid of a lot of management, to be perfectly blunt.”

Under the previous structure, there were three main divisions within the optical group, which Szelag describes as organized as vertical smoke stacks. Each stack had at least a thousand people in its division, spread over 19 different countries. Under this infrastructure, Szelag says, employees lacked a sense of responsibility.

Following the management restructuring came massive job cuts. So far, Lucent has reduced its headcount by about 50 percent. In mid-2000 the company employed more than 100,000 workers. By the end of fiscal 2002, it will have roughly 50,000 employees.

Still, some analysts wonder if the changes will be enough. "The vibes I’m getting are better today than they have been for the last two years,” says Kevin Slocum, an equities analyst with Wit Soundview. “They seem a little more focused on better execution. But I don’t know if this has happened in time.”

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com