The head of Deutsche Telekom’s computer services division has secured a much-needed agreement with employee representatives to slash the payroll and number of locations to get the loss-making unit, T-Systems, back on track. The T-Systems works council agreed to 3,765 layoffs in Germany, where the company employs about 17,800, by 2020.
If the company’s fortunes don’t improve by 2021, an additional 1,200 can be fired. “We spent three weeks negotiating uninterruptedly with the employers in a hotel,” said Thomas Schneegans, who heads the company’s works council and also sits on its supervisory board. “Now a compromise has been reached that was not easy for both sides.”
CEO Adel Al-Saleh, a former American IBM manager, earlier this year said he wanted to cut 10,000 of T-Systems’ 37,000-strong global workforce, including 6,000 in Germany to halt a decade of losses. He and the works council have now settled on 5,600 German job cuts, considering that several hundred people have quit their jobs voluntarily this year. Due to German labor laws, T-Systems needs works council approval to lay off staff.
T-Systems made huge losses after its plan to take over corporate IT departments that were being outsourced backfired. Companies weren’t willing to pay enough for the far-flung services while regional providers offered tailored solutions at a premium. The rise of cloud computing has been an extra challenge for the former state monopolist as Amazon Web Services, Google and Salesforce pushed prices down.
Faced with cut-throat competition, T-Systems decided against bidding for a new contract with Innogy, a renewable subsidiary of utility RWE. Industrial company ThyssenKrupp canceled a seven-year contract early this year.
As part of his deal with the works council, Mr. Al-Saleh agreed to keep 25 out of the company’s 100 locations intact – he had previously only wanted eight or fewer offices. Cross-divisional functions will be bundled in Berlin, Bonn, Darmstadt, Frankfurt am Main, Hamburg, Leinfelden and Munich. Cuts have also hit upper tiers of management: The company is doing away with 30 percent to 40 percent of managers below the board level. T-Systems will emerge with three to five hierarchical levels after previously operating with eight, while 1,500 divisions will be trimmed to 500.
Cutting the workforce will allow T-Systems to be more competitive on price – the move, including earlier job cuts, will save the company an estimated €600 million – but Mr. Al-Saleh must now also deliver growth. Under his leadership, T-Systems will focus on the core areas of fixed network and mobile communications as well as eight growth units including IT security, SAP services, the cloud and healthcare services.
Germany’s tough data security laws had also made the country attractive to privacy nerds after the NSA snooping scandal – but not attractive enough. Last week, Microsoft announced it would discontinue a cooperation with T-Systems that allowed Microsoft to market a cloud “Made in Germany.” On the positive side, T-Systems did manage to win two large contracts from German banks, the Sparda Group and DZ Bank. Mr. Al-Saleh needs more such deals to prove his strategy works.
Stephan Scheuer is co-head of Handelsblatt’s feature and people desk. To contact the author: email@example.com