UPDATE 1-New CEO of Deutsche Telekom's IT arm gives himself 1-2 years for turnaround


* T-Systems CEO: We have 12-24 months to get back on track

* Aim to return to top-line growth, positive cash flow-CEO

* Launches new Digital Solutions operation

* Has restructured sales into unified team

* To hire thousands in India, stay big employer in Germany

FRANKFURT, March 16 (Reuters) - The new CEO of Germany's T-Systems, the struggling IT services arm of Deutsche Telekom , is a man in a hurry, giving himself just 1-2 years to change the business's fortunes.

Since taking over on Jan. 1, American Adel Al-Saleh has already restructured the sales team and is creating a digital unit at the 7 billion euro ($8.6 billion) company to help clients better utilize cloud services, run networks of connected devices and optimize data security.

And more is coming, as he examines which legacy businesses to keep, sell or run down, and works on building an offshore operation in India.

"The company needs to change quickly," Al-Saleh told Reuters in his first interview since taking on the job. Asked how long he had to achieve the task, he said: "Twelve to 24 months."

T-Systems has for years been the problem child of Europe's largest telecoms group, which like rivals BT and Orange has struggled to find a way to revive an old-style IT outsourcing model that relies too heavily on big clients.

Its top line is shrinking, margins are under pressure and it is leaking cash. Deutsche Telekom recently wrote off 1.2 billion euros against the business after the loss of key accounts - including German steelmaker ThyssenKrupp.

Al-Saleh, 54, has also joined the Telekom executive board, becoming the latest boss to add an international flavor to a group still more than 30 percent owned by the German state. Its biggest mobile unit, T-Mobile US, is run by American John Legere, while Indian-born Briton Srini Gopalan heads European operations.

The former IBM executive has a track record of turnarounds, including at Britain's Northgate Information Solutions, where he was brought in by private-equity investor KKR.

In T-Systems, he finds an IT services business with typical German virtues - such as strong engineering and a product-centric approach - that in an era of digital disruption and the shift to cloud computing have become weaknesses.


A lack of intensity in the sales effort raised an immediate red flag with Al-Saleh, who has combined his initial fact-finding mission with a series of video blogs to try to re-energize his workforce of nearly 38,000.

"Today our sales teams have less than 10 percent customer face time - and that is a problem," he said, adding the industry standard of 25-30 percent "is where you need to be."

Al-Saleh has consolidated the sales operation under four leaders - for Germany, Public Sector, Automotive and Manufacturing, and International Markets - focusing on product lines instead of key accounts to better see where the business is making money.

At the same time he is hooking up the sales force to an online collaboration tool, and streamlining approvals to make it easier to close deals quickly.

Al-Saleh is also examining which legacy businesses should be run down or sold, and which can be kept going, while seeking out opportunities that can return the top line to growth.

On-premise hosting, which contributes nearly a tenth of revenues, is one area that Al-Saleh said would become a "headwind" as companies increasingly shift to so-called software as a service (SaaS) supported by cloud servers.

He has, meanwhile, just formed a new Digital Solutions unit that brings together 4,000 staff from across the business to help firms in Germany and Europe to digitize.

An internal announcement seen by Reuters estimated the market opportunity at 40 billion euros, with an annual growth rate of 20 percent, that T-Systems could cater to with its services spanning networks, the cloud, the 'Internet of Things', security, consulting and systems integration.

A complex management structure represents another challenge that Al-Saleh will address by taking out layers, retraining staff and building an offshore operation in India to complement its 'nearshore' presence in Slovakia and Hungary.

"We do need to have several thousand people in India that we do not have today. It also gives you access to talent that is different to what you have on mainland Europe today," said Al-Saleh.

It was premature to talk about possible job cuts, he said, adding he would work closely with labor representatives.

"We are a very large employer in Germany and will remain a large employer in Germany," he said. "But we need to have a better mix than we have today."

($1 = 0.8122 euros) (Reporting by Douglas Busvine Editing by Mark Potter)