Since the completion of the 35-billion-dollar deal in August 2005, Sprint Nextel has faced a multitude of problems. The blockbuster merger incurred great expenses and integration problems. To make matters worse, Sprint Nextel was facing technology problems, strong competitors, and cost-conscious consumers. Many customers ? ed the company frustrated by the customer service quality. The signs of failure were becoming apparent at Sprint Nextel. Revenue per customer kept declining while the stock price plunged more than 30% in October 2007 compared to 2004.
In that same month, Gary Forsee, former CEO and architect of the merger, ? nally waved the proverbial white ? ag and resigned from the company. Sprint laid off about 8% of its 60, 000-strong workforce. Management announced a plan to invest $8. 5 billion into customer service, an effort that proved too little, too late. Failure to integrate two cultures A blend of two contrasting corporate cultures resulted in con? icts in almost every aspect of Sprint Nextel’s business, severely hurting its chances to reap the bene? ts of the merger.
IOE 522 – Sprint Nextel Merger Viewed Through Organizational Metaphors 2 The mismatch was apparent everywhere. In a Nextel manager meeting commemorating the ‘success’ of the merger, Nextel CEO Tim Donahue ? red up the crowd with a pep-rallystyle speech, wearing casual sweater vest and khakis. Tim then introduced Gary Forsee, who walked to the stage wearing a suit and proceeded with his PowerPoint presentation, shocking the audience and turning the room into a dead silence. It did not take long for the tension to trickle down the employee ranks.
There was a sense of mistrust on both sides. Some Nextel employees said they feel the aggressive, entrepreneurial style that spurred its early growth has been stamped out by Sprint’s more bureaucratic approach. Some of the Sprint folks say they feel deceived by Nextel’s deteriorating network, the source of the company’s deepest customer losses. Whenever problems arose, Nextel employees typically proposed acting quickly, but suddenly became frustrated when their idea was shot down by the Sprint counterparts because they required their superiors’ agreement before continuing with a plan.
Such events left both parties frustrated: Nextel people were shocked by Sprint’s unresponsiveness, while Sprint people viewed Nextel as hasty and reckless. The customer-centric culture at Nextel was also falling apart with Sprint’s arrival. Nextel employees used to have a high level of freedom to offer perks to keep customers loyal. IOE 522 – Sprint Nextel Merger Viewed Through Organizational Metaphors 3 Sprint’s number-driven management had demolished the customer-centric and proactive culture, leading to poor morale and creating a hostile atmosphere, thus the poor service. Such an approach might have been necessary to handle the complexity as a result of combining the two giants. The decision to maintain dual headquarters in Reston, VA, and Overland Park, KS, only exacerbated the problem. The executives would work from Nextel’s former home in Reston, while maintaining Overland Park as operations headquarter. One employee observed that there was a period when corporate jets would ? y at least once a day between the two corners.
Nextel employees also loathed Sprint’s mansion-like, high-maintenance headquarter, calling it ” Overhead Park. ” In early 2008, the company announced to relocate the headquarter to Overland Park. New CEO Hesse’s hasty turnaround plan In December 2007, Daniel Hesse was put on the hot seat as Sprint Nextel’s new CEO. He previously led Sprint’s subsidiary, Embarq, and was a leader grown within Sprint. Two months into the job, he announced that turning around the company and making mergers work would be a dif? cult, painful, and long journey.
The company suffered a $30-billion write-down for the $35-billion merger, leaving only 15% of the original value of the merger. IOE 522 – Sprint Nextel Merger Viewed Through Organizational Metaphors 4 Competitive pressure, weakening macroeconomic condition, and the global credit crunch only added insult to the injury. Hesse said that his turnaround plan would focus on improving the customer experience. In such a commoditized business, at least Hesse has made the correct focus to improve the quality instead of continuing to focus too much on productivity and sales growth.