American Management Down Under
Published by Forbes on 2006-08-01
Can hard-driving, American-style management work in corporate Australia? Solomon D. Trujillo, a 54-year-old American of Mexican heritage from Wyoming, thinks it can.
It all began at 5:15 p.m. on Friday, Aug. 25, when Prime Minister John Howard dramatically announced on television that his government would offload $6.06 billion worth of shares it held in the country's biggest--and most controversial--telecommunications company, Telstra.
Because the government held 51.8% of 12.4 billion of the company's total outstanding shares, Howard's announcement meant that some 18.4% of the government's holdings would be sold to retail and institutional investors. (The remaining shares would be transferred into The Future Fund, which essentially subsidizes the Australian equivalent of social security for public servants.)
It was, of course, a fire sale; the share price was $2.69, well below the $5.60 of barely seven years ago.
The sale was a shrewd move by the prime minister. Howard, a conservative, was choosing between his coalition government being an owner as well as the regulator of a public company, and being only a regulator.
Telstra is one of Australia's six biggest public corporations, with annual revenues of nearly $18 billion and some 1.6 million shareholders. Howard certainly couldn't have been unaware that roughly 1 of every 9 Australian voters is a Telstra shareholder--a not insignificant fact in view of next year's elections. Moreover, the prime minister's coalition currently has just a one-vote majority in the powerful 76-member Senate.
By making a firm commitment to a sale that would fully privatize Telstra, the prime minister--one of President George W. Bush's closest political allies--also bought a truce to a year-long fracas over regulatory reform between the government and Telstra's chief executive, Trujillo.
Trujillo had argued that the government regulator, the Australian Competition and Consumer Commission, had acted unfairly with regard to Telstra, thereby giving its major domestic competitors--including Singapore Telecommunications-owned Optus and British-owned Vodafone--unfair advantage in the marketplace. With typical American brio, Trujillo also contended that draconian regulations adversely affected Telstra's ability to grow, as well as its profits, dividends and share prices.
His argument spawned relentless coverage in the Australian media, not always favorable to him. Trujillo and the American executives he'd brought with him to Telstra--some from his 30 years in the telecommunications business, including stints as CEO of French telecom giant Orange and, earlier, as CEO of US West (now Qwest Communications)--were widely called "The Amigos." The name suggests some of the overtones used to caricature him in the Australian media. Telstra's broadsides against the Howard government and the regulatory body, the ACCC, did not help matters.
As Trujillo sat in a small conference room abutting his modest 40th floor office at corporate headquarters in Melbourne, watching with approval as the prime minister--his major shareholder--made the announcement, it was clear that, politics aside, Howard's move might actually help the American.
Howard's announcement seemed to pave the way for Trujillo to accelerate his long promised efforts to transform, streamline and rebuild the telecom behemoth, and provide new nationwide high-speed communications services to this multi-ethnic country of 20.4 million people.
Early next month, Trujillo will launch a new wall-to-wall broadband wireless 3G 850 HSDPA network--using the 850 megahertz band and HSDPA for high-speed data package--which he says "will increase productivity and advance Australia's future economic performance by billions per year."
The cost of this investment? Nearly $1 billion. Trujillo will be judged by how efficiently he spends this money, whether he's able to deliver quickly on his promises to downsize and streamline Telstra's bloated bureaucracy, and whether the company's flaccid share price rises. Otherwise, his management skills and earlier corporate record notwithstanding, Trujillo will be just another amigo who went "down under" and couldn't quite tame the crocs.
The following are excerpts from conversations that Trujillo had with Forbes.Com in Melbourne and New York:
Forbes.Com: You seem quite subdued about the prime minister's announcement, despite its political and economic implications.
Trujillo: I'm calm by nature. I take things in stride. The Telstra board asked me to come here. They recruited me to help them develop a plan for Australia for the 21st century and to pick the right strategy to get there. We call that "the transformation." I've been in Australia for almost 14 months, and I spend my time on devising ways to serve our customers better, on cutting costs, on picking the right technologies, on changing our IT infrastructure. I've staked my reputation by saying that Australia would get a completely new high-speed wireless system by January 2007. Telstra is all about applying new digital applications to create new choices for homes and businesses in Australia.
Forbes.Com: How will your new wireless system change Australia?
Trujillo: Our 3G 850 network is designed to reach more than 98% of all Australians. This country is the size of the continental United States, with cities on the coasts and a vast interior with very few people. We will reach not just the cities but the bush as well. We are about speed. That's why, when it's complete, the 3G network will deliver peak speeds of 3.6 Mbps, migrating to 14 Mbps by the end of 2007. This will give urban and rural Australians high speed wireless access to the Internet.
We're about simplifying life for the customer. Right now, there are too many buttons, too many menus, too many steps, too many screens, too many choices and too many customers who have a sense that technology is all too hard. We're introducing a one-touch, one-click technology.
Forbes.Com: How are you creating a new Telstra?
Trujillo: By focusing on customer needs, and by investing to create shareholder value. When I first came here, I undertook a comprehensive review of the company. I found an organization driven by products and technologies but not customer needs. It was hamstrung by silos. There was duplication everywhere--in infrastructure, IT, billing systems. Telstra had too many products, too many vendors and insufficient integration. Some 1.6 million mums and dads--our shareholders--had seen their share value fall from $5.60 in 1999 to $3.70 when I arrived in July 2005. The company was borrowing money to pay dividends. Our retail revenues were flat, and costs were rising by 10% annually. Our fixed-line business was declining sharply. So I announced a strategy to transform and energize Telstra from what I call a 20th century telephone company in decline to a 21st century media-communications powerhouse that provides truly integrated services on digital platforms.
Forbes.Com: What has this change involved?
Trujillo: It has required making tough decisions about cutting costs, reducing complexity in our business and right-sizing the work force to reflect new efficiencies. We will build more strategic relationships with other world-class companies. But we will also have fewer vendors--vendors such as Alcate, Cisco and Ericsson, with whom, by the way, we've just partnered in creating a new lab for technology innovations and applications here in Melbourne.
Forbes.Com: What about the company's management? Telstra has a reputation for being a poorly managed company.
Trujillo: I have always sought to hire the best talent available. That's why I've recruited executives not only from Australia but also Europe and America. There are certain skill sets that we've added, such as experience in conversion to an IP network. We have quadrupled the number of women on my leadership team. I'm very hardnosed about performance. What I look for are people who can deliver on time and under budget--and people who always have their ears tuned to what customers are saying. My message to my team is: Keep it up, keep it going--but at the end of the day, I want more. Transforming a big company is a long-term process--so energy is very important ... but so is perseverance. And optimism.
Forbes.Com: What about your own management style?
Trujillo: My core philosophy focuses on timing, simplicity and cash flow. Though the key is in the details, my objective is to create the best possible vision for a company. I'm a fully engaged CEO. I closely follow our marketing, operations and sales. Obviously, I cannot--and will not--micro-manage, so I delegate. But I don't delegate so much that I don't know what happens in every part of our company. It's nice to promise big things on paper--but I believe it's far better to deliver on those promises. I like to keep my word and to be judged on the results we achieve.
Senior Writer and Global-Affairs Columnist