Investors, rejoice: BT is back where it started


From four consecutive failures of strategy in British Telecom we learn that policy making in business requires more than slogans and visions.

So BT Group is to return to its roots – as Britain’s fixed line telephone company. It has been an exciting journey for the company’s shareholders and, like all the best adventures, it finishes back where it began – operationally and financially. The 2m small savers who took their money from the building society to subscribe to the first big utility privatisation are more or less where they would have been if they had simply left it there.

Soon after its 1984 initial public offering, British Telecom became a vertically integrated telecommunications company. It bought a cluster of equipment makers. But a utility with origins as a government department had nothing much in common with a competitive manufacturing business. In 1991 BT acquired a new strategic direction, complete with Pied Piper logo. The hardware businesses were sold.

The new vision was of a global, horizontally diversified telecoms provider. BT – British Telecom was now too parochial a name – would provide your voice and data requirements anywhere in the world. It took a large stake in McCaw, then the largest US mobile phone operator, and other telecoms service companies.

These acquisitions did not work out either. There was no reason why anyone should want to buy a mobile phone in Chicago from the organisation that provided domestic connections in Cardiff.

Globalisation, outsourcing and alliances were now on the lips of every business person. BT’s next new strategy combined all three. The thesis was that multinationals were restructuring on functional, not territorial lines. They would want to outsource all their data and telecoms needs. Only a company with partners around the world could meet these needs. The future lay in alliances.

There is no evidence that there was, or will ever be, a large demand for this capability. Large companies were mostly relieved to be free of their local telecoms monopoly and preferred to employ professional buyers. Concert, the flagship of BT’s alliances, was expensively wound up last year.

In 1997, the strategy changed again. MCI, BT’s erstwhile partner, was snatched from its grasp by the soon-to-be-notorious Bernie Ebbers. This transaction was described as the world’s largest takeover bid, although the mountains of WorldCom paper Mr Ebbers used to pay for it subsequently proved to be worthless.

BT’s new vision was of a rapidly consolidating global industry. There would be a race to be the successful consolidator and BT’s ambition was to lead it. An acquisitions spree followed in which telecoms companies bought each other at ever more ridiculous prices. In 2000 the bubble burst and most of the new conglomerates, including BT, were broken up to placate their bankers.

None of BT’s four consecutive phases of strategy was successful. Worse, none really deserves to be taken seriously. BT never encountered a management fad it did not like. It fell victim to consultant and business school rhetoric. Neither intellectually rigorous nor rooted in the real world, its exhortations combine superficiality and urgency: established knowledge is obsolete; act now before it is too late. Its texts have titles such as “Only the Paranoid Survive”, its practitioners dispense clichés polished to vacuity.

There is something to be said for encapsulating a company’s strategy in a pithy slogan. But in BT the slogan was the strategy. The practical consequence was that the company used the strong credit rating attributable to its domestic fixed-line monopoly to make strings of fruitless acquisitions, until the credit rating became too weak to support any more.

Well remunerated executives, consultants and bankers sat round mahogany tables, fired by the excitement of the latest value- destroying deal. But beneath this frothy irrelevance, others were grappling with running the business. BT’s core activities are incomparably better managed than at privatisation, more efficient, more customer-friendly. If BT’s new strategy means a period free from grand visions in which operational managers are left to get on with their job, its future is brighter than for many years.

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