The Financial Times last month ran an interesting article saying companies need to re-think the way they value their IT infrastructure. Research undertaken at INSEAD suggests that the role IT plays in driving corporate performance is understood, and yet companies regard IT as an expense item to be minimized.
We believe that telecoms operators should be transforming themselves from traditional calls-and-lines businesses into integrated, automated and simplified IT-orientated organisations.
Last month many of the leading operators announced their latest set of quarterly financial results. We believe these three strands - IT valuation, transformation of IT and company performance are closely linked.
IT valuation
We have long held the view that City analysts don't really understand what telcos are all about these days. Much of the debate around the results will be about headline numbers (revenue growth) rather than unit cost reductions, product launches rather than systems retirement and new technology rather than innovative marketing. Clearly financial metrics are important, but they are only part of the story and so we share the concerns expressed by the INSEAD research.
But value in telecoms is created by the IT systems that create the services that run on the network and are purchased by customers. And yet what gets all the publicity is what an operator has invested in its next-generation network (NGN) or the new content available over IPTV, not IT infrastructure. This is forgivable in the media - few will be interested in which hardware is used, or the software version it is running - but less so for financial analysts who are supposed to be experts in assessing the value of a business. In our view the performance of the IT systems should be placed under as much scrutiny as the balance sheet.
IT transformation
Some leading operators are implementing IT transformation projects. BT has been doing so in parallel with its ambitious NGN program. The equivalent IT restructuring (called OneIT) has four threads, to:
- align BTs IT with its lines of business (Retail, Wholesale, etc);
- consolidate BTs decentralised IT teams into one to achieve both scale and focus;
- rationalize the platforms used by the business to facilitate reuse and reduce costs;
- Transform company processes by using IT to automate, integrate and drive out many of the reasons for failure.
The bulk of the £8 billion savings BT expects to make from 21CN by 2009 will come not from the transport/network layer, but the systems rationalization of the OneIT program. In short, IT is crucial to BTs long-term performance.
BT is not alone in this. France Telecom has its equivalent NeXT (New Experience in Telecoms) program, which it started in 2005. Deutsche Telekom signalled in March that it needs to re-invent itself around an IT factory.
Performance measurement
The reporting of quarterly results takes a very familiar form.