Deutsche Telekom: A transformation journey (A)

This is a classic transformation case, made more complex by the fact that it involves a huge organization led by a youthful company insider, René Obermann. The two-part case study covers the period from 2006 to 2010. The case starts in late 2006, shortly after Obermann was promoted to replace Kai-Uwe Ricke at Deutsche Telekom (DT), one of the standard-bearers of the German economy. When he took over as chief executive, the former state-owned telecom monopoly was in bad shape. Having long been one of the dominant players in Europe, DT’s share price had collapsed in just a few years, as had its grip on its home market. Shortly before Obermann was appointed, DT’s share of new broadband customers in Germany – its traditional stronghold – fell to below 10 percent. And with its 260,000 strong workforce, DT’s labor costs compared to sales were up to twice as high as those of its main European rivals. Still living on past glories, the company was heavily siloed and bloated. While its structure was not suited to the new market realities, few employees felt a strong need for anything more than incremental change. Yet many analysts foresaw either bankruptcy or break-up for DT within a matter of three or four years. Under Obermann’s leadership, DT underwent a dramatic transformation, regaining its dominant position in the large domestic market within three years – but it remained too early to declare a full-fledged turnaround. Case A describes Deutsche Telekom’s competitive challenges prior to René Obermann’s appointment as CEO. It gives a few background details on the new CEO and describes some of the key moves he made during his first two years at the helm – and his success in stabilizing DT. Case B covers the second phase of DT’s recovery and the continued drive to create a single integrated company, to overcome resistance and to encourage new behaviors.

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