Nortel Network is a leading telecommunications equipment manufacturer located in Canada. This company specializes in network equipment such as wireless, voice, multimedia equipment, telephone, cellular, and cable operators, etc (Nortel Network Home Page 2007). The effective value chain is important for Nortel Network as it influences all operations and logistics of the company. Effective organizational performance depends upon the value chain and allocation of resources. The value chain is extremely important for Nortel because it helps the company organize and control its activities around the world. Today, the company employs 31,500 people and operates in all parts of the world including Asia, Europe, Turkey, Australia, New Zealand, China, Hong Kong, etc.
Value Chain
Following M. Porter, the value chain is the sequence of activities, from start to finish, by which the product or service is transformed from an idea to a consumable form (Porter 34). For instance, if the product is multimedia equipment, the chain starts with the materials (electronics parts and plastics) and ends with delivery to a customer such as a manufacturer of multimedia equipment. It is possible to say that if a firm is not fully integrated backward, the value chain would commence with the receipt of raw materials, and if forward integration is incomplete, the chain could end with manufacture and warehousing.
According to Porter, the main elements of the value chain are firm infrastructure, HRM, technology, and procurement. Primary activities involve service, marketing and sales, outbound logistics, operation, and inbound logistics (Porter 35) (see Appendix Figure 1).
Support Activities
Firm infrastructure
Firm infrastructure influences the operations and decision-making of the company. Nortel Network consists of “cells of competencies” closely connected with technologies. This structure allows the company to plan, coordinate and control all activities. Following (Chase and Jacobs 17), firms that remain in the traditional structure will be at a competitive disadvantage. Organizations that adopt the new structure, like Nortel Network, receive additional costs in training and educating employees and need to develop new performance measurements.
MIS (management information systems) play an important role in Nortel infrastructure and its everyday activities. MIS helps Nortel Network to connect global worksites and partners, improve communication and logistics. Strategic planning is used by Nortel to plan strategic direction and reduce possible risks. Strategic planning can be seen as a tool for making decisions and develop long-range plans (Baudin 43). In the telecommunications industry, strategic situations are complex and involve uncertainty.
In Nortel Network, planning is directed toward the future and predictions of changes in the environment. In today’s quest for managers who are more leaders than conciliators, any interest in scenarios on the part of the strategist or executive is welcomed. The control function of management allows Nortel to keep high standards, the superior quality of all products, and improve productivity (Nortel Network Home Page 2007).
Technology development is the next stage of the value chain. In Nortel Network creativity is valued and appraised by the company. R&D (research and development) is staffed by specialists in visualizing and realizing marginal or major product changes. The uniqueness of Nortel Network is that the company has a separate R&D group to enhance product value at the concept stage (Nortel Network Home Page 2007). Innovations allow Nortel to reduce costs and improve the quality of its products.
For instance, unique solutions proposed by Nortel to the market are the Meridian 1 PBX and the Norstar key system. Also, Nortel uses internet technologies to improve communication with customers (Chase and Jacobs 13).
HRM- training and development of human resources is the main priority of Nortel. The company invests in human resources and training. For example, selection techniques (screening, testing, interviewing) assess the complete person, how well he or she meshes with the company’s value creation process, and their ability to absorb and see many points of view (Murphy and Wood 59). In addition to productivity, quality, and responsiveness, an important method of evaluating people is based on their ability to take a holographic view of the firm.
Rewards are based partly on the variety of skills learned or the number of jobs performed satisfactorily. Training programs, in addition to targeting and teaching specific skills and techniques, also help supplement selection and appraisal strategies by building awareness and support of the holistic nature of the firm’s value mission (Nortel Home Page, 2007).
Extended design teams are another important factor of success. It is possible to say that Nortel Network forms an extended design team in order to generate ideas for product improvement and bring them to completion (Naylor 39). In these teams, employees perform marketing research, vendor management, control legal affairs.
Procurement – Overall cost is an important part of all the value chain activities. The design of this stage affects the materials and processes used in production. In Nortel Network, cost reduction efforts do not focus exclusively on any one part of the value process. For example, attempts to join manufacturing costs without considering the need to modify product design, outsourced material, quality standards, and promotional effort will result in a poorly made product with a strong image. Nortel Network uses such technology as purchasing. It includes IT and web-based technologies and helps management to reduce costs and improve the quality of products. According to Stroh, if the product derives its value primarily from its low price, it may be immune to these hidden costs if customers expect little besides flexibility from the product (Stroh 51).
Primary Activities
Inbound Logistics – Nortel Network stores all materials received from suppliers in warehouses. Today, Nortel has 100 locations in the U.S. with independent sales and marketing departments, engineering teams, and production (Nortel Network Home Page 2007). Nortel Network succeeds as a cost leader and has suppliers with the same management values. Nortel Network prides itself on the flexibility of product styling and volumes, so its suppliers (Nortel Network Home Page 2007). Nortel is obsessed with quality, its suppliers are similarly preoccupied. Murphy and Wood (2007) underline that an imbalance in any of the dimensions of value between a firm and its vendors could result in an overall diminution of value (65).
Operations – Nortel Network manufactures its goods in more than 100 different locations around the world. Product categories involve Carrier Networks (CN) department, Enterprise Solutions (ES) department; Metro Ethernet Networks (MEN); Global Services (GS). Nortel Network separates the phases of innovation including creativity and experimentation, routine, and subordination processes (Slack 72). The value construction phase is often the core of production and production-related functions. It involves machine operation, material handling, shop floor supervision, and maintenance. The task of this stage is to aspire to one overriding objective and cost minimization (Nortel Network Home Page 2007).
Outbound Logistics- Automation of this stage of the value chain is the main advantage of Nortel Network. When products are finished, the company transport and stores the product in warehouses. Deciding on distribution channels to be employed, transportation to distributor locations, helping with displays, and arranging for shelf space is organized (Slack 72).
Marketing and Sales – The essence of marketing is to create a customer, which includes finding more buyers for the product and/or suggesting multiple uses for it (Slack 23)). Nortel Network sells its products through ‘partners, direct representatives, and agents around the world. Nortel Network has a unique distribution system based on a hierarchical structure. It involves gold solutions partners, solutions partners and sales partners, specialist support partners, and premier distributors.
“Accelerate Sales Partners concentrate on positioning solutions with customers, generating demand and making the all-important sales. To offer a complete suite of end-to-end customer services, they are able to provide technical expertise, technical help desk support, basic software support and network design, implementation and maintenance services” (Accelerate Partner Designation 2007) (see Appendix Figure 2).
Service – The essence of value lies in providing products or services that fulfill customer needs (Christopher 41). The long-term success of Nortel Network in the marketplace is based on its ability to react to, anticipate, and create high-quality products for customers. Spectacle, efficiency, and safety are combined to design the service provided. Marketing research inputs are invaluable in product design since they ensure that R&D’s feet are firmly planted on the ground. It is less likely that a product will end up out on a limb, as a result of numerous incremental improvements, made with scant attention to the market, when Marketing and R&D are tied together. High service quality and communication with customers are the main strategies followed by Nortel Network today (Christopher 83).
Proposed Improvements
The new challenge for Nortel Network will be to balance financial spending and service quality and provide a technology infrastructure that will anticipate the long-term trend to restructure the firm. Christopher underlines that organizations, on the whole, are indeed transitioning between states of structure as the combination of technology and customer needs continues to evolve (Christopher 31). For this reason, technological improvements (automation of all processes) will help Nortel Network to create a competitive advantage.
Empowerment of employees is another way to achieve a value focus in the value chain. It will be possible by eliciting suggestions from and delegating decisions to lower-level employees. Innovation should be viewed as comprising three stages-need recognition, initiation, and implementation. Need recognition follows from the realization that something is wrong. Customers, employees, regulators, and other stakeholders could be the source of information about gaps in performance (Naylor 65-66). Marketing Research should be the organizational function. It will help Nortel Network o anticipate possible market changes and react effectively to competitor’s actions.
Christopher underlines the importance of initiation in the value chain. Initiation, or the generation and testing of new ideas, is typically the purview of R&D while implementation is assigned to Operations (Christopher 33).
There is often a separation between the need recognizers and initiators on the one hand and implementors of innovation on the other. For instance, while overall productivity has remained high in the United States over the past four decades (whether measured against input measures of labor hours or dollars of capital invested) a continuing focus on productivity has served to make production an inward-looking function, content to develop techniques to increase outputs or lower costs, or both. Following the same strategy Chief Executives can draw in far greater numbers from the ranks of Marketing and Finance professionals than from a shop floor persuasion, have not encouraged production people to look at or deal with, the external environment (Nortel Home Page, 2007; Christopher 37).
Nortel Network can introduce a customer relationship management (CRM) system to meet heightened customer expectations and face market competition. In general, CRM emphasizes the use of information technology in managing customer relationships. On the one hand, advances in database technology have made it possible to know and segment customers in ever more creative ways (Murphy and Wood 19). By Nortel Network, data warehouses can be used to store and search vast amounts of data. Data mining and modeling techniques revealed otherwise ‘invisible’ patterns of customer behavior, which can be translated into customer-specific marketing strategies.
With its foundations in Software’s CRM solution, CRM reinforced the view that marketers manage, and businesses win/lose – customer relationships, not customers. As the most important, it can cover such areas as accounting, manufacturing, warehousing, field service, and shipping systems. This solution also included direct sales, sales through indirect channels such as distributors, and Internet sales using electronic commerce. Services are provided via a range of media, including telephone, fax, mail, the Internet, various mobile devices, and face-to-face interaction (Christopher 137)
Competitive Advantage
Nortel Network can achieve a competitive advantage in 5 years proposing to customers the high quality of products and after-sale services. Also, customers can be involved in a product development stage and be able to monitor how the firm meets their important needs. Areas in which Nortel Network’s value performance is deficient need to be targeted for improvement, focusing resources where most effective. Nortel Network tries to achieve a cost reduction through a coordinated effort between R&D and manufacturing; analyzing and addressing the environmental impact of the firm’s product, processes and philosophy. Also, special attention is paid to reducing setup times to improve volume flexibility (Naylor 82; Nortel Network Home Page 2007).
Competitive advantage can be achieved by assessing the needs of potential customers and their wants. Since customers might not want to, or have enough information to, review the firm’s performance on each product, this would be conducted internally, possibly by a Product Value Council (or some such group), if one has already been constituted as part of the extended design team mentioned earlier, or by forming such a team specifically to help the firm become more aware of and competitive in delivering the best value to its customers (Naylor 72). Nortel Network should improve its after-sale service and customer support. These areas are often neglected by its competitors, so Nortel Network can achieve a competitive advantage by delivering quality products and services to all customers.
In Nortel Network, the first stage of value creation comprises the generation of ideas leading to value enhancement. Modifications to an existing product or process should be a part of value conceptualization. The advantage of Nortel Network’s value chain can be achieved if they make suppliers a part of value creation initiated at this stage of the process by placing additional responsibility on them for improving the part of the product they provide.
For instance, in the optical transmission equipment example, the manufacturer should be inspired into developing quieter and lighter equipment appropriate to the range of equipment offered by the firm. The needs of decision-makers at higher levels of the firm must be catered to and various alternative designs of Management Information Systems can be evaluated and deployed depending on the nature of the industry, the details of the information needed, and the frameworks or models chosen for decision making. In addition to the decision-making needs that information fills, it also helps move toward the holographic organization and supports measures like job rotation and training. Information systems that facilitate the sharing of information across value areas in addition to providing information specific to each value area are necessary.
The use of comprehensive databases (perhaps with restricted access to sensitive information) would be one approach to the wider sharing of information (Chase and Jacobs 56). The wider use of real-time data-sharing systems has undoubtedly helped strengthen the linkages among disparate activity areas and dispersed locations.
To compete with its direct competitors, Nortel Network should establish effective connections with parts of the external environment–suppliers and customers being two of the more important elements to attract this sort of effort-the teams will perforce be not just on an inter-activity and interdepartmental basis but also inside the company. The value vision has to transcend both internal and external barriers. Internal barriers to horizontal value exchanges can be reduced through the use of value teams, job rotation, broader training, etc.
External barriers need to be separately tackled. It is not uncommon for firms to assume a stance of confrontation or hostility, particularly toward suppliers. The argument is typically made that competition among suppliers will bring out the best in them, and hence the best for the firm (Slack 82). These markets typically form discount buying groups and provide auction services with a focus on low-cost or best-cost pricing.
In sum, effective structure and technological solutions applied in the value chain process allow Nortel Network to compete on a global scale and deliver superior quality products and services. In product businesses conceptualization is indispensable to achieving high levels of value. The case of Nortel Network shows that whether the firm provides, visualizing how value will be provided, how this will afford the firm a competitive advantage relative to its rivals, and constantly seeking to enhance the value concept, are critical to its continued success. Just as important, however, is making the concept come to life.
The value of the product has to be communicated to the customer. In addition, direct information transfer between customer and firm, service businesses enjoy an edge, because the customer is in the system. Their needs are therefore not remote and to be inferred but right here and given expression to. The likelihood of a firm being able to match customer needs exactly is correspondingly higher, provided the firm can customize its services. Nortel Network has an effective value chain, but it can improve it by implementing CRM solutions and automation of all the processes. Monitoring and control of technological solutions will help Nortel Network to sustain its strong brand image and compete in the market.
Works Cited
Accelerate Partner Designation. 2007. Web.
Baudin, M. Lean Logistics: The Nuts And Bolts Of Delivering Materials And Goods. Productivity Press, 2005.
Chase R.B., Jacobs R.F. Operations Management for Competitive Advantage with Student-CD, Hill/Irwin; 10 edn, 2003.
Christopher, M. Logistics & Supply Chain Management: creating value-adding networks. FT Press; 3 edition, 2005.
Naylor J. Introduction to Operations Management, 2nd Edition Pearson Education, 2002.
Nortel Network Home Page 2007.
Murphy, P. R. Wood, D. Contemporary Logistics. Prentice Hall; 9 edition, 2007.
Slack N., Chambers S. Johnston R. Operations Management FT Prentice Hall, 2003.
Stroh, M. B. A Practical Guide to Transportation and Logistics. Logistics Network Inc. 2006.
Porter, M. Competitive Advantage: Creating and Sustaining Superior Performance. 1985.
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