A business lesson from recent events at BT
Dave Millett looks at the impact of a recent failure of leadership.
The recent stepping down of Gavin Patterson as chief executive of BT should serve as a lesson to many business owners of what not to do. Unfortunately as a result of his tenure the country has suffered too which raises many questions including whether the free market can be trusted with key national assets.
By the time the news of his departure was announced he had overseen a 60% fall in the BT share price in three years. This equates to the wiping out of £30bn of market value - equivalent to roughly 70% of the UK’s annual national budget deficit.
Corporate history shows that backing the wrong horse with your product strategy will ultimately lead to failure. Think back to Rolls Royce in the 70s and the RB211 engine. BT made two big bets in Mr Patterson’s tenure: TV sport and buying EE.
The latest accounts show that TV and mobile subscriber numbers both fell. The amounts paid for the TV rights were generally recognised as being too high and could be considered a vanity project.
A key responsibility for any business leader is to recognise and manage the interests of various stakeholders.
It is true that the residential services were under threat to an extent from Sky and other quad players (phone, broadband, mobile and TV) – but this is a commodity market with falling prices and margins.
By focusing on these areas the affect was that BT suffered setbacks in many other areas. Its business division revenues have fallen dramatically in the last two years and it suffered the embarrassment of the £1/2bn accounting scandal in Italy.
That led it to paying two major shareholders – Deutsche Telekom and Orange a further £225m to avoid legal action. It has been slow to respond to new technologies. From being dominant player in ISDN it ignored the rise of its replacement (SIP and VoIP) for too long. In terms of market share it languishes behinds other more nimble players.
A key responsibility for any business leader is to recognise and manage the interests of various stakeholders. At the times it seems the sole focus of BT was on its shareholders where despite multiple financial pressures it maintained dividends.
It is ironic that it was the major investors reaction to the latest results and the recovery plans – basically sack 13,000 people – that led to his downfall.
At the same time the pension deficit was allowed to rise to £13bn at a time when companies’ responsibilities to their pensioners are under increasing scrutiny. This also ignores the fact that existing staff are affected by the deficit and it could even be a barrier to recruitment of talent.
The focus on TV and EE also meant that investment in the UK’s broadband and mobile infrastructure suffered. The UK ranks 54th in the world for 4G coverage and bottom of Europe for availability of fibre to the premise (FTTP) – we have around 3% coverage compared with 33% in Spain and 45 % in Latvia.
This was as a result of a focus on fibre to the cabinet technology which allowed BT to sweat its copper assets to the detriment of the country. Also the rollout of that technology was skewed to residential areas to support the sale of TV services.
As a consequence many business parks and city centres are still reliant on slower ADSL (copper broadband) services. This affects the productivity of business up and down the country.
Eventually Government ministers and Ofcom began to tire of Britain lagging behind. This led to the partial separation of BT Openreach. That could have been avoided had they not been so obsessed with running it to support their TV investment.
BT has been hit with several large fines by Ofcom which again suggests the focus on and the corporate governance of the whole business was severely lacking.
This raises the question as to whether the roll out of new technologies for our national infrastructure should be trusted to the free market. In other countries it has been kept as a separate organisation. The Labour Party has made much of its plans to nationalise what it sees as the key infrastructure of the country – yet no mention has been made of our digital infrastructure.
Whilst not commenting on the rights and wrongs of nationalisation it is a reflection of the low priority they place on telecoms. At the other end of the political spectrum the Conservatives have set some targets but then basically told the industry get on with it.
That approach as typified by BT has failed badly. In this vacuum the country is left to the whims of one man who was clearly focused on other areas which ultimately led to him losing his job and leaving the country as the telecoms laggard of Europe.
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