Once extravagant, Safaricom now tightens its fist

If you have in the past visited a Safaricom shop at any shopping mall and were keen enough, you would have noticed the duplication of roles, with the outlets having their own security checks, in addition to what one finds at the main entrances.

Things are now starting to change and the guards are either conspicuously missing at the telco’s retail outlets, especially at locations that are already served with ample security, or their numbers have been reduced significantly.

Shedding such fat is part of the work that Michael Joseph has been doing since he took over as interim chief executive in July. The firm has been reviewing contracts with different service providers, and pushing them to lower costs.

Safaricom is getting tight-fisted, departing from the generous, even to an extent spendthrift, ways its contractors have been used to. The suppliers will now have to tighten their belts and prove to the telco that they are offering value for the money.

Until now, the firm generously splashed money. The communications industry can attest to how generous Safaricom has traditionally been, not just in the recent past, but also in its early years when Mr Joseph was the chief executive.

One communication consultancy firm, for instance, thrived for years on nothing more than Safaricom’s retainer as well as billing revenues for jobs not covered by the retainer. While it had a few more clients, some paying peanuts, earnings from Safaricom could afford it a team of well-paid specialists and an address at one of Nairobi’s leafy suburbs.

This appears to have crumbled when the firm parted ways with Safaricom. Safaricom now works with a number of communication firms, including two that are charged with its public relations functions.

Joseph said in an interview that while Safaricom was still fundamentally sound, it needed some strong steering, as it seemed like it was getting rudderless following the late Bob Collymore’s illness that had forced him to be away from office for a long a period while seeking treatment over the last two years.

“The concern I had was that it needed strong direction and strong management and that is what I provided. Nothing was fundamentally wrong with the company,” he told Weekend Business. “I cannot take anything from my successor and predecessor. Bob was ill for two years, he was not here a lot of the time and this did play a part in getting Safaricom where it was when I got here. But you’ve seen what we have done in a short time,” he added.

Fast service

While operating with minimum security personnel at the shops, fast service to customers is expected to reduce the risk. Where one could previously wait for an hour for service, the company is guaranteeing service within five minutes, which is part of its new approach to business. “We are changing the way we do business with our customers. We have been in business a long time and have been doing things in a particular way all these years, everything, including the shops and customer care, have remained the same,” said Joseph.

“So, we have embarked on a process to change everything and have a brand new look,” he added.

The impact of the cost-cutting and generally changing the way it does business is reflecting on its financials in the general growth. Though revenues grew by 5.8 per cent in the half year to September, the net profit grew by 14.4 per cent to Sh35.7 billion.

Its earnings before interest and tax (EBIT) grew 12.7 per cent to Sh49.82 billion in the six months compared to Sh44.22 billion during the same period last year.

EBIT margin – the ratio of operating income to net sales, which enables investors to understand the true cost of running a business – improved from 36.1 per cent to 38.5 per cent, thereby creating capacity to continue to invest.

When Safaricom published its results on Friday, Chief Financial Officer Sateesh Kamath said margins were helped by “continued solid operating performance and complemented by strong focus on cost optimisation and sweating assets that we have invested on”.

Joseph noted that the process has not affected any of Safaricom’s employees, with the cost-cutting aimed at processes rather than people. “EBIT is so strong because we went through cost cutting and cost management initiatives. This had nothing to do with the people, but how we spend our money,” he said.

Joseph created a scenario for employees, telling them to imagine a situation where they would have to compete against Safaricom. Cocky thinking, but one that is perhaps informed by facts. No telco has emerged as a credible competitor to the company, in addition to Safaricom being ahead of most (if not all) companies across all industries in the region – including those that compete with it for a share of the Kenyan consumers’ disposable income. Hence, to sharpen its edge, Joseph had to take his employees on an imaginary trip where they would take on themselves.

“We took a clean sheet of paper and threw a challenge to the team. We envisioned what would happen if we were going to compete with Safaricom. What would we do? That is how this initiative came about. It is a complete new direction for the company, we are steering the company in a different way,” he explained.

“I am confident that once we find some of the bugs in the system  and tweak it a little, put in place more initiatives in place later in the year and early next year, the company will be stronger and head in the right direction.” Other than cutting the costs of operations, the team also tried to look at ways of improving relations with customers. This resulted in the scrapping of expiry of dates on data and voice bundles, as well as raising the quality of service by ensuring that customers are served within five minutes at Safaricom shops.

Customer care teams also call back whenever calls do not go through or when call centre operators are busy with other customers. Joseph is not yet done with changing the telco and appears to be targeting the financial services that Safaricom offers in conjunction with its partners. He recently criticised the rates charged by M-Shwari, a service the telco offers in partnership with NCBA Bank, as well as charges by KCB M-Pesa. He flinches at the prospect of Safaricom being described as a loan shark because of the service, because of the focus on loans rather than saving, which was the initial objective.

“I am not happy with that. Safaricom does not lend the money and I certainly want to make financial services less expensive for our customers,” he said. “It is not about lending money to rich people, but transforming lives for people who really make up the mainstay of Safaricom services. I would like to see more affordable financial services… whatever we can do or service we can bring to make that better,” he added.

Too expensive

“Fuliza and M-Shwari are all good services, but I still see them as a little too expensive for a majority of our customers. I am concerned about people borrowing money to repay other loans. I would like to see that better managed,” he explained. Joseph will be at the firm until April next year when Peter Ndegwa takes over. He revealed that he will stay on for a few more months to ensure smooth transition. He will however remain a board member of the company.

Despite the need for change that Joseph is now instituting, expensive loans and customers that have in the past showed disgruntlement – even referred to their relationship with Safaricom as an abusive marriage – he is sure that the firm will remain in the market leadership position. In fact, he scoffs at the question whether he sees a situation in future where the firm might face a credible competitor. “Safaricom will always be in a leadership position. We are innovative, the balance sheet is strong and we have a good team. We will continue improving the team in terms of digitalisation. I have no doubt that we will always be the market leader,” he said.

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