BT Global Services suffers
BT’s Global Services business is dragging the group’s overall profits down below expectations, sending the share price plummeting and costing its CEO his job.
Francois Barrault resigned after 18 months as chief executive at BT Global Services, replaced by Hanif Lalani, who is currently BT’s group finance director.
When BT’s results are published this week they will show that cost-cutting plans at BT Global Services have not delivered as expected. Ian Livingston, chief executive of BT, said: “BT is performing in line, with or ahead of, expectations in all but one of its divisions, so the results in BT Global Services are particularly disappointing. We acknowledge that the performance in this part of the group is unsatisfactory, and are committed to taking decisive action to rectify the situation.”
Barrault joined BT in 2004 as head of BT International with responsibility for BT Global Services’ non-UK operations. He became CEO of BT Global Services and a BT Group plc board member in April 2007. As CEO of BT Northern Ireland Lalani went on to become CFO of BT Wholesale before joining the board as Group Finance Director in 2005. In each these roles he has worked closely with customers and suppliers.
“BT Global Services reports that cost-efficiency savings have been slow to come through and margins have continued to be eroded at the larger end of the managed services deals,” explained Ovum’s Richard Mahony. “Items that the business targeted for cost savings included 10% workforce reduction in the back office, and global sourcing efficiencies (around £50 million), along with other process efficiencies, but we have not been told which cost savings are proving troublesome. However, the business is confident that it can reach its targets once cost savings are brought back on track.
“BT puts much of the poor margin performance down to a lack of standardisation in its business, and it will need to offer more repeatable solutions if it is to meet its margin targets. Such standardisation is a challenge for all telcos and is a keystone in providers’ next-generation network plans. BT Global Services is driving standardisation, with a new raft of services and network features through its service-oriented infrastructure (SOI).”
There will have to be changes in the way the firm does business, reckons Mahony. “The business will apply more scrutiny to commercial risk. Large multinationals can perhaps not expect to receive the same commercial flexibility that BT Global Services has been renowned for,” he said. “Clearly, accelerated cost savings are needed by BT Global Services, and we include within this statement the SOI programme, which will offer more repeatable solutions. However, we would expect BT Global Services to partner with more cloud-based services as it looks to accelerate this desire for standardisation in its business. Also expect a revitalised approach to the mid-market as BT chases after fatter margins in this market.”
BT is to cut its own IT spending by 20% amid growing concern over the impact of the financial downturn. CEO Ian Livingston said he had asked his CIO to cut a fifth from his IT budget saying: “Everyone else is, so why should I be different.”