Leadership in Global Business

1. Leadership in Global Business NCMA World Congress 2006 Janet Davidson Chief Strategy Officer April 2006

2. 1984-1996: The Lucent Heritage • Pre-1984 • AT&T – a regulated U.S. monopoly • Lucent – the R&D/manufacturing team for a monopoly parent • 1984-1995 • Post-divestiture – "freedom" to compete • In existing and new industries • Outside the U.S. 1996 • Lucent IPO AT&T AT&T Understand who you are! Lucent Technologies – ProprietaryUse pursuant to company instruction

3. 1996-2000: Lucent Ascendant • Market Conditions – Telecommunications • Internet Boom • Deregulation • Service Provider market grew from fewer than 1,000 carriers in 1996 to more than 15,000 service providers by 2000 • Service Provider Capital Spending grew from $213 billion in 1996 to $310 billion in 2000 • Lucent was one of several companies riding the growth curve … • Grew revenue from $20 billion to $38 billion* • Increased headcount from 131,000 at IPO to 157,000 at peak* • Expanded customer base from hundreds to thousands* • Introduced more than 260 new products • Acquired 38 companies Deregulation, unlimited access to capital, and Internet boom led to the most intense growth period in the history of the telecommunications industry Lucent Technologies – ProprietaryUse pursuant to company instruction * Includes Avaya, Agere, OFS , Power Systems

4. Network Systems 1996-2000: Lucent Ascendant And Seven RBOCs A Thousand Customers Network Systems Hundreds of Suppliers A Few Other Suppliers Pre-Divestiture 1984 1996+ Lucent Technologies – ProprietaryUse pursuant to company instruction

5. 2001-2006: The Lucent Transformation • Telecom market collapse forced dramatic restructuring involving fundamental, ongoing changes in: • Supply Chain (Manufacturing) • Research & Development • Customer Base and Relationships • Competition and Partnerships • Corporate Culture • Restructuring restored stability and positioned the company for growth in global markets Lucent Technologies – ProprietaryUse pursuant to company instruction

6. Supply Chain 1996-2000 • During the telecom boom, Lucent had: • 11 independent business units • >20,000 people employed in 29 factories • Five major manufacturing facilities in United States • >500 warehouses • $1.9 billion annual corporate manufacturing budget • $5 billion in annual inventory Lucent Technologies – ProprietaryUse pursuant to company instruction

7. Supply Chain Discipline Began in 2001 • Formal Supply Chain Organization created in 2001 • Reduced number of strategic suppliers from • more than 1,000 to 90 by 2005 • Developed sourcing strategies for about 70 different commodities, ranging from metals to memory chips • Reduced commodity costs by as much as 50 percent • Moved $1.2 billion in fixed cost to variable cost by leveraging EMS providers • Globalization of supply chain and delivery mechanisms • Two EMS manufacturers with global operations and facilities • Four regional systems integration centers for test and delivery of customized regional solutions Lucent Technologies – ProprietaryUse pursuant to company instruction

8. Key Supply Chain Adjustments Lucent Technologies – ProprietaryUse pursuant to company instruction

9. Lessons Learned - Supply Chain • Initial disruption causes pain • Changes reverberate through product design, development, manufacturing and distribution • Flexibility in product management, R&D are critical • Be clear about where you add value • Metrics matter • Benefits are well worth the price Lucent Technologies – ProprietaryUse pursuant to company instruction

10. Lucent Main R&D Centers 1996-1999 Lisle/Naperville Whippany Murray Hill Holmdel World-renowned Bell Labs Was a U.S.-Centric Organization Serving Primarily U.S.-based Customers Lucent Technologies – ProprietaryUse pursuant to company instruction

11. Today, Lucent has 15 Global R&D Centers Aligned with Customer Concentrations Lucent Main R&D Centers 2006 Swindon Lisle/Naperville Bydgoszcz Nanjing Nuremberg Westford Shanghai Whippany Beijing Holmdel Murray Hill Qingdao Alcobendes Bangalore Campinas Lucent Technologies – ProprietaryUse pursuant to company instruction

12. Lessons Learned - R&D • "World renowned R&D" means little if your R&D is not visible to your customers around the world • Local problems require local solutions • There are brilliant people everywhere – Hire them! • It makes no sense to limit your R&D team to one region • It makes no sense to draw your ideas from one culture • Competing globally requires a competitive cost structure in all aspects of your operation • Diversity in R&D makes solid business sense Lucent Technologies – ProprietaryUse pursuant to company instruction

13. Global Service Providers CLECs CLECs Wireless Service Providers Local and Long-distance Service Providers Customers Cable, xVNOs, xVNEs 1984 1990 1995 2001 2006 Lucent Technologies – ProprietaryUse pursuant to company instruction

14. In 1996, 77% of Lucent’s business was done in the U.S. In 2005, 63% of Lucent’s business was done in the U.S. In 1998, 40% of the world telecom spend occurred in the United States Customers 1996-2005 Lucent Technologies – ProprietaryUse pursuant to company instruction

15. Lessons Learned - Customers • Products and services that work in your home market may or may not be relevant in other markets • Every customer is unique … treat them that way • Use your unique skills/assets to help them solve their business needs • Stay the course • Establishing a market presence/reputation takes time • If you leave a market, it may be a lifetime decision Lucent Technologies – ProprietaryUse pursuant to company instruction

16. Low-Price Global Competitors Global IT Companies Fast High-Tech Startups Similar Companies with Global Scale Similar Companies with Regional Focus Competition 1984 1990 1995 2001 2006 Lucent Technologies – ProprietaryUse pursuant to company instruction

17. Lessons Learned - Competition • A regulated monopoly knows how to compete INTERNALLY • Every country is different • Regulatory policy • Political environment • Industrial policy, … • Every competitor is different… know what makes • you unique Lucent Technologies – ProprietaryUse pursuant to company instruction

18. Customers & Markets Deregulation Competition R&D Globalization Supply Chain Each shockwave requires culture change to survive People Lucent Technologies – ProprietaryUse pursuant to company instruction

19. Lessons Learned - People • Change is a constant not an option • Work on the "critical few" • Stay the course • Communication is critical • "Culture" determines how quickly your people can anticipate and respond to changes in customer base, competition, technology and global politics • HR can be your most critical ally in creating a flexible, motivated work force • Never underestimate the need to communicate your strategy, your progress and your values to your people • Compliance is important – Employees need to be trained • Hire and train 3-to-5 years ahead of your business Lucent Technologies – ProprietaryUse pursuant to company instruction

20. Key Takeaways • Globalize your supply chain • Globalize your R&D • Globalize your customer base • Be ready for global competition • Globalize your work force Do it, don’t fight it! Lucent Technologies – ProprietaryUse pursuant to company instruction