Analysts critical of Kaz integration

Analysts critical of Kaz integration

An analyst has warned the IT industry is in danger of stifling skills development if smaller players continue to be swallowed up by larger organisations. Independent telco analyst, Paul Budde, was basing his comments on the progress made since Telstra acquired the Kaz Group last year.

Despite supporting initiatives that encouraged telco and IT convergence, he said he had been wary of the Kaz deal from the start. He condemned its progress, claiming the services company had lost its entrepreneurial flair.

"Telcos don't have competencies in the integration market, which is one problem," he said. "The other is that the telco industry has been built in silos: it's not meant to be integrated.

"Telstra has invested in these types of company in the past - Lend Lease, IBM GSA, Advantra. The principle is sound - these companies have expertise, are independent to the silos, and can be a new force to merge existing business units together.

"But rather than leaving them alone, Telstra has interfered. Kaz employees now report to Telstra managers through a more bureaucratic process. Nothing happens anymore."

Management resignations at Kaz were another issue, according to Budde, who argued it had become vulnerable because many of its top people had left or taken a back seat during the past 12 months. He highlighted the departure of regional general manager, Roger David and Technology Services head, Andrew Richardson as well as representatives from administrative departments like human resources and accounts.

Most significantly, the service company's founder, Peter Kazacos, had relinquished his day-to-day role since taking up an executive director's position in February. This had seen Telstra Services Solutions boss, Mike Foster, gain full control of the services outfit. "So many people have left that it's lost the heart of the business," Budde claimed.

IDC associate director for services, Asia-Pacific, Phil Hassey, said the acquisition had been a risky one because the organisations were too dissimilar.

Another problem was the industry as a whole did not perceive Telstra as a serious competitor in the integration space. Instead, it was a target for future sales, he said.

For example, services organisations that should be competing against Kaz - like Dimension Data, HP or IBM - were jumping in to fulfill Telstra's recent billing systems tender. The failure rate for telcos buying into service providers was high, he pointed out.

While Hassey said he was confident Kaz would match overall market growth, it would require a major cultural shift to regain its place as an innovator.

"Kaz won't set the world on fire, which is what it was meant to do," he said. "It had unique points in the medium business space it was chasing. But people wanting a local relationship are stuck in-between with Telstra: it doesn't have the credibility it needs, or compete in the marketplace that it should."

Budde was pessimistic about the future, arguing the hands-on style which made Kaz a success was gone.

He was hopeful Telstra's anticipated strategic review under recently appointed CEO, Sol Trujillo, could see the telco utilise Kaz to create its next generation network. He also gave Optus' acquisition of Alphawest, announced in July, a better chance of prospering, saying the pair could learn from the mistakes made in the Telstra/Kaz deal. But in the meantime, the industry was losing a commanding force in local integration.

"It's a sad story - we have so few Australian IT companies left," he said.

Budde predicted further consolidation across the integration market as organisations tried to cope with a local skills drought.

"Systems integration is a huge difficulty here because of the shortage in skills," he said. "We need companies like Kaz and Alphawest to serve as schools. This is the way to develop new skills.

"As soon as we have some champions, we cut their heads off. The fewer independent companies we have the fewer chances we have to build our industry."

Kaz executives refused to discuss the progress of its integration into Telstra until Trujillo completes his review of the telco's operations. This is expected to get underway in November.

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