How IT Transformed BTBy Edward Cone | Posted 02-11-2008
How IT Transformed BT
The latest New Wave out of London has nothing to do with skinny neckties, synthesizers or bad haircuts. New Wave is the term used by BT Group to categorize revenue derived from its businesses, including networked IT, broadband and mobile services--offerings the telecommunications giant needs to drive growth as its legacy phone business ages.
The transformation of the venerable company once known as British Telecom is a dramatic story: the remaking of a former state-owned monopoly built on 19th century technology into a dynamic global enterprise. It involves the overhaul of a sprawling and inefficient tech organization and the strategic and cultural shift across an enormous company, all enabled by the development of a global IP network and services platform, and inspired and led in large part by a small group of technology executives.
A key architect of the transformation has been Al-Noor Ramji, BT Group CIO and chief executive of BT Design. (The company reorganized itself last year into two operating divisions: BT Design, which develops services, and BT Operate, which delivers them.) "We said, let's do it first in IT, that's closest to what we want to do with the firm," says Ramji, who likens the significance of BT's transition to IBM's move from hardware to software and services.
So far, the results are promising. New Wave accounted for almost Â£7.4 billion ($14.6 billion) of BT's Â£20.2 billion ($40.2 million) in total revenue for the last full fiscal year reported, ending last March. It also grew much faster than the legacy business, increasing by 17 percent over the previous year vs. 4 percent growth for the company as a whole.
The most recent quarterly results, for the period ending December 31, show New Wave making up an even larger share of total revenue: Â£2 billion ($3.96 million) of Â£5.1 billion ($10.1 billion) overall, and growing more than seven times as fast on a percentage basis as the top-line number.
BT has "found a winning formula in the market," says Mike Cansfield, an analyst with the British research firm Ovum, who has followed the convergence of information and communications technologies for several years. In a recent report on BT, Cansfield praises the company for its leadership in the field of networked IT services, citing several large contracts it has won in Britain and Europe, including a major deal with the British National Health Service. (See "Healthy Challenge" on p.26.) Cansfield cautions, though, that BT's continued success may depend on expanding the range of services it offers.
At the heart of BT's growth strategy is its global IP network, dubbed 21CN, for 21st Century Network. The network alone doesn't provide New Wave revenues, but it allows the convergence of skills and culture to flower around the world. The platform lets the company offer software-based services including managed Software as a Service, outsourced networks and self-service provisioning in 167 countries around the world. "If you attach to the network from Paris, Texas, or Paris, France, you get the same service," says George Nazi, the managing director for 21CN Core Convergence and one of the earliest advocates of BT's transformation.
"BT has taken the IP bull by the horns," says Dean Bubley, a London telecom analyst. "They have settled into a leading role as a next-generation provider of services, taking technology that's sometimes not even mature and pushing the standards process toward their own usage needs. They have a very good vision of where they'd like to be."
Reaching the point where that vision became a reality took years of effort, not just on the technology front but in every phase of the business.
Ramji was CEO of BT's technology group, then known as BT Exact, when in late 2004 he outlined a vision: BT would remake its IT organization from the ground up to put internal and external customers first. The program Ramji announced was called One IT, and its scale was enormous.
The platform strategy--delivering services via 21CN--was fundamental from the beginning. "It started as a conversation among a very few people, about three of us," says Nazi, then vice president of global engineering. "We started by looking at our customer service network operations--the customer self-service network, we called it then--and thinking of how it could be improved."
Ramji, who had arrived at BT several months earlier, after serving as CIO of Qwest Communications International, was on board within a week, and BT chief executive Ben Verwaayen was quick to buy in when the plan was fleshed out and brought to the board.
But the primary selling points to investors and the media were cost and efficiency. "Everyone saw it first as a cost-cutting exercise, and that suited us fine," says JP Rangaswami, managing director of BT Design, who joined BT in 2006 as CIO of Global Services, after serving as CIO of investment bank Kleinwort Dresdner.
Certainly there was work to be done on those fronts: BT had 14,500 IT workers but lacked centralized management and strategy. Semi-independent IT fiefdoms abounded across the enterprise, and within them, some 4,300 projects churned along--many without relationships to each other or connections to a larger purpose, and none tracked by performance metrics.
One IT set out to reduce the number of systems to 100, all of them running on 14 core platforms known as "the matrix." These platforms are built around a service-oriented architecture, Java and Microsoft's .Net, allowing BT to build its own services on top. "The matrix is a way of future-proofing ourselves," says Rangaswami. "It allows us to add customers, data and services, and to integrate acquisitions, while avoiding the delays caused by handoffs from one system to another."
Ramji imposed tight standards on the process, setting specific delivery dates--published across the company--for projects and running them in 90-day cycles that ended in performance reviews that would yield bonuses if targets were met.
Change didn't happen overnight, and nobody got bonuses for the first few months, but the IT function has been remade and integrated into the business at large. IT is now a single global service, not embedded in individual units, where the term CIO is no longer used. "CIO suggests technology, and we want to suggest service and customer experience," Rangaswami says.
Return on investment is expected and measured, and reviews follow the deployment of new systems, which are delivered about three times faster than they used to be. Some 3,100 technology jobs were converted to customer-facing positions, with Â£15 million ($29.9 million) allocated for worker retraining. One IT yielded big cost savings--almost 20 percent in unit costs, according to BT--amounting to Â£240 million ($477.6 million) over the past two years.
Along the way, the company has adopted new methods of measuring performance to reflect its new business focus, including metrics like Right First Time and Reduced Cycle Time. Writes Cansfield: "Doing so will reveal how successful One IT has been and signal the pace of transformation in the business. These are likely to be as revealing of BT's health as financial and network measures. [BT is] "probably the industry leader in this respect."
Transforming the Business
The highest value of the One IT program is the strategy it enabled. "We were always on an innovation curve," says Rangaswami. "The transformation is leveraging what we were doing as we got our own ducks in a row. We had to make sure we had the structures and managers in place to meet our objectives of improving the customer experience by building our network and getting out of the way to let the customers do self-service."
BT's plan for networked IT services is that 70 percent of customers will use off-the-shelf versions of its offerings, 20 percent will have to do some assembly and 10 percent will require custom service. The global IP network is extremely important to the strategy. "It's not just pipes, it's virtualization--the ability to manage the application that is running in a transparent and agnostic location," says Michael Boustridge, president of BT USA and Canada.
One key is for BT to be involved in the application layer--which is critical to the model--as well as the network. "We provide people where people are relevant, software where software is relevant; the key thing is service," Rangaswami says. "Software as a Service is very much a part of that."
Adds Boustridge: "The network outsourcing discussion is really about enabling the application for competitive advantage." A big financial services customer, for example, wanted to put new applications on the network to permit low-latency trading and shave milliseconds off trades as a competitive differentiator.
"It's great to have a network that's redundant and diverse, but you have to multiply the complexity of that operation by the number of applications that run on a network and can run anywhere in the world," says Boustridge, who joined the company in 2007 from EDS, where he was vice president of global sales and marketing. "We've bought a lot of data centers, but that's running boxes. We're running applications, making information secure, and that means designing and engineering to suit a particular environment."
Another key element of BT's growth strategy has been acquiring companies that address specific aspects of its New Wave businesses. "Each individual asset brought capabilities we need," Boustridge says. These include the 2004 purchase of Infonet, which provides global networking capacity, for $965 million; the $175 million acquisition of Radianz from Reuters in 2005, which strengthened BT's position in the financial industry; the 2006 addition of privately held Counterpane (for an undisclosed price), which brings security capabilities; and the $196 million purchase of INS in 2007, which adds consulting services to BT's arsenal. "Wrap them all together with the 21CN investment, and the acquisitions make sense," Boustridge says.
Consumers, not just large businesses, also figure in BT's plans. "Say you are sitting on a beach in a remote place, and your friend texts to say you need to watch yesterday's episode of Heroes, Rangaswami says. "You've got your Mac and Slingbox, but you find the bandwidth on the beach is not enough. You have the capacity to serve yourself to get the bandwidth you want."
To do that, separate disciplines within BT, including operational support and billing, have to come together. And it can be done without BT owning every mile of the network. "It's the wrong century to make network delivery an arms race," Rangaswami says. "There has to be a level of partnering to do this." In many places, including China, India and Africa, the network will include wireless components. The 21CN platform is meant to accommodate all these realities and to allow users to do what they want without seeing the complexity behind it. "The customer wants to buy the car," Rangaswami says, "not the parts."
Technology and strategy are not the only important elements of BT's transformation story. The culture of the huge company had to change as well, and the IT organization was an important driver of this change, too. "We had 100 years of history to get rid of in two years, human processes embedded in the phone system," Ramji says. (The predecessors of the modern BT date back a century and a half, to the telegraph era; British Telecom was state-run until privatization in 1984.)
Under the old regime, IT workers were scattered across the enterprise, working in silos. "We needed to harmonize tribal behaviors," Rangaswami says. "Then we needed to change the culture of the people to one of genuinely servicing what the customer needs."
Rangaswami, an innovator in the use of Web 2.0 technologies at his previous job at an investment banking company and a well-known blogger himself, describes the emergence of a collaborative culture at BT. He says "a social network of sorts" evolved around the development of a messaging system built using open source software. "There was a democratization of the community, with peer respect and trust," he says. "It was identical to the kind of transformation we wanted to move to the rest of the firm."
The company also boasts 15,000 users of internal wikis on a given day, a huge number that Rangaswami says enables and bespeaks "a culture prone to sharing." BT has an active Facebook community of more than 9,000 members, which facilitates communication and cooperation across the old business units, and is seeing increased use of the Twitter microblogging service. "We are not being proscriptive about the use of these tools," Rangaswami says. "We use them, and we use face-to-face meetings, breakfasts and lunches and dinners to make the transformation happen. We have to talk to people, and we have to lead by example."
Managing director Nazi spent his pre-BT career at startups and came to the 21CN job from the company's global services unit. "As we reorganized, as we built this massive transformation, it was like that buzz at a startup," he says. "Everyone was looking at what we were building. You would hear software people speaking network and vice versa."
The change in culture and outlook is related to the change in technology. "The move away from thinking of hardware to thinking of software changes you," he says. "People see things more end to end now. They are thinking from a design perspective to the customer. These days, I sound like a software person."
The culture shift is evident in the marketplace. "Several years ago, discussing innovation at BT would have been a surprising conversation," analyst Bubley says. "They've realized they are allowed to experiment, they have taken risks and broken ground."
Still, nothing changes overnight, including the reputation of an ancient monopoly. "It would be wrong to characterize them as a company everyone loves," he says. "They still need to work on marketing, especially to consumers. They are not regarded as a cool, sexy company, but within the telecoms industry, they have earned a fair amount of grudging respect."