BT have had a couple of really naff years and I wouldn't want to be in Ian Livingston's shoes. 10 months into the job and he just has announced the second round of 15,000 job cuts, making a total of 30,000 over the last 12 months.
BT lost a fair packet last year but it was the big write offs on Global Services' contracts where they took the big hits - over £1.6bn of them. I remember being chided back in the 90's by one of their executives for referring to them as British Telecom - 'we are no longer British,' he said, 'we are international.' I wanted to ask him what the 'B' stood for then, but decided it was inappropriate.
The fact is that BT went on an international business expansion during the web 1.0 era that nearly ruined the company. They managed to get some sense back after some dumb acquisitions as they fancied themselves as an 'incubator' too. However, as they got their finances in shape, they took on a number of high profile, over-ambitious senior executives who saw the pots of cash BT took every single minute and decided this was a great way to massage their egos and transform a sleepy telecoms giant into an international services company that could manage anything from communications to massive infrastructure contracts at the NHS and far further afield.
The expansion was rapid and fun. Instead of taking on new staff they hired in rafts of contractors and as we speak they account for up to one third of the staff involved at BT. That is a staggering management issue let alone a potential nightmare. The more ambitious their contracts, the more contractors they needed.
Then the contracts became more complex and the deliverables harder to achieve and so the payments against them were minimised. Suddenly, BT had invested all the upfront costs to do these big projects and were getting little in terms of payment out of the customers. Yet they were booking the contracts to revenue and paying their staff their commissions and bonuses plus the contractor fees.
It was a time bomb. This week we see the whole thing blowing up. While there is still a strong underlying cash business there in traditional telecoms, the problem is that there is little you can do to unravel such complex services contracts one you are in them. You have to grit your teeth and get them done. That remains an issue to BT as the total cost of getting it done is now unlikely to show any of the profits they had hoped for.
It's a salutary lesson in how not to expand your business by over estimating your capabilities to your customer. This applies to companies of all sizes. There is no point, for example, in taking a services contract in New York if your base is in London - sooner or later the smallest of issues, or possibly the biggest, will catch you out and your entire profit could be wiped out fixing it.
How do you know that? Because that's what happens just 100 yards from your doorstep - problems absorb your time and resources no matter where they are. If there is a plane trip involved to fix it - then you are asking for trouble.
BT has illustrated that this happens even on the largest of scales. The trick is always to build capability to a point where you have a critical mass that allows you to apply your over-capacity into other areas, and pick those on a case by case, risk vs profit level.
Don't get seduced by the big numbers up front as it is always the ones at the back end that hurt.
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