Nortel’s Loss, Good News for the Enterprise

As I was reading about Nortel’s rerun today, I was thinking that there might be a silver-lining in all of this for enterprise folk.  The bad news, of course, was Nortel’s $3.4 billion loss reported for the third quarter, its worst loss since 2001. That means since Mike Zafirovski took over as CEO in 2005, Nortel has lost more than $4.5 billion. Yikes. The net result is that 1,300 jobs are going to be cut. (If you’re one of those unlucky souls, my heart goes out to you. I hear about jobs in the tech industry all of the time. If I can help you find one you know where to reach me.)

The thing is, the only division that showed remotely positive performance in this macabre report was the Enterprise Solutions group. Revenue for Enterprise Solutions was $616 million for the quarter though that was eight percent less than a year ago, it represents a one percent increase over last quarter. Nortel attributed the drop since last year to the completion of certain customer contracts that did not repeat into 2008. Even more promising was that IP telephony revenue grew by 17 percent compared to a year ago.

Now here’s where it gets real interesting if you’re enterprise buyer looking at Nortel. The company’s approach to those numbers is to get rid of the matrix-management and move back and refocus around vertically-oriented business units.  As of January 1, 2009  marketing, R&D, sales and integration services (as well as other previously centralized functions) are being split up and moved back into the individual business unit.

Practically, what this means that Enterprise Solution will have better control over its resources. It will be able to invest R&D dollars where it sees fit and not vie for the attention of Nortel’s centralized R&D organization.  With marketing and sales dollars under its control, Enterprise will also be able to respond more quickly to the market, at least that’s the theory.

“Bottom line is that while a matrix structure can better leverage R&D across products and better coordinate marketing efforts to adapt to changes in market conditions, a vertical structure is more efficent and allow for rapid changes to the market conditions, Bo Gowan wrote to me this morning. Gowan is in charge of Nortels corporate communications for new media.

Now it will be interesting to see where Joel Hackney, the president of Enterprise Systems, puts his attention. One area to keep an eye out for is in the collaboration space. Nortel lacks a compelling alternative to a WebEx or Sharepoint service.

There are rumblings though that this could change. Amongst the R&D functions that will move over to Enterprise Solutions is Nortel’s Innovation Lab, an innovation program that uses a VC-like structure to identify and fund new projects within the company. Many of the projects in the Innovation Lab are enterprise-focused. One such program being prototyped that I’ve written about in the past is what was codenamed Project Chainsaw and more recently WebAlive, Nortel’s answer virtual world platform.  Other prototypes show integration between Nortel presence and telephony capabilities and Facebook.

Granted these sorts of capabilities today hardly make an enterprise offer. I’ve written a fair amount about virtual world use in the enterprise and the challenges they face. While I think there’s tremendous promise to the technology there are still too many kinks and enough value add yet to make them a compelling alternative to a Cisco WebEx Connect, for example.

Nortel has some good ideas on how to make virtual worlds a compelling solution for business and tons of experience in selling to the enterprise. What they can’t account for is a tough market that will likely eye any collaboration initiative in 2009 with tremendous suspicion. Emphasizing the ability of a WebAlive  (or some permutation of such) to cut travel costs, may be the door opener that Nortel needs to engage IT in a fruitful discussion about collaboration – if something new could be said by now. It could certainly be the kind of game changer that Hackney needs to distinguish Nortel’s enterprise play.