CRN Interview: Mike Zafirovski, Nortel Networks CEO

Nortel Networks President and CEO Mike Zafirovski explained his plans to rejuvenate the company's enterprise business and channel strategy in an interview with CRN Assistant News Editor Jennifer Hagendorf Follett. Here is an excerpt.

CRN: What are Nortel's channel plans for 2007?

ZAFIROVSKI: As a company, we're really excited about the future. We've looked at our capabilities, looked at where we can add value to our customers and emerging market trends, and we've really identified three areas we see as most important for the year.

One is to lead in next-generation mobility and convergence. ... We're making a big commitment to WiMAX. The second area is a big commitment to services as an area of focus. We have been able to generate about 20 percent of our revenue in services, and we want to double that as a percentage of revenue over the next three to five years. ... And third, and most exciting, is what we refer to as 'enterprise transformation.' We have a very strong position in voice from our TDM [Time Division Multiplexing] and VoIP capabilities, accompanied by a greater level of SIP applications.

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I articulated on our first earnings call that we have very good products but haven't done a good job selling and marketing those products, as well as working closely with our partners. This, I guess, is a long introduction to your question, but we're working pretty much all of this year to significantly enhance our capabilities in the enterprise space.

One of the things we're looking at specifically is increasing the velocity of new products -- that's No. 1. No. 2 would be working to go from playing defense to playing offense, which includes a very bold relationship with Microsoft, and working closely with our channel partners on programs like IPT 1-2-3, where we are accelerating and simplifying the process of going from PBXes to VoIP.

We're adding a significant amount of resources in indirect sales, so there are big plans and a commitment to growth. We want to be leading as opposed to playing defense, which we have to a large extent been doing over the last three or four years.

CRN: How do you balance Nortel's services push with the company's channel push, since many of your partners will be looking to provide services of their own?

ZAFIROVSKI: Most of the time, it's very complementary. We've been able to provide a significantly increased level of tools and applications that our channel partners will be able to deliver to the end customer. I'd say 70 percent to 80 percent of the time it's complementary. As part of our increasing focus in the enterprise space, we've identified 50 to 60 global accounts that we'll be going at directly, but most of the services business is still pulled through channel partners.

CRN: So what happens the other 20 percent to 30 percent of the time?

ZAFIROVSKI: Occasionally, you may have overlap, and I am very confident that in those cases that it is occasionally. You may have a situation where a customer asks us to provide something directly, but we do believe that's in a minority of cases.

In totality, our channel partners will do very well with our increased emphasis on increasing product velocity, much greater margins with Nortel than I believe with any of our competitors, and a commitment to be much simpler [to work with] and more flexible than our competition. So in totality, the overall experience for our channel partners will be significantly better than it ever has been before.

NEXT: Nortel's SMB channel strategy, financial issues and the Microsoft alliance

CRN : There's been a concerted effort on Nortel's part since June to focus on the SMB segment. Can you talk about the success you're seeing there, and what have been the most important channel initiatives undertaken there?

ZAFIROVSKI: Absolutely. We have just started our new approach to the enterprise, our so-called business transformation initiative within Nortel. The nature of that initially was to increase our profitability, so most of the business transformation effort was to improve our processes to be improving our cost-effectiveness in R&D. ...

One significant [piece] of the business transformation process is to really look at our go-to-market [strategy], starting with North America and our enterprise business, our go-to-market activities, and look to make appropriate changes. One of those is a lot of emphasis on the SMB market, including the development of products like the BCM 50, which you can refer to as an office in a box. There are also a number of other solutions we have for that segment.

Our IPT 1-2-3 program has been a very effective way to migrate our legacy customer base to VoIP. In my opinion, it is the most important enterprise initiative we've had in the last six years. We've also created an indirect sales organization that [pushes] leads directly to our channel partners. They've been able to achieve 120 percent of their lead generation goal.

There's also been an increase in partner training. I'll give you some statistics here. We have almost 1,500 sales reps and sales executives trained, which is a more than 70 percent increase on average month-over-month from July to December, just in that six-month period. And we averaged an 87 percent increase in sales quotes for the third quarter.

CRN: Many of your competitors talk to solution providers about Nortel's financial status and the long-term viability of the company -- questions I'm sure you've been asked many times. So what is your response to channel partners when they ask those questions?

ZAFIROVSKI: Concerns are substantially less because we have a pretty sophisticated customer base. Our restatements were completed in the second quarter. [Editor's Note: Nortel said last week that it would need to issue additional restatements.] We refinanced in July, so we have well over $2 billion in cash, and we are a $10 billion market-cap company, which is pretty significant ... and we have management team that I believe is as good as any in the industry, with a lot of passion and commitment behind it.

CRN: What impact do you expect Nortel's partnership with Microsoft to have on your channel partners?

ZAFIROVSKI: The immediate impact on Nortel and our channel partners is a significant increase in interest in Nortel and our [products]. ... In terms of the eventual impact, we think it's going to be good news in driving service revenue for both of us.

CRN: What are your main goals for 2007?

ZAFIROVSKI: To really demonstrate traction in the growth areas that we've identified. Enterprise is at the top of the list, [with] services very important to us.