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
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
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
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.
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
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.