Thirst for Truth

By David F. Carr  |  Posted 2003-08-01 Email Print this article Print

Unrealistic financial forecasts nearly tanked telecom giant Qwest. Can better analysis make a difference?

When Qwest communications' corporate Strategy Director Trent Tishkowski transferred data from a jumble of spreadsheets into a new computer model his team created in early 2002, the goal was to produce better forecasts and guide better business decisions.

As it turned out, Tishkowski's biggest challenge had nothing to do with technology. Instead, he found himself bucking unrealistic financial forecasts and goals in an aggressive corporate culture led by then-CEO Joseph Nacchio.

Only a year earlier, Nacchio had predicted the telecom company was on its way to collecting $40 billion a year in revenue, and he continued to trumpet the value of Qwest's nationwide fiber optic network. Although Qwest hedged its bets by buying into local phone service with the purchase of U S West in 2000, it still counted on mushrooming demand for bandwidth. Trouble was, too many telecommunications companies were chasing the same dream, leading to overcapacity and dropping prices.

When Tishkowski began working with analytical planning software from Adaytum (now part of Cognos Inc.), he found himself in the awkward spot of producing more conservative numbers than what Nacchio wanted to see.

While Tishkowski won't discuss specifics from his recommendations, he says Nacchio "told us to perform at X, when the number was actually half of that, according to our model." His strategy team could only answer by asking Nacchio to demonstrate where its numbers were wrong.

Tishkowski spoke openly about the conflict during a talk at a Cognos users' conference in Orlando, Fla., in May, but was more circumspect in a follow-up phone interview monitored by Qwest public relations staff. Still, he sees the work of his three-man team on a long-term strategic model, together with the finance department's efforts to use the same software for better short-term planning and budgeting, as something Qwest can be proud of—even when other aspects of its financial management are under fire.

Ventana Research analyst Robert D. Kugel, who attended Tishkowski's presentation, says the story holds lessons that can be applied to any asset-intensive business. "Implementing the package enabled the company to invest more rationally," Kugel says. "They had the proof of why some investments were better than others."

Today, the company is under investigation by the Securities and Exchange Commission for alleged accounting improprieties.

Nacchio was forced out in June 2002, and has since been called before Congress to explain why he allowed practices such as "swaps." Those were arrangements in which carriers would sell each other long-distance capacity, booking the revenue immediately but spreading their payments to the other company over several years. The charge is that Qwest's leaders allowed this to go on to support an illusion of rapid growth.

Most of what is being investigated at Qwest is how the company reported its actual results, but the aggressive reporting was intertwined with aggressive plans and forecasts. Even before things went from bad to worse, both the finance department and the strategy team recognized the need for a more rational approach, Tishkowski says. "At some point, the company really needed to create a more fact-based model of value creation."

The strategic model also helped Qwest avoid "missteps," Tishkowski says. For example, when the company was considering selling its local phone business in Minnesota, the model showed that the proceeds from the sale would not make up for the loss of future cash flow from that business.

During the follow-up phone interview, Kate Varden of Qwest public relations advised Tishkowski not to provide further details on decisions he advised against. But she did allow questions on one of the most critical decisions Qwest made in the past year, the $7 billion sale of the QwestDex phone directory business. The sale was important because it not only allowed Qwest to pay down debt of more than $26 billion, but also helped convince bondholders to allow Qwest to refinance.

David F. Carr David F. Carr is the Technology Editor for Baseline Magazine, a Ziff Davis publication focused on information technology and its management, with an emphasis on measurable, bottom-line results. He wrote two of Baseline's cover stories focused on the role of technology in disaster recovery, one focused on the response to the tsunami in Indonesia and another on the City of New Orleans after Hurricane Katrina.David has been the author or co-author of many Baseline Case Dissections on corporate technology successes and failures (such as the role of Kmart's inept supply chain implementation in its decline versus Wal-Mart or the successful use of technology to create new market opportunities for office furniture maker Herman Miller). He has also written about the FAA's halting attempts to modernize air traffic control, and in 2003 he traveled to Sierra Leone and Liberia to report on the role of technology in United Nations peacekeeping.David joined Baseline prior to the launch of the magazine in 2001 and helped define popular elements of the magazine such as Gotcha!, which offers cautionary tales about technology pitfalls and how to avoid them.

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