I used to work for BT for 22 years and still feel quite loyal to them, though increasingly frustrated at the apparent determination to die. BT is a good company in many ways, dumb in others. But overall, it has missed out on the IT boom, and the share price has tumbled in recent years, so many of us loyal shareholders have lost a lot of money by staying optimistic about its future. In an industry packed with potential, it has consistently avoided capitalising on the many opportunities it has had.
BT has had a lot of CEOs over the years, and most have missed their main opportunities. Though I am sure some people would disagree, here is my take: Michael Heiffer came from the finance industry but completely failed to understand BT's potential to use its transaction management capabilities in the banking market. Peter Bonfield came in from the computing industry, but totally failed to understand the potential from telecomms-computing convergence, passing over lucrative opportunities worth tens of billions, while wasting tens of billions instead on 3g licenses and incomprehensible company purchases that almost took the company into bankruptcy. The less said about Cockburn the better. Finally, Ben Verwaayen was at least competent. He stopped the fall for a few years by selling off much of the company's most valuable assets, although he failed to dump the network when given the chance, which would have liberated the company to concentrate on what it does best. But although he was good at stopping the rot for a while against tough odds, he was never the right manager to capitalise on growth opportunities. But at least he had the good sense to go when he'd done his bit, to let someone else take BT into the growth phase. But once Ian Livingston was identified as the man likely to take over, there was never any prospect other than doom.
I believe the main problem in BT is accountancy drive. Accountants dominate many blue chip companies because the perception is that since the company exists to make money, people who can manage money ought to be able to run the company better than others, such as engineers. In some industries, perhaps that is true, I won't comment here. But in a high technology company such as BT, it is not at all appropriate. So I warned my friends to sell their BT shares when Ian Livingston was marked to take over. Since then, the price has fallen by about two thirds, proving I was right.
Accountants count beans, but usually only some of the beans. They look at those things that appear on the balance sheet, such as costs, and income, but don't look properly at things that are hard to measure, such as engineer productivity, creativity, or staff loyalty, and rarely look at potential revenue. So they put in place micromanagement systems that greatly reduce productivity by using up staff time to get small quantities of useful information worth a fraction of the costs of acquisition, but since those costs are not directly measured, they are ignored. The result is a very precise but very inaccurate figure for the numbers of beans.
They also have much less understanding than engineers of what it is that the company actually could do, what its skills are, or what the industry could offer. So while BT sits in a field full of promise, surrounded by gold, its focuses on headline cost reduction as the main route to profits, while splashing out heavily on low-potential investments such as BT Vision. Ignoring enormous revenue sources while putting too much effort into cost reduction is folly, but it is sadly a problem that has affected BT for many years. Its single strategy has been hiding in the corner, leaving new opportunities to other companies, while technology progress erodes the potential income from traditional sources, and then trying to stay in business by reducing costs.
This strategy hasn't worked so far and it won't start working in the future. It is long overdue for the scrapheap.
BT has a network that is very expensive to maintain, and is wholly inadequate to run modern services. Its strategy director was quoted in the weekend papers saying that she can't see why anyone would need more than 20Mbit/s to the home. Such comments will go down in the infamous quotation books alongside Bill Gates' comment than no-one could ever need more than 600k of memory in a computer.
The company must start to explore the modern telecoms and IT marketplaces, look around the find the services it could offer, quickly develop them, and then sell them at a reasonable price without its usual confusion marketing. This will cost money, but it will be a sound investment. Saving money ad-infinitum will eventually lead to a tiny company with tiny value. Investing heavily to create adventurous new products and services would create new income streams that will take the company to its full potential.
BT still has a lot of high quality staff, though many have left in recent years in management -induced despair, having offered the company the ideas it needed and having them rejected by accountants and managers with little or no real understanding of telecoms or IT. It is not too late yet, but it soon will be. Identifying key technology-enabled opportunities and financing them will lead to recovery. Counting beans will lead to oblivion. Livingston has to go, and go soon. In my opinion, he just doesn't understand the business he is in, and should never have been at board level, let alone CEO. Francois Barrault has gone as a scapegoat, but I think he had a far better understanding of BT's business than Livingston ever will. BT was once a great company and could be one again with the right policies. Sacking good people and over-promoting fools will not help. Nor will counting only a selection of the beans.
But I haven't sold my shares. I am hoping in spite of everything that one day, BT will appoint a CEO who understands the business, who is prepared to take risk and invest heavily in the right areas, with huge injection into R&D. With the courage to identify and remove some of the thoroughly incompetent managers dotted here and there, and to reward the better ones, BT could once again be a world leading company. But BT can only be a good investment in the long term, and it might not survive that long.
Very risky, but potentially a good buy for the long term.