George Riedel, a former Juniper Networks executive, was named Nortel Networks’ chief strategy officer in February as part of a thorough senior-management housecleaning effort conducted by Mike Zafirovski, who became Nortel’s CEO last November. Zafirovski has since shed some light on the company’s reform plans, which include the goal of holding 20% of every market in which the company competes. On the second day of the Globalcomm trade show earlier this month, Riedel (who also offered his insight in a panel discussion at the show) spoke with Telephony’s Ed Gubbins about the company’s strategy and the long road of reformation.

On what a CSO does: When I tell my kids what a CSO does, they go, “I don’t know what that means, Dad.” I think of this as having four responsibilities: Strategy development, in concert with the CEO and executive team, integrating and developing a corporate strategy, which is a combination of the bottoms-up efforts of the business teams and a top-down view of where we want to go. Second is business development. There are a set of emerging opportunities that fall into the category of business development. Are they strategic partnerships? Is it M&A? Is it business development? Yes. So there are activities in my shop that focus on those different roles. Third is communication to the internal and external audiences. Where are we going and why, and how do we see success in the world going forward? Fourth is capability-building in the broader part of the organization: how to think about strategy, how to do problem-solving, how to ask strategic questions, how to get alignment around decisions. That’s the high-level version of what I do.

On the stages of Nortel’s evolution: There’s a four-stage operating rhythm. Session One is focused on people and organizations. Session Two is strategy. Session Three is multigenerational product development (so if that’s the strategy, what’s the roadmap need to look like?). And Session Four is budget and financial stuff. We’re in Session Two right now, a robust dialogue around where we see opportunities to lead and be distinctive and where the value’s going to be--to use the hockey expression, skate where the puck’s going. We’re in the midst of that right now. It’s been very stimulating. We’re probably [as of June 6, 2006] three weeks away from wrapping that up and then being able to go to the board with a set of conclusions and recommendations about what the strategy looks like. After that, our open expectation is communicating what we can. Some of it won’t be broadcast; some of it we’ll have to be able to be a bit more thoughtful about when and how we communicate. But we’ll communicate enough to give people confidence that we do, in fact, have a coherent vision, a sense of where we want to take the company in the context of the industry. That’s where I spend a lot of my time today.

On whether mergers and acquisitions are a Session-Three focus: Not so much. Session Three will be more around existing product development roadmaps, whether it’s the telephony side, the data side, or applications and services. We spend about $1.9 billion in [research and development] today. [Session Three is] designed to answer two questions: Where do we have gaps in the portfolio (not how to fill them, but where the gaps are) and secondly, what’s the longitudinal roadmap of investments we’re going to make? We’re trying to get a lot more disciplined about time to market and “plan of record”: Having established a product roadmap, saying, “Here’s what we’ll have in terms of features, functionality and cost and breadth of platforms. Let’s commit to that plan.” Mike [Zafirovski]’s been very ardent about reinforcing the say/do ratio, saying, “Let’s commit and execute.” That’s the principal focus of Session Three.

On WiMAX, IMS and IPTV, three areas Zafirovski pledged investment in in February: WiMAX, IMS and IPTV were areas that, earlier in the year, we said we should put an incremental effort into (new investment) because we see growth and opportunity there and because we see an opportunity to be distinctive in them. We continue to believe those are important areas. For example, we tripled the investment we were making last year on WiMAX. We’re accelerating time to market on some of our own products. We’re getting a lot of good feedback from early customer trials. There’s a lot of energy and momentum building in WiMAX; we’re excited about that. Same thing with IMS. Part of the challenge for us is: We have a large installed base of TDM and now [voice-over-IP] customers--I think 500 or something like that--and an ability to therefore migrate that large base to IMS architectures. Frankly, we haven’t done as good a job in the perception battle there as we perhaps could. I don’t think it’s as much a product gap as a perception gap. I think we will see more energy around telling a better story there. IPTV is an area where, particularly in North America and frankly around the world, a lot of investment is going. Going forward, I think you’ll see video in a range of areas, not just IPTV. We think video--as an application or as a dynamic--is going to fundamentally change a number of things, whether it’s mobile networks, devices, metro Ethernet infrastructure or back-office infrastructure. We see video as a huge wave of change. IPTV could get pigeonholed as, “Let’s put on-demand or broadcast content down a broadband wireline infrastructure.” That’s too narrow and constraining a definition of IPTV. If you said, “Let’s broaden it to video--either on-demand or otherwise--delivered through a range of access networks across a range of devices,” that’s a much more useful way to describe it. Those three areas--WiMAX, IMS and IPTV--fit in the broader context of what we want to do going forward. Those aren’t the three pillars of the company going forward. I’d characterize them as important new investment areas we launched earlier in the year that fit in the broader context of the strategic plan--a subset of the strategic plan.

On a first-quarter uptic in R&D spending on Nortel’s Packet Networks and Enterprise Solutions segments: I wouldn’t read too much into Q1 as a predictor of the future in terms of incremental opex for R&D. We did make some initial investments to get some of these programs out. The more telling answer will come as a result of what we do in Session Three, when we’re funding next-generation product development. Part of what we’ll stare at in Session Three is the funding requirements to deliver these multigenerational product plans. I don’t see a model of the world where we spend more in aggregate dollars than the $1.9 billion we do today. We believe there are opportunities to do what we do more effectively and efficiently. You’ll see more process improvement. How do you get more leverage in the development process, how do you get more cross-platform synergies, so we end up getting more bang for the buck? (It’s a trite phrase, I know.) And then [we’ll use] the proceeds we hope to free up from that to reinvest in other areas.

On orthogonal frequency-division multiplexing (OFDM): I think everybody recognizes OFDM is going to become, for spectral efficiency reasons, a building block. The distinction we bring to the table is MIMO. The combination of those two delivers performance and cost benefits that we think is going to be pretty substantial relative to other solutions. We’re excited about that.

On accounting issues: As of today [June 6, 2006], we’re finally current with our financials, which is a statement we’re happy to make. There are a number of material weaknesses in our financial controls. We identified five of them and laid out a plan to close those. Having said that, the perception lag is also there; we acknowledge that. The best way to address that is to do what we’re doing, which is: How do we transform the company, how do we get profitability and financial health back into the system to restore the franchise on all the expected fronts? Whether it’s on an M&A front or an investor front or an employee front, how do you restore a sense of confidence about the world going forward? The short answer is: You start making money. We haven’t made money since 1998. It’s not something we’re proud of. We’ve identified in this business transformation $1.5 billion in improvements and somewhere between 300 to 500 basis points per year in operating margin improvement. “Show me. Put it on the table.” We’re seeing now the very early signs of being able to do that. The proof will come in coming years and quarters. That’s the thing we can do the most to address the broader concern about [whether] all the troubles [are] really behind us.

On internal cultural challenges: Six weeks ago, we said, “Hey, this metro Ethernet thing looks really interesting. We’ve got the ability to add some incremental investment, to change the organization, get on the front foot, so to speak, and to lead with that.” We now have a guy who’s the president of a new organization called Metro Ethernet Networks. We’ve added a bunch of incremental investment. We’ve engaged a bunch of large customers. We didn’t spend six months debating it or analyzing it. We had a one-day session where we had a couple plans come together. We had a follow-up discussion. The next week, we decided to go do it. As one example of our ability to put in place a team, an important opportunity and some resources to exploit it, it gives me a lot of comfort that we can replicate that or scale that up to go after other things. We’re still a 34,000-person organization, so it doesn’t change overnight, but we’re not in this treacle of indecision and long, drawn-out periods of internal navel-gazing. There’s a sense of urgency. There’s a plan coming together. There’s a team committed to that plan. While culture takes time to change, folks look to these kinds of examples as tangible proof points that we are back on the march and restoring momentum to the place. I think that will have a catalytic effect as it spreads.

On the pace of change: From the external community, I get a lot of, “Why isn’t it happening faster? How come you can’t tell us or show us this now?” If you think about the turnaround we have under way and compare that to other major turnarounds--say Gerstner’s turnaround of IBM or maybe Jobs’ at Apple--I don’t have all the facts, so I say this more as a belief: It feels like we’re as far and as fast down the path as you can get. The results still need to turn up and change, so there’s still a fair number of skeptics out there. But in terms of the energy that’s going in to change it, I’ve used this phrase with my colleagues: Newton’s law of force equals mass times acceleration. There’s lots of force going into changing these things. But there’s an expectations gap in the timing. We’re putting in fundamental changes to how we run the company. We said it will take three to five years for that to show up in its full bloom, if you will. It’s more a question of the ability to demonstrate the change impact, pulling the lever today to cause the change versus seeing the change manifest itself in a set of numbers.