Today, January 14, 2009, Nortel filed for bankruptcy protection in both Canada and the U.S.  Nortel has been in a financial and product tailspin since the recession of 2001 but company officials, claiming the company had been in the process of a turnaround since late 2005, took the opportunity to blame the current economic crunch for today’s action.  Sorry Nortel, I’m not buyin’ it.

I have been writing about how companies might best face our current economic challenges since last October.  On Monday I published a blog posting on this site in which I wrote about Aspect Software’s recent acquisition of AIM Technology and how Aspect’s action during this recession should be an inspiration to others that still don’t know how to respond to economic challenge.  Aspect is showing us how to do it – how to achieve success even in the most challenging conditions.  As any good military person will tell you, the means to victory in any battle is to keep moving forward.  Aspect is facing this economic battle and is moving forward. 

Now that Aspect has shown us how to do it right we should thank Nortel for showing us how to do it wrong.  Back in the late 1990s there was no company more powerful or admired in the telecommunications industry than Nortel.  The company had a market capitalization of nearly $300 billion and had 95,000 employees.  Yesterday the company had a market capitalization of $155 million and has 30,000 employees.  What happened?

Nortel made a few bad investments in software companies that were foreign to its core business, like the Clarify acquisition, but these sidesteps were not responsible for the ultimate fatal blow.  In my opinion, Nortel’s downward spiral began with its reaction to the recession of 2001.  Nortel wielded a mighty recessionary ax and began slashing costs across the board.  Companies like Clarify were divested for pennies on the dollar and Nortel retreated into a fearful recessionary fetal position.  While other companies continued to forge ahead despite economic challenges – Witness Systems comes to mind as an example in the contact center industry – Nortel in essence turned over management of the company to the accountants, who elevated bean-counting above product and service strategy.

There has been speculation that Nortel would be split up and sold in pieces for the past couple of years but if any plans like that actually existed they will have to be shelved for now.  With credit so tight it is unlikely that anyone will be able to pony up the cash to acquire any portion of Nortel.  It is not out of the question, though, that this might happen later in the year.  Nortel still has $2.4 billion in cash and can probably ride out the storm long enough for credit to loosen as I believe it will before the middle of this year.

Nortel has been making a valiant attempt to be a player in unified communications and if the company can divest itself of specific divisions, unified communications will be among the first to go.  Nortel also still has a strong reputation among those in the contact center industry and has some terrific partnerships in that area as well so I wouldn’t be surprised to see their contact center portfolio be highly sought after as well if the company begins selling itself off in pieces.

If there is a lesson to be learned here it is that a company can’t shrink itself to success regardless of economic circumstances.  I’m truly sorry to see this happen to a company that I had such huge respect for during most of my 20 years in communications.  There are still a couple of decent people at Nortel and I hope they survive this too.  For the rest of us, we owe Nortel a debt of gratitude for providing this tangible proof that retreat is not a viable strategy when facing economic challenges.  I hope this lesson is learned before any other blue chip companies go bust.