When Kaz founder Peter Kazacos moved away from leading the IT services group in 2005, Telstra executive Mike Foster was the one to take its reins and guide it through the halls of the telco until it was bought by Fujitsu in March this year. Foster speaks to ZDNet.com.au in this exclusive interview on the transition.
When Fujitsu finally bought Kaz, there had been questions in the industry as to why it would pay $200 million to buy a company that had seemed to be a thorn in Telstra's side. Prior to the acquisition announcement, the company's name had suffered in the media for several years, with reports of problems with customers and more.
Yet Foster says he thinks Fujitsu got a good deal. "If it had have been a good deal for one side but not for the other, people like me wouldn't have been involved," he said, adding that he definitely would not have taken a position in the combined company. (He is now executive director of Sales and Business Development, Fujitsu Australia and New Zealand.)
It's likely the executive would not have had to search for long for a new job if he needed to. He joined Telstra back in 2000 as the managing director of sales for Telstra's Business and Government division. Apart from having the Big T on his resume, he has also headed up the Australian and New Zealand portion of EMC Corporation, as well as the Australian business of NCR. He's also spent some time with AT&T in the US.
Kaz was a great company, Foster says. It made good money, but there were circumstances which made it seem, from the outside, like it was making a loss and losing staff hand over fist.
After Telstra bought Kaz in 2004 for $333 million, Foster says it became the repository for all the businesses Telstra owned that weren't telco, making it a hodge-podge of very different services which didn't necessarily fit together at all under one roof.
Many Telstra employees, for example those servicing the Qantas desktop deal that Fujitsu recently nabbed, were moved into the Kaz area, swelling the ranks of the IT services company. The servicing of Telstra's enormous fleet of desktops also floated into the new subsidiary's control.
This certainly lead to a lot of work: Telstra had mountains of desktops to support. But Kaz wasn't getting any money for it. This meant misunderstanding outside the company as to how the division was performing, something the telco didn't seem to feel it needed to clarify. It also meant that every time Foster had a meeting with former CEO Sol Trujillo he had to explain why numbers were in the red.
This added to the fact that Trujillo hadn't been the one to make the Kaz investment. It had been the previous CEO Ziggy Switkowski who had reached out and grabbed the IT services company, amongst the trend of telco operators doing the same globally. Trujillo, who had been hired in 2005, wasn't particularly interested in it, according to Foster. The CEO had other priorities, such as getting the Next G network up and running, which left Kaz, as Foster put it, "caught between a rock and a hard place".
Kaz quickly changed from being Telstra's path to grabbing a lion's share of the IT managed services market to the ugly duckling no one was sure what to do with. "The issue with Telstra was they didn't want to have a services business," Foster said.
So it wasn't surprising that Telstra had an ongoing review as to what it wanted to do with Kaz. One option was selling it. But did that necessarily mean selling all of the original Telstra contracts which had been moved under the Kaz hat after the acquisition? No, Foster says.
Telstra began to move the people it had moved into Kaz, around 800 in total, right back out, deflating Kaz employment numbers like a popped balloon. Foster expresses his annoyance that many people, seeing the falling numbers, had jumped to the conclusion that the company was doing badly and firing employees when really it had just been Telstra employees from Kaz being returned back to their original posts.
Since acquiring the company, the telco had also done some work around simplifying the 27 different companies which operated under Kaz's umbrella, closing down legal entities, which took time. In addition, it had made some money by selling Kaz's superannuation administration business, called Australian Administration Services, to Link Market Services for $215 million in August 2006.
All the while, it had been open to offers for the IT services company. Then Fujitsu stepped into the picture. There was some serious courting, then for reasons Foster can't detail, the negotiations fell through. AustralianIT reported that the parties couldn't agree on price.
After that, Kaz was still working inside Telstra with the sale axe hovering over its head, which Foster hadn't enjoyed. "Uncertainty is a terrible thing," he says. Finally, he asked Trujillo to "make a decision on the business one way or the other" to make it easier for the company to keep running smoothly.
That's when Trujillo came out at the annual results with his announcement that the telco wanted to keep Kaz. Telstra also ran advertisements around that time, spending money on pushing the Kaz brand with the slogan "Kaz is IT".
But then Fujitsu came back to the table. Again, Foster wouldn't shed much light on what was different this time round, but it seemed whatever had changed, they reached an agreement. Fujitsu was to pay $200 million to buy the Kaz business as a whole, absorbing the employees into itself — a good deal for Telstra, but also bringing Fujitsu government contracts and the opportunity to align itself with the telco.
Telstra, despite selling Kaz, still needed to work closely with IT services companies to provide services such as application development and unified communications, according to Foster. "We're starting to do more and more for Telstra," he says, adding that selling to Telstra took a lot of work up front, but it was an "unstoppable" wheel that kept on rolling faster downhill once it had enough momentum to move.
Kaz also had a lot of intellectual property which Telstra hadn't been utilising to its fullest extent, Foster said. For example, it has an application to verify identification for employees within organisations, since 40 per cent of desktop help queries were due to lost passwords. Kaz has implemented this in Australia Post, Qantas, NAB and Telstra.
With Fujitsu Global, Foster could now push to have the intellectual property serve other markets across the globe. Kaz also had a lot of intellectual property in government, such as JusticeLink in the NSW courts, which could be transferred to other governments such as the UK.
Then there were cross selling opportunities. Kaz's strengths were virtualisation services, unified communications and Microsoft implementations, Foster says. These strengths could be marketed to Fujitsu clients. On the other hand, Kaz had no SAP capability, but a lot of its clients have substantial SAP projects. This gave Fujitsu/Kaz a foot in the door. "If nothing else, we're saying test us against our current incumbent," says Foster.
Yet getting the merged companies to the stage where they can sell across each other effectively has taken work. Foster has been actively involved in the integration process, he says, pulling together Fujitsu's 3000 employees, Kaz's 1500 and 500 employees from another recent acquisition Supply Chain Consulting.
If it had have been a good deal for one side but not for the other, people like me wouldn't have been involved.
This made a new 5000-strong organisation — a force to be reckoned with, according to Foster, who points out that Fujitsu was now the second largest SAP integrator behind Accenture. "I don't think most people know that now," he says. "I have to get the company to basically be understood in the market," he said.
Yet size is no good without cohesion. "We've been going through a fairly rapid honeymoon process," he said. All the companies have moved onto single payroll and financial systems and employee contracts have been standardised.
The sales model has also been altered. Instead of using an account sales model, where representatives work on a certain client, all of Fujitsu will now operate on a model where sales people have enough general knowledge to be able to sell different products to many clients, but drill down if necessary, Foster says. "It's a big change to the business," he says.
The company's products have been split into four areas — application development; managed services; enterprise solutions (SAP); one off projects and hardware resale.
Foster will be central to making sure Fujitsu sales people work across all of these areas to achieve the growth it wants. He's been building a list of contacts and doing the ground work to make sure Fujitsu will keep winning contracts like its new $200 million plus Qantas desktop maintenance deal. The focus now is "large" contracts, he said — a word which goes with Fujitsu's new headcount, and something competitors are unlikely to forget.
However the fortunes of the combined Fujitsu Australia/Kaz group fall in future, there's no doubt the whole IT industry will be keeping an eye on the newly married couple. The story of Kaz has been a long and often controversial one over the last decade. Many will be hoping the troubled Australian icon has finally found its permanent and happy home.