When Patricia Russo first took on the job of chief executive at Alcatel-Lucent, she knew that merging two giant telecommunications equipment suppliers from different continents, with different cultures, would not be easy.

But after the third profit warning in just nine months, the task in bringing together the French and North American groups appears far greater than anyone had imagined.

The latest warning may indeed have very specific industrial causes. Big telecoms operators such as Verizon and Sprint have decided to delay at least until next year investment that just a few months ago they were ready to make.

Alcatel-Lucent, still struggling to overcome disruption caused by the merger
and increased competition from rivals, has been caught off guard and now will
not be able to meet its own targets.

But regardless of the industrial causes, many inside the company are clear that this third downgrade will have to lead to changes in a structure that has
obviously failed to respond adequately to the current crisis.

While at the grass roots certain parts of the business appear to be working well together – such as the research teams for example – divisions remain at
the very top levels of senior management that may threaten to hamper attempts to recover from the latest setback.

The recent departure of two highly regarded executives was perhaps the
clearest sign before yesterday’s disappointing downgrade.

Now the warning is likely to strengthen the hand of those critics, especially within the old Alcatel camp, who argue that Ms Russo is dividing too much time between the old Lucent business in the US and the group’s French headquarters in Paris. As a result her priorities are not clear, say some, and this may have led to confusion.

“The paradox is that the crisis shows she is right to focus her time on the US ... but there is frustration in Paris that she is not
there. She is either the chief executive based in Paris or head of North America,” said one person close to the subject.

The fact that Ms Russo is the first American born chief executive of a CAC40 bluechip – and an industrial flagship at that – may have exacerbated frustrations in Paris.

Serge Tchuruk, the former head of Alcatel who stepped up to become non-executive chairman after the merger, is understood to have told Ms Russo that there should be some changes to the management structure to allow her to focus more broadly on the business.

The 69-year-old Mr Tchuruk, who before the merger appeared to have difficulty in handing over Alcatel over to a successor, continues to support Ms Russo, but seems to want her to delegate more.

“The organisation has to move to another stage,” the insider said.

Ms Russo was yesterday clearly frustrated by the criticisms coming out of Paris, and defended her decision to run the business from both France and the US.

“I do spend time travelling, because I visit our customers, which I believe is crucially important,” she told the Financial Times. But her overnight travel did not affect her time spent with Alcatel, she said.

Nevertheless, Ms Russo admitted there was still work to do in bringing the old Alcatel and Lucent teams together.

“It takes time for people to get to know each other,” she said. “We have a good management team, but it is still coming together. It is not as solid as if we had been working together over the last five years.”

Yet she may not have much more time.

Price pressure continues to soak up any advantage gained from a cost-cutting process that has already taken far too long, and
rivals such as Ericsson are gleefully taking advantage
of Alcatel-Lucent’s weaknesses.

If Ms Russo is unable to keep the confidence of her new French partners, no matter how highly they may regard her commercial abilities, then the group’s chances of facing its external challenges might seem fairly slim.

Additional reporting by Andrew Parker

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