Annual Report 2016
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Strategy and performance

Our material business risks

Strategy and performance

Our material business risks

Industry disruption and competition
Business resilience
Data management
Regulatory environment
National Broadband Network
People capability
Reputation and communication

We’re pursuing our strategy in an environment characterised by technology convergence, aggressive competition, and evolving policy and regulatory frameworks.

These trends and issues contribute to the different risks that pose a challenge to Telstra achieving our strategic objectives, including our growth ambitions and future financial performance.

The following describes the material business risks that could affect Telstra, including any material exposure to economic, environmental and social sustainability risks, and how we seek to manage them.

These risks are not listed in order of significance, nor are they all encompassing. Rather, they reflect the most significant risks identified at a whole-of-entity level. We have identified these risks through our risk management process.

Further detail about our risk management process is set out in the Governance at Telstra section of this report.

Industry disruption and competition

Material Business Risk and key drivers

The risk that we are unable to cost effectively and productively respond to, or take advantage of, rapidly changing business models, consumer behaviours, technologies and our competitors, and manage the shift in our earnings composition through execution of our strategy.

Our ability to operate as a global business and be agile in responding to these market conditions can impact our ability to: achieve our productivity ambitions that will make us more innovative and competitive; reengineer our business to deliver world class experiences, products and services for our customers; and further enhance our brand and reputation in global markets in our effort to become a world class technology company that empowers people to connect.

This risk is exacerbated as we expand our operations overseas and enter new markets that have varied legal, regulatory and geo-political environments. Telstra’s strategic objectives and growth ambitions remain vulnerable to events associated with established competitors and other global companies seeking growth within these same markets.

Plans to manage

Our strategy to manage this risk involves a combination of driving efficiencies in our business, monitoring emerging technology trends and disruptive technologies, and actively investing ourselves in innovation and technology driven business opportunities. Examples of recent initiatives in this area are included under Improve customer advocacy, Drive value and growth from the core and Build new growth businesses.

We are focused on developing our capability to innovate internally, whilst accessing and acquiring the required people capability, technology innovations and business models through our relationships with global technology companies, key suppliers, and joint venture partners (more about how we’re developing our innovation capability can be found under Build new growth businesses).

To improve our responsiveness and agility, and rationalise our cost base, we are undertaking a multi-year portfolio of work which is currently focused on simplifying our systems, processes, and technology. Our renewed approach to simplifying the business is focused on providing enhanced products and better customer experiences (examples of which are provided Drive value and growth from the core). Internationally, we are executing on country level strategies to tap into local market dynamics, to enhance our understanding of the legal and regulatory environment, and to establish greater penetration and presence in these markets.

We also continue to pursue growth opportunities from emerging markets, and are focused on attracting the world class talent required to execute our growth strategy, to realise the value from our mergers and acquisitions and joint venture partnerships, and to further strengthen our brand and reputation (more about how we’re building new growth businesses is covered under Build new growth businesses).

Business resilience

Material Business Risk and key drivers

The risk of planned, or unplanned, disruption to the services we provide to our customers.

There are multiple threats to Telstra’s ability to ensure resilience and continuity of key processes, systems and people, including extreme weather events, natural disasters, malicious attacks, loss of third party key service providers, and human errors. These threats, along with our complex and diverse technology environment, expanding global operations and organisation, create an environment in which business resilience requirements continually change.

Sustained or significant disruption to our services can significantly impact our reputation with our customers and the communities which we serve and could also significantly affect our corporate reputation.

Plans to manage

We continue to develop our business capability to prevent, respond to and recover from network interruptions. We have continuity strategies in place for our critical business processes so we can mitigate the loss of key dependencies during a disruptive event, and continually review these strategies so we can address any existing or emerging gaps to the greatest extent possible.

In response to a number of network interruptions in the second half of the financial year, a full core network and IT system review has been undertaken with the assistance of independent international experts. We are continuing to address these issues and implement the recommendations of the review, and have summarised under Drive value and growth from the core the actions we’re taking.

We also continue to review and strengthen our capability to perform crisis and incident management across the company, particularly in regards to our international business operations, and have ongoing programs in place to strengthen our technology service continuity capability.

Data management

Material Business Risk and key drivers

The risk of collecting, using, retaining or managing customer and corporate data in a way that is inconsistent with our regulatory obligations and customer expectations.

This is a growing risk as our business changes, data volumes grow, cyber-security threats become more sophisticated, and some data sets converge. Emerging technologies and future business models will also further enhance the focus on privacy and information security.

Failure to manage our customer and corporate data can result in significant reputational, financial and regulatory implications. It can also damage the trust our customers have in our ability to keep their information secure.

Plans to manage

We have implemented a number of company-wide controls to manage this risk. In terms of data security, we have mandatory data security awareness training for our staff and business partners, and have commenced a cyber-security awareness program. We also continually review and update the security controls on our network based on known security threats and the latest intelligence.

We have a group wide program of work to support compliance with our privacy obligations, which is underpinned by our privacy policy and mandatory privacy training, and have commenced a company-wide program of work to enhance decision making with regard to the use of customer and corporate data. Further information on how we protect and respect customer data and privacy is available in Customer experience in the Sustainability section.

Regulatory environment

Material Business Risk and key drivers

The risk that we fail to adapt, respond to and influence the rapidly evolving regulatory and policy environment. This can result in the emergence of unfavourable regulatory requirements and increased complexity and cost of doing business. Telstra’s exposure to this risk has broadened as we now operate in jurisdictions with governments and regulatory environments that are less familiar.

In Australia, the risk of regulatory intervention on issues like consumer protection, service and competition remains high, given Telstra’s prominence in the telecommunications sector and the increasing reliance on the services which we provide. We also envisage policy reform in areas such as privacy, security, media ownership and copyright, due to evolving technology and security threats.

Plans to manage

Our risk management strategy is designed to monitor and limit the adverse consequences of existing and new regulations so that we can meet the needs of our customers in a way that is efficient and minimises compliance costs (refer to Managing our risks under Governance at Telstra).

We proactively develop relationships with relevant regulatory stakeholders and policy makers, community groups and industry. In particular, we engage with the Australian Consumer and Competition Commission and Australian Communications and Media Authority on the scope and outcomes from regulation, with all our stakeholders on regulatory reform opportunities, and with the Commonwealth Government in an effort to achieve optimal policy and regulatory decisions. We are also focused on developing our relationships with government and regulators in jurisdictions outside of Australia where Telstra operates.

National Broadband Network

Material Business Risk and key drivers

Risks related to successfully transitioning and serving our customers in a lower margin environment.

Transitioning to nbnTM network exposes us to a potential loss in market share and income, increased costs and poor customer experience. A successful transition is necessary to maintain our share in the fixed market and build future products that will drive growth from our core business.

Consideration must also be given to the rollout timelines of nbn co and the influence of Government policy, which could impact execution of our strategy.

Plans to manage

To remain competitive and reduce our costs we are focused on simplifying our systems, processes, and technology (our approach towards simplifying our business is covered in the Chairman and CEO message), and on adapting and scaling our business so we can deliver services on the different technologies to be used under the MTM nbnTM (refer to Drive value and growth from the core).

We also have programs in place to enhance our customer engagement, and deliver innovative nbnTM products and services for our customers so we can differentiate ourselves from our competitors. We are working to establish a strong ‘Why Telstra’ value proposition to build differentiation based on speed, security, reliability and end-to-end services, product offerings such as Telstra Air®, next generation calling, smart home solutions, managed network services for businesses, and enhanced content such as Telstra TV®, sport and subscription-on-demand.

People capability

Material Business Risk and key drivers

The risk that we fail to attract and retain global talent and leadership and transform our workforce, so we can realise our strategy and transition to a global technology company.

In our core business we need to have capabilities necessary to simplify our business and deliver innovative products and services. The emergence of new and disruptive technologies also requires a fundamental change in the skills and capabilities we require.

In growth areas, our people capabilities are a critical enabler to achieving our growth targets and realising the benefits of our mergers, acquisitions and joint venture activities.

Plans to manage

We are focused on planning for and delivering the capabilities required to simplify our business, transition to an nbnTM operating environment, and extract value from our core. Key capabilities include the areas of IT network simplification, sales order capability, and delivering world class products and services. We’re equipping our people with the tools and training required to be inspiring leaders, to foster a global mindset and to deliver increasingly responsive, personalised customer service.

We are also focused on delivering capabilities required for our growth businesses, such as nbnTM and eHealth, and are enhancing an ‘employee value proposition’ and mobility and remuneration policies and practices that better attract global talent. We have established an experienced recruitment team in Asia to focus on closing international resourcing and capability gaps. Further information on how we attract and retain capable employees so we can better serve our customers is provided in Our people in the Sustainability section.

Reputation and communication

Material Business Risk and key drivers

The risk that we do not effectively protect and enhance our reputation through clear, transparent and timely communication with our stakeholders and the community.

This can undermine our performance in achieving customer advocacy, result in heightened government or regulatory scrutiny and intervention, act as a disincentive to investors, and create employee disruption and engagement issues.

We are also conscious of how we act and communicate through our commercial partners, joint ventures and third parties that are an extension of our brand.

Plans to manage

We know the link between our reputation and customer advocacy is strong so we continue to foster strong relationships with our key stakeholders, manage issues and crises transparently and effectively, build our reputation through ongoing promotion of positive activity and leverage our technology and expertise to make positive contributions to the community.

Our core strategy is to build trust with our stakeholders, to create more robust working relationships and ensure clear, consistent messages are delivered in a way that maximises the potential of positive outcomes. We have a program of work to communicate and engage with our customers and the community through social media and have delivered cross-company social media training to encourage content sharing within the appropriate boundaries.

Further information on how we make positive contributions to the community, including minimising our environmental impacts, is provided in Connecting communities and Environmental stewardship in the Sustainability section.

Telstra 2015 AR