The following very detailed article appeared last week.
- Updated Sep 11 2017 at 1:47 PM
Trying to prove it's nimble and smart, Telstra stumbles
Under chief executive David Thodey, Telstra thought electronic health services could help turn itself from a bureaucratic ex-monopoly into a smart and nimble software provider.
Instead, Telstra's start-up health division suffered many of the problems of its parent: infighting, slow decision making and gold-plated spending.
Four years after getting a dynamic CEO, Telstra Health loses money, is trying to coordinate more than a dozen businesses with different cultures, objectives and tech systems, and was forced to write off $77 million from an acquisition binge that made some entrepreneurs rich and cost Telstra shareholders $240 million.
Telstra's failure to create a business that pays its way, at least in the short term, is an example of a problem facing the broader economy: many large Australian companies have a weak record of building new businesses, leading to pressure to divert profits into dividends, which some economists say is holding the economy back.
"It was Thodey's pet project," says one investment banker who dealt with Telstra. "There was too much cash available and not a cohesive collection of assets."
A brilliant strategy
Thodey's strategy was designed to exploit a trend that could transform the provision of healthcare. Australia's health system is widely admired across Asia, and experts believe that technology and communications – Telstra's strong points – can save billions of dollars and eventually millions of lives.
The industry doesn't have a dominant company, and the government agencies that run health systems are becoming more open to shifting work to the private sector. More health services, such as counselling and GP consultations, are expected to be done over video. The government wants every Australian to have an electronic health record.
He hired a top health-system administrator, Shane Solomon, in 2013, who promised to shake up the industry and double Telstra Health's revenue in a year. GP bookings would be automated, repeat prescriptions would be issued over computer tablets, and doctors hired to give digital consultations under the plan.
"We are trying to bring the digital revolution to health," Solomon told BOSS magazine two years ago. "In the same way it has transformed other industries, we believe it can transform the health industry."
Profits or dividends
Telstra was doing exactly what some commentators said was needed. Australian companies are too focused on paying dividends to shareholders than creating dynamic new businesses, they say. Columnist Alan Kohler, a former editor-in-chief of The Australian Financial Review, recently wrote that Australian companies could have reinvested $300 billion over the past 10 years if their dividend yield was 2 per cent, instead of 4 per cent, and built world-beating products.
"Eventually a few of them might have stumbled into artificial intelligence and spent a meaningful enough sum of money to buy a seat at the global tech table, or at least be able to defend themselves against the new AI predators led by Amazon, Microsoft, IBM and Google," he wrote.
Telstra Health's struggle to thrive demonstrates how even a sensible strategy executed by experienced managers with deep pockets is no guarantee of success. It illustrates why some investors prefer companies to pay profits to shareholders rather than reinvest them.
Acquisition binge
A Victorian, Solomon had run the Hong Kong Health Authority for five years and KPMG's health consulting business for almost three. With Telstra's big balance sheet and the CEO's imprimatur behind him, Solomon went on an acquisition binge. Telstra invested in or bought 18 businesses on the cutting edge of health software in about three years.
Today, those businesses issue 250 million medical scripts a year electronically, record the health records of 400,000 Indigenous Australians, and provide a secure messaging system for 33,000 doctors and other health practitioners.
"It's a pretty cool business," says Cynthia Whelan, Telstra's head of New Businesses, which includes Telstra Health.
In a previous role, Whelan oversaw Telstra's mergers and acquisitions team at the peak of Solomon's deals. Eager to demonstrate Telstra was able to quickly execute a daring strategy, Solomon was given latitude to quickly build a software business that employed almost 1000 people.
Lots more here:
The bottom line with all this really depends – to me – on two key elements. Accepting that the companies that Telstra acquired we all pretty much best of breed software the integration of the disparate parts will be a challenge as will actually maintaining management focus on such a small component of such a very large company.
Right now I really think the jury is out – especially since it seems the total entity is yet to become profitable.
As always time will tell. The next 12 to 18 months will see the story play out I suspect.
David.
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