Telstra overspends $1.5b on IT transformation

Telstra’s IT transformation budget is over by $1.5 billion on the original $12 billion forecast when the project commenced in November 2005.

But the company’s chief financial officer, John Stanhope, told Telstra Investor Day attendees the additional expenditure was “deliberate”.

“I want to emphasise it is not an overrun in our spend,” he said. “Back in [financial year] 04/05 there were things that we did not have in scope. It is not a concern, therefore, and we actually delivered $1.3 billion less in spending in other areas of our transformation, meaning that the total overspend in the original budget of $12 billion program is around 2 per cent,” he said. “So, there has been no transformation cost blow out at Telstra, which is often said.”

Stanhope said that there had been considerable change in scope to the transformation project which had seen the inclusion of BigPond and additional programs such as network planning in the operational support systems layer and its Sensis integration.

“We have spent an extra $500 million as we have added many new items to the transformation such as enterprise data warehouse, [integration between] new customer service applications and legacy systems, integrated desktop, and online billing,” he said. “Another 200 million was spent on dealing with additional complexity and we have capitalised $400 million on infrastructure we have previously intended to lease.”

The project had also come with its share of difficulties for the company and its customers, Stanhope acknowledged.

“I’d like to remind you it has been much more difficult than we anticipated and the journey has been painful for many of our customers,” he said. “As you go through these major [transformations] you try to avoid that but we realise that some customers have come on this painful journey with us. We have learnt a lot.”

Specific challenges during the project included aligning products, networks and customers, the need to simplify processes before transforming IT and the need for systems to manage customers and staff through the transition.

“Our key learning is the need to continue strategic investment in core platforms,” he said. “You can’t just stop investment then do big bangs. Big bangs are painful and we don’t want to do that sport of thing again. Also, never underestimate the complexity of IT telecommunications infrastructure.”

Despite the overspend, Telstra had begun to reap benefits from the transformation spend including $307 million of revenue and cost savings this financial year and an anticipated $790 million in 2011 and $1.23 billion in 2012, Stanhope said.

Specific benefits had been gained in Telstra’s customer relationship management (CRM), self service and identity management, sales catalogue, campaign management, credit management, usage processing, and IT cost reduction, he said. Email Computerworld or follow @computerworldau on Twitter.

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