DT moves to clarify T-Systems strategy

Following reports that Deutsche Telekom is cutting 10,000 jobs from its T-Systems division, the operator thought it was time to make an official statement.

Late last week the news leaked out that DT’s global services division was going to lose a quarter of its workforce. The division has apparently been struggling for a while and Adel Al-Saleh was brought in as CEO at the end of last year to sort things out. As is so often the case, it seems the first part of his strategy is to slim down his organisation and have a general reshuffle.

“Our strategy is in place: We are aligning ourselves to eleven portfolio units, we have initiated four change initiatives and are now implementing the plans,” said Al-Saleh. “This will turn T-Systems into a digital service provider for our customers. We will spend triple-digit millions per year on the growth areas, because the transformation of the company must not jeopardize our success where we are strong.”

The strategy has been somewhat paradoxically named ‘investing while saving’. This sounds a bit like what Ericsson has been saying for a year or two about returning to profitability while being careful to keep investing in R&D. This is a tricky but important balance as you can’t just cut your way to long-term growth; you need to sow the seeds for the future too.

Continuing the doublespeak theme the announcement confirmed that 10,000 jobs worldwide will be ‘affected’, with 4,000 ‘relocated’ and 6,000 ‘reduced’. The underlying narrative is all around efficiency, simplification and sorting the wheat from the chaff, including the elimination of no less than five management levels. The mere fact that T-Systems is able to do that speaks volumes about how badly-run it has been to date.

T-Systems joins the job-slashing brigade with 10k cuts

Deutsche Telekom is the next telco to axe employees, with its T-Systems division set to reduce its headcount by as much as 10,000, almost a quarter of employees.

According to Bloomberg, 10,000 jobs will be cut over the next three years, 6,000 of which will be in Germany, as the struggling unit redirects focus onto more lucrative segments such as cloud, cyber security and IoT. The headcount reduction is aimed at saving the telco roughly €600 million by 2021.

While job losses are never a pleasant topic of discussion, it is becoming much more common. BT hit headlines in recent months with plans to slim down the workforce by 13,000, while Vodafone decided to cut jobs but maintain executive bonuses and earlier this week, Telstra announced it was axing 8,000 as part of its Telstra2022 strategy.

In each of the above examples, the message has been simple; jobs from underperforming or soon to be redundant business units are being removed. There might be some additional hires as the telcos pivot to new areas, though the facts are plain; the telcos more jobs are being lost than created. This is another example of the times; telcos are generally not ready for the digital economy and restructuring initiatives to future-proof the business are something we should get used to.

At T-Systems, CEO Adel Al-Saleh seems to be living up to his reputation as a man who can turn around troubled business units. The T-Systems business has long been viewed as the problem child of the Deutsche Telekom family, consistently losing business to the likes of AWS and Microsoft who can offer faster and cheaper IT services through the cloud, and now the Al-Saleh effect seems to be coming into the equation. Having joined the business in January, Al-Saleh is now focusing on more profitable contracts, quality over quantity, as well as more lucrative ventures, such as cloud, cyber security and IoT. Such a shift in business priorities does not come without repercussions however.

Looking at the financials for the first quarter, total revenues at T-Systems declined 2.3% year-on-year to €1.704 billion, with EBITDA shrinking 40% to €57 million. It does seem DT has realised it cannot compete with the more agile cloud players, and has finished throwing good money after bad, instead focusing on areas where it can be more influential.