Captain of the Titanic, “Lunch will be a little late tomorrow”

Here is NSN’s CEO Rajeev Suri email to employees telling them to “ignore the screams you hear coming from the backroom and keep working.”  By the end of this long email, I almost had forgotten what the topic was. Oh, was there a topic.

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Dear colleagues,

In the middle of July, we announced that we would share our future plans in the coming months.  We are now ready to take that step.

As we do so, we cannot be in denial about the challenges that we face.  Our profitability remains far too low, with huge net losses since the start of the company.  We continue to burn cash and have consistently generated negative free cash flow.  We have too many businesses that have never produced adequate returns and regions that continually deliver losses.

Our quality is not where it needs to be, and we must accelerate innovation in the core areas of our business.

Now is the time to tackle these fundamental issues.  Our shareholders have contributed capital for the last time – and they expect a return on their investment.  Delivering that return requires changing our strategy, cost structure and way of working.  It requires us to pursue a wide range of productivity and efficiency measures, and act with more financial focus and discipline.  And, regrettably, it means that we have to make deep headcount reductions – in the range of 17,000 – across the company.

Only with these steps will we be able to create a company that has the strength to become independent at some point in the future.

Our strategy: focus, innovation, quality Strategy is all about choices – both what we will do and what we will not do; where we will invest and where we will reduce.  Our new strategy can be summarized in three simple words: focus, innovation and quality.  Let me talk a bit more about each, starting with focus.

We will focus on becoming the strongest, most innovative, and highest quality Mobile Broadband and Services company.  Rather than targeting the full spectrum of telecommunications equipment and services, we want to be the company that provides the most efficient mobile networks, the intelligence that maximizes the value of those networks, and the services that make it all work seamlessly.  We already have a strong #2 position in the world of mobile infrastructure and services, and that gives us a platform for building future leadership.

As a result of this shift, we plan to separate our businesses into four categories: lead, attach, adapt and exit or maintain:

1.    Mobile Broadband and Customer Experience Management will be our lead businesses, where we will maintain or increase investments to ensure a strong market position.

2.    Care and Network Implementation – both part of Global Services – will be attached closely to, and expected to perform in parallel with, our lead businesses.

3.    Managed Services and Consulting and Systems Integration – also both part of Global Services – will be adapted to meet our narrower portfolio and deliver greater profitability.  Optical Networks will also be in this category, with a focus on building a strong base of select customers and leveraging its strong linkage to mobile broadband.

4.    A wide range of other businesses – such as perfect voice (fixed-line VoIP), broadband access, WiMAX, narrowband, carrier Ethernet, business support systems (BSS), and communications and entertainment solutions (CES) – will be targeted for exit (possibly through divestment) or put in maintenance mode.  Our recently announced plan to sell microwave transport to Dragonwave is an example of this approach.

We will take a similar approach to our regions, setting clear priorities for each:

1.    Japan, Korea and the United States will be our three priority countries – and it is in these three markets that we absolutely must succeed.

2.    The Middle East and Africa will be the focus of intensive turnaround efforts, continuing the work the new leaders in each have started, targeting a more limited set of customers and countries.

3.    In the remaining regions – Latin America, Greater China, India, Asia-Pacific, North America (Canada) and our three European regions – our goal will be to defend our share and find areas for future profitable growth.

The final area of the focus part of our strategy is about the customers that we will pursue.  These customers will be Telecommunications Operators – and not customers in other verticals (with the exception of GSM-R and select government business).

Innovation will be the second leg of our strategy.  Our commitment to innovation and research & development remains unchanged.  While we plan to narrow the businesses we are in, we will ensure that our lead areas have the resources they need to succeed.  We said publicly today that our investment in Mobile Broadband will increase in the coming years, and that commitment is an essential part of our strategy.

Quality will be the third leg of our strategy.  In an industry that tends to over-promise and under-deliver, quality can be a true differentiator – and we will make it one for NSN.  Going forward, we will devote much more attention to quality – in terms of both money and time.  We know we have not always been good in this area, and we will invest what is needed in capabilities like end-to-end testing, tools, automation, dedicated resources, customer-focused metrics, and training.

Restructuring program

The choices we need to make go beyond strategy – we need to align our cost structure to our new strategy and also pursue a wide range of productivity and efficiency measures.  These planned measures include elimination of the company’s matrix organizational structure, site consolidation, strengthening of global delivery activities, company-wide process simplification, service efficiencies, consolidation of certain central functions, and cost synergies from the integration of Motorola’s wireless assets.

We are setting a target of €1 billion in annual cost reductions by the end of 2013.  The regrettable reality is that the majority of these savings will need to come from organizational streamlining across the company.  Starting today, we will embark on a process to reduce significantly the workforce of Nokia Siemens Networks.  Overall, we see a need to reduce our headcount in the range of 17,000 by the end of 2013.

These are very large proposed reductions and we must seek to implement them in a way that is both fair and responsible.  As a result, we will launch locally-led programs in the most impacted areas to provide the support we can to individuals and communities.  Country-specific planning related to the required reductions will now take place, as will the preparation to share that information with you and employee representatives at the appropriate time.

Organization: simplicity and accountability In order to get our organization aligned to support our sharpened strategy and to ensure that we have clear lines of accountability and are able to drive significant reductions in the ranks of senior and middle managers, we plan to make some deep changes to our organizational structure and mode of operations.

Let me highlight some of the most significant parts of this proposed change (which is subject to consultation processes in certain countries):

1.    Customer Operations (CO) will be divided into three clusters.  Ashish Chowdhary will lead CO Asia and Middle East, which covers the APAC, Japan, Greater China, India and Middle East regions.  Armando Almeida will lead CO Europe and Africa, covering North East, Western Europe, South East Europe and Africa.  And, we will appoint a leader to run CO Americas (during the transition LAT and NAM will report to Armando).  CO will have total ownership of sales and delivery and the complex sales matrix with business units will be dismantled.

2.    Our business units will be Mobile Broadband, led by Marc Rouanne, Customer Experience Management, led by Amiram Mel, and Optical Networks, led by Herbert Merz (who will also continue to lead Operations).  Business units will focus on R&D, roadmaps, quality, strategy, and technological competitiveness.

3.    Global Services (GS) will be led by Bosco Novak and will focus on portfolio, strategy, competence development, tools, automation and global delivery.  Services execution will be driven by a strengthened Services organization in the three CO clusters.  Bosco will also assume responsibility for the Quality organization, which will continue to be led by Deepti Arora.

4.    Central functions will be streamlined, with both Strategy and Business Development (SBD) and the Corporate Development Office (CDO) being disbanded.  Information Technology will move to the CFO organization and the remaining parts of CDO and SBD will be distributed to other teams or the work will come to an end.

5.    Given the reality that we expect to face at least two years of restructuring, we will create a central team focused on that task, led by a Chief Restructuring Officer who will report to Marco Schroeter.  Alexander Matuschka, who has extensive restructuring experience, joined earlier this month to take that role.

Our goal is to implement these planned changes as rapidly as possible and as the planning proceeds, we will provide more detailed information related to the expected changes in your specific area.  The leadership changes discussed above take effect on December 1.

As we make these announcements, I’d like to offer my special thanks to Michael Matthews, who has played a critical role in getting us to this more focused strategy.  While Michael will continue to advise us on some key aspects of this plan, he will move on to another opportunity outside of NSN in the near future with our gratitude and best wishes.  We know that he will always remain a friend of NSN.

Pekka Soini’s future role will be announced later.  In the near term, he will ensure a smooth integration of CDO units into other parts of the company and continue as country director for Finland.

Moving forward: change is us

Even if we succeed in executing our strategy, cutting costs, and realigning our organization, our success as a company is still not guaranteed.  These are structural changes; we also need personal change.  That personal change does not mean your manager or the person sitting next to you.  It means you.

We have shown we have passion for technology; for customers; for growth.  Now, we need to show an equal passion and personal commitment to delivering profits and generating cash; to creating real shareholder value.  No company can survive for the long term without delivering in these areas.  Our customers know this to be true, and have expressed support for our plans.

The next part of our journey will not be easy – but it is necessary.  It requires everyone in the company to step up once again and pull together with a common purpose.  We have done it before and I have no doubt that we – that you – can do it again.

Let’s join together to make it happen.

With thanks,

Rajeev