WEBVTT 00:00:00.250 --> 00:00:04.963 - In this episode of BCG's CEO Moments of Truth, we explore: 00:00:04.963 --> 00:00:08.174 How does a CEO disrupt their own company? 00:00:08.174 --> 00:00:13.179 And how do you reinvent a legacy business for the AI era? 00:00:13.388 --> 00:00:17.892 It was November 2022 when Kate Johnson became CEO at Lumen 00:00:17.892 --> 00:00:21.271 Technologies, almost the exact moment 00:00:21.271 --> 00:00:23.982 that generative AI burst into the mainstream. 00:00:24.899 --> 00:00:27.444 The technology landscape was shifting fast. 00:00:27.444 --> 00:00:31.865 Yet Lumen couldn't have felt more removed from that future. 00:00:31.865 --> 00:00:35.660 Kate had inherited a legacy telecom company weighed down 00:00:35.660 --> 00:00:39.914 by debt, aging infrastructure, slowing innovation. 00:00:39.914 --> 00:00:42.417 And the threat of delisting was closing in. 00:00:43.543 --> 00:00:47.756 What she saw, however, was possibility. A chance 00:00:47.756 --> 00:00:50.717 to disrupt the business from within to emerge as 00:00:50.717 --> 00:00:53.470 the essential infrastructure for data centers 00:00:53.470 --> 00:00:55.513 and the AI economy. 00:00:55.513 --> 00:00:59.059 The challenge would be serving entirely new customers 00:00:59.059 --> 00:01:01.936 with new technology and a new mindset. 00:01:17.160 --> 00:01:19.954 Kate, you had a wonderful and 00:01:19.954 --> 00:01:22.832 incredibly successful career in the technology world, 00:01:22.832 --> 00:01:25.085 including four years at Microsoft, 00:01:25.085 --> 00:01:27.629 overseeing a $45 billion business. 00:01:27.629 --> 00:01:30.131 What attracted you specifically to Lumen? 00:01:30.131 --> 00:01:33.301 - The Lumen opportunity was really, really unique 00:01:33.301 --> 00:01:36.596 because it's a fiber optic network, right? 00:01:36.596 --> 00:01:40.141 And I just happened to study that in school. 00:01:40.141 --> 00:01:41.142 I was an electoral engineer 00:01:41.142 --> 00:01:44.604 and I did my senior thesis on fiber optic technology. 00:01:44.604 --> 00:01:48.358 Based on my experience at Microsoft, I knew that 00:01:48.358 --> 00:01:50.193 telecom was really the final frontier 00:01:50.193 --> 00:01:51.903 for digital transformation 00:01:51.903 --> 00:01:53.196 and that had been something 00:01:53.196 --> 00:01:55.448 that I've been working on for a decade. 00:01:55.448 --> 00:01:59.160 I could, you know, go into the company with that mindset, 00:01:59.160 --> 00:02:00.954 and, I thought, maybe make a difference. 00:02:07.335 --> 00:02:10.880 - So you started Lumen in November 2022. 00:02:10.880 --> 00:02:12.382 What did you find the situation like? 00:02:13.508 --> 00:02:15.969 - The circumstances were pretty dire. 00:02:15.969 --> 00:02:17.512 We had $20 billion of debt. 00:02:17.512 --> 00:02:20.765 We had a rapidly declining revenue base. 00:02:20.765 --> 00:02:24.936 We had what I would call product portfolio sprawl, 00:02:24.936 --> 00:02:27.522 where we had been making lots of little bets instead 00:02:27.522 --> 00:02:28.648 of really concentrating 00:02:28.648 --> 00:02:30.024 and figuring out how to innovate. 00:02:30.024 --> 00:02:32.443 There was very little innovation at all. 00:02:32.443 --> 00:02:35.989 We carried an enormous amount of technology debt as well, 00:02:35.989 --> 00:02:38.741 because we didn't have the capital, the cash 00:02:38.741 --> 00:02:40.451 to invest in modernization. 00:02:40.451 --> 00:02:43.705 - Sounds like a combination of financial debt, technology, 00:02:43.705 --> 00:02:47.542 debt, culture, debt at the same time and no time to lose. 00:02:47.542 --> 00:02:52.547 Just a few weeks later, GenAI hits the world. 00:02:52.630 --> 00:02:54.924 How did you feel about that in your new job? 00:02:55.842 --> 00:02:57.802 - I probably didn't understand the full 00:02:57.802 --> 00:02:59.846 impact at that moment. 00:02:59.846 --> 00:03:00.930 Our premise of the 00:03:00.930 --> 00:03:04.225 transformation, the board had asked me, 00:03:04.225 --> 00:03:06.436 "Please pivot this company to growth." 00:03:06.436 --> 00:03:09.397 And we were going to think about 00:03:09.397 --> 00:03:12.150 that from a core asset perspective. 00:03:12.150 --> 00:03:15.486 You know, the fiber network is where the value is. 00:03:15.486 --> 00:03:17.822 And huge amounts of data being transferred from and to 00:03:17.822 --> 00:03:22.702 is going to be how we model this turnaround. 00:03:23.578 --> 00:03:27.123 The advent of AI just accelerated that hypothesis. 00:03:27.123 --> 00:03:29.250 So that was fortuitous 00:03:29.250 --> 00:03:30.627 and a moment that now, 00:03:30.627 --> 00:03:34.756 looking back, was incredibly important to our story. 00:03:34.756 --> 00:03:39.093 - So at that moment, you basically saw an exploding 00:03:39.093 --> 00:03:42.013 volume of data, which ultimately is a huge opportunity. 00:03:42.013 --> 00:03:46.100 So that's the way you all digested the news, so to say. 00:03:46.100 --> 00:03:48.561 - Yeah, but remember I was carrying the weight 00:03:48.561 --> 00:03:50.897 of understanding where we were 00:03:50.897 --> 00:03:53.900 as a company at the exact same time. 00:03:53.900 --> 00:03:56.819 So just going after the opportunity, 00:03:57.695 --> 00:03:59.239 we didn't have that luxury. 00:03:59.239 --> 00:04:00.740 When we talk about, you know, 00:04:00.740 --> 00:04:04.452 debt restructuring on the other side, you know, of 00:04:04.452 --> 00:04:08.373 that debt, were the hyperscalers saying, "We need 00:04:08.373 --> 00:04:12.293 connectivity for this AI problem we're trying to solve." 00:04:12.293 --> 00:04:16.047 So we were able to kind of do the dance across 00:04:16.047 --> 00:04:19.133 that entire restructuring moment 00:04:19.133 --> 00:04:22.971 because we knew we could get the cash if we focused on 00:04:22.971 --> 00:04:26.349 delivering exactly what the hyperscalers needed in service 00:04:26.349 --> 00:04:27.976 of the rest of the portfolio. 00:04:27.976 --> 00:04:30.687 And so it was, wow, this is an opportunity 00:04:30.687 --> 00:04:34.232 that if we can clean up some of this, you know, mess 00:04:34.232 --> 00:04:37.193 that we have, we can go after it with gusto. 00:04:37.193 --> 00:04:39.404 But you couldn't do one without the other. 00:04:46.661 --> 00:04:49.122 - As a CEO, you obviously declare a vision, you 00:04:49.122 --> 00:04:51.040 articulate a strategy. But you 00:04:51.040 --> 00:04:54.877 came in at a moment when the company was really in a 00:04:54.877 --> 00:04:56.629 very difficult situation. 00:04:56.629 --> 00:04:58.756 How did you create the excitement 00:04:58.756 --> 00:05:01.426 and the energy for what was going to come? 00:05:01.426 --> 00:05:05.388 - We picked some of the top performing VPs, about ten 00:05:05.388 --> 00:05:08.141 of them, and we asked them 00:05:08.141 --> 00:05:11.144 to go construct a mission and a vision 00:05:11.144 --> 00:05:13.855 and a value proposition for what we could be. 00:05:13.855 --> 00:05:16.941 And we asked them to actually think about the assets, 00:05:16.941 --> 00:05:21.321 but to ignore all of the negative, you know, pressures 00:05:21.321 --> 00:05:23.656 that they felt. And if you had the freedom 00:05:23.656 --> 00:05:25.700 to do anything, what would it be? 00:05:25.700 --> 00:05:27.744 And they came up with a vision 00:05:27.744 --> 00:05:30.997 and a mission to basically say that Lumen could pivot 00:05:30.997 --> 00:05:32.665 to growth if we focused on the one thing 00:05:32.665 --> 00:05:35.460 that we could do best, which was to connect people, data, 00:05:35.460 --> 00:05:39.255 and applications quickly, securely, and effortlessly. 00:05:39.255 --> 00:05:41.049 Now of course, we've been connecting people, data, 00:05:41.049 --> 00:05:43.509 and applications for a long time, many decades. 00:05:43.509 --> 00:05:46.971 It's the quick, secure, and effortless that was new. 00:05:46.971 --> 00:05:50.391 And that really spoke to cloudification 00:05:50.391 --> 00:05:54.228 and the digital transformation that I knew was at the heart 00:05:54.228 --> 00:05:57.357 of whatever we were going to do to fix the company. 00:05:57.357 --> 00:05:59.275 - Freedom can be liberating, 00:05:59.275 --> 00:06:02.153 but it can also in the first moment be 00:06:02.153 --> 00:06:03.237 something very unusual. 00:06:03.237 --> 00:06:05.698 How did you convey that sense of freedom to them? 00:06:05.698 --> 00:06:08.826 - So what is the Janis Joplin song, "freedom's 00:06:08.826 --> 00:06:12.288 defined by when you have nothing left to lose." 00:06:12.288 --> 00:06:16.209 We were there. The circumstances were existential 00:06:16.209 --> 00:06:19.587 and we faced potential chapter 11, potentially 00:06:19.587 --> 00:06:21.297 breaking up the company. 00:06:21.297 --> 00:06:24.175 Essentially the market, whether it's the industry 00:06:24.175 --> 00:06:28.679 analysts, the customers, or Wall Street, had left us for dead. 00:06:28.679 --> 00:06:32.725 And when you're left for dead, the bad news is, you know, 00:06:32.725 --> 00:06:35.103 you don't get a lot of attention when you're 00:06:35.103 --> 00:06:39.524 innovating. The good news is it gives you space 00:06:39.524 --> 00:06:40.983 and it gives you time. 00:06:40.983 --> 00:06:43.361 And we took that space and time 00:06:43.361 --> 00:06:47.115 and got very intentional about what if. Let's dream: 00:06:47.115 --> 00:06:48.699 what if we created network 00:06:48.699 --> 00:06:51.744 as a service at scale on our network? 00:06:51.744 --> 00:06:52.954 What would that look like? 00:06:52.954 --> 00:06:55.873 Let's do it as a little bit of an experiment, a little bit 00:06:55.873 --> 00:06:58.376 of a hobby. And then we got a couple customers. 00:06:58.376 --> 00:07:00.586 And okay, let's do it more than a hobby. 00:07:00.586 --> 00:07:03.172 Let's actually create it in a production, you know, 00:07:03.172 --> 00:07:05.383 ready kind of way for mission critical apps. 00:07:05.383 --> 00:07:10.054 And we built up this momentum that it was only the freedom 00:07:10.054 --> 00:07:13.474 of that moment that it could have created the space 00:07:13.474 --> 00:07:17.812 and energy for a company that was that downtrodden to aspire 00:07:17.812 --> 00:07:19.230 to do something so bold. 00:07:19.230 --> 00:07:22.984 - How did you move from vision into 00:07:22.984 --> 00:07:25.111 day-to-day execution in the organization? 00:07:25.111 --> 00:07:27.363 - Well, we looked across everything we needed to do. 00:07:27.363 --> 00:07:29.615 And by the way, it was not a short list, right? 00:07:29.615 --> 00:07:31.242 There was a lot of work to do. 00:07:31.242 --> 00:07:34.203 We, we had to reboot the culture 00:07:34.203 --> 00:07:38.916 and bring in talent from both networking and telecom. 00:07:38.916 --> 00:07:41.461 We had to transform our capital structure 00:07:41.461 --> 00:07:42.545 and then we had to think about 00:07:42.545 --> 00:07:44.505 how are we going to get to growth? 00:07:44.505 --> 00:07:47.758 That's a lot to do all at the same time. 00:07:47.758 --> 00:07:51.095 But we really did sort of organize the lanes to go 00:07:51.095 --> 00:07:54.182 after those big categories to make some impact. 00:07:54.182 --> 00:07:55.933 Short term. 00:07:55.933 --> 00:07:58.769 - You mentioned culture. That's a topic on the mind 00:07:58.769 --> 00:08:01.731 of every CEO. And also the question, well how do you want 00:08:01.731 --> 00:08:04.025 to evolve that and how do you practically do that? 00:08:04.025 --> 00:08:07.570 You were very vocal in your early months 00:08:07.570 --> 00:08:10.740 and quarters at Lumen that you wanted to change culture. 00:08:10.740 --> 00:08:12.992 How did the organization receive that 00:08:12.992 --> 00:08:14.243 - With disbelief. 00:08:14.243 --> 00:08:16.287 I think when you're new from the outside 00:08:16.287 --> 00:08:18.289 and you say, I really care about the people, we're going 00:08:18.289 --> 00:08:20.416 to put them at the center of everything we do. 00:08:20.416 --> 00:08:22.376 I'd very publicly say, we're going to rebuild this 00:08:22.376 --> 00:08:24.337 company, starting with the people. 00:08:24.337 --> 00:08:27.965 And the reason why I was focused on that is 00:08:27.965 --> 00:08:30.510 because I knew that the culture 00:08:30.510 --> 00:08:34.263 of telecom was not going to give birth to 00:08:34.263 --> 00:08:37.808 a transformation and a company that could grow. 00:08:37.808 --> 00:08:41.270 It was definitely a 'play not to lose' orientation. 00:08:41.270 --> 00:08:42.730 It's one of survival. 00:08:42.730 --> 00:08:45.358 Let's make that revenue that's declining last 00:08:45.358 --> 00:08:46.526 as long as possible. 00:08:46.526 --> 00:08:49.654 That's very different than let's take all of our cash 00:08:49.654 --> 00:08:52.323 and instead of paying a dividend, let's innovate. 00:08:52.323 --> 00:08:54.825 Let's figure out how to help customers, you know, 00:08:54.825 --> 00:08:56.744 with what's on the horizon in the future, 00:08:56.744 --> 00:09:01.707 AI. Two totally different orientations around mindset. 00:09:01.791 --> 00:09:05.002 So we had to teach our people how to play to win, 00:09:05.002 --> 00:09:07.713 and there was a lot associated with it. 00:09:07.713 --> 00:09:12.093 But at the very essence is risk. How do you take risk? 00:09:12.093 --> 00:09:15.012 How do you get the courage to make a bet? 00:09:15.012 --> 00:09:18.975 And how do you get back up and be resilient 00:09:18.975 --> 00:09:20.977 after maybe that risk 00:09:20.977 --> 00:09:23.145 that you've taken didn't work out so well? 00:09:23.145 --> 00:09:24.730 Those were the things that we needed 00:09:24.730 --> 00:09:26.857 to help our people learn how to do. 00:09:26.857 --> 00:09:29.068 And we were very intentional about rolling out 00:09:29.068 --> 00:09:30.611 skills training to do so. 00:09:30.611 --> 00:09:32.280 - So then things evolved and 00:09:32.280 --> 00:09:35.533 you get into a very positive dynamic with customers, 00:09:35.533 --> 00:09:38.035 with your organization, with investors. 00:09:38.035 --> 00:09:41.497 Was there any moment where you personally felt, "Oh wow, 00:09:41.497 --> 00:09:43.624 this is working, this is great. 00:09:43.624 --> 00:09:46.669 This is not just a dream, this is it."? 00:09:46.669 --> 00:09:51.007 - So look, it's really early for a victory lap. 00:09:51.007 --> 00:09:53.801 Without a doubt. We've made incredible progress. 00:09:53.801 --> 00:09:55.928 We've transformed our capital structure, we've built 00:09:55.928 --> 00:09:57.096 that organic growth engine. 00:09:57.096 --> 00:09:59.307 We've just made our most recent acquisition. 00:09:59.307 --> 00:10:01.851 We successfully divested our fiber, you know, 00:10:01.851 --> 00:10:03.519 to the home business. 00:10:03.519 --> 00:10:07.231 And we have a culture where people recognize 00:10:07.231 --> 00:10:08.649 that we can talk about the hard things 00:10:08.649 --> 00:10:11.319 and do the hard things. And all of that's amazing. 00:10:11.319 --> 00:10:15.197 But the truth is, we still have so much more to go 00:10:15.197 --> 00:10:17.158 to deliver the revenue growth 00:10:17.158 --> 00:10:18.868 that we've promised the market. 00:10:18.868 --> 00:10:21.329 And I try and stay focused on that. 00:10:21.329 --> 00:10:25.041 Now I have a bench of advisors, I have the BCG team, 00:10:25.041 --> 00:10:28.836 you know, on that bench with me. And I have advisors inside 00:10:28.836 --> 00:10:32.214 and outside the company. Where we do have our moments 00:10:32.214 --> 00:10:33.382 of celebration and hope. 00:10:33.382 --> 00:10:35.760 But I try not to get ahead of myself with that 00:10:35.760 --> 00:10:39.180 because I think it's important to celebrate the wins, 00:10:39.180 --> 00:10:42.475 but to also stay deeply focused on the outcome 00:10:42.475 --> 00:10:44.644 that we started out to try and achieve. 00:10:51.567 --> 00:10:56.405 - We are living in a time where AI is changing everything. 00:10:56.405 --> 00:10:58.449 I believe every business is going to be impacted, 00:10:58.449 --> 00:11:00.451 and there will be many companies 00:11:00.451 --> 00:11:02.536 that will find themselves in a similar situation 00:11:02.536 --> 00:11:05.831 as Lumen was in when you took over: Long history, 00:11:06.666 --> 00:11:08.626 successful from a long time, 00:11:08.626 --> 00:11:11.629 but then also sitting on assets that are no longer 00:11:11.629 --> 00:11:13.839 that valuable. An operating model 00:11:13.839 --> 00:11:15.841 that maybe isn't fit for the future. 00:11:15.841 --> 00:11:17.009 I think it's going to be the norm 00:11:17.009 --> 00:11:18.719 for many businesses out there. 00:11:18.719 --> 00:11:21.639 What is your advice to other CEOs 00:11:21.639 --> 00:11:23.516 who get into a situation like you did? 00:11:24.600 --> 00:11:27.937 - I mean, two things that we've done at the company: 00:11:27.937 --> 00:11:29.438 Number one, investing in people 00:11:29.438 --> 00:11:30.940 and believing that they're at the heart 00:11:30.940 --> 00:11:32.608 of any transformation. 00:11:32.608 --> 00:11:34.944 I think too often I see CEOs say, "Okay, 00:11:34.944 --> 00:11:37.029 here's our aspirational culture." 00:11:37.029 --> 00:11:38.447 They don't spend any time investing in it, 00:11:38.447 --> 00:11:39.865 and they just say, "We're going to go take that hill. 00:11:39.865 --> 00:11:42.702 Now, let's go. And this is how we interact together." 00:11:42.702 --> 00:11:45.496 You have to actually be very intentional on the training 00:11:45.496 --> 00:11:48.791 and the skills in order to help them practice and build 00:11:48.791 --> 00:11:50.668 and learn and grow. 00:11:50.668 --> 00:11:54.380 The second thing is we anchored everything into this notion 00:11:54.380 --> 00:11:57.174 of we didn't actually know the answer. 00:11:57.174 --> 00:11:59.969 We didn't show up, I didn't show up to the company saying, 00:11:59.969 --> 00:12:01.637 "I've got a hypothesis and I know I'm right. 00:12:01.637 --> 00:12:06.058 Let's go." And nobody else in the leadership team did either. 00:12:06.058 --> 00:12:10.104 We instead built a team that anchored itself in this notion 00:12:10.104 --> 00:12:12.064 of, "Our job is to get it right." 00:12:12.064 --> 00:12:14.275 And that means we have to admit when we're wrong. 00:12:14.275 --> 00:12:17.027 We have to take educated guesses, we have 00:12:17.027 --> 00:12:19.071 to pick ourselves up when we fail, 00:12:19.071 --> 00:12:21.407 and that has to be something that we do for 00:12:21.407 --> 00:12:24.201 and with each other. Forgiving each other when we're wrong, 00:12:24.201 --> 00:12:25.911 forgiving ourselves when we're wrong. 00:12:25.911 --> 00:12:29.123 And really orienting around this continuous improvement 00:12:29.123 --> 00:12:30.916 and this continuous learning. 00:12:30.916 --> 00:12:35.045 It has been instrumental in helping us navigate a digital 00:12:35.045 --> 00:12:36.297 transformation in the middle 00:12:36.297 --> 00:12:40.384 of the most significant technology change 00:12:40.384 --> 00:12:42.595 that the world has ever experienced. 00:12:42.595 --> 00:12:44.096 - Kate, it's absolutely wonderful 00:12:44.096 --> 00:12:46.182 to hear from you about Lumen 00:12:46.182 --> 00:12:48.392 and the turnaround of the company. 00:12:48.392 --> 00:12:49.769 Congratulations on the progress, 00:12:49.769 --> 00:12:52.062 and thank you so much for spending the time with us. 00:12:52.062 --> 00:12:54.023 - Thank you. And thank you for the partnership. 00:12:54.023 --> 00:12:54.815 - Thank you.