An expression you’ll hear repeatedly at Nortel Networks Corp. these days — and a vital clue about what is happening at what used to be Canada’s most valuable high-tech firm — is “First who, then what.”

That phrase was penned five years ago by management guru Jim Collins in his best-selling business book Good to Great, which happens to be a bible of sorts for Nortel president and CEO Mike Zafirovski.

“The main point is first to get the right people on the bus (and the wrong people off) before you figure out where to drive it,” Collins wrote.

The rationale is that great teams will be able to handle the inevitable surprises companies face. But firms built to tackle a particular business opportunity will be lost when things change.

Zafirovski’s first year as top gun — his anniversary was Nov. 15, 2006 — was given over to filling the bus with his brand of talent. Of the 17 executives who now report directly to Zafirovski, only six were with the company in the spring of 2005, and some of them have new assignments, as well.

Zafirovski has drawn heavily from the ranks of his former employers — Motorola Inc. of Schaumburg, Ill., and General Electric Corp. of Fairfield, Conn. — at which he served in many senior executive roles during his 30-year career.

Zafirovski’s first pick was revealing. Joel Hackney, Nortel’s new senior vice president in charge of global operations, used to run day-to-day operations at GE’s mortgage and insurance business. He had moved on to become managing director of the multinational’s US$1-billion-a-year electrical components unit.

During Zafirovski’s initial examination of Nortel’s business, he was shocked by the state of the firm’s supply chains and at how much time it took customers to get their orders filled. He knew Hackney would apply GE’s disciplined approach to good effect. When financial analysts gathered this past month in Toronto, Hackney surprised many with the richness of the detail he had at his fingertips (see story above). Analysts hadn’t realized that Nortel’s operations had been so sloppy, or that so much progress was being made in bringing the company back to industry norms.

Fixing Nortel’s operations may prove to be the easiest part. Setting the right course for the bus will be tougher, acknowledges George Riedel, Nortel’s chief strategy officer and Zafirovski’s first major hire of 2006.

ALTERNATIVE TO CISCO

Riedel’s experience as vice president of strategy and corporate development for San Jose, Calif.-based communications networking specialist Juniper Networks Inc. makes him an expert in fighting industry giant Cisco Systems Inc., also of San Jose. And that’s something Nortel is likely to do more of under Zafirovski, who believes corporate customers are hungry for an alternative to Cisco when it comes to buying corporate communications systems.

Zafirovski will also rely on John Roese, his new chief technology officer, for insights into which technologies hold the most commercial promise. Interestingly, Roese almost didn’t sign on for Zafirovski’s crusade. He had only just accepted the job of CTO for Broadcom Corp., the Irvine, Calif.-based chip designer, when he got a call early in the year from Riedel. The two had run into each other over the years as competitors and Riedel had been impressed.

Roese got hooked when he travelled to Nortel’s research and development headquarters in Ottawa and watched Zafirovski conduct a “town hall meeting” with employees. “I could see there were some very smart people there,” he recalled later.

Roese likes the idea of skipping third-generation wireless technologies, which carriers are having trouble selling, and moving straight into fourth-generation products such as Wimax. And he also likes Nortel’s position in voice-over-Internet protocol technologies and optical gear.

But Roese and Zafirovski are also likely to consider some strategies that Nortel’s longer-term R&D employees may not appreciate, such as locating more of the firm’s R&D efforts in lower-cost countries such as India and China.

For investors, there may be a significant opportunity here. It amounts to making a bet that the passengers on Zafirovski’s bus will be able to create real value by turning Nortel into a well-run business. IE