Leadership in Global Business Janet Davidson Chief Strategy Officer April 2006 NCMA World Congress 2006

Leadership in Global Business Leadership in Global Business

Janet DavidsonJanet DavidsonChief Strategy OfficerChief Strategy Officer

April 2006April 2006

NCMA World Congress 2006

Lucent Technologies – Proprietary

Use pursuant to company instruction2

Pre-1984

AT&T – a regulated U.S. monopoly

Lucent – the R&D/manufacturing team for a monopoly parent

1984-1995

Post-divestiture – "freedom" to compete

– In existing and new industries

– Outside the U.S.

1996 Lucent IPO

1984-1996: The Lucent Heritage

Understand who you are!

AT&T

AT&T



1996-2000: Lucent AscendantMarket Conditions – Telecommunications

– Internet Boom

– Deregulation

– Service Provider market grew from fewer than 1,000 carriers in 1996 to more than 15,000 service providers by 2000

– Service Provider Capital Spending grew from $213 billion in 1996 to $310 billion in 2000

Lucent was one of several companies riding the growth curve …

– Grew revenue from $20 billion to $38 billion*

– Increased headcount from 131,000 at IPO to 157,000 at peak*

– Expanded customer base from hundreds to thousands*

– Introduced more than 260 new products

– Acquired 38 companiesDeregulation, unlimited access to capital, and Internet boom led to the most

intense growth period in the history of the telecommunications industry

* Includes Avaya, Agere, OFS , Power Systems



1996-2000: Lucent Ascendant

Pre-Divestiture 1984 1996+

A Few Other Suppliers

Hundreds of Suppliers

A Thousand Customers

Network Systems

And Seven RBOCs

Network Systems



2001-2006: The Lucent Transformation

Telecom market collapse forced dramatic restructuring involving fundamental, ongoing changes in: – Supply Chain (Manufacturing)

– Research & Development

– Customer Base and Relationships

– Competition and Partnerships

– Corporate Culture

Restructuring restored stability and positioned the company for growth in global markets



Supply Chain 1996-2000

During the telecom boom, Lucent had:

11 independent business units

>20,000 people employed in 29 factories– Five major manufacturing facilities in United States

>500 warehouses

$1.9 billion annual corporate manufacturing budget

$5 billion in annual inventory



Supply Chain Discipline Began in 2001

Formal Supply Chain Organization created in 2001 Reduced number of strategic suppliers from more than 1,000 to 90 by 2005

Developed sourcing strategies for about 70 different commodities, ranging from metals to memory chips

– Reduced commodity costs by as much as 50 percent

Moved $1.2 billion in fixed cost to variable cost by leveraging EMS providers

Globalization of supply chain and delivery mechanisms

– Two EMS manufacturers with global operations and facilities

– Four regional systems integration centers for test and delivery of customized regional solutions



Key Supply Chain Adjustments

2000 2002 2005$5.1 billion $1.4 billion $731 million3.7 turns 5.6 turns 7.2 turns

Managed Warehouses

500+ 1010 (50+ logistics

providers)

Supply Base

40% spend with 1000+ suppliers

(3,000+ total suppliers)

80% spend with 60 key

suppliers

85% spend with 90 key

suppliers

Customer Satisfaction Index

7.24 7.47 8.2

Inventory



Lessons Learned - Supply Chain

Initial disruption causes pain– Changes reverberate through product design,

development, manufacturing and distribution

– Flexibility in product management, R&D are critical

– Be clear about where you add value

– Metrics matter

Benefits are well worth the price



Lucent Main R&D Centers 1996-1999

Whippany

Lisle/Naperville

HolmdelMurray Hill

World-renowned Bell Labs Was a U.S.-Centric Organization Serving Primarily U.S.-based Customers



Lucent Main R&D Centers 2006

ShanghaiBeijing

Nanjing

Qingdao

Bangalore

Whippany

Lisle/Naperville Swindon

Holmdel

NurembergWestford

Campinas

Bydgoszcz

AlcobendesMurray Hill

Today, Lucent has 15 Global R&D Centers Aligned with Customer Concentrations



Lessons Learned - R&D

"World renowned R&D" means little if your R&D is not visible to your customers around the world– Local problems require local solutions

There are brilliant people everywhere – Hire them!– It makes no sense to limit your R&D team to one region

– It makes no sense to draw your ideas from one culture

Competing globally requires a competitive cost structure in all aspects of your operation

Diversity in R&D makes solid business sense



Customers

1984 1995 20061990 2001

Local and Long-distance Service Providers

Wireless Service Providers

CLECs

Cable, xVNOs, xVNEs

Global Service Providers

CLECs



Customers 1996-2005

In 1998, 40% of the world telecom spend occurred in the United States

In 1996, 77% of Lucent’s business was done in the U.S.

In 2005, 63% of Lucent’s business was done in the U.S.



Lessons Learned - Customers

Products and services that work in your home market may or may not be relevant in other markets

Every customer is unique … treat them that way– Use your unique skills/assets to help them solve their

business needs

Stay the course– Establishing a market presence/reputation takes time

– If you leave a market, it may be a lifetime decision



Competition

1984 1995 20061990 2001

Similar Companies with Regional Focus

Similar Companies with Global Scale

Fast High-Tech Startups

Low-Price Global Competitors

Global IT Companies



Lessons Learned - Competition

A regulated monopoly knows how to compete INTERNALLY

Every country is different

– Regulatory policy

– Political environment

– Industrial policy, …

Every competitor is different… know what makes you unique



People

Each shockwave requires culture change to survive

CompetitionCustomers &

Markets

R&D Globalization Supply Chain

Deregulation



Lessons Learned - People Change is a constant not an option

– Work on the "critical few"

– Stay the course

Communication is critical

"Culture" determines how quickly your people can anticipate and respond to changes in customer base, competition, technology and global politics

HR can be your most critical ally in creating a flexible, motivated work force– Never underestimate the need to communicate your strategy, your progress

and your values to your people

Compliance is important – Employees need to be trained

Hire and train 3-to-5 years ahead of your business



Key Takeaways

Globalize your supply chainGlobalize your R&DGlobalize your customer baseBe ready for global competitionGlobalize your work force

Do it, don’t fight it!

Documents

Leadership in Global Business Janet Davidson Chief Strategy Officer April 2006 NCMA World Congress 2006