Leaving legacy behind

Since we announced our new Telstra strategy T22 last month we have had calls from some of the world’s largest companies including telecommunications companies, keen to understand more about how we are planning to transform. In a way I am not surprised – industries globally are being disrupted by technology at a pace and to their very core that’s unheralded since the industrial revolution. The telco sector is certainly not immune to disruption, no business is. Added to that, for companies such as Telstra, which are steeped in legacy and incumbency, how we disrupt ourselves before disruption irrevocably changes us, is our challenge and our opportunity. Every company will chart its own course through today’s challenges but I wanted to share some thoughts on the unprecedented change in our sector and what Telstra is doing to position for growth.

A critical moment

There is no doubt this is a critical time in the global telecommunications industry. On one hand demand for our core products and services has never been greater. We have seen data growth at 50 percent per annum and telecommunications networks have become arguably the most important piece of critical infrastructure in the world today. On the other hand disruption, driven by changing market dynamics and intense competition, is likely without precedent.

This is also a period where the importance of our networks is about to dramatically increase as we move to the next wave of technology innovation. This will include the rollout of 5G and the mainstreaming of the internet of things. When you take 5G in conjunction with the industry’s increased focus on software defined networking and network virtualization, fold in innovation in areas like machine learning and data science, there is no doubt the level of change in the telecommunications sector is unlike anything we have seen before.

The crucial question for telcos today – and particularly those long-established companies like 100+ year old Telstra – how can we thrive in today’s world of digital disruption and then take advantage of tomorrow’s opportunities? Are our legacy systems, processes and ways of working standing in the way of our becoming the companies we need to be for the future? Do we need to urgently disrupt ourselves before we are disrupted? Telstra’s answers to those questions is undoubtedly yes and, judging by the level of interest in our strategy from our peers around the globe over the last month, it is a similar answer elsewhere. We believe a big part of the answer to these question is having the courage to leave our legacy behind and here is how we plan to do that.

Leaving legacy behind

For more than a century Telstra has been at the forefront of connecting Australia and Australians, to each other and the world. Our history is rich with achievements and milestones that have shaped both who we are as a company and helped create the fabric of our nation. We laid Australia’s first cross-continental telegraph 140 years ago, ran the first fixed lines, then led with mobile and the internet and now we are helping build an internet of things.

In that time we have confronted many challenges and built a legacy that shapes our business, our relationships with our customers and our opportunities for the future.

But now it is time to change. Because while Telstra’s size and legacy are significant assets that have contributed to our success in the past there is no doubt they are also now acting as a barrier and getting in the way of what Telstra now needs to be – a company agile and nimble enough to respond quickly to rapidly changing market dynamics and opportunities.

At its core the T22 strategy is about delivering simpler, more flexible products with a great digital service experience, maximising the value of our infrastructure assets, simplifying the business and streamlining our cost base for the future.

The strategy has four pillars:

1. Radically simplify our product offerings, eliminate customer pain points and create all digital experiences.
2. Establish a standalone infrastructure business to drive performance and provide future optionality post the rollout of Australia’s national broadband network.
3. Greatly simplify our structure and ways of working to empower our people and serve our customers.
4. Industry leading cost reduction program and portfolio management.

It is also enabled by new digital platforms and Australia’s largest, fastest, safest, smartest and most reliable next generation network.

The strategy will deliver benefits for all stakeholders - customers, shareholders and employees - and ensure that Telstra remains Australia’s premium and most trusted brand in telecommunications.

One of the biggest challenges in developing T22 was balancing the critical need to transform against the legacy built up over decades. For Telstra, a business that touches virtually every Australian, this was never going to be simple. But we realised that attempting to manage the transition to the new while still managing the existing business was never going to deliver the kind of rapid change at scale we needed.

We had to be more ambitious even though we understood that might have implications in the short term. As an example of what I mean by that, we have advised the market that the transition under the program is likely to eliminate up to $500 million in revenues for our services over the next three years, with excess data charges being the first example. However, over the longer term we believe these moves are in the best interests of customers as they accelerate a trajectory already underway and will drive long-term value. They are expected to be more than offset by more services per customer and lower costs from simplicity and leadership shown by Telstra translating into new sources of growth.

The biggest risk of all – doing nothing

Every business transformation comes with execution risk but we believe the single biggest risk for us was if we did nothing, if we soldiered on with our legacy systems and fell to the temptation of trying to build the new world in the old. We are convinced that we have to be bold enough to radically simplify our products and services and eliminate once and for all the things that frustrate our customers.

In line with that overarching commitment we have set six specific goals with tangible and clear milestones covering customer experience, simplifying the business, network superiority, people, cost improvements and strengthening the balance sheet. Details include:

• Reducing the number of consumer and small business plans from 1,800 to 20.
• Migrating all consumer and small business products and plans and 50 per cent of enterprise customers to completely new technology stacks within three years and leave the legacy behind.
• Establishing a standalone infrastructure business unit to drive improved performance and create optionality for the future including a potential demerger or the entry of a strategic investor post the rollout of the nbn.
• Reducing 2-4 layers of management across the organisation.
• Eliminating the need for one third of customer service calls within two years and two thirds by FY22.
• Leading in all key industry surveys for network performance.
• Increasing our productivity program by a further $1 billion to $2.5 billion by FY22.
• Monetising up to $2 billion in assets over the next 24 months to strengthen the balance sheet.

The hardest part of what we are doing is the impact it will have on jobs at Telstra. And whilst we do expect to create up to 1500 new roles within the company, overall we expect a net reduction of 8000 jobs over the next three years, including Telstra employees and contractors. I am acutely conscious of the impact that the jobs reduction has on our people and the uncertainty it creates.

Improving the service that we provide to our customers, improving the efficiency of the business, improving our competitiveness as a company means we have to reduce our costs. And at the same time, if we are to grow the company over the longer term, create new positions in areas such as software engineering, information and cyber-security, we have to respond to the current market dynamics and their negative impact that the company is experiencing today. Recognising the very significant impact that these changes have on our people, we also announced transition programs, which will focus on supporting our people.

The single most important thing

Transforming Telstra will demand a clear strategy, a willingness to invest, tenacity to stay the course, courage, and a team that can lead through disruption and change. But central in all of this is an absolute focus on our customers. Everything has to begin and end with customers because our customers today have many choices and their expectations are high. They want seamless, secure connectivity wherever they are. They demand privacy, security and transparency in their relationships with the businesses they deal with. And above all else, they choose to spend their money with companies who put exceptional customer experience at the heart of everything that they do and who are willing to innovate and lead.

And perhaps that is my biggest take out for any company facing transformation in changing times. At the end of the day all of this is about people. Our strategy is about technology, networks and cutting edge products and services but most of all it is about people. It is about how people (both customers and employees) are able to interact with technology, the quality of that experience, and the value and opportunities that creates. Everything we are doing depends on people and in that way, the future is in our hands.