Page 2By Elizabeth Wasserman | Posted 04-01-2004
To Hell and Back: MCI
MCI's Network Operations Center in Ashburn, Virginiathe nerve center of the telecom giant's IP backboneis a large, dark room filled with rows of desks that face massive, overhead screens. The giant screens display world maps of the company's 98,000 network route miles, the Weather Channel and CNN. On the day of my visit, one CNN headline announced that the company's former Chief Executive Officer, Bernie Ebbers, had been indicted on federal charges for allegedly orchestrating the biggest accounting fraud in corporate history. Almost two years ago, that fraud, estimated at 11 billion dollars, coupled with the debt it concealed, forced MCI (then WorldCom) to file for bankruptcy. Still, few of the engineers in the Operations Center bothered to notice the news.
"I'm saddened to see it again," says MCI acting CIO Jim Gwinn, when I mention the CNN headline minutes later in a conference room a few corridors away. He sighs, and adds, "Those of us here have no insight as to what happened or why it happened, and it will forever be just one of those things we just have to put behind us."
Gwinn, 44, lives in Nashville, but he spends a significant amount of time on the road in Virginia, Colorado and at other MCI facilities. He's been with the telco for 16 years, but was only named acting CIO last fall. Prior to that, Gwinn served as vice president of IT Business Systems and oversaw MCI's network traffic collection, mediation, rating, billing and e-commerce systems. As such, he had a huge challenge on his hands even before the scandal broke. WorldCom's rise, after all, had been as steep as its fall; by July 21, 2002, when the company filed for Chapter 11, it had acquired 70 companies and amassed more than 1,000 disparate IT systems.
With all the bad news, it's easy to forget how dominant MCI was as WorldCom. From humble beginnings in 1983, Long-Distance Discount Service (LDDS) became, under Ebbers (an early investor, and CEO as of 1985), a "growth through acquisition" juggernaut. By the time regulators put on the breaks in 2000, barring a proposed merger with Sprint Corp., LDDS had absorbed IDB Worldcom, Resurgens Communications Group, Brooks Fiber Properties Inc., CompuServe Corp., UUNet Technologies Inc. and MCI Communications Corp.
At its peak in 2000, WorldCom earned nearly $40 billion in revenue and served more than 20 million customers, chief among them the U.S. government. Through its purchase of UUNet, in particular, the company claimedand still doesthe largest footprint in Internet Protocol, owning more than 4,500 points of presence (PoPs) worldwide. The future seemed bright.
But then WorldCom entered a long, hot season in business hell. For starters, the telecom sector collapsed. Even as it raked in almost $40 billion in 2000, WorldCom lost $48.9 billion according to adjusted figures that MCI filed with the U.S. Securities and Exchange Commission in March 2004; it would go on to hemorrhage another $15.6 billion in 2001, and $9.2 billion in 2002. In 2001, the company laid off 6,000 workersthe first of 34,000 employees it has either let go or lost to "attrition," including 4,000 more layoffs announced March 29, 2004. In 2002, the SEC came knocking about the missing billions. The Department of Justice soon followed. Ebbers resigned in April 2002, and former UUNet CEO John Sidgmore took over. (Sadly, Sidgmore, 52, died in December 2003.) Finally, on March 2 of this year, former CFO Scott Sullivan pleaded guilty to securities fraud, conspiracy to commit securities fraud and misleading the SEC.
Begun well in advance of the losses and scandal that engulfed the company, Gwinn's efforts to consolidate WorldCom's IT systems became even more essential once havoc struck. The task was immense. Over the years, the conglomerate had accumulated not only 1,000 IT systems but 11 different IT organizations. Each one had its own budget, administrative processes and department head. There was no common architecture, no standards and no centralized leadership or strategythat is, aside from scrambling to coordinate an ever-widening array of services. Gwinn's mission improbable: to reduce all of those systems and divisions by one-half to two-thirds and to get all of them coordinated. Only, post-Chapter 11, he had to accomplish this with slashed budgets and fewer personnel.
"It's still not like everything will be completed in a 12-month period," Gwinn says. "But we have intense focus on where we need to be and how we're going to get there."
Though daunting, MCI's "IT transformation," as Gwinn calls it, has nevertheless represented an incredible opportunity. Sure, cutting costs remains a huge motive, but Gwinn's plan is also intended to fix MCI's ordering-thru-billing process (an historical trouble spot), to reposition itself as a customer-friendly company, and to prepare for the Voice over IP future.
"MCI needs to do this IT transformation to cut costs dramatically and transform their business," says Scott Cleland, head of the Precursor Group, a Washington, D.C. research firm. "They have to do itto stay ahead of the latest guillotine."
Call to Order
In the glass-and-stone lobby of MCI headquarters, a cloth banner hangs from the second-floor balcony above the reception desk, where guests check themselves in on touch-screen computers. It reads: "We Need to Act with an Outrageous Sense of Urgency!"
The imperative comes from President and CEO Michael Capellas, 49, the former president of Hewlett-Packard Co. who took on the MCI turnaround in December 2002. Unsurprisingly, Capellas likes to emphasize what MCI has done right, even during the tough times, such as The Neighborhooda bulk-rate pricing plan for residential local and long-distance calls. MCI was the first to offer such a flat-rate package, and competitors soon followed. The company has also launched a similar program for business users, called MCI Advantage.
Even so, Capellas knows that no one price scheme or clever marketing campaign will solve all that ails MCI. What's more, as a former CIO himself, he's gotten behind MCI's IT transformation in a big way. "Computing and telecommunications are indeed converging," Capellas says. "Somewhere between those worlds is a new kind of company, and that's what we'll be." IT, he says, is not only driving telecom convergence , but also is critical to MCI's improved customer service.
First, though, IT needed to clean house. All of MCI's age-old, incompatible legacy systems, its jungle of software applications, and its scores of different tools used to run various processes, all contributed to a problem that's legion among MCI customers: new-order and billing snafus. These have resulted in FCC fines and class action suits against MCI and, what's worse, given the company a black eye.
In 2000, for example, WorldCom paid $3.5 million in fines to settle FCC charges that it switched customers' telephone carriers without permission, while, in California, the company agreed to pay $8.5 million in penalties and refunds to settle charges that some of the state's residents were charged for long-distance service without permission. Yet another FCC settlement in 2000 required WorldCom to make more full disclosures in advertising its Dial-Around products. (In the interest of full disclosure, I received a $600 payment from a class action suit against WorldCom in 2001.)
"MCI's clients have never complained about the performance of the network," says Jay Pultz, a research vice president at Gartner Inc. "Most of the dissatisfaction of customers is associated with the back office and support functions." In particular, Pultz says, corporate customers complain about both MCI and AT&T when it comes to "placing orders, how long it takes to get something installed, and that the bill is never right and they have to have several people on staff go through each bill."
Just as MCI's multiple IT systems have made it harder for the company to handle orders and billing smoothly, so also have its multiple sales systems cost MCI in terms of its ability to forecast and analyze data.
"One of the questions Michael [Capellas] asked was, 'Hey, what's in the pipeline?' " recalls Bob Laird, MCI's senior director of IT architecture and strategy. "Since we had multiple sales systems, it was not trivial to gather all that information." MCI's problems with multiple systems were notorious among industry insiders. Its systems were so incompatible, says Kate Gerwig, an analyst at Current Analysis, a Virginia-based research firm, "I'm sure some things were faxed and printed out."
The automation of MCI's sales department, now underway with the implementation of Siebel Communications, a CRM package from Siebel Systems, is expected to result in lower costs as order processing is streamlined, the pace of billing accelerated, and revenue increased through product bundling. While MCI would not release its projected savings, Ken Laversin, Siebel's senior district manager in telecommunications, said that his other telecom clients had realized a 13 percent decrease in operating costs in the first 12 months. Laversin also boasted of a 13 percent increase in customer retention and 18 percent improvement in customer satisfaction over a 12-month period.
The first sales channels that were targeted for automation using Siebel's products were global sales and Small Business Direct. Already the system has 6,000 users online. When fully deployed, MCI expects 12,000 to 13,000 users to sign up.
Naturally, the ultimate goal of automating the sales chain is to create more customer loyalty, because it's always cheaper to keep a customer than win over a new one. So far, the plan appears to be working. Rich Sayers, of Martinez, Calif., who operates a consumer Web site called www.bye-bye-MCI.com, said complaints about the company's services have declined of late. "The biggest frustration I've heard recently is that when people try to cancel an account they get routed to long-distance or the bundled packages, like The Neighborhood," Sayers says. But it's nothing like 1999, when, he says, MCI led the pack in complaints about 10-10 dial-around numbers and its former wireless service, the latter of which he said was "one of the worst fiascos for MCIreportedly 40 percent of their bills were incorrect."
Quote to Cash
On a wall-length whiteboard in one of the hundreds of conference rooms at MCI headquarters, Laird takes out a blue marker and sketches a picture of how MCI's systems were organized before the transformation. Laird draws several tall boxes, which he says represent different product lines, such as wholesale, Internet, private line, data products, etc. He draws another box, labeled "customer," far off in the left-hand corner. Under the old system, a customer who wanted to order several different products had to be served by several different unitswhich required human interventioninstead of one seamless, automated process. Orders for voice service were entered differently from orders for data service, which were entered differently from orders for international service, and so on. It was on orders across sales channels into which errors were often introduced, says Gartner's Pultz, eventually leading to some of the company's billing complaints.
On the other side of the whiteboard, Laird takes his marker and draws a rendering of "after." The first three squares in a horizontal layer across the top make up MCI's new Web portal strategy for customers, employees and partners. The company's vision is that, someday soon, customers will be able to place orders for service and access network information through these portal sites. By the end of this year, Laird says, customers will already be able to use this format to report "trouble tickets"problems with service, such as when a circuit is down or the network is slow.
The next horizontal layer encompasses the "quote-to-cash" process, from ordering to accounts receivable. Up until last year, MCI had about 150 various sales and service systems, Gwinn says. In order to give quotes, salespeople would sometimes have to log on to two or three different systems to find out whether certain services were available, and at what cost.
MCI hired IBM Business Consulting Services to come in and sketch out a road map for their business and IT transformation. "MCI recognized they had a series of disparate systems, and they embarked on a project that will ultimately allow them to understand what their cost structure was for these applications," says Fran Exley, a partner in IBM's business consulting services organization.
MCI also worked with Deloitte Consulting to develop a brand new financial data systems planone that Deloitte's Kenneth Horner claims has given MCI a jump on Sarbanes-Oxley compliance.
Clearly, MCI will need every advantage it can get from its IT if the company is to emerge from bankruptcy this Aprilas anticipatedand be competitive. MCI is expected to re-enter the market with approximately $6 billion in cash, but $5.8 billion in debt, and face an unforgiving marketplace.
"What revenue source is there in telecom that isn't going to be commoditized? That's the killer question," says Kevin Werbach, an independent technology analyst and consultant based in Philadelphia, and former counsel for new technology policy at the FCC. "Voice calling is going to be free. Data service is going to be free. Long-haul fiber is virtually free because of overcapacity. What is there that can generate sustainable value? We're just at the early stages of asking that question."
Gerwig, at Current Analysis, says she sees promise in MCI's IP strategy. In February, MCI announced plans to upgrade its Private IP network in 48 countries, and to extend its Private IP network in the U.S. twofold. At the same time, Gerwig says, "They're a little behind the curve in announcing a network convergence strategy even though they've had this in mind for some time."
"The other asset MCI has," says Werbach, "is Capellasin that he comes from the computer industry. One overarching theme is that telecom will look more like the computer business. It will be more software innovation, more quickly, for applications on top of commodity platforms. He knows [that] in this type of market, prices drop more quickly."
Sure enough, at the February 2004 Precursor Group Workshop for Technology and Communications Investors in Washington, D.C., Capellas told analysts and investors that MCI was embracing VoIP, despite its potential to undermine MCI's long-distance business.
"I've learned something from Michael Dell," Capellas told the crowd, referring to the man who essentially drove Compaq to merge with Hewlett-Packard. "You better cannibalize your business before someone else does."
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