Collect Call

4 February 2008 Tony Chanmugam

Tony Chanmugam, CFO at BT Retail, has overseen a turnaround in profits during his three years in the role. He tells Barry Mansfield how he reversed the charges.

Barry Mansfield: How did you go about changing the organisational finance structure at BT Retail?

Tony Chanmugam: When I came on board, I had 14 direct reports. Within 18 months, they had all had been replaced. I needed to bring in people who worked in a similar fashion to me, and who were willing to make changes in the business environment we were in. I’m a strong believer in looking at peoples’ strengths and skills and, wherever possible, shaping the organisation to fit them.

The average age profile of the department was also very high. The diversity mix just wasn’t there. I’ve tried to change all that, and I think the team is now far more pro-active, commercially astute, vibrant and decisive.

What has your new CEO, Ian Livingston, been most keen to transform?

Within the retail business, we’ve focused on core competencies and what we like to call ‘single touch’ - ensuring people have the authority, desire, responsibility and accountability to make and implement important decisions.

When I first entered the retail side of the business, it really hit home that the speed of thought process and decision-making was much slower than what I was accustomed to. We’ve been working hard on that. We are trying to change the culture of the business, to encourage people to act more decisively. Ian can take a lot of credit for the improvements we’ve seen.

And have you cut costs?

Well, on the cost side, we’ve taken out roughly £200m per year on cost transformation. The objective is not about increasing profit through simply cutting costs, though, because over that time we probably reinvested at least half of that sum.

The investment is vital because you could argue there’s a level of price regression in the market that says broadband is now available for free. So, in order to demonstrate our product tariffs provide value for money, we need to ensure we're number one for customer service, and number one for product proposition.

How does this role differ from your last position?

"We removed a lot of consultants and created our own consultancy team in-house."

Before I joined BT Retail, I was at BT Solutions – BT’s outsourcing arm. I spent six years there, serving as CFO - and during the latter period CFO and COO at the same time. It was an unusual combination, but that’s what circumstances dictated. The business was primarily about outsourcing and ICT in a global environment, so it was a completely different kettle of fish from the BT Retail business. The retail business, aimed at the UK domestic market, is worth around £9bn and makes around £1bn in profit. So this was a real step-change in terms of career direction.

Were your expectations of the previous role met?

When you’ve been in a job for a certain period of time, you feel there’s only so much more you can give to it. I’d watched the BT Solutions business grow from £500m to £3bn, and I think it was the right time for the business and for me to have a change.

There is an interesting difference between the two roles. In the first, the emphasis was on material revenue growth and delivery of profits. When the business was worth £500m we were losing money, especially on big contracts. When I left, we had returns of 15% EBIT.

But the environment is completely different when you are running a business to grow materially while delivering profits. The business dynamics were different in retail and therefore the nature of the challenge was really something else – something quite fresh. For me, that was a big attraction in taking up the CFO position at BT Retail.

Are the roles different in terms of your contact with customers?

In global outsourcing and ICT, a large element of my role was customer facing. That means being able to help sell the big deals to the large corporates who dominate the market.

By contrast, in retail the majority of our business is in the consumer market and the SME market, so the amount of time and effort spent directly interfacing with the customer base is more generic. The interface is now more about making the customer experience better - for example, is the bill easily understood? Does the direct debit process work efficiently? Does the customer service meet expectations?

So there is less travelling involved with this job? Where do you work, and do you find it easy to achieve a work-life balance?

I work out of two offices. One is in central London where the majority of my fellow board members in the retail business are. I also work in Watford where a large chunk of the finance team is. I tend to be in London three days a week and Watford for two days. I try to get a work/life balance. I used to play cricket in a league here in London, but gave that up a few years ago. I still play golf around once a week. An ex-boss always asked me how I found the time to keep my handicap relatively low.

How would you sum up BT Retail’s biggest failings at the time you joined the unit?

The company was not focused on core business matters. The cost base was out of control. There was little proactive management costs - for example, the supplier base was not actively managed. We were spending millions of pounds on consultants doing what I call ‘body shopping’ activities.

One of the first things I said was that I wasn’t comfortable using consultants. We removed a lot of consultants and created our own consultancy team in-house, within retail – a dozen bright young people whose outlook on life was all about improving efficiency through change.

The idea is that each generation will come in for two years and look to transform the business before moving on to other parts of the company.

So what have your in-house consultants been working on?

The first batch has been working on projects such as marketing efficiency and overhead value analysis. OVA is about process re-engineering, looking at where the value-add is in each process and identifying the right level of resource in relation to that.

"OVA is about process re-engineering, looking at where the value-add is."

The net impact is that we will have removed some 4,000 people. It shows that when you put people in who are bright, young and hungry, give them a clean sheet of paper and ask them to help change the business, then they will demonstrate their appetite to do just that.

We've got to maintain our current revenue position though, and that’s a difficult task given the price regression - additionally we need to grow our margins so we also have a series of margin improvement projects.

How long did it take for the benefits to be felt?

There was no landmark moment – the turnaround of the last three years has been a gradual progression. Ian Livingston came on board two and a half years ago, and I was here six months before that. Between us and the new managing directors of the business within retail. We have shifted the focus to the business and to gross margins.

We've placed a greater emphasis on the margins and providing added value – in other words, putting the tariffs in tiers to establish a base level of service. We’re not at the bottom end of the pricing scale. People will pay a premium for the quality of service, so we’ve made sure we can differentiate with the competition based on that.

Where do you see yourself in five years time?

It depends on what the opportunities are. I think I have another year or two here in the retail business. We have a situation now where revenues are actually growing. We’ve entered positive growth. The company has a much more solid and sound footing, but there are still things that need to be done to consolidate. The job is started but it has to be finished.