Sprinting Into a Death Spiral: Sprint Nextel Announces Layoffs

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Last week, Sprint Nextel announced plans to cut up to 2,500 jobs in an effort to - once again - reduce costs. This is the third round of layoffs since early-2008, when the company announced job cuts of 4,000 (they also eliminated 8,000 jobs in January, 2009). Employees who manage to survive this latest round of layoffs are probably thinking that it's only a matter of time before the next one occurs.

In 2008, Sprint lost 4.6 million subscribers. During the same period, AT&T and Verizon added 7 million and 5.8 million, respectively. Sprint also reported a $4.2 billion loss for the year. I'm thinking that addressing the problems at the company are going to require much more than cost cutting to resolve.

Remember that this is the company that, in 2007, made the much publicized decision to drop customers who make too many calls to customer service for help. Whether or not this decision made sense from a financial perspective, it did a lot of damage to the company's reputation for customer service.

According to their website, Sprint's mission statement is: To be No. 1 in providing a simple, instant, enriching and productive customer experience. Judging by the number of subscribers lost last year, I'm guessing that their customers do not think they are achieving their purpose.

The company needs to get back to the basics and focus on the customer instead of just costs. This means reflecting on its purpose and openly and honestly debating what it means to the company. Do they truly believe in it? Does the leadership team in place feel they can achieve it? If not, there is little chance of getting anyone else to believe in it either. Many companies, especially during the recession, have acted as if their purpose is to cut costs instead of provide value for their customers.

Once it is clear that the leadership team absolutely believes in the purpose and feels confident that it can be achieved, they need to identify the barriers that are preventing the company from being number one and start aggressively attacking them. This will require creating initiatives in critical areas like product & service offering, market development, process improvement, or people development. Chances are, there will be some pretty daunting barriers to overcome, but they need to be addressed for the company to become competitive again.

Ignoring the barriers is not an option - neither is continuing to focus on cost cutting. The company shrinks in size and the culture is damaged with each round of cuts and eventually there will be nothing left to cut without completely shutting down the company . . . which is definitely not the way to become number one.

GM Product Development & Efficient Cars

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GM Fallout?

BusinessWeek reported in its February 23 issue that Bob Lutz, the “legendary” product chief at General Motors will resign at the end of 2009. The report states that, “The thought of designing cars to meet Washington’s fuel economy rules – as opposed to consumer tastes,” drove him to retire.

This article once again reminded me one of the key reasons GM continues to suffer. The exercise about going to Congress to ask for billions in taxpayer aid and the scrutiny they have had to undergo throughout the process has seemingly not increased their humility one bit. They have lost the auto industry’s number one spot – a position they have held since 1931 – to Toyota (and appear primed to lose the number two spot to Honda in the not-to-distant future), and have apparently not learned anything through the process.

Maybe it’s me, but I fail to see how GM has been designing cars to “meet consumer tastes,” over the last several years anyway. If they had, they would not have lost the top spot to Toyota. And to think that it is only Washington – and not the consumer – who cares about higher fuel economy, shows the culture of hiding your head in the sand continues.

Besides higher quality, better fuel economy, lower costs, innovative production techniques, and a happier workforce, Toyota’s cars are more exciting than GM. And when I visited the Detroit-area last October, the high number of Toyotas and Hondas told me that Detroiters now feel the same way. When I think of “cool” cars for different age groups, I think of the Accord, Civic, Lexus, Prius, BMW 3-Series, Mini Cooper, Scion, and a few others, but can’t seem to recall any GM cars that fall into that group.

So, as GM moves into a new era of product design, they have got to increase the cool factor of their cars. Oh, and while doing that, it wouldn’t hurt to also work on the quality, reliability, cost, and fuel economy.

On another subject . . .

Does the Government Really Want Electric or Hybrid Cars?

Like many Americans over the last several years, I could not understand the seemingly complete lack of interest that the government has in assuring the success of hybrids or fully electric cars in the U.S. The Bush administration gave token tax breaks to purchasers of hybrids a few years back, but it didn’t make sense why the incentive was limited to only a small number of people who first purchase the cars.

The reason has recently become clear to me – and it will be tested as we watch how committed the Obama administration is to the development of high mileage or combustion-free automobiles.

The U.S. and state governments collect a great deal of tax revenue on sales of gasoline ($0.47/gallon for gasoline and $0.536/gallon for diesel). If we move away from gasoline engines to non-combustible engines, this huge source of revenue will dry up. Determining what will replace the fuel tax is destined to be a hotly debated and highly charged political issue – and probably one that politicians are not ready to tackle given the current state of mind of Americans.