Incubation innovation

The timing of the depressed global economic outlook could not have come at a worse time for Alcatel-Lucent. The situation only confounds further the technology company’s efforts to turn the corner of a post-merger era that has resulted in an underperforming share price and integration challenges. With a new CEO, a new strategy, and a strong focus on technology leadership, Alcatel-Lucent is looking to emerge from the economic downturn a leaner, more responsive and cohesive organisation than before

Alcatel-Lucent’s new CEO, Ben Verwaayen has a cool, approachable demeanour that his predecessor at the French/American technology company never had. Even Alcatel Lucent employees openly talk about the impression of hardness and rigidity they associated with former CEO Patricia Russo, who tried and failed to have the many different cultures, nationalities and operations that comprise the merged Alcatel-Lucent pull in the same direction.

Verwaayen comes to the table with an impeccable corporate career, highlighted by his complete transformation of UK telco BT from limping former monopoly to rejuvenated, technology-savvy, fully integrated service provider in just six years at the top.

Presiding over his first Alcatel-Lucent Innovation Days at headquarters in Paris at the beginning of December, Verwaayen spoke of his enthusiasm for the role technology and technological advancements had with respect to driving market opportunities for the company into the future.

“Innovation is not just about the next technology,” Verwaayen said. “We are talking about the creation of the opportunity not the crisis…At Alcatel-Lucent our innovations are a combination of the obvious, and things that make people wonder how someone thought of it,” he added.

Despite his upbeat tones with respect to the company’s technology efforts, Verwaayen felt it necessary to also address concerns expressed by the market about the company’s prospects for the future given its post-merger underperformance. During the course of 2008 alone, Alcatel-Lucent shares on the New York Stock Exchange lost almost 70 per cent of their value, while on the French bourse they were down by around 44 per cent during the year.

Incoming CEO Ben Verwaayen is a firm believer in research and innovation being at the heart of an organisation such as Alcatel-Lucent, and is confident this emphasis shall see the company progress

“It is not true we are going out of mobile,” Verwaayen stated. “It is not true we are a beleaguered company,” he added. While Verwaayen chooses to focus on the positive, as any experienced CEO would, he also appears to be willing to move quickly and decisively to stem the rot. In the middle of December Alcatel-Lucent announced a major strategic transformation programme aimed at realigning its operations to the market.

The company disclosed plans to combine the capabilities of the network environment with the creative communications services of the web (Web 2.0, Web 3.0 and beyond). It is believed this transformation will allow billions of customers to use millions of websites from any device guaranteeing security, quality, privacy and billing integrity.

In order to achieve this strategy, Alcatel-Lucent said it would take some significant steps to realign its operations, resulting in the focus on three markets: service providers, enterprises, and selected verticals; and on four key areas of investment: IP, optical, mobile and fixed broadband, and applications enablement.

With respect to Alcatel-Lucent cost reduction initiatives, the company is looking to reduce its breakeven point by €1 billion (US$1.4 billion) per year in both 2009 and 2010. As a part of these initiatives, the company expects to reduce the number of managers by approximately 1,000 and the number of contractors by approximately 5,000.

Altogether, Alcatel-Lucent expects that, by the fourth quarter 2009, it should achieve total savings of €750 million at constant exchange rate, of which approximately onethird in the cost of goods sold and two-thirds in R&D and SG&A (selling, general and administrative) expenses.

In terms of its innovations efforts, many are channelled through Alcatel-Lucent Ventures, a business incubator within Bell Labs and the host of Innovations Day in Paris. Alcatel-Lucent Ventures identifies game-changing ideas within the Alcatel- Lucent community and commercialises these ideas into new products and services for network operators, enterprises and end-users. Ventures extend from the concept stage to commercial readiness, driven by teams of intrapreneurs who combine their own ingenuity with business processes to create product solutions that address customer needs.

With competency centres in Antwerp, Belgium and New Jersey, Alcatel-Lucent Ventures has successfully commercialised eight products and has a portfolio of ventures in development.

Alcatel-Lucent Ventures’ Innovation Days programme was focussed on four environments targeted for transformation: the home; mobility; the enterprise; and the world, from a sustainability perspective. In the home environment, the company is utilising IPTV and DVBSH technology to deliver engaging content. Domestic connectivity is also being refined, allowing connections to the home network through the use of Femto cells.

Mobile TV is also a key area of development, creating a broadcast environment where multiple users can view content as opposed to single channels being utilised for each individual viewer.

With respect to the transformation of mobility,  Alcatel-Lucent showcased its Tikitag product, which was commercialised on October 1, 2008 and uses Near Field Communications (NFC) to enable simple and quick connection and interaction with online applications. The application often opens up new and richer experiences in a variety of domains including information retrieval, entertainment, registration, ticketing, and payments.

Toon Coppens demonstrates applications for Tikitag, a product that uses Near Field Communications to enable simple and quick connection and interaction with online applications

“Tikitag connects objects to the Internet, creating a link between the real world and the virtual world,” explained Toon Coppens, the developer of the Tikitag application. “The technology is simple and there are a multitude of applications so long as the mobile device is equipped with a RFID reader.”

Within the enterprise space, Alcatel-Lucent has identified a number of key vertical sectors to offer communications support to – the healthcare industry being one such vertical. During Innovations Day products such as the digital stethoscope were showcased, as were the networking and communications components required to facilitate smart surgery.

High definition content streams utilising IP are suitable to enable smart surgery to be conducted with multiple, interactive views of the procedure. The transmission of in-theatre telemetry becomes possible, and according to Jim Martin of Alcatel-Lucent Ventures, there is strong interest from emerging markets for such applications.

Turning to sustainability and environmental issues, Alcatel-Lucent Ventures is focussing heavily on thermal management issues in order to reduce the amount of energy required to power communications technology. Approximately 21 per cent of the world’s emissions come from the ICT sector and Alcatel-Lucent is considering ways to reduce this amount both through direct means as well as indirectly.

“28 per cent of emissions are from utilities generating power,” commented Alcatel-Lucent Venture’s Marc Benowitz. “It takes power to generate power.”

As such, Alcatel-Lucent is considering ways in which to better utilise on- and off-grid power supplies.

“Smart metering is the first step towards smart grids,” said Benowitz. “Dynamic powering is one area of energy saving, where a device is on only when you need it to be. We are also looking at off-grid power in areas that do not have grid access, such as the provision of wind turbines to power base stations,” he added.

Verwaayen himself believes that some of the most significant innovations currently being developed by Alcatel-Lucent Ventures are in the areas of sustainability and energy management. He believes that the communications industry has an opportunity to impact other industries far beyond its own, and as such should work at ways to reduce economies’ impact on climate change.

“We have 1,000 researchers (within Bell Labs) of a high level,” Verwaayen said. “When it comes to research, its nature should be that it is disruptive, and I would not look to tell them what to do or what not to do – as that would limit them.”

Alcatel-Lucent’s evolving product portfolio

Alcatel-Lucent will accelerate the shift of investments towards next-generation platforms: by reinforcing areas of leadership (IP, optics, broadband access, IMS core, CDMA EV-DO) by boosting investment in focus areas (LTE, WCDMA, enhanced packet core, open application enablers) by streamlining its product offerings on mature portfolios such as CDMA 1x, GSM, ATM, ADSL, DLC and legacy applications.

Alcatel-Lucent will be partnering, co-sourcing and participating in the consolidation of the industry to reduce spending for WiMAX, CPE, classic core, non-IMS based fixed NGN portfolio and some legacy applications.

Other actions will be taken to have a more agile R&D, such as further simplifying the Carrier Product Group from six to four divisions, completing platform rationalisation programme for WCDMA and NGN as well as consolidating global R&D centres.