Japan Conference on Financial Institutions for Innovation and Development
Ritsumeikan University
July 30-31, 2015
The Innovative Enterprise; a Case Study in the Transformation of AT&T
from an Old Economy into a New Economy Business Model*
Driving Factors for Change
Evolving Strategy and Organization
Transformation Results
Edward March
Thayer School of Engineering, Dartmouth College
Master of Engineering Management Program
*Based on Paper: “The Rise and Demise of Lucent Technologies”, William Lazonick and
Edward March, Journal of Strategic Management Education 7(4), 2011
William Lazonick
The AIRnet
University of Massachusetts
THE RISE AND FALL OF LUCENT TECHNOLOGIES
Edward March
Thayer School of Engineering1
Dartmouth College
Basic Differences between Telecommunications and
Computer Industries before Technology Convergence
Convergence: Digital Technology Replaces Analog Signaling;
Voice, Data, Video can be Transmitted across the same Network, Limited Pre-Conditioning
Telecommunication and Computer Industries have a Common Technology Base
William Lazonick
The AIRnet
University of Massachusetts
THE RISE AND FALL OF LUCENT TECHNOLOGIES
Edward March
Thayer School of Engineering2
Dartmouth College
Telecommunications Industry Regulatory Changes
Driven by Technical Advances
Onset of
Convergence
Deregulated Telecommunications Industry Forces Change in Lucent Technologies Culture
(1) Greater competition, faster new product development (2) More risk taking in market introductions
(3) Investment made according to a technology roadmap (4) Advanced manufacturing capability developed
in parallel with new designs
William Lazonick
The AIRnet
University of Massachusetts
THE RISE AND FALL OF LUCENT TECHNOLOGIES
Edward March
Thayer School of Engineering3
Dartmouth College
Lucent Technologies Organization Structure
November 1997
11 “Hot Businesses”
Rich McGinn, CEO
Chairman
Chief Executive
Officer
President
Henry Schacht
Rich McGinn
Office of the
Chief Executive Officer
Product Groups
Customer Groups
Executive V.P.
Corporate Staff
Operations
Executive V.P.
Chief Operating
Officer
President Bell Labs
Executive V.P.
Chief Operating
Officer
Group President
Microelectronics
&
Intellectual Property
Group President
Business Comm.
Systems &
Data Networking
Systems
Group President
Global Service
Providers Business
Patricia Russo
Dan Stanzione
Ben Verwaayen
Curtis Crawford
William O’Shea
Carleton Fiorina
Group President
Optical Networking
Group President
Wireless Networking
Gerald Butters
Jim Brewington
Executive V.P.
Chief Financial
Officer
Executive V.P.
Research
Bell Labs
Don Peterson
Arun Netravali
President
New Ventures
Group
Business Unit Structure
Thomas Uhlman
• Decentralized, Entrepreneurial
• Separated by Technology
• Each a Profit/Loss Center
Business Units
• Overlapping Products, Confusing
to the Customer
William Lazonick
The AIRnet
University of Massachusetts
President
International Region
Global Service
Providers Business
Joseph Colson
Group President
Switching & Access
Systems
Group President
Network Products
Robert Holder
William Spivey
Acting Group
President
Communications
Software
Business Units
J. Carl Hsu
THE RISE AND FALL OF LUCENT TECHNOLOGIES
Edward March
Thayer School of Engineering4
Dartmouth College
Emerging Communications Technologies Influence Lucent Strategy,
Exhaust R&D Resources
Global Competitors were Pushing Communications Technology in New Directions
Incumbent Technology
Alternative Technology Lucent Strategy
Voice Networks,
Circuit Switching
Data Networks,
Packet Switching
Adapt
Centralized Network
Control
Distributed Network
Control
Adapt
Electronic Transport
Optical Transport
Innovate
Wireline Services
Wireless Services
Innovate
Internet “Twisted Pair”
Internet “Coaxial Cable”
Innovate
Successful Strategy
William Lazonick
The AIRnet
University of Massachusetts
Failed Strategy
THE RISE AND FALL OF LUCENT TECHNOLOGIES
Edward March
Thayer School of Engineering5
Dartmouth College
Lucent Technologies Transformation
Results
Business Units Spun-Off
Enterprise Networks 9/2000
Microelectronics 4/2001
Growth
Decline
Stagnation
Growth
Decline
Internet: 2nd Phone Line
Digital Switch Demand
Electrical to Optical Conversion
Wireless Network Installation
Network
Overcapacity
Employee
Downsizing
William Lazonick
The AIRnet
University of Massachusetts
Stagnation
Lost Opportunities,
Lack of Resources
Enterprise Systems
Data Networks
Global Wireless
THE RISE AND FALL OF LUCENT TECHNOLOGIES
Edward March
Thayer School of Engineering6
Dartmouth College
Consequences of Insufficient Investment in
Technology Development
When compete on technology, if R&D investment is not sustained,
or if technology cannot be acquired, product portfolio becomes
and company
eventually fails
Consequencesobsolete
of Insufficient
Investment
in Technology
Options for Lucent Technologies during “Stagnation Period”
• Supplier of legacy telecommunication equipment
• Niche supplier of specialty equipment
• Merge with another company, pooling resources and products
together to retain full-line supplier status
Alternative Chosen
for Reestablishing
Growth*
Effective November 2006
*Less than two years after the merger, Bell Labs was no longer engaged in basic research.
William Lazonick
The AIRnet
University of Massachusetts
THE RISE AND FALL OF LUCENT TECHNOLOGIES
Edward March
Thayer School of Engineering7
Dartmouth College