Alcatel-Lucent’s managed services division was on a path to losing €130 million in 2012. Gary Nugent, who took over as VP of the group that year, put the unit in intensive care to clean it up and figure out what to do. Staff was cut from 11,000 to 9,000.
Nugent talks about the painful process of shifting from a horizontal structure, with loose accountability, to a vertically integrated unit with its own P&L.
“We basically spun it off with its own profit and loss. Prior to that it was a horizontal business. Accountability was unclear, cost was very difficult to track, and that was literally part of the problem. So we vertically integrated the business very similar to what Michel [the CEO] has done with our four other business units, making them fully accountable,” Nugent said.
The second thing Nugent did was to review its portfolio of 55 significant customers by size and volume – it had another 30 smaller ones -- and found that only 15 contracts were causing all the damage.
“If you peeled away the onion, you realized that it was actually quite a healthy profit in the business that just needed to remove the weight [of the bad contracts].”
The company then set the objective, he said, of restructuring and remediating those contracts to get them back on healthy terms or come to a mutually acceptable agreement with the customers that this was not working for Alcatel-Lucent.
“What was interesting when I got into the discussions with the customers was that not one of these customers was unhappy with the service. In fact, all of these customers were delighted with the service. They were getting a very high quality service and a relatively competitive price point.”
This wasn’t what he was expecting. “I expected to find very unhappy customers, and that the bleeding was a result of us actually not delivering particularly well. And that turned out not to be the case.”