Ameritech's Excellent Adventure
Bergsman, Steve, Chief Executive (U.S.)
Moving from a regulated to a deregulated business. environment can be an experience akin to "Bill & Ted's Excellent Adventure," or, on the downside, the appropriately named sequel, "Bill & Ted's Bogus Journey." While some industries (the airlines, among them) and, indeed, a slew of companies have taken the "bogus journey," few have mastered the "excellent adventure."
One of the excellent adventurers has been Ameritech, the Chicago-based telecom. Ameritech has been a leader in costcutting, and the first of the Baby Bells to be 100 percent off rate-based regulation. With 26.8 employees per 10,000 access lines, Ameritech has been a leader in this efficiency measure for the industry, reports Lehman Brothers.
"The catalyst of Ameritech's cost effectiveness is the regulatory format it discarded," says Dillon Read's William Vogel. "The company has had flat or down capital expenditures for the last three years, and it is no coincidence that it also was moving from rate-based regulation."
In addition to cutting payroll, the company focused on cash-flow management, which it continues to massage year in and year out. As the industry is capital-intensive, growth has been double digit and competition profound, cash flow is the "lifeblood" of the company.
One measure of Ameritech's success is its earnings before interest, taxes, depreciation, and amortization. In 1991, EBITDA was $3.9 billion, and it has climbed to $4.4 billion in 1992, $4.7 billion in 1993, $5 billion in 1994, and $5.3 billion last year.
"We had teams working on improving cash-flow management over the last four years since we started the cultural transformation of the company back in 1991 and 1992," notes Richard Pehlke, Ameritech's VP and treasurer. "We recognized we could meet some of the demands of our rapidly changing business by adopting more aggressive, innovative ways to improve cash flow, such as cash management."
As Ameritech's management prepared for competition, it looked at how it invested capital in the business-in infrastructure as well as working capital, receivables, and inventory. Management felt it could do a better job if it identified aggressive targets and then mastered them one by one. For example, the company sought to improve collections, and attacked the problem at the front and back ends of the process. First, the company changed how it checked customer credit by developing an application scoring model so the initial service …
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Publication information: Article title: Ameritech's Excellent Adventure. Contributors: Bergsman, Steve - Author. Magazine title: Chief Executive (U.S.). Issue: 114 Publication date: June 1996. Page number: 19. © 1999 Chief Executive Publishing. Provided by ProQuest LLC. All Rights Reserved.
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