Fostering a better Kaz future with Fujitsu

Fostering a better Kaz future with Fujitsu

Summary: For the first time, Kaz chief Mike Foster tells the full story about how the Peter Kazacos' baby was treated within Telstra, and how the deal with Fujitsu went down.

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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.

Mike Foster
(Credit: Fujitsu)

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.

Topics: Telcos, Outsourcing, Telstra

Suzanne Tindal

About Suzanne Tindal

Suzanne Tindal cut her teeth at ZDNet.com.au as the site's telecommunications reporter, a role that saw her break some of the biggest stories associated with the National Broadband Network process. She then turned her attention to all matters in government and corporate ICT circles. Now she's taking on the whole gamut as news editor for the site.

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3 comments
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  • oh what could have been

    3 very good companies should have been succesfully merged in to a powerhouse, able to compete head to head with IBM.
    anonymous
  • Outsourcing requires SME, flexibility and ability

    Whilst Kaz might have put on a great show for their clients, selling the business to Telstra was mistake number 1.

    Telstra has always struggled to service it's "managed" (outsourced) clients with any real ability.

    This is because the wheels at the big T are just too slow to get turning (server, desktop, network support), however once they are turning (projects, deployments) it's a hard beast to stop.

    The integration of Kaz into Telstra was a debacle, with hundreds of millions spent acquiring the asset (paid too much for knowledge they already had, but failed to execute with existing clients), then millions more on transformation of staff (all excellent individuals, but collectively let down by the organisation who contractually has it's hands tied due to the sales process) and technology systems into the Telstra way... all for.... well, the same as what they already had.

    So, then Telstra shuffles management around, who might have some good ideas. Problem is, the merged organisations are now so messed up with no clear vision, that changing any part of the delivery organisation was just going to be a nightmare - especially after Telstra had just completed changing everyone's working conditions.

    Then the customers start receiving worse levels of service from the new and improved organisation.... so they leave.

    At the end of the whole thing Telstra sells what is left of the asset to Fujitsu, who will probably do a much better job, however the pain and suffering both customers and staff have been through has been intolerable.

    What was the point of the whole exercise in the first place ?

    Was Kaz really going to be the flexible arm that Telstra needed ?

    Many of the staff and management already knew this was going to be a disaster during due diligence, however it was ignored.

    Let's just hope that Fujitsu does a better job, for the sake of all the brilliant technical individuals, who at the end of the day make all the difference for clients.
    anonymous
  • little white lies... but who's noticing?

    good ol' Mike is up to his same old tricks... what do they say about a leopard and its spots?

    '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.'
    ...Unfortunately, it was due to Mike's inability to deliver basic services into Qantas which resulted in the Kaz/Telstra desktop contract being torn up by Qantas. So are we to believe that Mike sealed the deal... I don't think so.

    and... '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...'

    well... NAB also tore up the Telstra/Kaz desktop services contract for inability to deliver and self-service PW reset technology... wow don't let this IP escape Mike... there are only dozens of COTS products out there that do this... BTW I think Qantas may still be waiting for their version... you better check so that you can get your mates at Fujitsu to implement it :)

    good luck with the sales career...
    anonymous