The New Telecom II: How Theresa Gattung's changing Telecom from within

Monday 29th May 2000

In the 200 days since Gattung took the top job from Roderick Deane, his powerful, but gentlemanly "invisible man" style has been swept away by Gattung's dynamic, outspoken charisma. She's young, 38 last birthday, and has the sort of persona that fills a room. And she's a woman, surrounded by women - and that's important to her.

Gattung has always kept - and still refers to - a clipping file of articles about women she admires; mostly women who have advanced the equality cause. "I'm keenly aware that I've got where I am through the efforts of people who have been before me," Gattung says. The appointment of senior women at Telecom, she believes, provides other women with role models, and also demonstrates women are as capable as anyone else.

Telecom had women executives in the past, she explains, but traditionally they were in support roles. "I've got Karen driving Australia, Jane driving Esolutions. This is line leadership. Boys normally bag these jobs. This sends signals into an organisation and into the wider country. Even into Australia."

It's a culture change matching what's happening in the telecommunications market. Telecom's monopoly position is being challenged by the rapidly-changing Internet era. It's no longer Telecom versus Clear, but Telecom versus half-a-dozen phone companies, dozens of Internet service providers, including the troublesome free ISPs, plus companies representing new technologies like wireless and a government determined to restructure the sector. More importantly Telecom's competitors are also its customers - big customers in some cases. The new environment requires a whole new set of rules and relationships.

Deane was undoubtedly the right man to lead a powerful monopoly. He spearheaded one of the biggest improvements in value ever seen in a New Zealand company. His cost-centred approach saw money squeezed out of every area of the business, including reducing the number of employees from 12,500 in March 1993 to 7800 in March 1999 (it was 27,000 in Telecom's 1987 heyday. For shareholders, he was a dream come true, more than doubling after tax profits during his seven years in office - from $402 million in the year to March 1992 to $822 million in the 1999 year.

"Deane's approach was remorselessly analytical. He believed every problem could be reduced to a spreadsheet," says Martin Wylie, Telecom company secretary for eight years until 1995. "But the day will come when you can't readily squeeze any more costs out and you must expect profits to fall unless you come up with another solution."

Gattung is that solution. Her challenge, according to ABN Amro analyst Jeremy Simpson, is to turn Telecom from a low-growth, high-payout, high-return-on-equity business to one with high growth but equally good profits. "There needs to be more focus on the top line and on marketing and consumers. Telecom needs the ability to capture or defend its dominant position in growth areas," he says.

First mover

Gattung's first move has been to bring a much more operational approach to management. Deane presided over a nine-person senior management executive group with a focus on finance and strategy. Gattung, as head of the services group, was the only person with a customer-focused role. The new executive team is bigger - 14 people - and includes the heads of the main business teams - Xtra, mobile, Esolutions, voice and data, sales and service.

"The overall direction," says Gattung, "is away from people thinking that we are bound by the geography of New Zealand, that all the answers are held within a tight [group of a] few people, that we are in the voice business, that we have to do everything ourselves and that all our businesses should be run in the same way. These changes started before [I was appointed] but may be accelerating."

Further down the chain, Gattung is keen to shift from a purely hierarchical structure within each division toward a more project-based approach. Talk to any Telecom employee, past or present, for more than a few minutes and the phrase "my direct reports" is almost certain to come up. A central part of the Telecom culture has been the rigid structure of staff relationships. That's changing, says corporate communications chief Jane Austin. "We are moving toward a more fluid organisation. We move people around and bring together lots of virtual teams - people not reporting to each other." This includes bringing outsiders in.

"We had an attitudinal constraint that said, whatever we do we have to own all of it, we have to do all of it, all the expertise will sit in-house and [people] will report to a certain GM and they will report to someone else who will report to the CEO and that's how you do life," Gattung says. "The attitudinal change in the past 12 months has been quite marked." Gattung wants Telecom to be more open and claims she's leading by example. To be accessible and interactive, she abandoned executive Christmas drinks last year in favour of a tour of call centres to talk to staff. She says more than 400 people have been involved in the formation of the company's new corporate strategy. And she has instituted, throughout the company, the six-monthly "census" that she introduced when she was in the services division. The census is an online questionnaire about how staff perceive the company's vision and mission. "There's a sense now, and the Internet supports that, of structures being more permeable. The Internet is about any individual being in continuous conversation with any other individual. Strong hierarchical structures isn't the way individuals want to work. This isn't unrelated to having women in leadership positions."

No soft touch

So Telecom's gone all touchy-feely? Actually, according to the 20 or so people we spoke to for this story, Gattung is, if anything, more ambitious than her predecessor, just as hard-working and lacks none of Deane's aggressive approach to the market. Remember, Deane is still Telecom chairman, and Gattung has been in senior positions in Telecom since 1994, and was in charge of 90% of its revenue in her last position. She was almost certainly Deane's personal answer to the succession question. You don't appoint an insider if you want a major change in direction. "The culture is one where everyone is expected to win and win big. There can only be winners and losers. Win-win for Telecom is still going to mean I win and then I win again," says a former executive. The sources say Gattung is a tough leader demanding intense loyalty from staff, and dislikes being challenged, particularly in public. Some time ago, a staff member asked an unwelcomed question in front of several hundred people at a sales conference. Gattung bit back: "That's a career-limiting question."

At Telecom, insiders say, you are either for Gattung or agin her. Friend or foe. Those agin her don't stick around. An early casualty of the Gattung era was Ariane Burgess, former head of corporate communications. Burgess, a powerful visionary and behind-the-scenes broker of the external perception about Telecom as it moved from government department to New Zealand's most successful corporate, was definitely not a Gattung person. She quickly found a job as head of Lotto. Gattung accepts she demands high levels of commitment and isn't everyone's cup of tea, (and vice versa), but challenges any suggestion that she encourages a cult of personality. "I don't cultivate a sense that I have all the answers," she says. Others agree Gattung is good at picking people with complementary strengths.

Moreover, while in the past she might have been guilty of employing people in her own image, Gattung says she's trying hard to change that. "I've got more keen on diversity, and having a range of styles. I've had to learn to value people that have a different way of expressing themselves."

New economy, new methods

The other major challenge for Gattung is relationships with other industry players, particularly Telecom competitors. Success in the New Economy may be as much about successful partnerships with competitors as it is about pushing everyone else to the bottom of the heap. Although it's not involving competitors, Esolutions - the alliance of Microsoft, EDS and Telecom - will be a test of how well Telecom's people work alongside others. It could also be a test case for whether a more dramatic culture shift will work throughout Telecom. Esolutions boss Jane Freeman, coming as she does from the banking industry, doesn't have the telecommunications baggage that goes with the sector. There were a few gulps, she says, when she announced the newly-designed Esolutions building would have no separate offices - not even for her. Very New Economy, but not very Telecom.

Pulling down the barriers, literally and figuratively, goes against the grain for Telecom, though the company recognises it is necessary. "Customers are demanding that [the telcos] start acting like the IT companies have been acting for years," says Devonshire, referring to the need for partnerships within the industry. Since Gattung became chief executive, she has set up a Telecom team to deal with competitors - ISPs and the like - as customers. This industry services unit is designed to separate the people dealing with interconnection issues - where competitors are enemies - from those trying to do business - sometimes big business - with these same competitors. Gattung believes this team, intended in part to allay ISPs' mistrust by putting Telecom's ISP Xtra at arm's length, has already palpably improved the company's relationships with the ISPs and others. Without that team, she says, Telecom wouldn't have been able to respond to ISP growth. But when Unlimited asked for examples of the group's biggest successes working with competitors, Gattung mentioned helping The Warehouse get its cellular sales network going - not exactly kiss and make up with a traditional rival.

One former Telecom executive now working with a competitor doesn't believe the team has significantly changed Telecom's internal culture. "If competitors are being dealt with like customers it is because they are competitors that have fealty," he says. ISPs, like Ihug, have been paid - a reported $13 million to $20 million in the case of Ihug - to come on side. "The competition has been bought out. It has expressed loyalty to the empire and can now be treated in that manner. Companies like i4free and Clear have not bowed down and have been treated like dogs."

Certainly the recent fight with i4free, where Telecom disconnected subscribers until stopped by the courts, or the unilateral decision to impose 0867 on the Internet market, shows the Deane fighting spirit is alive and well. In fact, to Deane's "a day's delay is another million dollars on the bottom line" motivation, is added a new one. The government has promised a telecommunications review and legislative changes before Christmas, which might mean a significant loss of monopoly power for Telecom. Like an army before an armistice, Telecom watchers see Gattung and gang powering aggressively forward, grabbing territory in the hope of keeping as much as possible in the final compromise, or at least using it as a bargaining chip in any government-ordained settlement.

"Right now, Theresa's playing a dangerous game of chicken with the competition, the government, the inquiry, the courts," says one analyst. "She's saying 'until you make it illegal for me to this, I'm going to do it. Try to stop me'."

Engineering change

In 1998, when the lights went out in Auckland's central business district, Mercury Energy learnt the hard way the cost of abandoning engineering for marketing. Telecom faces a similar problem: how to develop an entrepreneurial, growth culture without losing linchpin engineering staff that keep the network working. These engineers are mostly older men who grew up in the rigid, and male-dominated, engineering culture of the Post Office.

Gattung says it is wrong to categorise some sub-cultures within Telecom as resistant to change. The company's engineers have chosen to work in a growth industry and are not against the new culture because "customer focus" remains the key, she says. "It's just that what 'customer focus' means has changed."

If Gattung has a fight on her hands against some bastions of old Telecom culture (and it would be unnatural if she hasn't) she would certainly seem to be coming out on top at present. And her appointment has been heartily welcomed by others. Theresa Gattung is no Margaret Thatcher, a woman in a man's clothing. The fact that she is a woman, and younger than most in a comparable position, and the fact that there are increasing numbers of women in top operational jobs within Telecom is important to her. "I had so much support from women in the company when I got the job. It's very empowering for women to see internal promotions. I've also had support from younger men who see you don't need to be 55 to be at the top."

Gattung's promotion is representative. At least half of Freeman's "direct reports" - yes, she has them, too - are now women. Freeman has young children and Austin is a single mother. Having more women has led to a more family-friendly approach, the women say, and more flexibility for people to work from home or part-time.

Gattung recognises a family-flexible approach is key to the future in a market place where skilled people are increasingly hard to come by. Three years ago, Telecom set up a "diversity forum" to deal with issues around the balance between people's work and lives.

But the sceptics remain about how family-friendly Telecom really is. "Ask how many people in marketing have been there more than two years and how many have young children," questions one source close to the company, though, to be fair, Gattung hasn't headed marketing for four years. "Child friendly? - absolutely not," says an ex-staffer. "Theresa and [husband] John don't have children and the culture isn't conducive to family values. If you are a good worker, of course, you can go and have children, but if you look like hell for a few weeks; if it affects your job, you aren't really tolerated."

Gattung accepts there is still some way to go. She's strong on encouraging people to take their leave and accepts people will sometimes need to juggle work round family. But sixty-hour weeks, including travelling, is still normal for company executives, a hard call for someone with a young family. And, as Gattung puts it: "The need not to let the team down means that those people who do have down time because of their children have to make it up elsewhere."

Verdict

So Gattung talks the talk, but what's the 200-day verdict? Neutral to positive, say industry watchers. Paul Richardson, head of UBS Warburg's analyst division, has been following Telecom since 1992. He's seen a lot of changes, most of them positive, and is optimistic on the company's latest management transition. "With Theresa's elevation, her hand-picked managers have followed. They are young, enthusiastic and clever. They are young enough and fired up enough to see people joining the team rather than splitting off to start up their own companies."

Too early to tell, says Deutsche Securities' Telecom analyst Kevin Bennett. "From outside looking in, the changes haven't been earth-shattering. [Gattung's] restructuring involves, by and large, the same group of senior personnel, people who have risen up the ranks under Dr Deane. Her mandate is not to be a mover and shaker, just to get momentum back into some of the businesses."

Bennett is right, of course. Telecom has been one of our top performers in the past five years. Too radical a change might be counterproductive. Can Gattung survive in this challenging environment? The verdict so far is probably yes.

"Her habit of listening and talking will serve her well," says one Telecom source. "She's smart and adaptable. And she surrounds herself with people to fill the gaps. [If the telecommunications environment changes] she may need to create new gaps and bring people in to fill them. But short shelf life? I don't think so."

The chairman of the board wouldn't have been so short-sighted.

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