How Nortel's CIO slashed costs ready for the upturn

Nortel Networks has been aggressively cutting jobs in a bid to restore profitability. The company headcount has fallen from...

Nortel Networks has been aggressively cutting jobs in a bid to restore profitability. The company headcount has fallen from 90,000 at the turn of the millennium to a targeted 35,000 by the end of the year.

The IT department has played a key role in the process through a combination of outsourcing and consolidation of data centres, servers and applications, according to chief information officer Richard Ricks.

Richard Ricks became Nortel's CIO in 2000 and had to manage rapid change while developing an organisational structure that allowed Nortel the flexibility to adjust the size of its business units up or down.

Outsourcing all day-to-day IT operational support to Computer Sciences Corporation in a $3bn (£1.9bn) deal over seven years was the first step. However it was not an easy one.

"The most significant adjustment, going back to 2000, was the leaders of the IS organisation still wanted to provide supervision, but that wouldn't allow Computer Sciences to implement business processes as they wanted," said Ricks.

"It required sitting down with management teams and director groups and working through their new role versus their traditional role. I helped them understand what I was going to hold them accountable for as it relates to quality of service. They had focused on delivering the service and not the quality of the service. It forced them to look at what the values are we look for with the end user."

Getting that message across took Ricks 12 months of globetrotting, holding face-to-face meetings at Nortel's 125 locations worldwide. "I saw very little of my home," said Ricks. "You can't lead change from your office."

Outsourcing went hand in hand with infrastructure consolidation. Nortel has taken 8,000 servers out of its infrastructure in the last 18 months, going from 12,000 down to 4,000. Ricks believes this can eventually be reduced to around 2,000. Nortel has also reduced the number of data centres it operates from 120 to just 10.

The consolidation, he said, is down to "outsourcing and just managing our assets better and having a fixation on variable costs replacing fixed costs".

Some, but not all the savings have been due to the dramatic reduction in Nortel's payroll. "We've taken out $1.2bn (£800m) in costs over the past two years. Of that, about $450m (£288m) is employee-related costs, the rest was all efficiencies," Ricks said.

"We've reduced costs and provided a better set of capabilities for employees," he continued. "As we've simplified infrastructure, we've taken about 1,100 applications out of service, down from about 2,300. I'm driving for 500 applications."

Throughout this process Ricks has tried to balance the financial targets set by the board with his ability to provide the business with the infrastructure it needs.

That meant asking two questions; "How do we run the most efficient IT organisation possible and how do we make Nortel the most competitive and productive," he said.

"I've been given cost reduction targets, but my job is to look where I can have the maximum impact," Ricks said. If I get so fixated solely on cost reduction and I interrupt employee productivity, have I really impacted on Nortel in a positive way?"

All these changes have left Ricks confident that when the market turns, Nortel can take advantage. "What Nortel has done in the last two years allows me as CIO to more quickly implement change," he said. We know this industry segment and it will turn. In the process of preparing, we have taken out a lot of cost and improved margins."

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