Business Blog: Hoover’s Business Insight Zone

After yesterday’s entry, I was thinking more about the plight of Alcatel-Lucent and similarly challenged outfits that are trying to restructure their operations. The companies that spring to mind are Kodak (nearly done with its reformation), Ford (slimming down), and Countrywide Financial (no telling whether it will survive the mortgage mess). All of these companies face the challenge of dealing with large infrastructures that may no longer help them to address the needs of their customers. In some cases of restructuring, those customer needs — or even the entire customer base — changes quickly enough or radically enough that the company awakes to find itself in what is essentially a new marketplace.

Certainly this happened to Kodak, which had to come to grips with the revolution in digital technology that has swept through the world of photography in the past decade. It may be happening to Ford, which hasn’t shown any recent ability to turn out hit models one after the other, and which seems unable to engender anything like the customer loyalty it enjoyed once upon a time. Certainly Countrywide faces a very different mortgage landscape than it did in previous years.

In each of these cases, changes in the prevailing conditions of business have upended the organizational quality of these large companies. What I mean is that they may have been rightly organized for earlier prevailing conditions in the marketplace — surely they were, considering the huge profits Kodak, Ford, and Countrywide have made at times — but whenever they can’t keep their organization evolving in pace with the evolution of the marketplace, they’re bound to end up looking disorganized. In fact, they are disorganized, as far as making steady, healthy profits is concerned.

Which brings us back to Alcatel-Lucent. Waves of change in telecommunications technology and in the markets for telecom equipment are tough enough to negotiate. Now stack them on top of a decades-long legacy of the hugeness and bureaucracy that came with old-style telephone monopolies . . . and then square the result, since the combined company now must deal with the legacies of both Lucent and Alcatel. Oh, yes, and throw in some trans-Atlantic cultural friction, too. Even if Lucent had been perfectly organized on its own (it wasn’t) and if Alcatel had been perfectly organized on its own (ditto), the combination of the two companies would be tricky enough. But layer their legacy problems on top of one another and . . . you get the mess they’re facing now.

As I see it, maybe the biggest problem of this kind of disorganization is that when it prevails, enterprises can’t harness the talents of their members. This is true whether we’re talking about a Cub Scout pack or an NFL team or Ford Motor Company. Well-organized enterprises are worth more than the sum of the parts because they harness the great advantages that come from coordinated effort. Disorganized enterprises are worth less than the sum of the part because too many individuals are left to their own devices in terms of applying their talents to the company’s broader efforts. Being worth less than the sum of the parts is one of the reasons that all of these companies have laid off so many employees: when you’re that disorganized, you can sometimes do better at meeting goals of profitability and so on when you subtract people from the equation. That’s not to let management off the hook: the best-run companies, like Toyota and Cisco, have shown that they can operate very well in these supposedly broken industries, and they don’t face the prospect of laying off hard-working employees whose talents go unharnessed because of disorganization within the system.

Pat Russo has her work cut out for her at Alcatel-Lucent, because no silver bullet (like the ill-advised merger of Alcatel and Lucent itself) can fix the company. It took a lot of entropy, a lot of sub-optimal choices, and years of fealty to legacy decisions to get the Alcatel side of the business, the Lucent side of the business, and the merged company to where they are today. You don’t say “Hey presto!” and undo that caliber of a mess. No, you have to make hard decisions one by one that progressively enable more of the company’s talent to come online. Nothing else can transform a bloated, ineffective entity like Alcatel-Lucent into a successful competitor.