Lucent Technologies New Venture Group

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Lucent- Red Ring of Innovation?
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Lucent Technologies New Venture Group

• Lesley Fanning
• Susan Gillingham
• Madeline Holden
• Jonathan Lacey

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Overview

• Lucent Technology Background
• Key Players The Team
• Timeline
• New Ventures Group Background
• Lucent Vs. ATT
• Breaking free from ATT
• ATT Monopoly
• Mindset Change
• Phantom World
• Ventures (elemedia, Lucent Digital Radio,
  Watchmark)
• Problems
• Strengths
• Entrepreneurship within NVG
• Risk Assessment/Management
• Present state of Lucent and NVG

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Lucent Technology Background

• World Leader in telecommunications
• Birth of Lucent from ATT
• Lucent become a global leader
• Lucent Goes Public

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Lucent Background (contd)

• Key Ventures
• Elemdia
• Digital Radio
• Watchmark
• Lucents Recent History
• 136 million share turnover
• 38 Billion Revenue
• 149 Net Income Growth

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Key Players The Team

• Dan Stanzione President, Bell Labs
• Tom Uhlman President, NVG
• Steve Socolof VP, NVG
• Joe Mele CEO of elemedia
• Krishna Murti CTO of Elemedia/Lab Tech
• Surren Pai Leader PAC Tech Project
• Deborah Hopkins Lucents CFO
• JC Huang Watchmark

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Timeline

• Sept., 1995 Formation of Lucent
• April,1996 Lucent Public
• Sept., 1996 elemedia
• Nov., 1997 Jan, 1998 NVG
• May, 1998 Lucent Digital Radio
• 1999 Watchmark

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New Ventures Group Background

• Allowed Uhlman to create a entrepreneurial team
• 3 Staff Levels
• Leadership Roles
• Entrepreneurs in Residence
• Staff Specialists (HR, Legal, PR etc)
• Allowed the group to network and build expertise
  and relationships both inside and outside of
  Lucent
• Status as a solitary operating group gave them
  autonomy and visibility within the company.
• Allowed in-house development and saves costs.

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Lucent Vs. ATT

• Executives at Lucent wanted to differentiate its
  strategy to that of ATT.
• High paced innovation vs. slow moving
  monopolistic
• Created an Internal Venture Capital Function
  NVG
• Create new business
• Leverage research investment
• Cultivate an entrepreneurial reputation

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Breaking free from ATT

• ATT was referred to the worlds largest
  telephone company and cable television operator
• At peak, employed over 1 million people and have
  over 300 billion in yearly revenue
• Structure was very bureaucratic- little room for
  venture creation and entrepreneurial thinking
• ATT had a huge monopoly of the
  telecommunications industry for a very long time

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ATTs Monopoly

• First erosion to monopoly occurred in 1956 where
  a ruling allowed a third-party device to be
  attached to rented telephones owned by ATT
• Followed by the 1968 decision that allowed
  third-party equipment to be connected the ATT
  telephone network
• The rise of cheap microwave communications
  equipment in the 1960s and 1970s opened a window
  of opportunity for competitors
• Fiber optics revolution
• The rest of the telephone monopoly lasted until
  settlement of United States Department of Justice
  antitrust suit against ATT on January 8, 1982
• Effective January 1, 1984, ATT's local
  operations were split into seven independent
  Regional Bell Operating Companies known as "Baby
  Bells"
• ATT reduced in value by about 70

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• A sign that hung in many ATT/Bell facilities in
  1983 read
• "There are two giant entities at work in our
  country, and they both have an amazing influence
  on our daily lives . . . one has given us radar,
  sonar, stereo, teletype, the transistor, hearing
  aids, artificial larynxes, talking movies, and
  the telephone. The other has given us the Civil
  War, the Spanish-American War, the First World
  War, the Second World War, the Korean War, the
  Vietnam War, double-digit inflation, double-digit
  unemployment, the Great Depression, the gasoline
  crisis, and the Watergate fiasco. Guess which one
  is now trying to tell the other one how to run
  its business?"

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Mindset Change

• Venture Mindset vs. Corporate Mindset
• Time
• Profit
• Funding
• Financial
• Failure/Success
• Risk
• Rewards

Group Activity Assess the different mindsets
between ATT and Lucent/NVG
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Phantom World

• Vision by Socolof and Ulman to allow ventures to
  reside in Lucent
• Designed to make Lucent Venture entrepreneurs
  think and act like a startup company in the
  outside world
• Sheltered from Lucents corporate demands
• Referred to as the halfway house
• Encouraged employees to take risks
• Recruited outside entrepreneurs to create a good
  mix of employees

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elemedia

• In September 96 announced as a Lucent corporate
  venture
• Team working on software for Internet telephony
• Lead by Krishna Murti (CTO) and Joe Mele
• Stanzione gave them a license to kill and
  created an entrepreneurial environment
• Operated completely independent from Lucent
• Was well positioned in the immature Internet
  telephony market and won numerous awards
• Eventually was spun into Switching and Access
  Systems unit of Lucent in June 99- became an
  important part to Lucents strategic future

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Lucent Digital Radio

• Technology that enables near CD quality digital
  sound for FM and AM signals
• Suren Pai (Engineer with a MBA)- first corporate
  staff member to become an entrepreneur
• PAC (perceptual audio coder)- created by an
  outside party
• The PAC project provided Lucent with value
• Announced as a Lucent venture in May 98
• All Lucent titles and levels were removed and
  completely new contracts were enforced
• Wanted committed, risk taking entrepreneurial
  spirit employees
• In Jan 99 syndicated to Pequot Capital- Lucent
  remained majority shareholder
• August 2000 merged with USA Digital Radio to form
  iBiquity Digital- Lucent still remains the
  largest shareholder

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Watchmark

• Software that enables wireless carriers to
  optimize networks for greater efficiency
• Tested NVGs ability to incorporate acquisitions
  into the venturing process
• Lucents Wireless Networks Group wanted to
  outsource their software business, Watchmarks
  president immediately saw an opportunity
• Not a corporate acquisition- referred to as a
  startup looking for a partner

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Problems

• Technologies being developed in company everyday
  but not being brought to the market
• Culture Change
• Underused potential of Bell Labs
• Compensation System
• Lucent interests vs. Venture interests
• Lack of Expertise
• Support Groups and Staff
• Corporate Strategy vs. Venture Mindset
• Resources
• Many opportunities- not enough people

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Strengths

• Creation of New Venture Group
• Culture Change
• Equity Compensation
• Acquisitions
• Planning and Implementation
• Management

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Entrepreneurship within NVG

• Entrepreneurship The consequence of actions
  based on the identification and exploration of
  opportunity in the absence of obviously available
  resources.
• Entrepreneurial Process The set of activities
  leading up to and driving the entrepreneurial
  venture.

Resources and Capabilities
Opportunity
Entrepreneur and Team
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Risk Assessment

• There are many different causes of organizational
  failure external and internal and thus it is
  of crucial importance to perform a risk
  assessment of the external and internal situation
  of the company.

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External Analysis

• External causes of organizational failure reflect
  trends and events that strike at the core of a
  companys business.
• External factors are beyond the control of
  management but not beyond managements control to
  foresee the possibility of such events and to
  consider their implications.
• Competition
• Sociocultural
• Technological
• Legal

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Internal Analysis

• Most experts agree that internal causes of
  failure are more common than external ones.
• Internal Failure is generally the result of a bad
  strategy, poor executive judgment or financial
  mismanagement.
• Strategy used by NVG and Lucent
• Quality strategy exploits opportunities in
  the marketplace
• Management
• Team effort and Team mentality.
• Management Depth
• Balanced
• Resource Allocation Issues
• Sociocultural Entrepreneurial culture of NVG vs.
  traditional culture of ATT
• Resentment issues other employees towards NVG

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Risk Management

• Initial Public Offerings (IPO)
• Lucent went Public
• NVG did not
• Why not?

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Group Discussion Questions
There are many different challenges to
establishing a new venture. (p.345) Answer the
following questions to assess the success of
Lucents New Ventures Group

• 1. Was it developed and validated with a
  supportive and entrepreneurial climate? How?
• Answer YES! Top management support from Dan
  Stanzione, president of Bell Labs and Lucents
  Network Systems, who gave him full reins on full
  authority. License to kill given to Joe Mele.

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• 2. Were products/services related or radically
  different than Lucent?
• Answer They were related Products and services
  were coming from ideas from the Bell Labs that
  never had the opportunity to grow underused
  potential.
• 3. Do NVGs products/services appeal to a subset
  or current set of customers?
• Answer NVG was able to create and take
  advantage of new emerging customers both
  through new products and through spin offs and
  acquisitions opportunities which would not
  otherwise have been available with out NVG.
• 4. How does NVG employ market experienced
  personnel?
• Answer NVG went outside and recruited expertise
  e.g.. Global Leadership Development Program

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Strategic Change

• Significant changes in resource-allocation
  choices or business activities that align the
  firms strategy with its vision.
• Pathway to a Successful Strategic Change
• Communication
• Skills
• Incentives
• Resources
• Structure
• Execution of plan

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How to keep a venture entrepreneurial that has
been spun off

• Continuous and strong Top/Upper management
  Support
• Experienced Management
• Availability of Resources
• Foster an entrepreneurial Culture
• Motivated Team of Entrepreneurs
• Independence and autonomy
• Risk and Rewards must be interlinked

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Present state of Lucent and NVG

• NVG joined up with Coller Capital (private
  investor)
• New Venture Group becomes New Venture Partner
• Transferred financial risks from a public company
  to a group of private equity investors.
• Lucent retained 20 upside of NVP
• Effectively this was a Innovation Bond
• Lucent merges with Alcatel April 2006

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Thank You!

• Questions? Comments?