Telstra's long road to customer satisfaction

David Havyatt

At Telstra's recent Investor Day, chief executive David Thodey reaffirmed his quest to provide better customer service.

"We really need to change what Telstra is, what it stands for. It needs to become a customer centric driven culture, not just an engineering culture, and that's a big change to go through," he told analysts [PDF].

All of Telstra's customers, and probably the customers of most of their competitors, would be pleased to see that happen. At times, customers really do seem to be taken for granted by the telcos.

But is being "customer centric" really a new innovation?

The answer is no. Telstra has been down this path before.

A bit of history

In 2005, at the Business Council of Australia annual dinner, a gentleman at my table was expounding on the issues confronting Telstra. I didn't recognise his name, but his tag said he was from Telstra. I later discovered he was a director.

He was explaining to the table that Telstra needed to change from an engineering-driven organisation to a sales and marketing driven one. This was apparently a key task for the recently appointed CEO, one Sol Trujillo. I expressed surprise that Telstra was still engineering driven.

 I recalled to him a presentation called Marketing Orientation in Telecom Australia, prepared in 1989 by the late Luke Bozza, then a General Manager in Telecom's Corporate Customer Division.

This document divided the history of Telecom into four eras, each with a separate orientation.

• From 1901 to 1975 was the Engineering Era with the orientation of build the network.
• From 1975 to 1980 was the Operations Era of connecting customers to the network.
• From 1980 to 1987 was the Sales Era with an orientation on selling terminal equipment and the network.
• And the last period, the Marketing Era, was listed as "1987 - " with a need to "match product and service offerings to the current and future needs of customers".

The breaks between each era aligned to major reviews. The move from engineering to operations was a consequence of the Vernon committee which also created the separate Telecom Australia and Australia Post structures.

The sales era followed largely from the National Customer Service and Sales Operations Review conducted by AT&T International. This 1982 report said "top management should commit Telecom to a corporate sales philosophy which changes the organisation from a passive service provider to an active selling enterprise".

In 1986, the report Telecom and Competitive Advantage concluded that Telecom "must adopt a strategy of focussing on the respective customer sectors and designing its operations within the framework of these sectors [and] must manage its customer focused strategy in accordance with the principles of a competitive infrastructure, especially the organisation principle of structures that are small, divisionalised, nationally managed, functionally integrated and autonomous/accountable". From this the customer-facing division structure emerged, which was largely retained after the merger with OTC in 1992.

That's almost three decades of consecutive reports with much the same conclusions as Thodey makes today.

And back to the present...

Why, if changes were demanded all those years ago, is Telstra needing to change to be "customer driven"?

It certainly isn't a structural issue, as today there are some seven Group Managing Directors at Telstra with responsibility for "customer facing" divisions and only one Chief Operating Officer in charge of all the technology.

There are at least two big forces actively working against the avowed intent of Telstra's management. The first is the nature of the industry and the fact that competition doesn't work the way theory says it does. The second is a misconception of the purpose of companies.

In both its Investor Day presentation [PDF] and its submission to the ACMA's inquiry Reconnecting the Customer [PDF], Telstra identified the complexity of products as a major inhibitor to good customer service.

But Telstra can't solve the complexity problem alone. The complexity of products is driven by a number of marketing practices, including limiting the ability of customers to make comparisons, and the practice of bundling.

Unfortunately these practices work in acquiring customers. If Telstra simplifies its product offerings it might be able to improve customer service, but it will lose market share.

The only solution for improved customer service is cooperative action to simplify products. But despite the ACCC sharing the concern of Telstra and its customers over product complexity, the ACCC might potentially think that discussions across industry on how to simplify offerings would amount to collusion.

Even if the ACCC is prepared to accept the collusion for the benefit of consumers, the lawyers inside the telcos will scare the regulatory, customer service, marketing and senior executive teams into believing they can't have this conversation.

The other difficulty for Telstra is that while they talk of the culture as if it is a choice between being customer centric or engineering driven, the company itself continues to believe that the purpose of the firm is to create shareholder value.

The origins of this belief are deeply buried in the economic theory of the principal-agent problem. But it bears no relationship to the history of the concept of a company, nor how individual companies are usually formed.

Companies come into being because someone identifies a need that can be satisfied only by the cooperative action of a number of people. The earliest companies were funding highly risky trading voyages. The next were "corporations" that undertook major civil projects like building water and sewerage systems. Modern companies undergo the same process. Your average ISP came to be because the people running it saw the need for people to gain access to the internet.

To get shareholders to commit money and employees to commit labour you have to promise them a return on and of their capital and payment for their labour respectively. Creating shareholder value is a means to the end of meeting the needs for which the company was formed.

The misconception is assuming that the creation of shareholder value comes at the expense of customer service. In the mid 1980s, Telecom Australia recognised the need to change its culture and launched the Vision 2000 project. A part of that program was the adoption of three core values;

These are three mutually supportive values.

Telstra really can change its culture, and change the outcomes for customers, investors and staff alike.

To do so they have to remember the slogan from the "change management" era of the 1980s:

If what you are doing isn't working, try anything else.