Mike Z. Does Q&A with FT

It is hard to answer a question if you are guilty.. I'll try to search the video of the interview..

If they did something wrong, they should be questioned about it.

I'm surprised the RCMP has (finally) decided to carry forward, regarding Nortel.

"Mike Zafirovski, or Mike Z as he prefers to be called, has coaxed Nortel back from the brink of disaster since becoming president and chief executive of the Canadian telecommunications equipment maker in November 2005."

Unsubstantiated statements like that one drive me crazy. There is more data in favor of the argument that Mike Z has pushed Nortel even closer to the precipice since 2005. Real programs have been replaced by hyperbole. The investment community has voted thumbs down by taking two-thirds of the value out of the stock. The cabinet and senior management ranks are predominantly bereft of subject matter expertise - let alone vision - in the space that Nortel plays. A senior member of the cabinet assaulted a young women and was promoted a short time later to replace a proven veteran who is now at Cisco, along with his rolodex and relationships.

Yes, operational costs have been reduced and efficiency has been improved. You know what? That could have been achieved by outsourcing the task to one of Wipro's business practices teams. Yes, a settlement was reached for the class-action lawsuit (If Frank Dunn is not found guilty, this might not be such a good thing). But that's not enough for going on 3 years. Where's the beef? It sure isn't in the ad campaign, which to me looks exactly like the last ad campaign I saw from Nortel.

Can we not STOP with the hollow accolades and wait until there is REAL justification to dole out praise? How about we wait until the stock is 30% higher than when Mike Z took over? Or how about we wait until Nortel emerges as a clear leader in a *new* and *large* money-making segment so we can see where future growth will come from? We could even wait until we see Nortel leaders back in the limelight at industry events.

Sigh. The press are like little league athletics organizations - everyone gets a trophy. I hope some day we'll go back to calling a spade a spade.

Mike's from GE. Hopefully Nortel doesn't end up where GE and the US economy are headed.

The Bear's Lair, by Martin Hutchinson
The murder of US manufacturing
June 16, 2008

In the 1970s the new and very fashionable Boston Consulting Group introduced the “strategy matrix” under which businesses were divided into stars, cows, dogs and question-marks, according to their growth prospects and profitability. Stars, the businesses with the highest growth prospects and profitability, were to be nurtured and given resources, dogs, of low profitability and low growth were to be closed down and question-marks, of high growth but low profitability, were to be given modest resources to see whether they turned into stars or dogs. The whole operation was to be paid for by milking the “cows,” those businesses of low growth but high profitability. Cows, as their name suggests would be denied capital investment, since such investment should not be wasted on low-growth situations. Instead their cash flow would be milked to provide capital investment for the stars and the more favored question-marks.

There were several problems with this mechanistic, clever-clever approach to business management. One was that the businesses’ typology could not be identified accurately; which businesses were treated as “stars” was more a matter of the business cycle and doubtless of office politics than of the long term underlying reality. A second, even more fundamental problem was this: cows that are milked and not fed quickly turn into dogs. Businesses that are treated as not part of the company’s glorious growing future quickly wither on the vine, as new opportunities in those business areas are missed. Their profitability starts to decline and quickly the cash flow that was their corporate raison d’etre disappears.

When examined dispassionately in the light of posterity, it appears that far too many of these “cow” businesses were manufacturing operations which were milked for cash flow that was diverted into more fashionable businesses in the service sector, particularly in finance. Westinghouse, for example, one of the most important names in electric equipment until 1980, had split up and left manufacturing altogether by 2000. To be fair Westinghouse management had a good excuse; one of their leading and most successful businesses had been the construction of nuclear reactors, an activity that disappeared in the 1980s owing to political cowardice in the face of environmentalist harassment.

General Electric, however from 1981 to 2001 run by ultra-fashionable “Neutron Jack” Welch, epitomized the failings of the era. It under-invested in many of its manufacturing businesses, entered into a blizzard of divestitures designed to boost its short term earnings, played games with its pension accruals and built a gigantic financial services empire of low quality businesses in which it could never be a leader. It also ruthlessly eliminated its middle management and overpaid its top management, winners in the corporate office political game. GE was a much admired operation in Welch’s later years; it is less so now, and if the bloated global financial services business returns to a historically normal size may finally be seen to have been a disaster.
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The sad story of GE Appliances is a paradigm of what has gone wrong in the US economy since 1980. No, manufacturing did not need to leave the United States; US manufacturing was killed by a multitude of foolish short-term-profit motivated decisions by inept and overpaid US management. The other questions can also be answered. Manufacturing is not intrinsically a low-skill and uninteresting operation, it involves skills at the highest possible level and can readily employ high-wage workers – after all LG’s workforce in South Korea are these days very far from being subsistence-level Third World proletariat. Finally, the US cannot survive through financial services and tech startups alone; it needs to reinvest in manufacturing or it will find itself unable to support an advanced-economy living standard for the mass of its population.

Yes, Virginia, you could have had both robots and the Internet. The 1950s dream of an infinitely prosperous United States full of household robots and other high-tech wonders was not a fantasy, it was there for the taking. Only political and business incompetence prevented us from achieving it.