The Shift is on! Alcatel-Lucent Presents Planned Actions to European Works Council

By Peter Bernstein October 08, 2013

Back in June, Alcatel-Lucent (ALU) CEO Michel Combes announced what the company calls “The Shift Plan.” Architected by the ALU executive following an attic-to-basement review under the new CEO, the goal of the plan is to realign the company to be an “industrial specialist” in the areas of IP Networking, Cloud and Ultra-Broadband Access rather than a supplier of a vast portfolio of telecommunication products and services, and is designed to restore profitability and focus the company on growth areas in which it has core competencies.

A key part of the Shift Plan is based on a transformation of the company’s R&D activities for greater efficiency and a reallocation of resources to focus on future technologies while making a significant reduction of fixed costs. In addition, ALU is making pursuing what it calls “social actions” in order to restore its competitiveness in the marketplace.

Image via Shutterstock

The details presented to the European Works Council (ECID), the organization representing the interests of employees, were comprehensive and representative of how far and fast Combes would like to move in his transformation efforts. They include a commitment to achieve fixed cost savings of €1 billion ($1.35 billion), or more than 15 percent of fixed costs, by the end of 2015. This will be achieved by:

  • Reallocating R&D investment to next-generation technologies which should represent 85 percent of R&D spend in 2015, as opposed to 65 percent today.
  • Reducing R&D spend in legacy technologies by 60 percent.
  • Reducing administrative, sales and support functions to bring SG&A costs in line with industry standards.

CEO Combes said: "We launched The Shift Plan in June to give Alcatel-Lucent an industrially sustainable future. The strategic choices we made have been validated by our customers. To carry out this plan we must make difficult decisions and we will make them with open and transparent dialogue with our employees and their representatives. The Shift Plan is about the company regaining control of its destiny."

ECID was presented with the need for a net reduction of approximately 10,000 jobs worldwide by the end of 2015. The pain is going to be shared across all ALU operating areas. There is a planned reduction of 4,100 positions in Europe, Middle East and Africa, 3,800 in Asia Pacific and 2,100 in Americas. By the end of 2015, Alcatel-Lucent will also halve the number of its business hubs globally.

The focus of the presentation was obviously on France. Key activities in the country will include greater R&D focus on 4G and IP platforms, in particular with the creation of a new small cells competency center, and a continuation of focus on optics along with a strengthening of talent in mathematics, which is central to the creation of next-generation network software.

Business activities in France dealing with service providers will be concentrated in two main sites – Villarceaux, south of Paris, which will become Alcatel-Lucent’s primary R&D center in Europe and one of the world’s largest R&D campuses, and Lannion, which will specialize in ultra-broadband mobile access and subscriber data management (SDM) technologies.

In the short-term in France, the company intends to reduce approximately 900 positions in 2014 primarily in support, administrative and sales functions (via a legally-compliant program know in France as Plan de Sauvegarde pour l’Emploi), as well as recruiting 200 engineers and technicians with new technical competencies. The plan is also likely to result by the end of 2015, in internal mobility, transfers to partners and redeployments for approximately 900 employees whose jobs will be retained, inside or outside the company.

Given the long-term struggles of Alcatel-Lucent to ensure not just its survivability but also profitability the actions while extensive are certainly in line with the need for something more than fixes at the margin. Market realities, as many in the sector have discovered, are a cruel task master. The need for speed in developing forward looking solutions for service provider customers who themselves are under enormous stress, coupled with intense global competition and uncertain economic times are all part of the mix driving what is a watershed moment across the telecom landscape. Indeed, industry restricting has become the order of the day, and making sure you are one of the strong who will survive has become job one. The shift is on, and investors will be watching closely to see if the execution of the plan can bring the desired results.

Edited by Alisen Downey
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