Nortel Networks in Brampton, Ontario., is emblematic of the problems in the telecommunications and networking markets. The networking provider had 90,000 employees in 2000 and expects to have only 33,000 by the end of 2002. The cuts have resulted in sizable cuts in the IT department as as well. But even before the cuts, Nortel had already launched an aggressive efficiency program in 2000 to outsource daily IT activities, while reducing data centers, servers and applications.
Richard Ricks, Nortel's CIO, assumed his duties in early 2000 and oversaw the changes. He has held various management positions at Nortel since 1979. He discussed Nortel's situation with Computerworld.
Q: Nortel has obviously gone through many job cuts and changes in recent years, going from more than 90,000 workers in 2000 to more than 33,000 now. How has that affected internal IT? Back in 2000, when I first became CIO, the philosophy was we needed flexibility to adjust business units up or down. In August 2000, we went with Computer Sciences Corp. for US$3 billion over seven years. We moved all our day-to-day IT operational support to this outsourcer, providing IT services to the Nortel workforce.
Q: If day-to-day operations are outsourced, what is left in IT? What I've retained is engineering talent. We have taken fixed costs and made them variable. We have freed up the retained talent to focus on building on the future and not be encumbered with running the day-to-day operations of a huge global company and the IT infrastructure with that. This has allowed introduction of a number of new technologies key to reducing costs. I've retained network engineering both in the desktop and computer infrastructure, the network from a voice and data network perspective, and Internet engineering and security engineering. We've retained as well all new app development and new business process evolution programs.
Q: What are the job numbers?
1,600 now in IT ... at the time we made the CSC transaction in August 2000, 2,700 workers moved over to CSC. [Overall, there were 94,500 Nortel employees at the end of 2000, and now the company is moving to 35,000.] That left about 2,500 in IT. Of the 900 reduced in IT since 2000, many have moved to CSC subsequently and other jobs and about half have been released from employment.
Q: What's the adjustment been like? The most significant adjustment, going back to 2000, was the leaders of the IS organization still wanted to provide supervision, but that wouldn't allow CSC to implement business processes as they wanted. It took me sitting down with management teams and director groups and working through their new role vs. their traditional role. And I helped them understand what I was going to hold them accountable for as it relates to quality of service. They had focused on delivering the service and not the quality of the service. It forced them to look at what are the values we look for with the end user.
It probably took 12 months to have a good operating model where roles were really clear. It took face-to-face meetings, and we have 125 locations in six continents. I saw very little of my home in Cary, N.C. Candidly, you can't lead change from your office, even though we leverage webcasts tremendously at Nortel.
Also, because we're a network technology company, we've focused on leveraging network infrastructure and have taken 8,000 servers out of our infrastructure in the last 18 months, going from 12,000 servers down to 4,000. And I feel we can get down to close to 2,000. It's happened because of outsourcing and just managing our assets better and having had a fixation on variable costs replacing fixed costs. Every application and every service must be registered, and every server has to be in a Tier 1 data center. We had 120 compute rooms globally with raised floors, and that is now down to 10 data centers instead of 120. A key enabler of this is two technologies: We have an optical backbone and an optical WAN, so all my core IP traffic is across optical Ethernet WAN that links global Tier 1 facilities, so it operates as a virtual LAN and runs equivalent to an OC3 LAN, which is a 150M bit/sec. core. We've also implemented Nortel Alteon technology for load balancing to allow sharing across servers. It drives higher efficiency of server farm over Unix, Linux and NT, a little of everything.
Q: Is much of this reduction is due to employee cuts? We've taken out $1.2 billion in costs over the past two years. Of that, about $450 million is employee-related costs, the rest was all the efficiencies I've talked about. That means we've reduced IT costs by 65 percent over two years, to $1.2 billion, down from $2 billion. The $450 million is sizable because of reduced desktops. But that's $700 million to $750 million that was a result of compute center reductions, server reductions. We've reduced costs and provided a better set of capabilities to employees. As we've simplified infrastructure, we've taken about 1,100 applications out of service, down from about 2,300. I'm driving for 500 applications. We've agreed to a set of standard applications. Of the 1,100 reduced, it is mostly workgroup applications, legacy applications that may have been associated with our supply chain. Those 700 supply chain applications are down to 300.
Q: So do people call you buzz saw? I don't perceive it that way. It's just driving out nonstandard implementations of anything. I have this philosophy that standards result in efficiency and agility and productivity.
Q: QWhat's the inspiration for all this? I asked, "How do we run the most efficient IT organization possible? How do we make Nortel the most competitive and productive?" Clearly, I've been given cost reduction targets, but those are targets from executives and the board, and my job is to look where I can have the maximum impact in multiple dimensions. If I get so fixated solely on cost reduction and I interrupt the employee productivity, have I really impacted Nortel in a positive way?
Our operating margins are up dramatically in the past few quarters. Customers notice with B2B integration, and Nortelnetworks.com leads in response time and availability.
Q: Where is Nortel headed with the industry trough we're in? I think what Nortel has gone through in the past two years allows me as CIO to more quickly implement change, to drive standardization, to eliminate more waste than I could have if things had been chugging along at the prior pace. It has actually enabled me to do more things more quickly than if business was coming along in the late '90s. We're well positioned for the market turnaround. We know this industry segment and it will turn, but the question is how dramatically. In the process of preparing, we have taken out a lot of cost and improved margins. Our profitability will improve accordingly.