Carlo Ancelotti has pledged to secure Chelsea's first European Cup after finally being confirmed as the club's new manager, with the importance placed by Roman Abramovich on success in the Champions League demonstrated by the £1m bonus the Italian would earn should he break the Londoners' duck in the competition.

The 49-year-old, who left Milan by mutual consent on Sunday after eight years at San Siro, has signed a three-year contract at Stamford Bridge worth a basic £6.5m a year and will set about creating a squad who "work together to build a dream" over the next few months. He is likely to be accompanied to England by his assistant coach with the Rossoneri, the English-speaking Filippo Galli, with negotiations ongoing, and will benefit from considerable transfer funds made available by Abramovich.

Ancelotti would like to bring one of his most trusted playmakers at Milan, Andrea Pirlo, with him, though it remains to be seen whether Chelsea can prise the Italy international away for a price considered reasonable for a 30-year-old midfielder. Certainly, the initial £20m valuation is too steep. The Milan general manager, ­Adriano Galliani, claimed he would also resist any attempts by the Londoners to tempt Kaka away, though the likes of Franck Ribéry and David Villa, of Bayern Munich and Valencia respectively, could yet join CSKA Moscow's Yuri Zhirkov at Chelsea next season with the onus very much on Ancelotti to mount a title challenge and secure the European Cup.

"For me the Champions League is a beautiful sensation because, when I played, I won it twice – in 1989 and 1990 – and those were fantastic moments," the new manager said. "It was the same when I was a coach at Milan, when we won it in 2003 and 2007. The Champions League, for me, is the best competition in the world and we all want to win it. Chelsea has a great record, with five semi-finals in six years, and that is a beautiful record. But now we have to win. I hope this will happen.

"I like to be close with the players, I like to be close with the company [the club], and I like to speak with people. I believe in teamwork. It's the most important thing, to create a group that work together to build a dream. The players and the company have to have a strong organisation, to have a very strong discipline, to have the right motivation. I hope to do this together because this is the right way to arrive to success."

His approach proved successful with the Rossoneri, particularly in European competition, and he inherits a side who claimed the FA Cup during Guus Hiddink's brief if resurgent spell in charge. Yet the captain, John Terry, was still moved to send an open letter to supporters last night reiterating that the club's final league position was unsatisfactory. "He [Hiddink] came at a difficult time when things looked like they were slipping away from us, so to lead us to an FA Cup final and within a whisker of the Champions League final is a great achievement," wrote Terry. "That said, third place in the league isn't good enough for Chelsea anymore. It's our worst finish since Mr Abramovich bought the club and we all know we need to do better."

There is an eagerness within the Chelsea squad to work with the new ­manager, whose first game in charge will be a friendly against the Seattle Sounders on the club's pre-season tour of the United States on 18 July. Intriguingly, he will then play Internazionale – coached by Chelsea's former manager, Jose Mourinho – in Pasadena and his former club, Milan, in Baltimore. He is hopeful his English will be more proficient by then, despite a relatively impressive performance on his first televised interview with the club's website, filmed in Italy.

"I want to learn and improve," added Ancelotti on his English, aware that previous incumbents Claudio Ranieri and Luiz Felipe Scolari had struggled at times with the language barrier. "I have the time to do that. When we start the season I will speak well because it's important for me to speak with the players, the team, the assistants and all the operators who will work with me. I had eight great years at Milan, but this is the right moment for a new challenge, and I want to put all my energy into Chelsea. This is a great opportunity, a great team, and a new experience.

"I want to bring my experience, I want to bring my individual quality. I think to win is important, and to work together is the most important thing to win. You need great motivation and have to have the right objective. But in Chelsea it's easy to find objectives: to win the Champions League, win the Premier League, win the FA Cup, win the Carling Cup. To win all is naturally not easy, but the right way is to create a group of people that work well together."