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Patricia Russo: Lucent's Best Hope?

When Patricia Russo took over as CEO at Lucent Technologies in 2002, the telecom gearmaker's customers felt the difference right away. "She was in my office the first week [on the job]," says Paul Lacouture, president of the Network Services Group at Verizon (VZ), a key Lucent customer. "And she listened."

Months later, Lacouture still gets an e-mail or a phone call from Lucent's (LU) senior execs at least once a week. And Russo visits him every quarter. "Since she has been there, they're listening to their customers," says Lacouture. "Whatever she tells you she'll get done, she does."

HOT POTATO. Customer care is just one of the potions that Russo, 50, is using to nurse Lucent back to health. "She came into a difficult situation that would challenge a deity," says Robert Rosenberg, president of telecom consultancy Insight Research in Boonton, N.J. Last year, capital spending by U.S. phone companies fell 38%, to $50 billion, and it should drop another 20% this year, estimates Steve Kamman, an executive director at CIBC World Markets. Lucent consequently is bleeding red ink and struggling with debt. Under those circumstances, being named CEO "isn't like inheriting a world championship team," Kamman says.

Still, Russo, who in February also became chairman, is hoping to make Lucent a winner. The bankruptcy rumors of a year ago have quieted down. "Some cash and liquidity concerns are resolved, and she has a strategy," Kamman says. A postbloodbath strategy. Since 2001, the company has cut its operating expenses by 75% and eliminated 67,500 jobs -- some 64% of its workforce. Now, it's trying to grow again: Its revenues rose 16% in the Mar. 31 quarter vs. the quarter before, to $2.4 billion. And it hopes to turn a profit this year, though Wall Street is in the prove-it mode.

Many observers believe that if anyone can rescue Lucent, it's Russo. A 20-year veteran of AT&T (T) and of Lucent, which was spun off by Ma Bell in 1996, Russo was brought back as CEO less than a year after she had jumped to Eastman Kodak (EK) as president and chief operating officer. Lucent CEO Henry Schacht sought her out and handed her his hot potato. "Pat understands how Lucent works and how to make things happen," says Harry Carr, former president of Lucent's Broadband Carrier Networks who now heads optical-switch maker Tellium (TELM) in Oceanport, N.J. "The best chance they have is with her at the helm."

For one thing, Russo has experience with turning a business around. True, she left Kodak before her efforts there showed results. But she previously did a restructuring at AT&T's Business Communications Systems unit (now the core of Lucent spin-off Avaya), which she headed from 1992 to 1996. Over that period, she boosted the unit's revenues 43%, to $5.7 billion, and transformed it from a money loser into a profitable business.

COURTING CONTROVERSY. At Lucent, the customer-centric approach is the cornerstone of Russo's strategy. Rather than simply pushing products Lucent already makes, she has begun tailoring the company's offering to customer needs, Lacouture says. For instance, on May 5, Lucent signed an agreement to resell the products of rival Juniper (JNPR). "If they don't have a product, they'll get you what you need," says Lacouture. "They've become a stronger supplier -- a more flexible company."

Russo's people skills have helped make the changes less painful. "You walk away knowing that she is genuine and really cares about people," says Carr. "She's interested in your success as well as in the company's success." Another former exec, Frederick Tiso, recalls leaving a message for Russo telling her that he was departing to take a senior position with another company. She called him back within 30 minutes to ask why he was leaving, and to try and persuade him to stay. "She took the time," he says.

Don't think she's a softie, though, says Tiso, now a senior vice-president at Asyst Technologies (ASYT), a Fremont (Calif.) maker of automation equipment for semiconductor manufacturing. Several years ago, as an executive vice-president at Lucent, Russo helped outsource the manufacturing of many products to cut costs, a controversial decision that led to significant job cuts. And some former executives complain that some 1990s acqusitions she planned didn't pan out.

"RESULTS MATTER." Today, with an optimism that's reminiscent of her days as captain of the cheerleading squad at Lawrence High School in New Jersey, Lucent's CEO contends that she can return the company to growth. "We've gained momentum on a number of fronts," she says. "While we must continue to focus on reducing our costs and expenses, now is the time to couple that effort with as intense a focus on driving top-line growth. It's my intent that, as we come through this industry downturn, we'll emerge stronger, leaner, more competitive and more customer-focused than we've ever been."

Much of that growth would come from offering new services to telecoms. "I see our services business being a far larger component than it is today," she says. "Over time, we intend to transform Lucent into the network integrator" for phone companies.

Certainly, she's comfortable battling long odds. "Early in my career there were some people who didn't believe a woman belonged in sales," she says. "But I worked hard on the accounts I was given, and made sure I met the customers' needs and focused on producing results for the company. What I found is that results matter -- it's hard to argue with them. People who produce results rise to the top."

"NEVER GIVE UP." In fact, though she grew up one of seven children in a traditional household -- her mother was a homemaker, her father a doctor -- "it never occurred to me that I couldn't compete," she says. She even took up golf, which she has less time to play now, between spending time with her family (she has two adult stepchildren) and trying to coax Lucent back to health.

Russo likes to recite Winston Churchill's famous quote: "Never, never, never give up." She says: "I think at some point, every effective leader facing a tough time, a tough market, a tough economy, has to reach deep down inside and say, 'Never give up!'"

Given the recent carnage at Lucent, that seems an appropriate rallying cry. By Olga Kharif in Portland, Ore.

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