A Strong Market Culture is the DNA of Profitable Businesses

TELSTRA CASE STUDY

The CFO leads cultural transformation and acts as a guiding light for the whole organization. I set out to transform the Finance Group into a support group that would create new value, provide top service and be seen to be valuable by its customers..and deliver millions of dollars to the bottom line. John V. Stanhope Chief Financial Officer and Group Managing Director, Finance and Administration, Telstra Corporation

THE CONTEXT
Telstra is a $25 billion Australian telecommunications and media services company. It ranks as 11th largest Telco worldwide in terms of market capitalization. It provides fixed line, mobile and broadband Internet services. Its cable TV, online directory and Yellow Pages books form the basis of its media services. Telstras cultural legacy is one of a government owned monopoly that has progressively adapted to an increasingly deregulated, commercial and competitive environment. The Finance and Administration (F&A) Group, a corporate support function of more than 2400 people has operated in a company that has always held strong market positions in all of its Australian markets. The company has undergone many changes over the years to become more customer-focused, but it is still known in several market segments for its poor customer service. The Chief Financial Officer (CFO) wanted to change this, starting within his own group. A customer service focused cultural change, known as value service culture (VSC) was initiated in June 2008. This case traces the value service cultural change over its first 24 months to June 2010.1

The CFO and members of the senior leadership team were interviewed by MarketCulture several times over the course of the 2 year journey. Ongoing discussions took place with the CFO throughout the period. Internal documents were used to identify the sequence of initiatives undertaken. Members of the MarketCulture team were engaged at the start and participated in many of the major events along the way.
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A Strong Market Culture is the DNA of Profitable Businesses

WHAT WAS THE PROCESS?

A summary of the culture enhancement and change process is summarized in Figure 1. Figure 1: The Culture Change Process The Telstra culture change process moved through the four phases, each having specific steps. 1. Planning for Success: Included a culture assessment and a Culture Change Roadmap 2. Culture Transformation: Involved upskilling, process reviews, short term wins and forums for sharing of best practices 3. Embedded Culture: Making it Stick with best practice workshops and new performance review systems and processes 4. Continuous Monitoring and Revitalization: Culture measurement and profit gains

PHASE 1: PLANNING FOR SUCCESS

A culture audit is an essential first step to planning the cultural change effort. The advantage of this is to gain more in-depth insight into the culture, build relationships and additional buy-in, reduce the risk of resistance to skill development and culture change, identify leaders that can be change champions and provide key input into an Assessment and Implementation Plan. This is also a time for the executive leader to craft and refine the vision, goals, strategy and priorities. This needs to have within it a sense of urgency which can be easily communicated and
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A Strong Market Culture is the DNA of Profitable Businesses

understood by everyone in the organization. These elements are inputs to a culture change plan. The first step was for the CFO to articulate his vision and the sense of urgency. A culture audit was undertaken involving interviews across all levels of the F&A Group and in the main lines of business. This reported an internally focused, siloed and hierarchical culture with little understanding of the real needs of stakeholder groups serviced by F&A. It reflected a lack of urgency in its attitude to making changes. A plan for change was developed starting with the launch of the vision and goals.

PHASE 2: CULTURE TRANSFORMATION

Launch of a culture change requires a memorable event and ongoing communication and activities that demonstrate what the new culture is to look like. A powerful guiding coalition is needed to coordinate and lead the changed behaviors. New skills may be required and methods for sharing learnings and experiences need to be put in place. The Launch of Value Service Culture At an offsite conference with his top 80 people, John Stanhope reviewed his tenure as CFO starting in 2004 and asked the question: Are we there yet? He was referring to F&A as an effective, valuable service organization to the rest of the business. Answering this question with a resounding no the CFO posed the challenge of developing a strong service culture in order to actively understand the needs of its customers and deliver what is of most value to them. He called this a value service culture which soon took the mantle of VSC. The key goal was defined: To understand our customers needs and behaviors better than ever, and deliver what is of most value to them.
Tackling culture change needs a memorable watershed event where the vision is clear, the stakes are raised, the leader leads, and the experience is emblazoned in peoples minds. The Are we There Yet offsite conference was that event.

Creating the Relevance and Tangibility of VSC A guiding coalition, of several, but not all the senior leadership team, was formed to steer the culture change and report to the full senior leadership team. This included the CFO, executive HR representation and a marketing communications specialist who reported direct to the CFO. This group was able to focus on VSC initiatives with emphasis on communications and planning for training. Heads of lines of business held their own offsite meetings to communicate the VSC initiative and set tasks to identify their internal customers.
The desired new culture needs to be made real. People need to see it, feel it and emotionally connect to it. They have to see it will benefit them and they need to have the skills and confidence to enact the new behaviors.

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A Strong Market Culture is the DNA of Profitable Businesses

As this occurred a two-day workshop was designed. This covered the VSC mindset and practical how to tools to help people understand customer needs, monitor satisfaction, recognize value and non-value adding activities, along with tools to assist collaboration. It was conducted with mixed groups across functions and levels. The first set of workshops covered 200 people. The CFOs attendance and participation reinforced his commitment to the culture change.

Making it Real: Passing on the VSC Experience Four months after the first wave of training, a VSC Summit was conducted. Here, groups of past VSC workshop participants and their teams presented to a wider audience the results of their experience applying the VSC tools. These experiences occurred at all levels in the F&A structure. They reported on gains made from stopping non-value activities such as the provision of 250 large reports which were subsequently found to be of little value to their intended users. Another reported increasing accuracy and speed of delivery of internal mail. This occurred through a better understanding of customer needs by simplifying the receipt and collection process and educating customers on the process. These presentations created a sense of fun and heightened the collaboration of the teams doing them.

What people see and hear needs to create a sense of fun and excitement for them to connect with the new cultural expectations. Stories are the conversations that create shared experiences and produce a common cultural bond between people.

Stories circulated about how VSC thinking had brought about positive results. One story was of the manager who noticed a worn carpet leading to a storeroom and asked the question as to why it was so worn. The answer eventually led to discovering the storage of physical information records that were being delivered on a regular basis with no record of their retrieval for intended users. This led to digitization and complete elimination of the physical records and their physical storage.

WHATS THE IMPACT SO FAR?

After the launch and implementation of communication and change activities a major review of progress should be undertaken. Whats working and whats stopping change should be assessed. This may be at the 9 to 12 months mark. First Year Anniversary of VSC At the Telstra offsite conference, heads of F&A lines of business presented their plans for the 2009-2010 year and how the VSC was embedded in them. These all contained initiatives designed to weave VSC into the fabric of daily activities. Cross-functional workshop groups were formed at the conference to address a hypothetical question: It is 2014 and
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It had reached the time when managers at all levels needed to take responsibility for the embedding of the value service culture. Blocking behavior needed to be addressed and a renewed commitment and urgency was required to achieve the customer satisfaction targets that had been set.

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A Strong Market Culture is the DNA of Profitable Businesses

the VSC has failed why? The answers revealed two key risks. The first and strongest was; It is Johns VSC and he left the business. The second referred to lack of momentum and urgency in embedding VSC behaviors deep into all parts of F&A and inability to overcome blocking behaviour. The CFO asked all 100 attendees to provide him with a written one page commitment to VSC with actions they would personally take to embed it in their areas. Also he threw out the challenge to all lines of business to achieve the customer satisfaction benchmark identified by customers in the research study just completed.

PHASE 3: EMBEDDING THE NEW CULTURE.

During the culture transformation process (Phase 2) new attitudes, skills and shared learnings are experienced. Usually the systems and processes lag. This is for good reason because learning best practices is still occurring. But the time comes in the embedding phase when orientation and performance evaluation systems and processes require redesign. These should include desired culture behaviors and targets to support the embedding process. Building Momentum of VSC At this time in Telstra, emphasis shifted from focus on short term wins to systematized performance evaluation and reward systems. The HR Group worked with line of business managers to incorporate VSC behavior descriptions and quantitative customer satisfaction targets in the performance review system. These became hard-wired into everyones performance goals. Workshops continued and another summit was conducted. While the previous summits had been driven by HR, this one was planned by a small multi-function, multi-level group from across F&A. This summit took the form of a workshop in which examples of best practice were shared and reward and recognition approaches discussed. Also an external company speaker provided experience of another companys cultural change. This was designed to provide another perspective on the challenges of embedding a new culture. The issue of blocking behavior was addressed and how to overcome it through coaching, communicating, motivating and rewarding. The summit was regarded as successful by the 200 who attended in signaling that it is our VSC and it is becoming embedded. In 2010 various groups moved to actively create a more open and innovative environment. This included cross-function communication forums, more frequently held discussion groups with customers, and coaching. PHASE 4: PERFORMANCE MONITORING AND REVITALIZATION Performance should be measured in terms of customer satisfaction and cultural behaviors. Both should be benchmarked so that targets for improvement can be set. Getting the F&A Customer View During this period the CFO commissioned the development of a rigorous new method of customer satisfaction research focused on measuring the value perception of internal customers. A world first customized version of the Customer Value Analysis (CVA)
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A Strong Market Culture is the DNA of Profitable Businesses

methodology was developed and implemented having relevance to a Support function servicing internal customers. The results showed that F&As internal customers perceived improvements had been made in the understanding of their needs and delivery of service. However, 7 of the 10 F&A lines of business did not yet reach the satisfied level and all were short of the perfect world expectation on the numeric scale. The results of the customer satisfaction survey was a defining moment in the journey and helped demonstrate that VSC was not a fad. It demonstrated the seriousness of measuring satisfaction and enabled targets to be set for the next year. Benchmarking F&As Culture against High Performance Business Cultures

Measuring how well we are doing ultimately depends on the perceptions of our customers. Objective measurement provides benchmarks of where we stand and how much we need to do to achieve future customer satisfaction targets.

In December 2009 a sample of F&A employees2 completed a culture survey, called the Customer Responsiveness Index Research indicates that (CRI). It was used to measure seven behavioral factors culture has a substantial exhibited by F&A with reference to their internal customers. impact on business These factors are highly correlated with business performance. The CRI performance. The results, reported in March 2010, showed survey measures those average to above average scores relative to a database of 3 cultural factors that have other organizations on all factors except empowerment This been shown to have the was consistently low across almost all sub-groups sampled. Lack of empowerment inhibits the ability of employees to strongest predictive propose new ideas and act on new ways of solving customers correlation with business problems. performance. When investigated further it was found that many employees did not feel empowered because of their own lack of confidence in approaching customers. This lack of empowerment from within was overcome by teaming them with an experienced buddy to gain confidence in customer interaction. Profit Impact and Business Value Culture has a profit impact. The benefits of culture enhancement should be measured in dollars. There have been significant monetary benefits from the VSC change. An investigation by F&A of estimated gains and savings revealed: Annualized gains and cost savings of $15 million were estimated for 2009. These were expected to continue in future years with an erosion of these gains over time assumed if no further investment occurs.

Details of the CRI methodology can be found at www.marketculture.com. The seven behavioral factors measured by this tool are customer insight, customer anticipation, customer alternatives, peripheral vision, strategic alignment, cross-functional collaboration and empowerment. 3 Empowerment is defined as the extent to which employees are empowered to make decisions, propose ideas and control how work is performed.
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A Strong Market Culture is the DNA of Profitable Businesses

Added value to the business of $55 million4

These gains were derived from analysis of specific initiatives by: a) Credit Management acting to collaborate with Telstras customers to reduce bad debts and achieve cost savings from less follow-up calls and longer customer retention periods. b) Risk Management & Assurance collaborating with internal customers through an education initiative clarifying compliance requirements and streamlined processes for reducing work for both parties. Cost savings resulted from labour savings. c) Corporate Security and Investigations working with Telstra retail shops to provide better processes, follow-up and liaison with those shops most targeted by fraud. Reduction of fraud yielded measurable cost savings. Care was taken to attribute only those gains and savings that could be aligned with VSC initiatives to do with understanding customer needs, providing greater value for customers, monitoring customer feedback and collaborating with customers to deliver the Groups fiduciary responsibilities more efficiently.

WHAT CAN WE CONCLUDE?

To lead a successful transformation, you have to capture the hearts and minds of the entire group. Then you must provide tools that are relevant to every function and level and provide a common framework and way of thinking and doing. Measurement is key. If it is not measured, it doesnt exist. This is particularly true of culture something that is abstract in the minds of most people. Periodic in-process benchmarking measurement of culture tracks the progress of the change initiatives undertaken and provides opportunities for corrective actions to be implemented. It makes culture real. Similarly, systematic measurement of customer satisfaction and perceived value makes customers real and represents the outcome of culture improvements. These outcomes can also be measured in terms of dollar gains. Culture improvement can and should be measured as an asset that adds value to the business. Finally, the passion, leadership and support of the C-level executive sponsor and the executive team are crucial to success. The last word, as with the first word, is left to John Stanhope:

Culture change is simply a behavioural change. Simply said, not easy to do. The change in behaviour must come from within each and every one of my staff. The behaviour that always tests Am I meeting the customers need and being valuable. This testing must just become a natural behaviour. When this is the case we are truly there.

MarketCulture Strategies, Inc www.marketculture.com June 2010

4

This was calculated by projecting the annualized gains forward for 10 years, allowing for erosion of these gains over time, and discounting them back at Telstras pre-tax weighted average cost of capital.
(800) 817-8582 Monterey Boston Sydney www.MarketCulture.com MarketCulture Strategies. All Rights Reserved. 2010