In today’s telecom equipment industry, where consolidation is the name of the game, the Nokia-Alcatel-Lucent acquisition was fairly predictable. Alone, neither Nokia nor Alcatel-Lucent had what it took to compete with market leader Ericsson. Together, they could stand a better shot.
But while it wasn’t much of a surprise, this acquisition has nonetheless been met with doubt and dissatisfaction. Share values for both firms have fallen, Nokia lost 4% and Alacatel-Lucent 21%, and management is in upheaval. But even in the arcane world of telecom equipment – the industry that quietly keeps the internet running – new energy and innovation will be needed to overcome the challenges of the digital transformation including The Internet of Things and The Cloud.
If the new Nokia-Alcatel-Lucent wants to turn things around and compete effectively with Sweden’s Ericsson, the market leader, and China’s challengers Huawei and ZTE, they’ll need to get over three major hurdles:
1. Settle into a new corporate culture
For both national and cross-border mergers and acquisitions (M&A), the human factor critical for post-merger success. This is doubly true for mega-M&As like Nokia’s purchase of Alcatel-Lucent for over €15.6 billion ($16.6 billion). Examples abound where a clash of corporate cultures has spelled disaster.
Alcatel was an old, established French firm when it merged with Lucent back in 2006 – and the results of this consolidation have not yet achieved their full potential. The dominant corporate culture here is still the traditional French bureaucratic machine, with a large degree of separation between the hierarchical levels, limited diversity and few women in top management positions. While both the French and the Finish tend to be risk takers, the French tend to be focused on more long-term goals. The Finish Nokia, on the other hand, has a distinctively Scandinavian corporate culture characterized by close proximity and greater fluidity between upper-management and staff, and high degrees of diversity: both in terms of gender and training.
2. Find the recipe for success
Even when firms are performing well, settling into a shared corporate culture remains the key challenge the new firm will face. For these two struggling firms, this hurdle will be all the more difficult to overcome when a third firm gets added to the mix. And how they come to a corporate culture and management style consensus will dictate how far they can go together.
When one ageing company acquires another, the idea is usually to match complementing capabilities, and compensate for each firm’s respective weakness. For Nokia-Alcatel-Lucent, the next strategy won’t be to replicate what its competitors Ericsson or Huawei are doing, but to bring something new to the telecom table and differentiate themselves from their direct competitors.
Nokia brings its mobile networks to the table and Alcatel-Lucent a strong capacity to build wireline networks. However, the U.S market has already shown us that these two technologies failed to combine to produce value. And even in the best-case scenario, for the deal to be transformative, both companies need to work quickly to reach critical mass focusing on their strengths, while shedding non-core assets. Nokia has already sold its mobile unit to Microsoft and is looking for buyers for its imaging division.
3. Step up to a new role as European Champion
Like National Champions, European Champion leverages both geography and technology, but on a larger scale: In the case of the Alcatel-Lucent acquisition, this is the first time a Finish firm has acquired a firm of a substantial size.
But what’s really significant here is that the move was welcomed by the French government who in the past have preferred to support National Champions– French firms whose strength was symbolic for the French economy. Nokia-Alcatel-Lucent is revealing of a larger movement from National towards European Champions.