BT is restructuring its struggling Global Services business to focus on three separate areas after its "unacceptable performance" led to the group losing more than £1.3bn.
BT Global Services recorded an operating loss of £134m. It lost £1.2bn due to cost overruns on big contracts with the NHS and Reuters and another £100m on other smaller contracts.
Robert Morgan, consultant at Hamilton Bailey, which advises IT service providers, said BT was naïve when it signed these contracts. He said the NHS deal in particular was troublesome because of the hard bargain driven by Richard Granger when he was head of the National Programme for IT in the NHS
"Richard Granger was ruthless in ensuring that all contract winners stuck exactly to the contract terms," said Morgan. "This was seen within the old BT management as the contract that BT Global Services needed to take at all costs in order to illustrate its capability to handle large and complex deals. The opportunity to exit the contract with honour was ignored at huge cost and, worse, they then chose to pick up eight of the Fujitsu NHS sites in late 2008."
The Reuters deal was seen as a strategic reference site due to its global nature and the US-centric delivery, he said. "But it grossly underestimated the costs and programme management skills needed to transition and transform the client services."
Morgan said BT Global Services also created problems by taking on staff from its customers without understanding the true costs. "Huge TUPE-acquired employment rights mean BT pays huge compensation when reducing staff numbers, which it has had to do. This is another example of a naïve service provider - lack of experience when compared to the more savvy global providers."
BT needs to avoid the mistakes it has made in the past when agreeing contracts and bring in more financial and contractual nous to ensure it makes money, said one IT contract lawyer.
The lawyer said it would be difficult for BT Global Services to bring these contracts to profitability. "It will face increasing penalties, as it has with NHS Connecting for Health."
He added that BT needs to hire people with financial and contract skills to ensure that it can make money out of contracts before it enters them. "It is not very good at this."
The services division of BT was the only one of the telco's four businesses that recorded a loss.
BT CEO Ian Livingston said: "Three out of four of BT's lines of business have performed well in spite of fierce competition and the global economic downturn." The odd one out was Global Services.
BT will now split Global Services into three businesses - one focused on the UK and another working with about 400 multinational customers. The third part of the business will focus on overseas customers with specialist requirements in their own countries.
BT Global Services has built up IT and professional services businesses in Italy, Spain, Germany, Benelux and across Latin America.
"By creating the Enterprise unit, we enable our people to focus more closely on the customers they serve. This greater focus will bring benefits for customers, a simpler business model for our people, and allow local innovation and specialisation within very clear profit and cash targets," said a BT spokesman.
BT has also transferred some UK customers from BT Global Services to BT Business.
Another source questioned the logic behind the restructure of BT Global Services "Livingston will not last very much longer. He inherited a difficult job, but he does not have much longer to sort it out."
"He said he was probably brought in as a hatchet man so has done his job by making cuts."
BT announced 15,000 more job cuts yesterday to add to the 15,000 it made last year.