IOE 522 Integrative Report

Sprint Nextel Merger

Analyzed Using
Organizational Metaphors

Prepared for Prof. Jeffrey Liker and GSI Murray Pyle

Prepared by Andry Haryanto, future Sprint Operations Analyst

April 12, 2008

Sprint Nextel Merger History

Sprint is a US wireless carrier based in Overland Park, Kansas. In December 2004, it an-

nounced its plan to acquire Nextel Communications to create the third-largest wireless

provider in the US, behind AT&T and Verizon. The deal was completed in August 2005.

Sweet marriage proposal

On paper, the merger seemed like a good combination. Sprint was building reputation as a

leader in developing content for the consumer market. Meanwhile, Nextel was selling its

press-to-talk feature to gain loyalty from construction crews, taxi companies, and other

similar businesses. Their disparate yet complimentary assets could have provided a high

potential of value creation. Sprint, which traditionally provided long-distance and local

phone connection, was turning its focus to consumer wireless services and wanted to in-

corporate Nextel's strategy into its business model. Nextel, which was close to maxing out

its network and clientele of business users, would gain access to Sprint's larger customer

base. [1]

IOE 522 - Sprint Nextel Merger Viewed Through Organizational Metaphors 1

Bitter honeymoon

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 fled the company frus-

trated by the customer service quality. [1]

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, finally

waved the proverbial white flag 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 cus-

tomer service, an effort that proved too little, too late. [2]

Failure to integrate two cultures

A blend of two contrasting corporate cultures resulted in conflicts in almost every aspect of

Sprint Nextel's business, severely hurting its chances to reap the benefits 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 fired up the crowd with a pep-rally-

style 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. [3]

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, entrepre-

neurial style that spurred its early growth has been stamped out by Sprint's more bureau-

cratic 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 su-

periors’ 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. [3]

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.

[4] 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 Re-

ston, while maintaining Overland Park as operations headquarter. One employee observed

that there was a period when corporate jets would fly at least once a day between the two

corners. Nextel employees also loathed Sprint's mansion-like, high-maintenance head-

quarter, calling it "Overhead Park." In early 2008, the company announced to relocate the

headquarter to Overland Park. [3]

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 difficult, 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 improv-

ing the customer experience. [4] 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.

IOE 522 - Sprint Nextel Merger Viewed Through Organizational Metaphors 5

Analysis

How to read the Analysis Section

The analysis in this paper would come straight from the point of view of a consultant or

manager hired to improve the dire situation at Sprint. We will turn the clock back to a few

months after the completion of the merger. We will then analyze the phenomena from an

organizational theory perspective and define what we could have done differently. Consid-

ering that the damage has been done at Sprint Nextel, we will also offer some insights that

would be useful in the turnaround moving forward.

The author did his best effort to group the analysis according to the dominant metaphor

used in a particular section. However, the interlocking relationships between the meta-

phors are inevitable. Concept sharing and term exchange especially occur between culture

and political metaphors.

IOE 522 - Sprint Nextel Merger Viewed Through Organizational Metaphors 6

Organismic Metaphor

Falling from the high equilibrium point

Both Sprint and Nextel were at their maximum equilibrium points prior to the merger, indi-

cated by their solid performances. During the late 1990s and early 2000s, Sprint had been

repeatedly rated first in wireless-industry customer service studies by J.D. Powers. Nextel

was extremely loved by their customers. The blockbuster merger and credit crunch in

2007-2008 severely disturbed the equilibrium. The 100-year-old company has to evolve

once again to reach a new equilibrium. Our manager-consultant now should start asking

questions. What is the ideal path of evolution? What does the new equilibrium going to

look like? What hurdles might be encountered along the way? How to overcome the hur-

dles?

Learning to see

Coming to a new organization, we should gather information and create a profile of refer-

ence to understand its dynamics better. The contingency theory could help us build a

comprehensive profile of the two organizations before the merger and demonstrate how

compatible they were. The profile will also generate an insight how the organization fits its

environment.

IOE 522 - Sprint Nextel Merger Viewed Through Organizational Metaphors 7

The detailed description of Sprint Nextel at the beginning is briefly summarized in Figure 1.

The organizational profile showed that Sprint and Nextel were compatible in their comple-

mentary assets, customers, and strategy. While their strategy in proactive learning was

closely similar, their management approach and culture were as different as their incom-

patible technology. The inherent incongruences in these two organizations were symptoms

for serious problems to come.

Figure 1. Contingency theory to map Sprint and Nextel’s former characteristics

Profile of Organizational Characteristics

SUBSYSTEMS

Environment Stable S Turbulent

N

Strategy Defensive S Proactive

N Collaborative

Technology CDMA S iDEN

N

Culture Buttoned- S Entrepreneurial

down N

Structural Mechanistic S Organic

Bureaucratic N

Managerial Authoritarian S Democratic

N

S (Sprint) and Nextel (N) only congruent on

their market and customer base (external factors)

A quick look at Figure 1 reveals, theoretically, the suitable approach for the new organiza-

tion. Nextel's organic and entrepreneurial approach was suitable to survive in a turbulent

market environment. Analysis of the history showed that Nextel was being mechanized af-

ter was taken under Sprint’s wings. While Sprint's authoritarian managerial approach could

IOE 522 - Sprint Nextel Merger Viewed Through Organizational Metaphors 8

provide operational efficiency, the democratic system at Nextel would help the combined

company achieve synergy and avoid conflicts along the way. Both companies's proactive

strategies could be used as a glue to bind them together during the transition process.

Failure to sense external environment

Critics of Sprint Nextel also mentioned that the integration problem was exacerbated by

the company’s was trying to juggle so many initiatives at once. It was creating grandiose

visionary initiatives that are difficult to implement. [5] While Sprint and Nextel had been able

to transform their innovative product-offerings to big successes in the past, current failures

signaled that Sprint Nextel did not listen to the market this time. Apart from the products,

deteriorating customer service problem was not taken seriously until Business Week gave

Sprint a wake-up call by placing Sprint on the last place in its customer service annual

ranking. [6] The Open-Systems theory suggested that a company, like an organism, should

be able to analyze the situation in its external environment and adjust its action to achieve

the optimal result. The feedback system informs the company whether or not it has been

successful in satisfying stakeholders’s needs in the external environment. In Sprint Nextel’s

case, its past successes might have made them close its ears and shut its eyes, resulting

in a serious atrophy.

IOE 522 - Sprint Nextel Merger Viewed Through Organizational Metaphors 9

Culture Metaphor

Symbols are not enough for cultural integration

Seeing through the culture lens, one would realize that Nextel's entrepreneurial culture was

underpinned by the bureaucratic culture that was already in place at Sprint. Conflicts arose

because each party subconsciously invoked its spontaneous reaction that was sharply dif-

ferent from the other side's. The corporate effort to integrate the two cultures could be ob-

served in the heavy use of symbolism. The combined company's new logo displayed

Sprint's logo with Nextel's yellow and black colour. Shortly after the merger, the company

distributed 40,000 new employee uniforms, 16,000 new nametags, and more than 100

million brochures displaying optimism of the merger, "Yes you can." [7] Cultural integration,

however, has to be taken beyond the artifacts, namely principles and underlying assump-

tions. There has to be synergy in the mindset; this is precisely where the merger failed.

Discovering the origin of Sprint and Nextel’s culture

Why does Sprint seem to be perceived as slow in dynamics and disconnected from its

customer opinion? Consider how the geographic culture could affect company culture.

Sprint's largest operation is headquartered in Overland Park, KS, a midwest area often

ridiculed as fly-over county. The area surely offers high quality of life and human capital.

However, the people there form a close knit-community where everyone knows each other.

IOE 522 - Sprint Nextel Merger Viewed Through Organizational Metaphors 10

This behavior tends to distance them from the external environment. This is a unique phe-

nomenon observed whenever a large company chooses a rural area as its headquarter.

The inhabitants tend to develop their own small culture and isolate themselves from the

outside world.

Similar situations occur at Dow Chemical's home in Midland, MI, and Eastman Kodak's in

Rochester, NY. There is a good chance that this self-centered behaviour is subconsciously

translated into the corporation residing in such places. A case in point is Eastman Kodak

missing the boat in the digital camera market, despite being the inventor of the technology.

[8] This analogy might help in explaining Sprint's failure to listen to the market.

The entrepreneurial and startup-like culture at Nextel stemmed from its bitter experience of

being the slow giant. During the technology bubble in mid 1990s, Nextel was in a crisis

comparable to Sprint Nextel's current situation. Then came the (former) CEO Tim Donahue

who turned Nextel around with his philosophy "Be first, be different" that would be contin-

ued at Nextel for the coming years. The strength of the startup culture at Nextel became

more apparent when Donahue was named 2003 Entrepreneur of the Year by Ernst and

Young. [9]

IOE 522 - Sprint Nextel Merger Viewed Through Organizational Metaphors 11

Then came Sprint from the other side of the spectrum. Growing as one of the largest cor-

porations in the United States, Sprint took a bureaucratic approach to get organized. The

organization was highly mechanized, rigid, and bureaucratic. The combination of a rebel-

lious entrepreneur and a political giant was a recipe for disaster.

Nextel too big and too different to digest

"How come transition could run smoothly when small startups were bought by, for exam-

ple, Microsoft?" you might ask. That was exactly the problem. Nextel was too big and too

different to digest for Sprint. Small startups could easily be assimilated into Microsoft be-

cause they are much smaller. In our case, Sprint Nextel was a merger between two equals.

With Sprint being the slightly larger acquisitor, the mechanistic culture would potentially

dominate. However, Nextel's entrepreneurial culture would not relent so easily due to their

similar sizes. The situation at the bureaucratic Sprint can be portrayed as having an entre-

preneurial subculture called Nextel that grew overnight. This new subculture sharply con-

flicted with Sprint's main ideology.

Political Metaphor

Power play at Sprint Nextel cannot be understated since it is essential to explain the dy-

namics during the integration process. The culture metaphor has shown that Nextel is be-

IOE 522 - Sprint Nextel Merger Viewed Through Organizational Metaphors 12

ing politicized by Sprint's prevalent bureaucracy. As the new culture was being rebuilt,

various parties would exercise their political power to get things done, alter the shape of

the new organization, and securing employment.

Sprint’s bureaucratic model was winning

How are the politics at the new company? At Sprint, the top-down and number-driven

management approach showed a strong indication of a bureaucracy-autocracy model.

This model strongly conflicted with Nextel's startup culture that was showing a strong sign

of technology and codetermination. Sprint had an advantage over Nextel due to its role as

acquisitor, giving it more authority to define the rules and alter the decision premises. The

following pieces of evidence would clearly indicate that the new company was adopting

Sprint's approach. First, Sprint Nextel's customer care was managed in Sprint's mecha-

nistic and number-driven ways, deteriorating service quality and frustrating both employees

and customers. Second, the entrepreneur and former Nextel CEO, Tim Donahue, left the

company shortly after the merger.

Dual headquarters creating separation of boundary

The company's decision to maintain dual headquarters was originally intended to prevent

rooting up families from their hometown in both cities. Executives, together with a majority

IOE 522 - Sprint Nextel Merger Viewed Through Organizational Metaphors 13

of Nextel folks, in Virginia, were separated with their operations base in Kansas. This cre-

ated a boundary separation between the executives and the execution. The decision was

risky because of two reasons. First, it set executives far away from daily operations, which

in turn might alter their view of reality, leave them prone to distortion of information, and

reduce their ability to perform genchi genbutsu (“go and see for yourself”). Second, the

physical separation might have widened the cultural divide between Sprint in Kansas and

Nextel in Virginia.

Symbolism as manipulation tool

Sprint was also clever in using symbolism and manipulation to gain dominance. Although

the new company was officially named Sprint Nextel, the logo only displayed "Sprint" while

Nextel was only contributing the black and yellow colours. Instead of displaying Sprint as

an equal with Nextel (i.e. Sprint Nextel) they showed their early slogans as "Sprint, together

with Nextel.” (See Figure 2) One might argue that this is an effort to maintain brand value

and loyalty, but the underlying purpose could be interpreted differently.

Figure 2. The evolution of Sprint and Nextel logo

IOE 522 - Sprint Nextel Merger Viewed Through Organizational Metaphors 14

Job reduction creating conflicts and mistrust

Constant job reduction exacerbated the problem of cultural integration. After the merger,

Sprint Nextel allowed employees in “redundant” positions to reapply and compete for their

jobs. Anecdotal evidence from "The Office" perhaps reflected the actual condition that dur-

ing corporate downsizing, employees form coalitions and exercise political power by any

means to secure their jobs. The result? Stronger politicalization, increase hostility, mistrust

between employees, and more conflict. It is also important to remember the bitterness and

loss of productivity by the employees left behind.

Political Metaphor

Trapped in each others’ psychic prison

The psychic prison metaphor is useful in explaining why and how these two divisions of

Sprint Nextel are trapped within their way of thinking. When faced with the challenge to

make the mergers work, it was only natural for Sprint and Nextel to follow the frameworks

embedded in their inherited cultures, which have become spontaneous reactions. Nextel's

entrepreneurial approach suggested that they move more aggressively. On the contrary,

Sprint people, comfortable with bureaucracy, favored on imposing more bureaucracy in the

system, widening the divide between the two factions.

IOE 522 - Sprint Nextel Merger Viewed Through Organizational Metaphors 15

Leveraging commonality of purpose to bridge the gap

If there is anything complementary between the two cultures, it is their drive for innovation.

Sprint and Nextel are always committing to be at the leading edge of innovation for their

customers. Among all the integration chaos, the two sides in the combined company

should leverage this commonality of purpose. It would provide a long-term focus and

minimize conflicts while they are breaking from their Plato's caves.

Past victories leading to current downfall

This section is closely related to the organismic metaphor. These companies had been his-

torically successful in providing what customers want by predicting the trend and creating

products their customers wanted. As customers became more cost- and service-

conscious, and technology unpredictably shifting, the company continued to produce

grandiose innovations that did not satisfy the market. It failed to listen to the customer and

lost at least 2% of its customers to competitors every month. Add to that unsuccessful

product developments and venture investments in new technologies, and the picture gets

even darker. Just like Icarus’s flight to the sun, Sprint's past success and familiar way of

thinking led to its downfall.

IOE 522 - Sprint Nextel Merger Viewed Through Organizational Metaphors 16

Insights and Recommendations

This chapter summarizes the insights derived from viewing the organizations through dif-

ferent metaphors, lays out what they could have done, and answers the ultimate question,

“What should Sprint Nextel do next?”

Test the water before jumping in

The combination of Sprint and Nextel began with a lucrative marriage proposal and quickly

followed with a bitter honeymoon. The integration could have been easier if it wasn’t for

Nextel’s equally-large size and contrasting culture, making it difficult for Sprint to digest.

Sprint and Nextel used to be fierce competitors in the wireless industry. It was not surpris-

ing that it would be rather difficult for people from both organizations to work together due

to unfamiliarity and a lack of trust. Before the two companies even started flirting, they

should have tried to get to know each other first. Sprint and Nextel could have formed a

strategic partnership (i.e. small-scale merger) before the merger to test how well their per-

sonnel could work together.

IOE 522 - Sprint Nextel Merger Viewed Through Organizational Metaphors 17

Early warning and sacrifice for long-term success

Looking back, Nextel was too lucrative to pass up for Sprint. When they started the deal,

both companies should have educated themselves well about each other’s personalities.

Then, they should have given their employees an early warning [9] about what kind of

situation (e.g. downsizing) might occur and what kind of people (e.g. cautious Sprint folks)

they might encounter. Instead of trying to please both parties by keeping a dual culture

and headquarters, it could have been better off by making some bitter sacrifices that

would set a foundation for long-term success. The decision to relocate to Kansas, for ex-

ample, should have been taken much sooner to ensure the executives are within close

reach of their adjutants and close the gap between Sprint and Nextel folks.

Increase awareness of subconscious behaviours

Subconscious decisions and actions that exacerbated the divide might have been taken

by both Sprint and Nextel folks. Human Resources should have been aware of this poten-

tial problem and increased the awareness of the employees to help employees climb out of

their psychic prisons. When conflict occurs, they should stress the commonality of their

purpose and ideology to suppress the conflicts. Perhaps a handbook called “How you

IOE 522 - Sprint Nextel Merger Viewed Through Organizational Metaphors 18

should deal with your Sprint or Nextel mates” would have been a good idea to educate the

employees when the merger started.

A lesson in humility: learning to see and listen

Now that the merger has finished, the problem remaining is Sprint Nextel’s poor perform-

ance. We could not be sure if its Icarus syndrome had been solved. According to an em-

ployee, even though customers had repeatedly pointed out of its customer service prob-

lem, it barely surfaced during executive meeting. It took a last-place finish in Business

Week’s Customer Service Ranking to give Sprint a wake-up call. Add flailing ventures, fail-

ing new technologies, and rejecting the iPhone that many experts considered a losing

move.

Sprint should learn to listen to its customers, especially when they call customer service.

This strategy is especially important since Sprint is dwelling in an unstable, complex envi-

ronment. Just like Icarus, Sprint could reap a lot of benefits from showing a little humility to

avoid further humiliation. Start with eyes wide open, listen to customer needs, and then

accordingly align strategy and technology to evolve together with the environment.

IOE 522 - Sprint Nextel Merger Viewed Through Organizational Metaphors 19

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IOE 522 - Sprint Nextel Merger Viewed Through Organizational Metaphors 20