Denzil Doyle

How latter day Nortel lost its "money gene"

By Denzil Doyle

To say that Nortel will be missed on the Ottawa high-tech scene is the understatement of the decade. Over the years, it has served as a convenient source of people and technology for companies of every size. It has also been very active in R&D partnerships with local universities and government laboratories. Above all, it gave the Ottawa cluster respectability. When our companies went selling around the world, they were often quick to point out that they were "just down the road from Nortel."

From the day that Northern Electric moved most of its R&D activities to Ottawa from Montreal in 1962, the region's high-tech industry began to change from a defence-oriented industry to one focused on telecommunications. Those activities were later folded into a new corporate entity known as Bell Northern Research, which was jointly owned by Bell Canada and Northern. The entity was very successful in that Bell provided information on what telephone companies around the world wanted in the way of products and services and Northern had the engineering expertise to design and deliver them.

Northern also had good management. Its president at the time was John Lobb who got his basic training from Harold Geneen, president of International Telephone and Telegraph Corp (ITT) and one of the US legends business in the 50s and 60s. It was Dr Lobb who turned Northern into a multinational company. He pointed out to the board of Northern that it was silly to have all that technical and marketing expertise to serve only one customer, namely Bell Canada.

The Lobb influence is worth recalling, because one of the things that was noteworthy about most of the Nortel people that left the company to pursue their own dreams was their management depth. They had no illusions about how difficult the road ahead would be and they took the time to understand the importance of strategic plans, operational plans, budgets, and cash flow projections and all the tools that go along with running a business. The result was that Nortel "graduates" had a fairly high success rate and they could get the ear of investors more easily than their counterparts who had come from other companies and other industries. With the loss of Nortel, the Ottawa area will lose some of its luster as an investors' mecca.

The 2008 version of the Ottawa-Gatineau "Family Tree" of high-tech companies published by Doyletech Corp shows that about 500 of the 1500 companies that existed at the time could be traced to Nortel. More specifically, many of them can be traced to Microsystems International, a subsidiary that had been set up to design and manufacture semiconductor devices. It spawned companies like Mitel, which in turn spawned companies like Corel and Newbridge. They became powerful multinational enterprises in their own right.

Readers of this article would be justified in questioning my endorsement of Nortel's management culture while we are watching one of the worst management fiascos in Canadian history play itself out. Others, especially those who experienced John Lobb's autocratic management style, may question that endorsement as well. However, based on my interaction with the company at that time (primarily as a computer supplier) I admired the company's ability to not only come up with innovative products but with product migration strategies that called for their cannibalization when they reached their "best before" dates. Having been a director of more than 25 companies in my lifetime, I can say that it is a common Canadian disease. Most CEOs try to wring too much life out of their products.

There are many theories making the rounds today about why Nortel failed and such theories will multiply over the years in business classes the world over. The people who develop them would be delinquent if they did not take the time to study the disconnect that was allowed to occur between the John Lobb era and the eras that followed him. It would be a mistake to classify him as just another gun slinger who was called in to fix the company. He created the company, at least the multinational version of it. He was tough but he was effective. He left the company in good shape.

One of the more informative books on corporate failures traces the demise of Digital Equipment Corp. It is entitled "DEC is Dead, Long Live DEC" and was written by Edward Schein, who served as an advisor to the company for years. It makes frequent references to the "business gene" and the "money gene" and argues that DEC had lost the money gene that had made it so successful in its early years. There are many parallels between the two cases. The business schools should focus on how Nortel lost its money gene. It was certainly there in the days of John Lobb.

Denzil Doyle is chairman of Doyletech Corp, an Ottawa-based consulting firm providing services to entrepreneurs, investors, policy makers and economic development authorities. From 1963 to 1981, he directed the affairs of Digital Equipment Corp's Canadian operations. From 1995 to 2005, Doyle served as chairman of Capital Alliance Ventures Inc., an Ottawa-based venture capital firm specializing in technology investments.