Case study: Deutsche Telekom

The challenge.
When René Obermann, pictured above, took over as chief executive of Deutsche Telekom, the former state-owned telecoms monopoly was living off past glories. Formerly one of the dominant telecoms companies in Europe, DT’s share price had collapsed and its proportion of new broadband customers in DT’s traditional stronghold of Germany had fallen below 10 per cent. With a 260,000-strong workforce, the ratio of DT’s labour costs to sales was nearly double its industry peers’.

Culture clash.
Formerly, it had made sense for DT to have separate divisions in Germany – for mobile, fixed line and systems integration – but the businesses had evolved distinct corporate cultures, hierarchies and decision-making processes.

To succeed in DT’s German businesses, it was felt that managers were measured more on skill at “business politics” than on actual business performance.

While agreeing that DT’s structure and culture were not suited to new market realities, few employees felt a need for anything more than incremental change.

Cultural change.
Recognised for his willpower in pushing through tough decisions, Mr Obermann had earned nicknames such as “Obermann the Doberman” and “Bulldozer”.

Within months of his arrival, some 45 per cent of senior management had been replaced by a new generation of leaders who demonstrated the performance-oriented culture Mr Obermann hoped to build. He knew many of them personally, having worked with them at T-Mobile International.

These new leaders were required to get out of the corporate headquarters in Bonn to see the frontline operations of the business. Tim Höttges, brought in as CEO of the German business, embarked on “T-tours”, covering 4,800km in several months. During the tours, he met small groups of staff every day from all functions.

A new strategy.
With his new management team settling in, Mr Obermann initiated a series of one-day strategy workshops. An inner circle of top managers would debate in an informal setting – representing a dramatic break with the previous, formal strategy development process, which relied on reports, analysis and slide presentations.

After his first 100 days, Mr Obermann had announced DT’s new corporate strategy, summed up as “focus, fix and grow”. His team promised to streamline DT’s diversified market approach in Germany, fix the bloated cost structure through efficiency savings of €2bn, and to back new growth services. A dedicated change management team was set up to co-ordinate implementation.

The result.
Within two years, the company had regained a dominant position in its large domestic market. While the transformation process was far from over, the new team had brought it back from the brink of bankruptcy.

The lessons.
The challenge of how a leadership team can achieve rapid change in a large, complex organisation such as Deutsche Telekom makes the story stand out.

First, a crisis situation calls for a tough management style but Mr Obermann also grasped that he must understand the root causes of organisational performance issues. Second, DT had both the advantages and disadvantages of a strong organisational culture, and its leadership understood that a change of culture and an openness to face the realities of the business would be at the heart of any turnround.

Last, in a company of several hundred thousand people, the processes supporting change and organisational transformation are critical.

- Financial Times, 01 June 2011