Inside Telstra's Project New restructure

Telstra has kicked off a three-year restructure of its business - said to be the most comprehensive undertaken since the company was privatised.

The telco has 500 people working on 27 sub-projects as part of the restructure, internally code-named 'Project New'.

The restructure aimed to simplify Telstra's internal business processes and improve to the way it approaches - and delivers - customer service, with a view to cutting underlying fixed costs and becoming more competitive.

It was the result of a strategic and operational review of Telstra conducted between March and May this year that concluded a "fundamental change to the business" was required.

"This is the largest single change program Telstra has undertaken since privatisation," project lead and group managing director of corporate strategy Robert Nason said today.

"This is a service-oriented and simplification exercise. Costs will fall out as a result of doing that.

Nason said the project had been running for three months and was "on track".

"There is enough budget and resources allocated to get the job done," he said. "There can be no excuses of under-resourcing [of the project]."

Decentralisation

One of the early sub-projects saw just under 350 senior managers cut in the past two months - and reductions continued to be made as Telstra focuses on re-engineering its processes.

Nason said the carrier had introduced a new "capital process" that decentralised responsibility and "held the business accountable for capital" expenditure.

This change alone resulted in a reduction in staff relating directly to that process from 152 to 74, Nason said.

"That's a small process in a big company and we see similar changes [and possibilities] everywhere we look," he said.

"We're removing the centralisation that was a feature of the previous administration."

Nason said that there were "significant productivity gains" available by improving service delivery and Telstra's operational model.

He said Telstra was "examining its organisational structure" as part of its move to a leaner operating model and expected to "finalise most aspects of the...  model in the first half of this year."

But Nason said that the "areas for greatest productivity improvement were directly related to the customer service performance of the company".

He said Telstra had been testing the network and customer services provided by its competitors - going as far as buying their products and "lodging complaints and seeing what they do" about them.

Telstra was also focused on reducing what it called "bad volumes" - such as multiple truck rolls to fix faults, the cost of processing customer complaints and the cost of bad debts (where people did not pay oversized bills).

Online service and bundling

Nason said that 73 percent of customers preferred to deal with Telstra online. Pushing online delivery could realise $100 million in productivity improvements, he said.

"That's the size of the prize for getting that right and moving into that [online] environment," he said.

Nason also outlined how small improvements in its business could add substantially to its bottom line.

He said that extending customer loyalty in its consumer business could be worth between $50 million and $60 million a year in revenues. One percent less churn in the same business could add between $40 million and $50 million to its bottom line.

If one in ten customers "increased their product holding with Telstra by one product", it could add up to $450 million in revenues to the company, he said.

"That's the size of the prize of getting [Project New] right," Nason said.

"You do these things if there's a return out of doing them and you invest if the size of the prize is sufficient."

Program costs

Project New would result in a net cost of $40 million to Telstra in the 2010/11 fiscal year, according to the company's chief financial officer John Stanhope.

Stanhope said the telco was spending about $290 million on the project - but that figure would be offset by savings, resulting in the quoted net cost of $40 million.

"This year is a lot of the hard grunt work [looking at] what it is we have to implement," Stanhope said.

Telstra CEO David Thodey said he was spending "nearly 30 percent" of his time on Project New but noted that it was a "team effort".

"This is a company-wide program," he said.

"We continue to look at how to make this company leaner and more efficient going forward. We need flatter structures and be faster in our go-to-market."