Business Insight Zone

Today’s Company of the Day is Alcatel-Lucent.

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Question: What do you get when you merge two bloated, not-very-efficient companies (Alcatel and Lucent) that operate in a chaotic sector (telecommunications equipment) and lag far behind the industry leader (Cisco Systems)?

Answer: A bigger, more bloated, and still not-very-efficient company that lags far behind the industry leader.

Alcatel-Lucent took its current form in late 2006, when Alcatel plunked down $11.6 billion to buy Lucent in a merger that has not, shall we say, elicited cries of delight from both sides of the Atlantic. While advocates of the merger touted all kinds of advantages that would come from the combination of the two companies’ customer bases and technology portfolios, the unstated subtext — one that the principals behind the deal likely wouldn’t admit — was that misery loves company.

Despite the stoic efforts of CEO Patricia Russo and her team, the misery hasn’t gotten better since the two companies joined forces. While Cisco Systems keeps pacing the field in terms of both technology and financial health, Alcatel-Lucent has lowered its 2007 sales forecast three times. (One is tempted to add “so far.”) What’s holding up progress? Besides the usual tumult in the telecom equipment market — which, like semiconductors or biotechnology, constantly sees new technologies supercede old ones — Alcatel-Lucent must also deal with the overlong legacies of its predecessor firms, which could hardly help but inherit some of the bloat and bureaucracy of their old-style telephone company ancestors. Then, just for a garnish, you can factor 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 couldn’t help but be tricky. Layer the legacy problems on top of the cultural ones and the technological ones, and you arrive at the mess that Alcatel-Lucent faces now.

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