As CEO of the Australian telecommunications company Telstra—from 2015 until he stepped down this year, on September 1—Andy Penn saw his fair share of challenges. They include navigating serious network outages that shook the company’s core value proposition, building the right leadership team for the company’s transformation, and staying the course in the face of impatient market expectations.
He recently spoke with McKinsey senior partner Wesley Walden about the challenges of transforming an organization while maintaining an innovative spirit and employee engagement. Penn and his team reinvented Telstra across multiple dimensions over a seven-year period, starting with reshaping the cost base and then, in 2018, launching and delivering a bold transformation strategy, dubbed T22. T22 restructured the company, separated out physical infrastructure assets, embedded agile ways of working, and simplified Telstra’s product offerings.
Penn explains how providing clarity in strategy and communications, as well as consistency in follow-through, was critical to the company’s transformation. “If you allow ambiguity to filter into what you’re trying to do, suddenly you lose control of the agenda,” he says. Part of that is not letting decisions sit too long, because, unfortunately, they don’t get better with age. An edited version of the conversation follows.
Wes Walden: How would you describe the biggest shifts that have taken place at Telstra since you became CEO in 2015?
Andy Penn: The reinvention has been very much about having to radically change the company from 150 years of history and of doing things in a particular way to being set up to be successful in a world that is going through another radical change in relation to technology.
We were never going to do that in an incremental way. It had to be a complete turning on its head—and dynamic in terms of how we think about the business, how we think about engagement with the customer, and how we think about the way we work. While I’ve been with the company for only ten years, I could see during my time as CFO just how hard it was to change things. We had to think about how we could do this in such a way that would mitigate the resistance to change that would inevitably occur.
Wes Walden: What were some of the most important aspects of the change?
Andy Penn: The three most significant parts of the transformation were simplifying the company to enable a successful digitization program, moving to agile ways of working, and restructuring and separating out physical infrastructure assets.
We wanted to improve our customer experience to put us on a par with companies that provide outstanding customer service. Customers don’t just compare their experience with us with other telecom providers; they think about their experience using digital services like Uber or checking in with an airline or at a hotel. I knew that to make a radical difference, our customer experience had to be very digitally enabled. And that meant a complete replacement of our digital environment. My view was that we would never succeed unless we radically simplified the product environment.
For T22, we looked at how many consumer and small-business products we offered, and the answer was 1,800. The question became how we could simplify that to a manageable number. At first, we aimed for 400, and the response was, “No, no, no, it can’t be done.” I and others pushed back several times, and we eventually landed on 20 as the right number. That focus on 20 products became a forcing function that required people to think very differently, because you can’t make that big a change with the approach you’ve been using.
If you’re going to fundamentally improve customer experience, the way to get there is through digitizing. And if you’re going to digitize, you also have to simplify, but you will never be successful if you try to digitize all of the complexity of the past.
Moving to agile ways of working was another really important piece of the reinvention. Not only was it far more effective, it was also instrumental in driving cultural change and removing the resistance to change within our vertical functions. Whether it’s sales, marketing, IT, HR, or otherwise, there is a lot of power in those vertical structures. And that’s where the resistance to change comes from, because for any one initiative, you’re going to have to negotiate with every one of those vertical functions. That’s what slows things down.
Moving to agile ways of working was instrumental in driving cultural change and removing the resistance to change within our vertical functions.
When you adopt agile, you start the conversation with, “What are the things that we’re going to deliver in the next quarter as a business, whether it’s new products or new functionality or a new system or whatever it may be?” That’s your starting point. And then, through agile, you allocate the resources, the capital, and the people to those initiatives directly. As long as you get that formula right, it’s a beautiful way to speed up delivery. We now have more than 17,000 people working in agile in the company. That has been fundamental to delivering on T22.
The third and final piece was separating out our passive infrastructure assets. That has created new opportunities, in terms of how efficiently we run those businesses and for new growth. It’s also allowed us to bring in new investment partners to create value.
‘A real wake-up call’
Wes Walden: You had embarked on a different transformation journey from 2016 to 2017, but that changed. What happened then, and how did it spur your T22 reinvention drive?
Andy Penn: When I first became CEO in 2015, we developed a vision to become a world-class technology company that empowers people to connect. And I still believe in that vision, but it did not land well in the market, not because people didn’t understand it, but because we were so far from being there that I just don’t think it was seen as plausible or realistic.
Then, in early 2016, we had a couple of serious network outages. That was a real wake-up call because one of our greatest value propositions, network leadership, was shaken to the core. In mid-2016, I realized that we needed to make some major investments in our network and digital environment. In August of that year, we announced a $3 billion investment in our network. And that was in many ways the precursor to T22. I remember making the point when we launched T22, in 2018, that we would not have been able to launch it without having kicked off those investments. They created the foundation.
We also realized that the impact of the government’s National Broadband Network [NBN] was more profound than we had anticipated. It was clear that the company had been too focused on external sources of revenue as a solution to an economic headwind that we were going to face with T22, as opposed to a radical transformation or reinvention of the company.
We were at an inflection point. There was the reality of the depth of the challenge that the introduction of the NBN was creating both operationally and financially, coupled with the fact that the industry was also going through a cyclical downturn. Our mobile revenues had been in decline. The scale of what we needed to do became more apparent. We had to aim high out of necessity; I don’t think there was any other way. The thing I’ve learned is that the higher you aim, the harder it is to use the same thinking to get to a target, which is at a much greater distance.
The scale of what we needed to do became more apparent. We had to aim high out of necessity; I don’t think there was any other way.
Wes Walden: What were the most challenging aspects of the journey?
Andy Penn: You would probably say that we went through a massive amount of change in a relatively short amount of time in the company’s history. But in the moment, it never felt fast enough. It’s hard to stay disciplined with the strategy and the approach knowing that it’s going to take time for the results to come through. And meanwhile, you’re under a lot of pressure from the market, the board, and other stakeholders who want immediate results.
It’s always going to take time to do a complete modernization of the business, a complete digital build, and completely new digital stacks in a company of this scale and size, and then get your existing business onto it. Keeping stakeholders engaged, keeping people on board, keeping the organization motivated is crucial. Maintaining discipline in the early days when you’re not able to demonstrate the results, when you’ve got lots of people in the organization telling you you’re wrong—holding your nerve is challenging.
Wes Walden: How did you balance the short-term pressure on results with knowing that it was going to take longer to change?
Andy Penn: We were explicit about the road map and the metrics that we were going to hold ourselves accountable to, and we were transparent about the progress we made against them. In the scorecard that we published, there were roughly 60 individual measures, and we ended up hitting 80 percent of them. That was also challenging because we were still going through the headwinds caused by the creation of the NBN, and that was having a financial impact. But we were able to point to progress against all of our metrics, and because we were transparent about them and had them audited, the market could have confidence in what we were delivering.
Finding the right fit
Wes Walden: What about people and leaders during the transformation?
Andy Penn: People decisions are always difficult, and when you need to make tough ones they never improve with age—they’re not like a fine wine. I made the wrong appointments a few times when people were just not the right fit. I had a couple of cycles of that in my first few years as CEO. Then, as we got into T22, it was clear that some people were not going to be right for the journey, but they had made a good contribution in the past. There were periods when there was quite a bit of turnover and churn in my senior team. It was a turbulent and very difficult period. Now, we’ve got an outstanding team that’s very aligned.
Wes Walden: What advice would you offer a CEO embarking on a similar reinvention journey?
Andy Penn: I would emphasize that particularly in a large, complex company, clarity of vision and strategy, clarity in your communications, and consistency are hugely important. If you allow ambiguity to filter into what you’re trying to do, suddenly you lose control of the agenda. Having a very clear strategy and vision, and a few beacons of the progress you are making that you can use to reinforce that vision, is incredibly important.
An old boss used to say to me, “The bottom line is that as CEO, you’ve got to become comfortable with being unreasonable.” You’re basically the goalkeeper, and if you let the ball through there is no one else to catch it. You’ve got to be unreasonable because that’s how you stretch the aspiration and how you ultimately get the best out of your people and your teams.
I often wrestle with this because it feels a bit old school. But the governance structuring was crucially important for us and for me. It may sound like it runs counter to the idea of agile, but I don’t think it does.
To me, the change management processes and the governance process were incredibly important. The whole point about agile is being very clear about what the priorities are, what the objectives and key results are, what the metrics are, and what the road map is.
You have to be diligent about measuring yourself against those, and then if you need to change anything, you change transparently. What I realized is that before we put agile practices in place, people would be moving the goalposts of any particular program all the time. But it wouldn’t happen transparently. Wrestling with that has been incredibly important—so is doing that while cultivating innovation.
I keep coming back to agile because it allows you to focus on the outcomes you try to deliver as a business, and then to be deliberate about allocating resources to those outcomes. In the agile process, resources can’t be dissipated onto other things without you knowing about it.
The final piece of advice I’d give a CEO beginning a reinvention is this: always go to where the puck is going. For example, during COVID-19, we deliberately didn’t talk about whether things were going back to normal. Instead, we’d say, “OK, where is this going? We’re not all going back to the office, we’re going to do hybrid. And we’re going to embrace it, we’re going to adopt it.” It’s the same dynamic with technology: figure out where it’s going, and let’s get there faster.
The advice I’d give a CEO beginning a reinvention is this: always go to where the puck is going. It’s the same dynamic with technology: figure out where it’s going, and let’s get there faster.
Hearts and minds
Wes Walden: What have you been most proud of?
Andy Penn: In many respects, it’s the team, the culture, and the way we work. Your strategy can change from time to time, the businesses that you are in can change from time to time. Technology changes from time to time. But your culture and the way you work and therefore your ability to attract and motivate talent—and then to apply that to different, new problems—is what’s sustainable. How we’ve done this, not just what we’ve done, is the thing I’m most proud of.
Wes Walden: How has your approach to leadership changed through the reinvention process?
Andy Penn: You can lead in many different ways. Historically, I’ve been a ferociously logical and rational person. And that’s helpful. You can get people to follow you when you can articulate clearly and tie it all together to tell a cohesive and compelling story.
But if you can tap into the hearts and minds of people as well, that in many respects has more pull than just being rational. Learning to build that connection with people multiplies the impact you can have in the organization. That’s not something that comes naturally to me, but that I’ve learned to develop. And technically, it’s not that hard. Building empathy with people and making them feel as though they can connect with you is really all it’s about.