Nortel to Rejig R&D

By Mark Evans | Published: March 27, 2008

John Roese-3
There have been suggestions on a number of fronts that Nortel is spending way too much on R&D – 17% of total sales – so it does not come as much of a surprise to see CTO John Roese talk about the company’s plans to overhaul its R&D operations.

In a speech in Ottawa, Roese said this will involve retraining some of Nortel’s 12,000 R&D employees and may see job and project relocations. He added that it will not see any new job cuts. “The bottom line is it will be driven by skills, it will be driven by where we have the capacity and the economics to support the necessary skills to participate in this market,” Reuters reported.

Interpretation: One of the ways that Nortel plans to reduce its R&D budget is by moving jobs to lower-cost places such as China and India. If you’re an R&D employee in Ottawa, Richardson, Tex. or Raleigh, N.C., you might be wise to dust off your resume.

The key phrase to focus on is Roese’s contention there will be no new job cuts. What, I think, he means is while the number of people involved in R&D will not decline, they will be configured and located differently.

For what it’s worth, Cisco spent about 12% of total sales on R&D in fiscal 2007 – $4.1-billion on sales of $34.9-billion. Nortel’s R&D budget is about $1.7-billion.

More: Roese gave Ottawa a B- for its quality R&D centre. Ouch! Roese also blogs about the transformation of Nortel’s R&D activities.

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  • NewBlue

    “The key phrase to focus on is Roese’s contention there will be no new job cuts. What, I think, he means is while the number of people involved in R&D will not decline, they will be configured and located differently.”

    In plain English, the work 100 engineers are doing in Raleigh (or wherever) will be done by 100 engineers in Bangalore or Beijing. The 100 engineers in Raleigh are laid off. No job cuts.

    Did you neglect to mention SC and BL on purpose? Or was that merely oversight?

  • ex-nt

    John Roese is going to rejig R&D – another sign the apocalypse is upon us.

  • NA-Exported

    Actually, what will happen is what has happened the last several years. They'll let go of 50% of the skilled experts in North America and rehire a bunch of unskilled workers in India/China/Turkey. Those unskilled workers will produce absolutely nothing, causing the 50% that are left in North America to have to do the majority of the work. Then the executives will pat themselves on the back for a job well done and give themselves a 25% bonus.

  • Apple

    Relocating R&D jobs formula is; 1 NA engineer replaced by 3 Chinese engineers with half the cost.
    China has $2 bill ppl and hundreds of millions of “Chinese engineers”
    So we could see Nortel cutting costs and getting more employees.
    OK
    R&D was Mike first try!
    First months as ceo Mike Z promised a new Plan for restructuring R&D unit.
    It has never happened as I know it!
    If I wanted to speculate why….
    OK Not now… as I will have dozen hate replays for my speculations…
    and they call me a hater!
    I don't hate!
    It's a lie!
    I just use my brain cells as I wish and I don't need anyone's permitting for that, do I?
    My posts are available on NT message board and you can dig anything there to show me when I was wrong on my speculations…
    Mark Evans surprised me once with very good speculation about Q2 2005 Triple Profits as one of the best speculation I've ever seen.
    Yes, as you should know, there was no profits in that quarter. Nortel restated that profit into a loss!
    Here we get replays from idiots who say we should not speculate!
    We should just believe whatever Nortel says_reports to the public!
    LoL
    It would be funny if investors would benefit somehow from buying NT stock!

  • Disgruntled Ex Nortel

    So to summarize,..
    All the Engineers and Technicians that do all the work will be outsourced to “Lower Cost Locations”, while at the same time, Nortel will retain all its currently overpaid(i.e. salary not commensurate with company performance) Executives, managers and Six Sigma Black Belts.

  • http://www.lopeyland.com lopey

    As a former employee in the Richardson area, I remember when Nortel was THE place to be. Now, it's presence has been reduced to such a great degree while other companies thrive. In retrospect, I'm thankful I was laid off when I was so I could focus on getting a job while not trying to do the work of 3 or 4 other people.
    I would like to know if *any* company has actually been able to translate offshore development into true cost savings. In my particular field, the cost-to-effectiveness ratio is comparable to that in the U.S., and I wonder how many companies truly understand that.

  • IamCanadian

    These no-good executives & master black belts came into Nortel trying to improve margins. Everyone recognizes the SG&A are way too high, never under control or least improved by Mike Z and the gangs. The R&D are easy target to cut. In the past, these actions are termed right-sizing, down-sizing, laid-off now these overpaid talk-the-talk-never-walk-the walk executives & master black belts come up with a new term 'retraining, relocations'. Shame on them. They should embark OwnIt to reduce their own defects i.e. lies.

  • sad sad day for nortel

    The most incompetent R&D folks are in Richardson, they don't know how to put together a reliable Test and Verification plan for their Enterprise Carrie Grade Succession solution LOL. But by far their network engineering group is the worst I've ever encountered, they don't even know how to use visio to build a network representation. The first group I would outsource though, is their Technical Support group in Richardson, they are about as smart as a brick and suck at being customer advocates. Nortel's Customer Service Managers are the most incompetent folks I've dealt with, as they have no idea what a converged network is, they are a bunch of worthless legacy TDM buffoons. I don't see how they can continue to sell products that don't live up to the sales pitch of 5 9's reliablity.

  • former NT

    And it finaly comes back and bites Nortel in the a…. Any engineer worth his pay has left for a better, more stable company. Years of no raise, low morale, never knowing if your group is next, and the endless executive shuffle has forced many good engineers to leave and away from Nortel.

  • inalmm

    time to get revenge. western countries have been sucking blood out of eastern countries via different ways (trade barriers, wars, invasions, military coups, supporting western biased dictators etc. etc.). now the time has changed. east takes the revenge. eastern engineers can live less than half of the pay check of their western counterparts and provide the same quality service.

    now there is two choice. either western engineers will work to hard or reduce their pay checks or eastern world will grow very fast to employee every single eastern engineer.

  • Nortel_will_survive

    How about we wait and see what actually gets announced in a few weeks rather than fabricate complete nonsense.

    With Nortel's direction to be more software centric, of course changes in R&D will be required.

  • Ex-Nortel

    Unfortunately, it is very easy to dump talented but higher paying engineers and replace them with low paying and inexperienced engineers and quantify the cost savings. However, no one at Nortel seems to look at the financial cost to labor productivity and product functionality & quality when experienced engineers who are experienced in developing products within a certain product area, understand all of the development processes and methodologies, are trained on all of the development tools, have a wealth of empirical knowledge on developing products, and understand what it means to work within a development team are replaced by unexperienced low cost engineers who will be located ten thousand miles away from other development centers. These inexperienced low cost engineers have to be boot strapped (at a high cost) to become functioning engineers under the aegis of equally inexperienced local management and distant management. Nortel is embracing a product development productivity methodology that will make consistent quality product development almost impossible to achieve.

    Then again, John Roese, former Cabletron SE, has no prior experience running a large R&D organization with multiple engineering disciplines distributed across multiple R&D facilities. The best business strategy for solving problems caused by being continually drained by money losing businesses like Nortel's GSM Group is to exit this business by selling or spinning it off. One does not cure prostate cancer by cutting off the right arm of the patient.

    It is amazing that Board Member John Manley, a former Deputy PM, simply allows Mike Z and his cohorts to lay off Canadian workers and replace them with low cost Asian labor. It simply reinforces the notion that the BOD is being held hostage to their decision to allow Mike Z and his team of GEniuses to attempt to turn around Nortel's fortunes without changing what Nortel is in terms of the businesses it engages in, and the way it distributes and services its products. Nortel is simply attempting to continue to compete in businesses where it is a market loser with even less capital outlay and sales and service capabilities against competitors like Nokia and Cisco who grow stronger financially and technically more able by the day. Mike Z and John R are going to cost cut Nortel down to the last Canadian worker – and then adopt a new strategy after this one fails. I guess John Manley just likes taking his directors fees and closing his eyes.

  • many

    Inalmm: With logic like that I suggest you do not develop products. What matters is markets. If any company wants to sell products in eastern markets it makes perfect sense to develop product in those markets for a whole hoast of reasons. OTOH, I suspect the reverse is true as well. If the companies what to develop product for NA markets…………well, you get my point.

  • Ex-Nortel

    Actually, I have participated in the development & distribution of billions of dollars of product for Cisco. A product that leads it competitors in functionality & performance, is priced well, and is efficiently distributed & serviced will always find and do well in all comparable markets. Cisco was and is the dominant player in all markets it competes – and in all geographies.

    One does not needlessly develop or manufacture products in Poland or Brazil or Malaysia in order to successfully sell in Poland or Brazil or Malaysia.

    I hope you get my point…and begin to understand the realities of developing, manufacturing, and distributing products on a global basis for a very large set of customers.

  • tleaf

    I hate to put a positive spin on things, doesn't seem to be the way to go around disgruntled ex-Nortel employees that troll this board, but here it goes.

    I was at the townhall where John Roese talked to his employees about this, and what John said had nothing to do with removing more jobs, or transferring them to different places. In fact what he was suggesting was just the opposite.

    Someone at Nortel(John I presume) has realized that we have a huge asset in our employees and many of them are stagnating or losing the drive to do their job because so often there are people who are not doing the right job for them.

    If we take a proper inventory of the people we have, the skills they have, then we won't end up with a wholesale export of a specific project to Turkey or Mexico, but we'll move the work that we don't have anyone in the company already capable of doing into places where we can find people to do the job.

    I know, also, that it is a difficult concept for some to grasp, but soon, because of the influx of jobs and, skills and technology, that the workers in China, and India, and Mexico will begin costing as much as anyone else in the world.

    As noted by 'many' just wait until the eastern companies want to sell products in NA that don't meet the standards, or demand, they'll have to move people here.

    Face it folks, we live in a global marketplace and that isn't going to change.

  • many

    Ex-Nortel this is soemwhat true for Ciscos L1 and L2 products (however there are reliability, survivability, power etc. requiremnts for these products that are different depending on the market). The layers and management/billing requirements above transport and network are very different. I have seen first hand that priceand deployment considerations kill a product developed for one market trying to break into another. I hope you get my point ….to begin to underesatnd that customer requirements, price points and capabilities are different in different markets and “one size fits all” products is old think.

  • many

    tleaf. Great idea! What a concept. too bad nortel hasn't been taking a proper inventory of the people it had, their skills all along.

  • http://www.allaboutnortel.com Mark Evans

    Thanks for the insight. Good to get some perspective from someone who was there and works for Nortel.

  • buffoonery

    the buffoonery and tomfoolery continues. good luck. none of these guys including Z-ero have any experience in the industry or leading at such a level. what can you expect?

  • buffoonery

    actually here is a suggestion to Z-eroman on reducing costs. layoff all the VP's, promote one level, fire all the senior managers and line managers replacing with very talented team leaders. Also make certification as well as testing mandatory for the workforce. if you cannot code too bad. i have seen enough hoorror stories of 'experience', 'architects', 'team leaders' who cannot write an iota of code.

  • Observer

    How come no mentions when Cisco forces half of its top executives to move to Bangalore and opens a giant R&D center there ? So if Cisco does it its good and when anyone else does its bad ? I think many on this board are out of touch with what's going on in the rest of the world in terms of talent, motivation and skillset. Any engineer for any company in North America who thinks he or she can sit in their comfy little cube in North America and make a living for the rest of their career is sorely out of touch with reality. The companies that have leveraged the globe to put out more products are the ones that have benefitted the most (see IBM, Oracle and Microsoft)

    Mark – your interpretation above is just plain wrong. I for one believe Nortel will ask people in North America to run programs done overseas using their technical and managerial skills (yes both are necessary). So instead there is a fairly good chance that the total number of products goes up as capital gets deployed more efficiently by using Asia to scale up or down as programs start and finish. Some employees will flourish at this while others will just fail to understand industry and global dynamics and be repeatedly laid off while trying to be engineers. You can run from the tsunami but eventually it will catch up to you.

    The definition of insanity is one that does the same thing over and over again and expects a different result.

  • Observer

    By the way, which country has the most CMM Level 5 organizations ? Here's a hint. Its not the US, Canada or any other western country.

  • NortelGlobalCo.

    Its not by benevolence of north American executives that jobs are moving to Bangalore and Beijing. Its their lust for more profits. Its investors lust for more dividends.Its a global market. Companies will hire at lower wages. Employees will work at wages they deem commensurate with their skills and local market conditions. There is no empirical evidence that ALL engineers in North America are better than ALL their Asian counterparts. There is good and bright , bad and incompetent in every society. IBM alone hires 60000 in India. Brightest there will work for better companies. Pay more and they will join Nortel. Again just like how it is here in North America. Again free market economics at work. Nortel is a global company. Stop blaming the executives. They are only acknowledging the reality of globalization. Nortel is changing for the good.

  • Nortelhand

    Wake up!! NA does not have a key to brains. There are very good engineers from all parts of the world, and to be honest I find their produciton is higer than most NA engineers. Enough said.

    world traveler, expat.

    Now get this pigs stock price UP with whatever means necessary Mike Z, and soon!!!

  • Another Nortel Watcher

    tleaf – John Roese has no experience running a large multi-site R&D organization. His speeches are based in theory, just like a University professors. Don't assume that anything John Roese says will translate to action and results until you see it happening. So far, he is all talk and no show. The analyst dialog is not positive.

    All – On the increasingly regular topic of offshore R&D, I will say again: if you throw stuff over the fence to a foreign subcontractor, don't expect to get much in the way of quality output in return. On the other hand, if you build part of your team in a foreign lab and include them as equals, you will reap the rewards. The difference between success and failure is all in how it's managed. Attitude and management are the ingredients for success.

  • Nortel watcher

    Observer,

    ….Mark – your interpretation above is just plain wrong. I for one believe Nortel will ask people in North America to run programs done overseas using their technical and managerial skills (yes both are necessary)…….

    I think Mark is correct on Nortel's true motives for overhauling its R&D structure – economics. US and Canadian engineers will be undoubtedly replaced or do you actually think Nortel has the resources to dole out attractive ex-pat packages to hundreds of its engineers?

  • many

    CMM level 5 is another metric that means not very much out of context.

    First there is no external body actually doing the certification. It is an “honest” self assessment.

    Second it is yet a another “software factory” approach to development that is process focused (good) but does nothing to address requirements (bad) and in most cases ends up being a set of “best practices”. UML (for example) at least concentrates on the user rather than the organization.

    Third how can anything of value be assessed in such short periods of time? Krishnamurthy Kothandaraman must have been a very busy fellow eh? Tumu Satish Kumar must have been almost as busy as well? Rajiv Nag a little less so, but none the less all are remarkable how many have been certified an such a short period, eh? I can't imagine when they slept.

    I don't know about you but it gives me the sense that perhaps there might be a bit of a “factory” consulting operation in telling companies they are CMM level 5?

    Just a thought.

    I was simply sorting on “Team Leader” at
    http://sas.sei.cmu.edu/pars/pars.aspx?s=&m=0

  • ex-nortel^2

    buffonery wrote:
    “Also make certification as well as testing mandatory for the workforce. if you cannot code too bad. i have seen enough hoorror stories of 'experience', 'architects', 'team leaders' who cannot write an iota of code.”

    I'm a bit confused. These changes are for the engineers doing research, not the programmers in product development. Different set of beasts entirely.

    Roese is talking about cutting into the absolute marrow of the company, the researchers, the cream of the company that drives innovation. Sending the scut work of programming overseas I can at least see some upper level manage being able to justify it, right or wrong. But wacking the scientists and engineers doing fundamental research makes no sense that I can see. It may cut costs but at such a tremendous cost to a company which claims such “excellence.”

    It's sad to see. And more talent will simply flow out because of an even more poisoned environment.

  • Observer

    US and Canadian engineers will be undoubtedly replaced or do you actually think Nortel has the resources to dole out attractive ex-pat packages to hundreds of its engineers?
    -

    Who says they have to move ? Instead of being purely technical why not have some of them manage and/or architect solutions that folks overseas can execute ? Yes maybe there is a little travel involved but then again maybe its good for the person in North America to embrace new experiences rather than doing the same old job the same old way. This is what companies like IBM do best an put out more products for all sorts of different customers.

    All I'm suggesting is leveraging the abundance of technical talent of the globe more efficiently to put out more products with lesser overhead than would be required in North America. Everyone here seems to think globalization is a zero sum game but it isn't if the right models are applied. Some companies are already doing this successfully and making a ton of money doing it.

  • NewBlue

    “Roese is talking about cutting into the absolute marrow of the company, the researchers, the cream of the company that drives innovation.”

    Ha! Clearly, Nortel has already jettisoned this part of the organization, since there is no innovation today and hasn't been any since…when? The only truly successful products have been acquisitions. Nortel hasn't actually created anything truly new and successful in probably 6 or more years. There are no technical visionaries left. There are those who think they are, but results would say there isn't.

  • Observer

    I think Mark is correct on Nortel's true motives for overhauling its R&D structure – economics.
    –

    And there's nothing wrong with this. We live in a global economy now and forever. Instead of going against the current and fighting the tsunami its much easier to go with it and leverage it for your benefit if the right approach is used.

  • ex-nortel^2

    Yes NewBlue, that's what I get from the couple of contacts I have left there.

    Hey, we're looking for good scientists!

  • Observer

    There are no technical visionaries left. There are those who think they are, but results would say there isn't.
    –

    The number of patent filings from Nortel would say otherwise. Still in the top 5 in the industry.

  • NewBlue

    Filings? Or awards?

    You can file patents all day long, but if they a) aren't actually awarded, and/or b) don't result in any new product development, then our innovators and visionaries aren't all they are cracked up to be.

  • Observer

    Both. Nortel has many many patents in wireless and optical technologies for next generation networks that have been filed and awarded over the last few years.

  • ex-nortel^2

    Royalties, gentlemen. It's about _royalties_. Not the _number_ of patents generated. Patents generating revenue are what is important. To our small company, anyway.

    I've seen small groups play round robin on who gets first name in the patent application and churn them out on every trivial little thing they come up with. They do get recognition internally, and it helps them keep their jobs. But in the real world there is no real contribution in any meaningful way. The granted and applied for patents are just good for PR.

    Our small company has interviewed applicants with quite a number of patents listed on their resume. But when we inquire about royalties these patents have generated, or verifiable revenue generated from them, You hit a brick wall. I've had a single exception, and he works for us now.

    It's all PR for a company like Nortel. It's only PR.

  • Observer

    Yes its about royalties but the truth of the matter is most patent litigation in telecom ends up in cross licensing agreements where many companies win. See Qualcomm, Broadcom, Nokia, Motorola and Intel for these. And at its core, no one at the USPTO really knows the differences between any one of these patents as there is so much overlap in what they grant without realizing it. This is why a company like Vonage can get sued repeatedly by Nortel, Broadcom and others and be forced to settle out of court. Yes its PR but its also revenue from cross licensing agreements.

  • Observer
  • inalmm

    many: are you aware of the US trade deficit? US is importing more goods and services then it exports. your theory seems irrelevant whit that respect. cost efficiency is the key factor.

  • many

    inalmm; Your first point has been true for a long time (20 years or more). The USA's chief export is standard of living.

    That said, I detect a change in my customers attitude. I see that they have been playing around with services in their networks, seeing which demand high avaialblity, which do not. Which vendors can deliver product and services in a reasonable timeframe with reasonable quality. As well the tier one network providers will go to great expense to provide their network services to international roamers. The pool of available workers in the US is shrinking rapidly due to the generational change and operators pay lots of money to reduce the number of employees they depend on. It is not theory when I say equipment cost is not the main factor in the tier one and two networks in the US and Canada.

    My experiance in asiapac has been different; cost is the major factor. This is especially true where labor is cheap and paying money to make a back office or network more efficent is higher than hiring more people. There are also cultual

  • many

    inalmm; Your first point has been true for a long time (20 years or more). The USA's chief export is standard of living.

    That said, I detect a change in my customers attitude. I see that they have been playing around with services in their networks, seeing which demand high avaialblity, which do not. Which vendors can deliver product and services in a reasonable timeframe with reasonable quality. As well the tier one network providers will go to great expense to provide their network services to international roamers. The pool of available workers in the US is shrinking rapidly due to the generational change and operators pay lots of money to reduce the number of employees they depend on. It is not theory when I say equipment cost is not the main factor in the tier one and two networks in the US and Canada.

    My experiance in asiapac has been different; cost is the major factor. This is especially true where labor is cheap and paying money to make a back office or network more efficent is higher than hiring more people. There are also cultual

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