France Telecom Case Study 1- Main steps of the transformation

1. France Telecom Case Study1- Main steps of the transformation Aligning HR Case study1 – Main steps

2. Summary of the case study • The France Telecom context. • Evolution of HR Management. • Organisational evolution, especially in Technical Units. • Supporting change practices and related training platforms. Aligning HR Case study1 – Main steps

3. In this changing context...Main axes of the case study Context evolution Evolution of the HR Management Evolution of supporting change and training platforms ExternalContext(not analysed) Evolution of the organisation Aligning HR Case study1 – Main steps

4. Back to France Telecom history • For each main period : - Its strategy - Its priorities Aligning HR Case study1 – Main steps

5. The 6 main periods • 1974 – 1981 Production period • 1982 – 1989 Modernising • 1990 – 1995 Reforming • 1996 – 2000 Developing • 2000 – 2001 Crisis period • 2002 - ...... Stabilising Growth Diversification Aligning HR Case study1 – Main steps

6. 1974 – 1981 Production Period • It is the telephone «boom» : the DGT(*) is the first investor in France • It is «Delta ML» going from 6 to 21 million lines • Technology leads the strategic choices and investments • Corporate culture is technical. DGT is managed by engineers. • Technical centers are specialised by category for operation and maintenance (outside plant,transmission, switching,..) (*) DGT : Direction Générale des Telecoms, France Telecom HQ Aligning HR Case study1 – Main steps

7. 1974 – 1981 Production period • Commercial agencies are born, with procedures and data based only on «subscriber’s » line characteristics. • Political and industrial influence piloting the choices (Axe 10 switching system) • The national and regional structure are «conforming» copies of the administrative structure • Social vocation of the DGT to favor employment in the difficult areas and forced tax increases to feed the State cashier. • Strong increase of employees numbers (up to 160 000) Aligning HR Case study1 – Main steps

8. 1982 – 1989 Modernising(subscribers..waiting for the tone...!) • It is the period of quality of service • Indicators are : waiting list, traffic efficiency, number of errors,... • It is the period of action plan • To analyse repetitive errors and implement appropriate actions • To carry out intensive preventive maintenance • To develop technician training • The company’s focus moves from subscriber to client through client satisfaction inquiries Aligning HR Case study1 – Main steps

9. 1982 – 1989 Modernising(subscribers..waiting for the tone...!) • Starting sensibilisation on cost aspects, however rentability is not an issue because of monopoly and high tariffs • Strategic orientations and choices keep being piloted by the technique (digitalisation of the network, distribution via optical fiber, ...) • Organisation, management and accounting remain administrative • Creation of France-Télécom public entreprise with a bigger autonomy but under state control Aligning HR Case study1 – Main steps

10. 1990 – 1995 Reforming period • 1990 : New law on telecommunications • Implementation of regulator at the PTT Ministry : the DRG • Contract based commitments between France Telecom and the Ministry • Market opening progressively towards competition (Mobile,...) • Increased pressure of european directives • Pressure on tariffs and services by professional clients Aligning HR Case study1 – Main steps

11. 1990 – 1995 Reforming period • 1991 : FT is a state company with private status (end of administrative accounting) • New employee status : keep on being civil servants but with a new salary framework and new managerial practices • Mobility is encouraged • Wages are increased by 15% • Strong resistance from labor unions, fears from personnel but no major strike or frustration Aligning HR Case study1 – Main steps

12. 1996 – 2000 Developing period • Liberalising the Telecom sector • Defensive strategy in France (keeping market shares thanks to better commercial practises) • Offensive strategy towards the international market (Strategic Partnerships with operators showing high development potential) • Ambition is : • Be the first european operator • Be among the first worldwide operators • Alliance with Deutsch Telekom and partnership with Global One Aligning HR Case study1 – Main steps

13. 1996 – 2000 Developing period • 1996 : Preparation to privatisation (the capital remains state-owned) • 1997 : opening partially (40%) the capital in Paris and NY stock exchanges • 1998 : Long distance and international fixed network is open to competition. Interconnexion offer is edited after the regulator approval • 2000 : Wanadoo, FT Internet subsidiary is quoted on the Stock Exchange and FT buys off Orange, the English mobile phone company Aligning HR Case study1 – Main steps

14. 1996 – 2000 Developing period Aligning HR Case study1 – Main steps

15. 2000 – 2001 Crisis period • The most in-debt company worldwide with over 70 billion Euros debt • Some investments in other companies’ capital were done when market value at the highest level • FT paid cash instead of editing new shares….. in order to protect the 55% state shares in the capital, to the contrary of its competitors • Share value of subsidaries fell down… the ones that FT wanted to sell to pay off its previous acquisitions Aligning HR Case study1 – Main steps

16. 2000 – 2001 Crisis period Development Period Crisis Period Aligning HR Case study1 – Main steps

17. Evolution of revenues from the fixed network Corporate Market Mass market E-services others information Managed networks traffic Data access subscriptions Voice Aligning HR Case study1 – Main steps

18. France Telecomturnover breakdown Aligning HR Case study1 – Main steps

19. Development of competition in EuropeEvolution of market shares in the domestic long-distance traffic Aligning HR Case study1 – Main steps

20. 2002 - .... Stabilising • Statement of facts: • Huge debt • Too much autonomy of the branches • Hazardous partnerships and doubtful acquisitions • Subsidiaries showing heterogeneous cultures and corporate practices • Too fragmented organisation which does not allow reactivity and flexibility • But some advantages in big markets which help FT in remaining competitive Aligning HR Case study1 – Main steps

21. 2002 - .... Stabilising • Big measures Ambition 2005 • Debt reduction (from 70 to 45 billion Euros) • TOP programme : launching of 150 projects on cost reduction and productivity earnings. Quick results expected from the first projects to be launched (travels, internalisation, ..) • Re-focus on core business (buying back Wanadoo) • Optimisation of the organisation through new rules for the management of common resources Aligning HR Case study1 – Main steps

22. Ambition FT 2005 : A rescue plan for reducing the debt “15 + 15 + 15” plan 15 + 15 + 15 Increase of equity 15 Billion € (of which 9 by the State) Debtrefinancing 15 Billion € Increase of cashflow by operationsimprovement 15 Billion € Aligning HR Case study1 – Main steps

23. Program TOP : 150 projects in total • Each operating division manages a certain number of projects specific to it: Large Business Solutions, Fixed Lines and Distribution in France, Networks and Operators, International, Orange and Wanadoo. • There are also cross-company projects that encompass the different functions of the Group. These are programs concerning purchasing, investments, general overhead, working capital requirements, the information system, research and development, communication expenses, logistics, real estate and the reorganization of support functions (financial, legal, human resources and communication). Aligning HR Case study1 – Main steps

24. 2003-…..: Some signs of recovery45.5% increase in pro forma operating income Aligning HR Case study1 – Main steps

25. To summarize 10 years of rapid evolution at FT From : - A technical administration evoluting in a monopolistic context To : - A commercial service company evoluting in a competitive context Aligning HR Case study1 – Main steps

26. Technical administration with monopole Employment Security Scale base salary Mobility on wishes Public statute personnel Technical legitimate The technique pilots and imposes the offer The subscriber is captive market All activities are monopolistic Administrative accounting «Administrative» management Prices are based on costs Service company in competitive market Fear on employment Individualised and Merit based salary Mobility for the service Employee shareholder of company Commercial legitimate The technique is the answer to offer demand Client is in the heart All activities are in competitive environment Private law accounting Management piloted by «quality-cost-deadlines», productivity and profitability Prices are determined by competitive market Aligning HR Case study1 – Main steps

27. Breakdown of France Telecom staff (France) Early retirement planat 55 instead of 60 years with 70% of salary + one-year bonus Orange, Wanadoo thousands Fixed and distribution Aligning HR Case study1 – Main steps

28. ….To summarize, To support this deep company evolution, this instigated the creation of aperformant organisation, the implementation of innovative capacity building platforms (to accompany business changes) and a complete renewal of the HR Policy Aligning HR Case study1 – Main steps

29. Bibliography www.francetelecom.comJ-J Bertholus: Qui a ruiné France Telecom?Bernard MERK: Equipes RH acteurs de la str@tégieBruno SIRE: LIRHE, Note Nr 350 Aligning HR Case study1 – Main steps