Several theories have been advanced in the nearly a decade since Nortel Network Corporation declared bankruptcy. Poor strategy, tough competition from other companies, particularly those from China, a misinformed board of management and Chief Executive Officers, hubris, and the refusal of the federal government to support the corporation during the recession are some of the reported factors of the company's collapse.
According to corporate governance theory, the company's Chief Executive Officers, executives, and board of directors are entrusted with monitoring and oversight. Corporate law supports this theory by giving the directors of the company to supervise the activities of the company, instead of exercising full management by them. Accordingly, the boards of the company should be the last in the line to defend the challenges that their company may be experiencing. Understanding the predicaments that faced Nortel Networks Corporation can be understood through the eye of corporate theory. Corporate theory stresses o the need to continually review the extent of the engagement of the directors in pursuit for their strategies, encouraging the board to act appropriately when circumstances call.
A brief History of Nortel Network Corporations
Nortel Network was established in 1895 at a time when Montreal- based Bell Canada separated his manufacturing branch under the name Northern Electric and Manufacturing Company. The reason for the devastation of the company was to evade the government restriction which prohibited the company from its manufacturing operations. Bell Canada and Western Electric, the manufacturing branch of AT&T Corporations took control of equity stakes for the first 60 years of its existence. As the sole supplier of Bell Canada during that time, Nortel Networks was specialized in telephone equipments using the design licensed from Western Electrics. Due to the freedom that Nortel Networks had in diversification of its production, it increased its productions and by 1900, it became one of the largest manufacturers of the sleigh bells. It dominated the market of electrical appliances in Canada until 1950s. The boom in the business in 1920s made Nortel Network to increase its employees from 2500 to 7000 persons, however, in 1930s; depression hit the company which drastically reduced its employees to 2500 persons. Real hit on the company came in 1956 when AT&T signed an antitrust agreement with the Justice Department in the United States that weakened the monopolistic influence of Western Electrics in the manufacture of telephone apparatus. This made the Western Union to withdraw from the Canadian market in 1962 and the sale of its Nortel state to the Bell Canada. Nortel Networks lacked the needed depth and capacity to collect reliable information, both external and internal to help it make timely informed decision after the restricting and devastation of the Bell Northern Research in the mid-1990s.
Analysis of the downfall of Nortel
The beginning of 2001 welcomed the burst of dot-com bubbles which had a detrimental effect on the global economy, particularly on the telecommunication industry, Nortel being a casualty. The interplay of the market forces resulted to decline revenue brought by the decline in demand of the company's products. Subsequently, the company was faced with the accounting challenges which further impacted its credit rating.
However, the Nortel's early achievements were grounded on the model of technological expertise which enabled the company to create new market leading to the transition from analogue to digital. During this time Nortel was revered its outstanding leadership skills, unwavering customer support, and product reliability. Consolidated management of R&D with connections to Bell Northern Research (BNR) and its linkages to clients enabled the company to gain advantages in several markets.
The company adopted a flexible organizational model which helped it to move resources to identified opportunities. The model was grounded on designing and developing products, proper communication with the customers and ushering in new products into the market when the company felt that they were needed in the market, and charging them accordingly. While the Nortel's model resulted to a well- designed and reliable product, it nonetheless resulted to a culture of arrogance combined with lax financial discipline. Nortel was glued to its rigid culture to the extent that it was unable to respond to the changes in the industry. Research has suggested that the lack of adaptability by Nortel was based on the history that the company was a leader in the market. However, other researchers have suggested that the lack of adaptability by the company was because the company focused much on the revenue growth in 1990s while forgetting that the profitability left it in a precarious financial position in 2001 during the market crash.
Nortel Networks achieved a boom in revenue growth between 1997 and 2000, which doubled its revenue and its stock price tripled in the same period. Nonetheless, a rapid increase in its workforce resulted to duplication it its overhead expenses. Furthermore, as Nortel Networks responded to the emergence of internet technologies and to the market opportunity presented by the dot-com generation, it boarded on an acquisition spree. This acquisition process proved to be a failure because it was ill-chosen and poorly integrated which resulted to over- complication of the company. The Nortel's high cost structure and lax financial discipline ultimately resulted to financial rations which was one of the worst in the industry. Nortel continued to incur losses during this period while other players in the industry earner profits.
Besides acquisition as a strategy of growth, there other series of decision that Nortel made which ended up to be problematic: Nortel Network heavily relied on a small number of customers in North America- centric market which later turned to be their disadvantage when the customers were forced to reduce their orders due to global recession. Additionally, Nortel had a competitive advantage on a wireline and optical market which were already declining. Again, the company highly invested in worldwide interoperability for microwave access (WiMax) which later became divested.
The company's significant blunder on acquisition occurred between 1997 and 2001 under the watch of the then Chief Executive Officer, John Roth. The CEO consumed billions of dollars in an attempt to better the performance of Nortel by purchasing Bay Networks which later on turned to fail. Report says that this was a betrayal of the talent by the company.
Nortel never paid attention to the operational changes that would later impair their innovative abilities; instead the company introduced changes which could not promptly respond to the customer's changes. For instance, it gave power to the owners of the businesses and increased divisional power which led to increase in internal politics and unproductive competition. Nortel further dissolved a centralized R&D platform (BNR) which was optimized to bring development and innovation of telecommunication products. It again reduced the roles of intelligence team unaware of the dot-com bubble that was to burst in later years. At the dawn of 2001, the market became more competitive because of oversupply brought by the entry of new players in the industry, such as entry of Chinese companies in the market. Nortel got into the new competitive market unprepared. It is worth concluding that Nortel had developed a greater degree of resilience.
By 2006, most of the key customers had come to a conclusion that there was a low probability for the survival of the company. The appointment of the new Chief Executive Officer did not do any good in restoring the state of the company. According to the key customers, Nortel was no longer behaving like to use to do in the past years. It no longer practiced stronger support to its customers. Furthermore, technical advances could not be evident anymore. While customers tried to look at the Nortel's R&D commercialization models, they could not see any new product launched by the company, instead they were mostly offered with the software upgrades. Customer particularly pointed that the company had never produced any new product between 2000 and 2008 despite ever changing in market needs and demands. Sources revealed that when the management of the company was asked for the modification of the products by the customers they would say that their request needed approval in later days.
Indeed, an overwhelming focus on the failure of Nortel Company is on the failure f the company to develop new products soon after the crash of telecom. Many customers companied that the company was busy offering them with the software upgrade throughout 2000s instead of providing them with much more innovative products. Had the engineers of Nortel Corporation been able to produce imaginative new technology packages, it is certain that the company could have stood a stronger opportunity of winning a greater market share and obtained more revenue from their production.
The company tried to stay on the existing market instead of moving into the new market when environment presented. It implemented massive cut cost which the company thought would address the declining prices brought by the change of environment. Similarly, the company increased its R&D costs. The strategy that the company took to cut the cost and internal focus negatively impacted the manner in which it served its customers, most of whom realize the change in the behavior of the company.
Economic researchers have argued that Nortel Networks ought to have moved into more attractive markets, instead of just cutting costs.
Many have come to link the collapse of Nortel Networks Corporation with the debilitating accounting scandals that befell the company. First, there was this unfortunate decision making whereby the director accepted an independent report by the independent investigators in 2004 on Nortel's accounting. This made the board of directors to dismiss integral member of the executive team at a significant moment of Nortel's turnaround. The study by the University of Ottawa indicates that the acquisition binge weakened the company; mishandling accounting inspection led to pushing the company over the edge.
Other judgment later came to settle that Mr. Owen, who was appointed the Chief Executive Officer of the company, did possess the level of familiarity pertinent to the telecom sector that would be expected from a Chief Executive Officer of such company. Mr. Owen who was a veteran in the military did not bring any force to stabilize the company.
Conclusion
The downfall of Nortel Network Corp. can be laid largely on the foot of factors such as change in the business environment, ill-informed strategies, and poor management decisions which were dangerous in their implications for the future progress of the company, and discontinuity in the process of planning for the Chief Executive Officers of the company and so on. It was not a single factor that led to the demise of Nortel, but a number of them. Studies underlies that the problems of Nortel Network Corporations can be traced way back in 1997 in regards to the temporal phenomenon which occurred over the years. The company came to meet further additional sock events from 1997 to 2008, but the reality occurred to it in early 2009 when it sought for bankruptcy protection as the only option to re-group and re-focus which never succeeded by mid-2009.
Following the outcome of the studies presented in various literatures, it is paramount that stakeholders of the company have a key role to play in restoring a company in crisis. The downfall of Nortel challenges the roles of various stakeholders which can be applicable to many companies, so that stakeholders on any company o not blame somebody for the downfall of the company instead they should learn from it. Arguably, those with the decision powers in a company are the change agents who should work towards building the resilience of a company when in turbulent times. It is imperative watch for the signs of looming of a black cloud so as to put appropriate measures to deal with it when it emerges. Moreover, the management is advised to evaluate the environmental factors and the level of resilience and use the obtained information to place the organization on an attractive business environment.
The following are some of the key observations that have been pointed to have led to the demise of Nortel Network Corporations:
The company tried to acquire companies in a bid to juice its performance; however it was lacking necessary culture to support the integration of the process. According to the corporate theory, the company lacked engrained corporate capability, which was a complete deviation from the set objectives.
Additionally, Nortel lacked the required depth and expertise to collect dependable external and internal information necessary for decision making.
Notably, the company had technological engineers who could not bring ay technological solution to the company. This is evident by the fact that from 2000 to 2008, the company had not launched any new product instead it was just upgrading the already existing software.
In dissolving BNR, Nortel Network Company had effectively lost understanding to the long term of objectives that it had set.
Bibliography
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