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HR Restructuring at Lucent Technologies

            
 
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Case Details:

Case Code : HROB055
Case Length : 11 Pages
Period : 1998-2004
Pub Date : 2004
Teaching Note :Not Available
Organization : Lucent Technologies
Industry : Telecom
Countries : USA

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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"Things weren't centralized or standardized as a result of some of the company's rapid growth - both organic and acquired - and the culture. As a result, in many cases, services were being provided in different ways among the various business units, and there hadn't been a focus on leveraging efficiency across the company."1

- Ray Goldberg, Vice-president, North America Operations, Technology & Service Delivery, Lucent Technologies, in 2003.

Management Reshuffling at Lucent

Lucent Technologies (Lucent), an entity spun off from telecom giant AT&T in 1996, gave Wall Street investors and analysts a shock when it announced in January 2000 that it was expecting earnings per share (EPS) for the first quarter of fiscal 1999-2000, of just around 36 to 39 cents, as against the earlier projection of 48 cents.

Up until this point, the company had exceeded EPS projections for 15 consecutive quarters, and had become the darling of Wall Street. In late 1999, Lucent's stock price of $63 was nine times that of its IPO issue price of $7 in April 1996 (See Exhibit I).

Human Resource and Organization Behavior | Case Study in Management, Operations, Strategies, Human Resource and Organization Behavior, Case Studies

A few months earlier, Lucent had projected growth of 20% to 25% in its overall earnings for the fiscal year ending September 2000 over its actual earnings reported in fiscal 1999. But, as it turned out, the company was able to record only a 7% growth in revenues during the whole of fiscal 1999-2000 (See Exhibit II).

In 2000, Lucent was faced with a severe financial crunch chiefly because of its top management's poor financial management and adverse market conditions. Since fiscal 1998, Lucent's growth in finished stock (equipment ready but unsold) and accounts receivables (sales for which cash was yet to be received) had been much faster and greater than its growth in sales.

As a result, the company did not have enough funds to invest in new technologies. Lucent had acquired many technology companies in the late 1990s, but most of them were in their maturity stages, and had no cutting edge technologies in the pipeline. Analysts faulted Lucent for paying too high a price for these acquisitions2 (especially for Ascend Communication).

Lucent's inability to deal with the problems because of the mismatch between its own organizational culture and the culture of the companies it acquired led to an exodus of many talented employees. As Lucent promoted autonomy in its business units, standardization of HR policies and processes also became very difficult. This disabled the company from dealing with issues relating to corporate culture and developing effective strategies to retain good employees. On account of the company's failures on several fronts, the board of Lucent announced that it had asked its chairman and CEO, Richard McGinn (McGinn) to step down.

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1] "Exceeding Expectations," http://was4.hewitt.com, Vol 6, Issue 3, 2003.

2] Octel Communications Corp ($1.8 bn, October 1997), Livingston Enterprises Inc. ($650 mn, December 1997), Prominet Corp.($200 mn, February 1998), Ascend Communication ($24 bn, January 1999), Chromatis Networks ($4.5 bn, June 2000) were some of Lucent's major acquisitions between 1997 and 1999.

 

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