Insead MBA Programme December 2 nd, 2005

Transcription

1 Insead MBA Programme December 2 nd, 2005 BT Radianz: Ending the deadlock -- a story of governance evolution P. Howard Edelstein President & CEO BT Radianz

2 Discussion Structure Understanding Radianz and the Extranet Community model Why the Radianz joint venture was created Issues in Governance Discussion / learnings from the case 2 Insead December 2 nd, 2005

3 Answers: American (New Yorker actually) Bush (as in W ) Practitioner Neural Synaptic Adaptation People and the Model Raise your hand 40% 5 Frogs HEALTH WARNING 3 Insead December 2 nd, 2005

4 BT Radianz: focused on Financial Services & its community Content Provider Buy Side Sell Side Execution Custody Clearing Settlement/ Depository Content Provider Buy-Side Sell-Side Execution Venue Custody Clearing Settlement Depository onnectivity opportunities 4 Insead December 2 nd, 2005

5 A sample of our buy & sell community 5 Insead December 2 nd, 2005

6 How this might look in your home 6 Insead December 2 nd, 2005

7 Why customers like our model Head of Trading Access to multiple liquidity points Easy access to trading partners & vendors Quickly easy to add new services CTO Simplify infrastructure Reduce internal support level Secure & resilient connection Satisfies my business customer COO Generate Revenues Realize TCO savings Managed by people who understand their business Bloomberg Tradebook Goldman CBOT Instinet Island NYSE/SFTI Archipelago Bolsa De Madrid Morgan Stanley TradeXL Lehmans Reuters State Street Global Link Revenue Opportunity 7 Insead December 2 nd, 2005

8 BT Radianz is a whole new way of connecting the Community: Financial services skill and expertise of Radianz employees throughout the organization from sales to engineering A unique culture focused on the customer intimacy model Plug-and-play Access to any of the 200 Providers and 10,000+ locations in RadianzNet community (in minutes) 8 Insead December 2 nd, 2005

9 Financial Services Extranet Must Haves Ubiquity/Community Quality/Speciality service, service, service differentiated IP network financial markets expertise carrier diversity Neutrality / Independence impossible to attract key players without it impossible to get leverage without the key players Optimal cost structure 9 Insead December 2 nd, 2005

10 adianz Heritage Radianz Reuters Equant/France Telecom Reuters expectations Consolidate products on single IP platform Concentration on core strengths Value Creation Cost savings and transparency of costs Reuters contributed 38,000 user locations Network Assets Network Operations Staff Equant expectations Broader penetration of financial sector Increased traffic on Equant backbone Greater economies of scale Value Creation Equant Contributed USD 200m+ Cash Commercial and Sales Staff Global networking service 10 Insead December 2 nd, 2005

11 Initial Partner Expectations For Reuters (Customer), Radianz: Provided the IP platform (RadianzNet) for strategic and future product roll out Operated the Managed Network Services (legacy) at cost Aggregated many telco supplier offerings into one service, reducing the total cost of ownership for client connectivity. For Equant (Supplier), Radianz: Held the promise of a large outsource locked in for ten years with the network integrated into Equant s own. Radianz bought core circuits from Equant under a lucrative annual services contract. For both (shareholders), Radianz offered potential as a profitable investment and ultimately an IPO or liquidity event. 11 Insead December 2 nd, 2005

12 June 2000: Radianz Governance Structure Reuters Equant David Grigson Jacques Kerrest Mike Sayers Howard Ford Non-voting members: 1) P. Howard Edelstein Radianz CEO, 2) Chairman David Ure (Reuters) 12 Insead December 2 nd, 2005

13 The early start-up months Radianz invests heavily in infrastructure to develop best-in-class fit for purpose financial services extranet Radianz also invests heavily in marketing and sales in 20 countries Financial controls were not mature 13 Insead December 2 nd, 2005

14 Shift Happens Marketplace correction eliminates cash infusion from planned IPO 9/11 contributes to market down-turn Reuters business requires increased drive for cost savings Reuters meets contractual requirements to migrate 8,000 customer locations in 20 countries but Reuters faced with difficulty in shutting down legacy networks, and moving legacy products to IP Radianz distracted from business growth strategy by running 2 network models It is more difficult & costly to build a world-class network than anyone at Radianz had anticipated 3 years after inception Radianz generates largest ever annual loss of $90m How do you feel now and what do you do? Do you think the stakeholders remain aligned? What happened to those lofty expectations? 14 Insead December 2 nd, 2005

15 Resulting in changed expectations of the JV 1) Reuters now expected: 100% service availability with overall service levels better than they could achieve by managing the networks themselves and, believing that telco bandwidth was a pricedeclining commodity, desired a decline in absolute cost, even though their network consumption (in terms of bandwidth) was steadily increasing. 2) Equant now expected: Overall ROI on their Radianz investment and continued most-favored supplier status, in terms of Radianz s purchase of bandwidth. 3) Radianz now expected: Further investment to support its emerging extranet business and the management autonomy to make independent decisions on pricing, purchasing and service level delivery. Do you think anyone really recognized there was a shift? 15 Insead December 2 nd, 2005

16 September 2003: management team reviews potential options 16 Insead December 2 nd, 2005

17 Management backs BHAG strategy. 17 Insead December 2 nd, 2005

18 But presents Board a stop-loss (BAU) alternative 18 Insead December 2 nd, 2005

19 December 2003: Radianz Governance Structure How do you think the board dealt with this?? Reuters Equant David Grigson Jacques Kerrest Mike Sayers Howard Ford Non-voting members: 1) P. Howard Edelstein Radianz CEO, 2) Chairman David Ure (Reuters) 19 Insead December 2 nd, 2005

20 Questions for consideration You are an Equant board member and you hear management present you with two alternatives (Stop-Loss and a BHAG plan). What are your reactions and what questions do you raise? What are your duties as a director in this situation? As a Reuters board member, what questions to you ask? What are your duties as a director in this situation and how do you rationalize the needs of your own parent organization? Who does the Stop-Loss plan favor and why? How would the Stop-Loss plan affect Radianz management? What lessons are there for planning for conflict resolution and how to structure a joint venture? 20 Insead December 2 nd, 2005

21 Key learnings 21 Insead December 2 nd, 2005

22 Don t let anyone tell you that it is easy 22 Insead December 2 nd, 2005

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25 Key Learnings Avoid 50/50 Joint Ventures If Unavoidable Define rules of engagement (up-front) Ensure neutrality/objective representation Define exit strategies for multiple scenarios 25 Insead December 2 nd, 2005

26 A new day dawns May 2005, BT completes acquisition of Radianz Radianz provides: Portfolio of marquee financial services cilents (and excellent/growing revenue stream) Guarantee of Reuters client/support contract Superior network infrastructure and proven extranet model tailored to demands of financial services marketplace Negotiated agreements with key vendors and value-added service providers Operationally excellent service model Deep management expertise and superior financial services industry knowledge and relationships 26 Insead December 2 nd, 2005

27 Challenges for the future How to maintain specialization within a Telco model Radianz (as an entity) will be dissolved into BT operating infrastructure in March 2006 How to reconcile resources necessary to build new extranet business while supporting Reuters legacy/migration requirements A new governance structure and management team that will transcend organizational silos to develop client-centered solutions How to balance the need for cross-sales to subsidize cost-infrastructure with true client solution provision? 27 Insead December 2 nd, 2005

28 Good Morning -- How do you feel on Friday?? INSEAD 28 Insead December 2 nd, 2005

29 BT Radianz does NOT sell pipes OR VPN s or Intranets outsourcing bespoke solutions software or applications or content 29 Insead December 2 nd, 2005

30 Governance Conflicts No impartiality Reuters is Radianz s biggest customer Equant is Radianz s supplier Cross-purposes Reuters is looking to drive down costs from Radianz as supplier Equant is looking to achieve Radianz profitability Supply Chain Challenge Examples Reuters must approve expenditures on behalf of competitors who are Radianz clients Equant must bid against other Radianz connectivity providers 30 Insead December 2 nd, 2005

31 Shift Happens Partnership Governance Dynamics Whenever Radianz shows profit, Reuters cuts investment Equant sold to France Telecom moving from growth to survival mode Decision making is dead-locked Reuters cannot afford to lose control of its network and so cannot agree to seeking private equity Impartiality prevents outside investment 31 Insead December 2 nd, 2005

32 Don t let anyone tell you it s easy 32 Insead December 2 nd, 2005

33 How does it feel? 33 Insead December 2 nd, 2005

34 So how does it feel?? 34 Insead December 2 nd, 2005

35 Trust in your teammates 35 Insead December 2 nd, 2005