| BUSINESSWEEK ONLINE : NOVEMBER 6, 2000 ISSUE | ||||||||
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| INFORMATION TECHNOLOGY
'We Tried to Run Faster Than We Were Capable of' Talk about being in the hot seat. Henry Schacht, 67, was named CEO of Lucent ( LU) on Sunday, Oct. 22, at an emotional weekend board meeting in which former protege Richard A. McGinn was ousted following yet another warning of dismal earnings. Just 36 hours after taking office, Schacht talked to Business Week Senior Writer Catherine Arnst about his immediate plans for the company and the search for a permanent CEO to replace him. Here are edited excerpts of their conversation. Note: This is an extended, online-only version of the interview that appears in the Nov. 6 issue. Q: You were in charge of the company for three years after it was spun off from AT&T. Do you take any responsibility for its problems now? A: Sure. I mean, I was not only chief executive through the end of 1997 but I've been a board member continuously throughout that process. Of course I do. Q: In that case, how do you address concerns that your appointment means more of the same at Lucent? A: The approach I'm taking first is with our employees. Their understanding of our challenges is very important. I spent the first 26 hours talking to our people because that's the key. I am now setting up meetings with all of our customers to talk with them. I've talked with most of our major customers on the phone, and I think I can report that they have a lot of both respect and confidence in the company. They're anxious to do everything they can to get us back on the track. And I think that reflects the mood of the people here, too. This is a company full of terrific people and terrific products, and it is serving a market that is growing. For reasons that are not yet fully clear, we have fallen behind in the execution arena. But I would rather fix execution issues than strategy issues or product issues or people issues. My own view is to look forward, not back. Get people and customers to look forward, not back. Figure out what it is we need to do, get it done, get this company back on the track it was on not very long ago. Therefore, I think the issue is basically around performance. Q: Why has execution been such a problem? A: I think we tried to run faster than we were capable of. It was a valiant try. I applaud the attempt. It didn't work. We knew we had some fragility in the control systems. We knew we were in the process of rebuilding. We just got ahead of our capacity to execute. Then we got some not terribly interesting kinds of results that turned into execution issues that turned uglier during the year. And attempts to try to regroup just simply, so far, haven't been successful. This is going to be a transition year, but there is no reason that it should be anything more than that. Put the basics in place for managing growth and then reaccelerate slowly and make sure we stay on the highway.... We're going to regroup, make sure we've got the fundamentals in place for the growth opportunities we clearly have, and then reaccelerate Q: Can you give me an example of how the company was trying to run faster than it was capable? A: It's in the earnings. We have thrown growth onto the company, and we have not been able to translate it into the bottom line, because the growth has been less efficiently generated than we're going to have to do it in the future. In other words, you run fast, and each increment of additional growth delivers less than the previous increment because it's getting more awkward to do, and you just have to pause and make sure you've got the capacity to run at the speed you're trying to run at. Q: What are some of the lessons you learned from your mistake in optical switches? A: If you've read Clayton Christiansen's Innovator's Dilemma, he talks a lot about what happened to us in optical, and that is that we were listening very carefully to our customers. We were asking questions that gave us a set of comfort that the direction in which we were pursuing was 100% correct, but for reasons that I'm not fully conversant with yet, we did not ask the question: "What would happen if you had this instead of that?" This is what Christiansen talks about again and again and again, that if you aren't careful when you are trying to be terribly customer-responsive, you can, from time to time, miss a phase change in the technology. And shame on us -- I mean us, big us! Not the people involved. All of us for not really realizing that there was a phase change available that we knew about but concluded the market wasn't ready for. That is a classic innovator's dilemma, and we just plain missed it! Unfortunately, our business history books are full of people who weren't able to solve that dilemma, and we've just written a new chapter. Q: Some industry analysts see that mistake as an example of the old "Bell Head" arrogance, i.e., "We know what's best for our customers." A: No, no, no. I can understand how people would think that, and I respect their judgement, but I don't think that's true. I've been into this one very carefully and our technology people absolutely were committed to the 10G [optical switch]. They knew we could do it, we were ahead of the game, and we had it ready. If we had followed the recommendation of our technical people, we wouldn't have missed it. They were the ones who were saying, "If you'd let us show this to the customers, they'd love it." And in the interface between the customer and the technology people, we rejected that advice because we said, "Look we've tried it on the customer, and they don't want it." The lab guys had it right, and we didn't listen to them. They said the correct thing: "Look, you're asking the customer the wrong question!" Q: What do you expect to do in the next few weeks? A: Well, I told everybody in as firm a voice as I can muster that companies only have one CEO. I quite consciously did not want to use the term interim [CEO] because we have work to do, and we're going to get the work done. To do that, you've got to get people energized in a way that they aren't on idle, waiting for a new person. So we've said, "Put it out of your minds." My job is to really help people figure out what's getting in the way -- and getting it out of the way. I will be meeting with customers starting next week, one at a time, by myself, saying: "O.K., I haven't been here for a couple of years. What do I need to know? What's your advice? What are we doing well? What are we not doing so well?" And I will just be recycling this back here to talk to people about what it is I found. I'll be pulling our team together, getting projects started to clear the underbrush. Our strategy of Internet infrastructure, optical, and wireless is smack on. We've got the strategy right. I believe we have world-class products, we've got world-class people, we're back to execution again. If you're going to tackle an execution problem, you've got to figure out quickly what are the detailed problems. Because in this case, I'm convinced the devil is in the details. We're going to be operating on what I call a strategy of roughly right. This roughly right strategy means: Let's not wait until we're 100% sure. Trust yourself. Don't get doubtful now. Don't try to fix everything at once. Take the top 10 priorities, then fix the next 10, and then fix the next 10. I've only been here less than a day and a half. This place is full of energy, and I'm really excited about it. Q: Which problem areas will you address immediately? A: That's a softball: Optical. Jeong Kim [head of the optical division] and I met for a couple of hours yesterday afternoon. I like what I see, but this is the area where we had the big miss. And this is the area where we have a very large set of challenges in front of us. We've got a brand-new leader in there. Been there just a couple of weeks. He's a terrific person. I really like what I hear. We have to make make sure we've got enough support for Jeoung Kim. We've got enough assets in place. We've got the incentive systems he needs. We've got the support functions he needs. We've got the development people. We've got the sales people. And so we're spending a lot of time there. Q: What do you think you can do to stem Lucent's high turnover rate? A: What you do at a time like this is provide hope. Sure, you do the short-term things -- you pay bonuses somewhat earlier, you pull forward your stock options, you put pools of money together to retain your key people. Frankly, that's all the stuff you do at times like this. But honestly that's about 10% of it. The real issue is hope. You've got to provide your people with optimism, a sense of capacity to perform. If people don't believe, they are not going to stay. Q: What will you be looking for in the new CEO? A: You know, I haven't given it any thought at all. I will. The person has to be a strategist and a tactician. Has to have operating experience. Can't get bogged down in the details, got be a people person. Right now we are going to work to engage a search firm. We've got a meeting with them later this week. We are drafting the walk-on-water qualifications. We really need someone who's been there. This is not a first-timer job. You've got to have people who've been through difficult times and a person who has a real affinity for operations. Not to the exclusion of strategy, but right now, our issues are operational. We simply shouldn't be in a hurry to get it right. When you go outside, you always, always, have to be super careful. Q: How do you plan to win over investors? A: They don't want words. They want performance. Trying to say things that will make them feel better given our performance over the last couple of quarters is not something I am terribly interested in doing. Frankly, words don't count. And frankly, they shouldn't. Q: Could you describe some of your feelings about this difficult transition? A: Rich [McGinn] and I put this place together. He was my partner all the way along. He is a friend. He is a man I admire enormously. The decision that we needed a different skill set was difficult for everybody. But mostly it was difficult for Rich. He's a man I care about, and it wasn't a decision that was easy for anybody. This not something I had in mind. Not something I sought. But it was partly my responsibility. Now I'm going to look forward. Edited by Douglas Harbrecht _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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