by Fred Sandsmark, February 2014
Late in 2012, telecom giant AT&T announced Project Velocity IP (VIP), a three-year plan to expand and enhance the company’s wireless and wired broadband networks. An investment measured in the billions, Project VIP is the most ambitious infrastructure expansion plan the company has launched in decades and is the foundation of AT&T’s goal of becoming an all-IP wireless and cloud company by 2020.
The obvious beneficiaries of Project VIP are AT&T customers, who will get new and improved services that leverage a faster, more reliable network. But the project will have a significant internal impact as well. Utilizing the company’s IP services expansion, AT&T’s management has now defined the next wave of business and IT simplification that will result in the elimination of a significant percentage of AT&T’s internal systems. In the end, everyone wins, says John Stephens, AT&T’s senior executive vice president and CFO. “It means great service for our customers, and good returns for our shareholders,” Stephens says.
Project VIP demonstrates how AT&T is adapting and evolving in the face of changing technology, fierce competition, demanding customers, and a fluid business environment. AT&T’s executive management team is able to do this thanks to a years-long transformation strategy that has delivered not only skills and scale but also discipline and operational excellence. One key to the success of that strategy was the deployment of common software-based financial systems to allow for the integration of nearly a dozen acquired companies. “We made a decision up front, at the start of our acquisition cycle, that we were going to standardize on financial software,” says Andy Geisse, CEO of AT&T Business Solutions. “Doing so not only removed systems costs, but also helped us to have the information necessary to make better decisions.”
The American Bell Telephone Company was founded in 1877—and after being renamed American Telephone & Telegraph in 1899, later became simply AT&T. In 1984, soon after AT&T divested seven Regional Bell Operating Companies (RBOCs) to settle a US government antitrust lawsuit, a new crop of wireless competitors began to further fragment the telecom sector. But within a few years, the industry began reconsolidating, and in 2005 SBC (an RBOC that had already merged with two other RBOCs in 1997, Pacific Telesis and Ameritech) acquired AT&T, its former parent. The New York Times declared the deal “the final chapter in the 120-year history of AT&T.”
But that report overlooked a broader point: the AT&T name had been synonymous with communication for a century and continued to inspire trust and loyalty. SBC adopted the AT&T name, and soon merged with yet another RBOC, BellSouth, becoming the sole owner of Cingular Wireless, a joint venture previously owned and operated by both companies. Over the course of these deals, a new AT&T was born. Stephens, who led SBC’s tax operations and had been controller before becoming AT&T’s CFO in 2011, participated in all of the deals. He recalls the negotiations as intellectually and personally strenuous, but ultimately rewarding. “It was a unique opportunity to really learn the business from the ground up,” he says.
We move and reorganize our business as our customers change. The ability to have information in the business units to support that change is really important.
Stephens and his colleagues learned the financial, technical, and regulatory minutiae of the businesses they acquired. They also discovered that each of the companies—even those that had sprung from a common parent—had developed unique systems and ways of doing business. To turn the new AT&T into a unified AT&T, they needed to consolidate many disparate, IT-enabled business processes and systems. “At a high level, IT was strategic to every one of those mergers,” says Geisse. “In every merger we did, the big savings came from collapsing systems and processes together.”
But AT&T’s leaders also needed to retain the resources, local intelligence, and nimbleness that made the individual companies valuable in the first place. “You hear people talking about nationwide competition or global competition,” Geisse says. “But in our business, competition can vary from building to building in the same city. You have to take advantage of scale, and yet be competitive locally. You do that through the power of IT.”
In 2007 AT&T tapped Thaddeus Arroyo to drive IT consolidation. Arroyo had merged multiple IT operations and systems as CIO of Cingular Wireless, and he continued that process as AT&T’s CIO. He inherited a massive and still-fragmented IT environment: AT&T employees used approximately 6,000 applications to do their jobs, and finance alone drew from some 400 different applications to produce their reports.
Arroyo continued a journey begun by his predecessors—particularly in finance, where executives at SBC had standardized on the Oracle Financials applications within Oracle E-Business Suite in 2002 and had moved several other companies to Oracle Financials as the companies were acquired.
AT&T’s finance and IT teams migrated acquired companies onto the consolidated financial platform in phases. “We broke up the entire effort into manageable subprojects and delivered the high-ROI items first and in quick intervals,” Arroyo explains. IT and business leadership maintained continual, joint leadership on the project, and IT personnel acquired systems and process knowledge so they could sustain the system.
Reliable, consolidated financial systems push data-driven decision-making down to AT&T’s business units. “This data enables the business units to make strategy decisions on pricing, on the profitability of a customer, and on the profitability of a product,” Stephens notes. Indeed, he says, allocated cost and profitability data incorporating AT&T’s shared services (such as network backbone costs) can be generated only by using a consolidated financial platform. Nonfinancial information—describing critical business metrics such as customer counts, installation and repair intervals, customer churn, and more—is also available to the business units, often in easy-to-access dashboards.
|Number of petabytes of data that move across AT&T’s network on the average day|
|Number of network events analyzed by AT&T’s systems every hour|
|Number of Wi-Fi hotspots in the United States operated by AT&T|
|Number of countries where AT&T delivers wireless voice coverage|
Consolidated data will drive AT&T’s decision-making even more as the company evolves to meet changing customer needs. For example, enterprise CIOs who were solely interested in bandwidth and security a few years ago are now buying mobility and cloud services; AT&T anticipated and responded to these changing needs. “We move and reorganize our business as our customers change,” Stephens says. “The ability to have information in the business units to support that change is critical to our success.”
He adds that AT&T’s systems and processes consolidation is ongoing. “We’re not done,” Stephens says. “Consolidation will need continued attention and continued improvement, and we’re comfortable that we’re in a position to do that. But the gains we’ve already made have been very significant.”
That continued improvement is supported by “transformational plays” initiated by Arroyo and the IT team. After the mergers with AT&T, BellSouth, and Cingular Wireless, the IT department was faced with the challenge of scaling to meet the needs of the newly merged company while concurrently aligning with its business partners to increase business velocity and innovation. The first play was executed very quickly; it integrated the application development teams of all merged companies, and organized those teams along AT&T’s major lines of business. Supporting the application development teams is a set of IT shared services teams focused on infrastructure operations, architecture, process, governance, and strategic sourcing. This organizational model ensures that technology is aligned with business objectives while benefiting from operations-scale economies across the shared services.
“Our philosophy on IT governance is pretty easily summed up,” Arroyo says. “That is, ‘Make IT part of the business process.’ Strategic planning throughout a product’s lifecycle is really a function of continual collaboration, with our technology staffers working hand in hand with our business partners. We have a seat at the table, and not just by design. It’s earned by helping the business solve its problems.”
The second play involved rationalizing the application portfolio—that is, consolidating the company’s 6,000 applications and understanding and optimizing underlying functions to improve business processes. Arroyo also charged his teams to create common models for developing and delivering applications. The results have been staggering: 50 percent of applications have been eliminated and about 50 percent of the company’s infrastructure has been virtualized. (See the sidebar “How AT&T Rationalizes Applications.”) Arroyo’s goal is to eliminate a significant percentage of applications by 2018, bringing the total number of applications down to about 1,800—although he quickly adds that application rationalization requires an ongoing, evergreen process, not a fixed numerical goal.
The third transformational play, aspects of which have been underway for many years, orients the IT teams for business velocity. (This is the internal-facing aspect of Project VIP.) AT&T’s IT teams are moving their infrastructure to a converged and shared cloud, accelerating application simplification, adopting an agile model for application development, and building critical skills that align to future business needs. The fourth transformational play is also underway and centers on accelerating innovation by harnessing the velocity of technical evolution.
In our business, competition can vary from building to building in the same city. You have to take advantage of scale, and yet be competitive locally. You do that through the power of it.
“This triggers a re-examination of products and services in light of today’s ability to tap into emerging capabilities and the resulting new innovation paths,” Arroyo says. “This means extending mobile and digital capabilities to transform business processes rather than simply automate them. And at the heart of this opportunity is the need to capture, integrate, and interpret data in ways that directly impact the customer experience.”
Which brings us back to Project VIP. Consolidated financial data and other tools—many of them from Oracle—convinced AT&T management that Project VIP is a good business investment that will pay for itself in increased revenue from satisfied customers. But that’s just one part of its value; all of AT&T’s back-office operations will modernize and become IP-based, which will simplify and automate customer interactions, eliminate wasteful steps, improve customer satisfaction, and boost the bottom line.
“That will not only provide tremendous opportunities for great services at fair prices for our customers,” Stephens says. “It will reward our shareholders for the faith they’ve had in us.”
Fred Sandsmark is a regular contributor to Profit.
In the process of consolidating multiple wireless and wire-line billing systems at Cingular Wireless and AT&T, CIO Thaddeus Arroyo refined an application rationalization process that guided the AT&T team as they eliminated thousands of redundant applications. These are the principles of their process.
Set the foundation with an optimal target model that is based on the set functions needed to support the businesses. Create the target model by asking the question, “If we started from scratch, what would the application look like?”
Map existing applications to that model. This reveals strengths and weaknesses in existing applications, and also identifies overlapping functions. This becomes the superset of opportunities that are then used to drive the path to optimization.
Focus on best-in-class business processes, rather than best-in-class systems. (The two often intersect.)
Look at the “center of mass” in your user base. If two-thirds of people use one application, it may be easier to adopt it companywide—but only if it supports the right business processes.
Establish and maintain an active IT application portfolio management program.
Collaborate with business partners to make sure IT understands their needs.
For AT&T, this process has benefited IT and the business as a whole. “We now have a consolidated codebase for our wireless customers,” Arroyo explains. “It’s probably my most rationalized portfolio. This delivers IT cost savings and also drives maximum business value.”