Sprinting Into a Death Spiral: Sprint Nextel Announces Layoffs

Tweet

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.

Culture: The Critical M&A Element

Tweet

As we make our way to the other side of the economic downturn and confidence in the future increases, M&A activity will most likely return as a common fixture in the world of business. As this occurs, people involved in the process will make decisions like they always have, by evaluating deals in terms of market capitalization, cash flow, EBITDA, goodwill, etc. Unfortunately, many will ignore a critical element that can ultimately make or break the merger: culture.

Studies continue to show that a vast majority of mergers fail to ever achieve intended results. The intensity associated with the traditional due diligence process pretty well assures that the reason for failure does not lie in the financial analysis. Since culture is considered a subjective element, many people think it can't be effectively assessed. Whether assessed or not, though, cultural issues will appear after the deal is done, often resulting in excessive costs and stress that can greatly lengthen the time it takes for the merger to produce results - if not kill it altogether.

In my experience, I have found the cultural elements that interfere with a successful merger consist of the following:

• Misaligned values between the acquirer and acquiree;
• Misunderstood purpose of the new/larger enterprise;
• Poor communication with team members of the acquired company;
• Fear throughout the organization.
  

As a consultant, I spend a lot of time with companies helping to sort out problems encountered after an acquisition occurs. Too often, investors discover well after the merger takes place that there is ab enormous mismatch in culture between the acquiring company and the acquired company. And the longer these problems are allowed to continue, the more damage that is done to the organization as a whole.

What to Do

An organization, by definition, is a group of people who work together for a shared purpose in a continuing way. Along this line, a due diligence process is not diligent if it does not include a cultural assessment. Although there will never be a perfect match, an upfront cultural assessment will at least provide a picture of the issues to be faced after the merger takes place.

A cultural assessment consists of observation and a series of interviews with people at all levels of the organization to address the following topics:

• Values: Determine the values that exist within the target company (or whether a consistent set of values actually does exist). The objective is to understand how aligned the values are with the acquiring company and where problems may occur;
  
  
• Fear: Assess the level and causes of fear within the company. Fear will obviously exist in any organization that is being acquired, but the key is to discover whether it is a fundamental part of the organization's culture;
  
  
• Leadership Style: Ascertain whether the target company's leaders use a command and control or participative style of management. This will be important after the acquisition to give an idea of how much work will need to be done at the supervisor and management level;
  
  
• Teamwork: Understand the level of teamwork between people, departments, and facilities. If there are problems, it is important to understand what is interfering with people working together. Teamwork needs to be assessed at all levels within the organization;

As part of the cultural assessment process, it is also important to develop a plan to address the issues as quickly as possible after the acquisition. Cultural problems tend to grow exponentially - especially after a merger - and the longer the issues are allowed to continue, the greater the chance they will interfere with the performance of the new organization.

If a cultural assessment had not been performed before the merger, it is important to do one as quickly as possible afterward. Acquisitions generally consume an enormous amount of time and money, and the quicker the new organization begins performing as expected, the better for everyone involved. Unless the cultural issues are understood and corrected, however, the merger has no chance of living up to its potential.

The Case Against Goals

Tweet

For years, Western management has embraced the notion that setting goals and holding people accountable to achieving them is a vital component of effective leadership. According to a BusinessWeek article published last July, goal-setting is especially important during tough economic times like we're experiencing today.

In the midst of a decade in which the world of business is undergoing significant transformation, however, I wonder why leaders still hold tightly to the traditional goal-setting process, even though it continually causes more harm than good.

Among the problems caused by assigning goals to people and tying rewards to success (and punishments to failure), include the following:

1. Goals set for individuals often conflict with one another. As a result, goals are not consistent throughout the organization. Even though many of these goals may be met, there is little, if any, improvement in performance of the organization;
   
   
2. Holding people accountable or tying bonuses to the achievement of goals results in "safe" goal-setting and mediocre results. People will resist committing to stretch goals if it means they could lose their jobs or bonuses if they fail. People will accept aggressive goals enthusiastically if they know their job or bonus does not depend on meeting them;
   
   
3. When money is involved, people will pretty much do whatever it takes to meet goals set for them. Whether or not their actions are in the best interests of the company is secondary;
   
   
4. Tying the achievement of a goal to a bonus can turn the best of team players into dictators or Lone Rangers. If you really want to transform someone into a micromanager, set a goal with a strict deadline and tie the result to a fairly large bonus.

Real World Examples

A plant manager for a small valve manufacturer was held accountable for the shipping budget and given a 10% bonus each quarter the budget was met. The budget was met every quarter during the year, but was accompanied by increases in returns, customer complaints, overtime costs, and employee turnover - all resulting from the increased pressure to ship products at the end of each quarter.

A procurement manager was given the goal of reducing the annual costs of rental equipment (the equipment was mostly used to support new gas production facilities). The operations managers, on the other hand, were given uptime goals for the facilities they managed and felt that they needed to keep the rented equipment for long periods of time after startup to handle any problems that occurred early in the process. The conflicting goals resulted in a breakdown of the teamwork between procurement and production because the achievement of the goal by one could only come at the expense of the other. Further, neither could afford to care about the other's ability to meet their goal.

A product manager was given a goal to grow the business for a certain material in Asia and South America, and was given a bonus when certain targets were hit. He met all targets during the year by lowering the price of the material, when necessary, to get orders. One of the new customers for the material was an Asian company that purchased the material at a significant discount. The VP of Procurement for a large European customer (a sister division of the Asian company) found out about the lower price and pulled the business from the supplier. As a result, the product manager got his bonus but at the expense of the European business unit's performance and the company's gross margin.

Enough Already

There are countless other examples with similar results as the above. The key is to get the entire team to focus on improvement objectives that benefit the company as a whole. In line with this, objectives should be set system wide (facility, division, company) rather than at the individual level. Also, specific targets really do not accomplish more than mediocrity when the real goal is to improve as much as possible.

Remember that it is the performance of the company - rather than the individual - that matters. Attempting to manage the company by breaking it down into components rather than focusing on the whole creates a host of problems and oversimplifies the role of a leader.

As Douglas Adams once wrote, "If you try and take a cat apart to see how it works, the first thing you have on your hands is a non-working cat." The same philosophy applies to organizations.

How Happy Are You?

Tweet

How happy are you? If you are an American, chances are you are not - or at least not as happy as you were 30 years ago. You're also not as happy as people in many other countries. There are actually several studies regarding happiness published around the world and most agree that Americans are generally not happy people. How can this be? After all, the term American Dream was coined to characterize the U.S. as a nation with limitless potential for a richer and better life than anywhere in the world.

We have the largest GDP of any country in the world; the dollar is generally accepted as the standard global currency (at least for now); we own 2.2 cars and 2.4 televisions sets per household; and we get pizza delivered to our door. Shouldn't all of this make us happy? Apparently not . . .

The surveys and studies on the subject attribute the lack of happiness in the U.S. to a variety of factors; many of them rooted in the workplace. According to the International Labour Organization, Americans work more hours per week and have less vacation time than those in many other industrialized nations. researchers at Siena University in Italy have surmised that this extra work time negatively impacts our social relationships - an important component of happiness. Working overtime and/or spending significant time in traffic commuting to and from work leaves little time for friends and family. In other words, our drive to succeed and stay on top has resulted in a lack of balance in our lives. People are social by nature, and a lack of interaction can lead to unhappiness and depression.

The Fear of Layoffs

Another factor contributing to the lack of happiness is increased stress in the workplace. The fear of layoffs is always present in American business (even during good economic times), which adds pressure from a lack of job security. Add to this a weak system of social programs for the unemployed and an extremely expensive healthcare system, and the result is a feeling that losing one's wealth is a very real possibility.

Workers in Europe are much more protected than American workers. Layoffs in continental Western Europe occur much less often than in the U.S. and when they do happen, require a fairly significant severance to be paid. In the U.S., these types of laws do not exist, and when severance is paid to fired workers, it is often very temporary and fairly insignificant (laws obviously differ from state to state).

To make matters worse, the current downturn has put additional pressure on those who were not laid off to demonstrate increased value in the workplace, leading to more hours and even less time for social relationships.

Remembering Maslow

Virtually every business school around the world includes a something about Maslow's hierarchy of needs in management classes. In general, Maslow theorized that people need to achieve their basic needs (physiological and safety/security) before moving up to the more satisfying needs (love/belonging, self-esteem, self-actualization). he referred to the basic needs as deficiency needs, because not achieving then can result in negative feelings (stress, depression, etc.), while satisfying them does not necessarily create positive feelings. In other words, as long as we are worried about losing our job or financial security, we will never be happy. This situation will also prevent us from striving for the higher level needs, which can lead to increased happiness.

Since we have all been educated on Maslow's theory, I can only assume that many American leaders either do not believe in it or do not see the value in having happy employees. If they did, they would stop the practices that keep people worrying about their jobs and financial security. I have actually worked a CEO who believed that the fear of losing one's job was an effective motivator. This CEO also told me that he was working to cut back on the vacation time the company offered to employees.

It's a Question of Balance

I don't feel we will ever be happy unless our culture undergoes a fundamental shift toward a better work-life balance. I also feel that unless we start valuing and focusing on increasing the level of happiness, U.S. businesses will continue to decline, eroding our standard of living in pure economic terms (leading to a further decline in happiness).

The cost of labor puts U.S. businesses at a distinct disadvantage when competing with companies that have overseas operations. We have seen hundreds of thousands of jobs move offshore for this very reason. How we can compete, however, is by continually improving the products and services we offer, and by finding more efficient methods with which to produce and deliver them. This requires a high level of innovation and motivation throughout our workforce because to succeed, everyone has to contribute ideas for improvement. People will not be creative or motivated to contribute ideas, however, when they are stressed overworked, and worried about their jobs.

Is GDP a Complete Indicator?

There has been a debate among economists regarding whether or not GDP is a sufficient indicator of a nation's success because it does not include a quality of life component. In terms of pure numbers from the IMF for 2008, the U.S. ranks number one in the world, accounting for roughly 24% of the world's GDP, and is almost triple that of Japan, which is ranked second on the list.

We have to ask ourselves, though, if being number one really means anything if we are not happy. Are we better off than The Netherlands, for example, which is ranked 16th in GDP but much higher in the happiness index than the U.S.?

I truly believe that if we don't improve our happiness in this country, it will eventually sink us. We have got to change our lifestyles, which includes improving the workplace, to enable us to become a happier nation.

Improving our level of happiness will be a long process, but we have got to start making it a priority before the situation deteriorates to the point of severely impacting our prosperity and our lives. The components of a plan to increase happiness must include, among other things, improving job security, making the workplace more enjoyable, and improving the work-life balance. We may never totally self-destruct economically because of the sheer size of the U.S. market, but that is no reason to ignore the situation.

I had a conversation with a Swedish citizen recently who, based on what he's witnessed in the news media, characterized Americans as "grumpy people." I have to admit that it was difficult to argue with him.

The Declaration of Independence states that the pursuit of happiness is an unalienable right. This does not mean, however, that it is guaranteed. That part is left up to us.

Fixing U.S. Healthcare

Tweet

How do we fix the U.S. healthcare system? It's an issue that has sparked a great deal of emotion and debate among people for a variety of reasons. Perhaps the most important reason is that healthcare is an issue affects virtually every American in one way or another. If you have health issues, you care about the quality, cost and availability of treatment. If you don't have any current health issues, you care about how much it will affect your taxes and insurance premiums.

Another interesting angle in this debate is that it covers all facets of the issue from how to fix the system to whether or not it even needs fixing.

What is "Fixing?"

First of all, I think the term "fixing" needs to be eliminated from the issue. Healthcare is such a large and complex system that it is crazy to think it can ever be "fixed" - especially within a four-year term of an elected official. The problems run so deep and have become so ingrained that even if they could be fixed, the actions would be so drastic that they would create a shock wave that could bring the entire system crashing down.

The system needs to be improved on a continual basis - with a large number of relatively small steps so the improvements can become standardized and actually stick. Following a continual improvement approach will also assure that actions implemented result in improving the system instead of making things worse.

Unfortunately, the U.S. government does not work this way. The legislative process tends to be an all or nothing endeavor, and revisiting an issue that was addressed in a prior session of congress is looked at by the media and much of the public as a failure. . . which brings up another problem.

Fixing the healthcare system cannot be done solely by the government. It must include all stakeholders, including doctors, hospitals, insurance companies, drug producers, and most importantly, the consumers. Unfortunately, this makes the problem exponentially more complex and difficult to resolve.

What Needs to Happen

There are several components to an improved U.S. healthcare system. It is important to note that these are long-term steps - not short-term fixes, but if we start focusing on these things now, we should begin to have noticeable improvement within the next 10-20 years. It is not necessarily the American way to think that far ahead and take steps that will not bring immediate benefit, but a problem like this requires a drastic shift in thinking and it will take time.

The items listed below address the what more than the how of healthcare reform. The reasons for this include the importance of agreeing on what needs to happen before taking action and making changes. Also, some of these thoughts require a fundamental shift in thinking that will not happen overnight or through legislation. Thirdly, I'm desperately trying to keep this article short, as it could easily turn into a 1000+ page legislative document.

1. Eliminate Waste in Healthcare Processes

This involves adopting a lean (i.e., waste reduction) strategy for all facets of healthcare in order to reduce waste in processes and systems across the industry. Hospitals, insurance companies, Medicare, drug companies, testing labs, and medical practices should all learn about lean and how to apply it within their operations. It is generally accepted that a process that has not been analyzed for inefficiencies can consist of 85%-90% waste.

2. Eliminate Duplication in Testing Procedures & Equipment

There is an unbelievable amount of duplication within the healthcare industry which is expensive and adds very little value to the patient. As an example, there is an overcapacity of expensive diagnostic equipment in many hospitals. For competitive or status/ego reasons, neighboring hospitals may each purchase new test equipment instead of sharing unused capacity. This creates a need to use and pay for tests that may not be absolutely necessary in order to prevent the equipment from sitting idle.

3. Accept and Adopt More Alternative Treatments

A fundamental shift in thinking is necessary in the medical community, the U.S. government, and the public toward adopting more alternative treatments for patients. Many other nations, including Germany, are leading the way in the research and application of alternative medical treatments that cost much less and tend to result in fewer side effects for patients. This also involves providing accurate statistical information on the effectiveness of the various treatments so the patient can decide which procedure to accept.

It is strange to me that we refer to things like massage, acupuncture, and herbal remedies as "alternative," since many have been in use for much longer than "traditional" treatments.

4. Shift Focus from Reactive to Preventive Healthcare

The U.S. healthcare system is oriented toward disease rather than health. If we are going to reduce the cost of healthcare in this country, we absolutely need to shift the focus toward maintaining health instead of merely reacting when problems occur. We are overweight, overstressed, out of shape, and eat poorly - all of which lead to a slow deterioration of our health and increased need for expensive treatments and drugs. Without a fundamental shift toward preventive healthcare - meaning better nutrition, more exercise, reducing stress, and improving our level of personal happiness, we have no chance of ever significantly reducing the cost of healthcare.

This involves much more than regular physicals - since physicals are, after all, more detective than preventive. It involves things like replacing our donuts and fries with whole grains and vegetables.

The human body is a complex system, and like any system, optimization requires maintaining balance among all components. This is counter to our current system of focusing only on treating disease. We change the oil in our cars to prevent damage to the engine from occurring, but fail to follow a similar approach with our own bodies.

Okay, Let's Hear It

Being a highly emotional subject, I fully expect to receive more comments on this blog than from anything I have posted in the past. That's okay because, as someone once wrote, the more we disagree, the more chance there is that at least one of us is right. If we are to improve things in this country, however, we need more constructive - rather than divisive - debate.

Saturn Crashes

Tweet

It was very disappointing to hear the news about Roger Penske pulling out of the deal to acquire GM's Saturn division. Of all American automakers, I believe Saturn had the best chance of transforming into the type of organization that could compete with Toyota, Honda, and Hyundai, and it's really too bad to watch it go down without a fight.

At one time, Saturn was a very interesting company. It started in the mid-1980s completely isolated from the poisonous culture of General Motors as a way for the company to compete with Toyota and Honda. They utilized a separate dealer network, built a new factory in Tennessee, and hired a completely new "non-auto industry" workforce. The division also focused on creating a positive customer experience - something for which GM has never been known.

It Should Have Worked

The idea was good; the implementation was mediocre; and the strategy over the last 15 or so years was extremely poor. At some point, the infinite wisdom of GM executives kicked in and interfered with the development of the company. GM management decided to virtually stop the division's development of new vehicles and bring it into the company's fold. As a result, Saturn lost any of the benefits it once had and entered a death spiral from which it had no chance of escaping. The interesting experiment quickly became the stepchild of the company, and was strategically lost among the other GM divisions.

My disappointment with the latest news is that I don't believe the bad habits that Saturn has most assuredly developed since being rolled into GM's culture have been around long enough to be ingrained into the Saturn culture. It probably would not take very long to move the company back to its roots and create the type of culture that is necessary to compete with other automakers.

To survive in today's market, an automaker must be able to quickly develop new models that people want to buy while improving quality and lowering costs on a continual basis. Given the decisions and actions over the last several years, however, I don't believe that this is possible at GM because there are just too many cultural barriers in the way. The people at Saturn should know what it's like to be a small, flexible company, though, and separating it from the mother ship would give it the opportunity to rebuild without the interference of GM management.

To succeed, Saturn would need to have a flat organization structure that is light on management and heavy on leadership, innovation, and teamwork. It is not rocket science, but is only possible if the people in charge have the vision of what a customer-focused, flexible organization looks like, and the attention span to stick with it through good times and bad. I don't think GM has such a vision - but I was hoping that the Penske Group did.

When I hear people within GM say that Saturn was never viable or necessary, I can't help but think about the parallels with Hyundai Motor Company. Originally created to build cars for Ford, company management decided in the 1970s to design and build their own cars. In the mid-1980s, the Excel became the company's first car sold in the U.S. - a small, fuel-efficient model that, to be honest, was very poor quality. But the company stuck to its vision and continually improved its product offering and quality and is now a serious competitor in the global market. This could have been Saturn had GM management been patient enough to not interfere.

Just Make It Quick

The senior leaders at GM have failed in their ultimate responsibility as stewards of the company. General Motors has a colorful and interesting history that has been a major part of Americana for more than 100 years. The company that employed hundreds of thousands of Americans (and affected exponentially more), and includes the likes of William Durant and Alfred Sloan, has steadily declined through arrogance, greed and poor decision-making. As a native of Detroit, the situation makes me very sad and very angry.

Company officials announced that, with the collapse of the Penske deal, Saturn will close its doors by October, 2010. As sad as the news is for the U.S. auto industry, a quick exit may actually be better than the type of slow, lingering death that Oldsmobile and Pontiac have experienced. As we look to the future, though, I have to wonder whether a similar fate awaits Chevrolet, Cadillac, GMC, and Buick.

The Fallacy of Across-the-Board Cuts

Tweet

One of the most commonly used practices by business leaders during a downturn is across-the-board budget cuts. Within the last year, a large number of public and private organizations announced comprehensive cuts in an effort to demonstrate action to address the drop in revenues. As a business tactic, however, across-the-board cuts demonstrate nothing more than an absence of imagination, a lack of control over the business, and an unwillingness to take the time to dig in and make the difficult decisions.

Implementing consistent budget cuts in every area of the company assumes the organization is running perfectly consistent across all departments, which as we all know, is never the case. Forcing cuts across all areas punishes an demoralizes those in departments that are running well. If one team has put a lot of hard work and effort into continually improving the quality and productivity of its processes while another has historically run inefficiently, both shold not be treated equally in a downturn. The leader of the inefficient area should be forced to reduce his or her budget by a larger amount and implement immediate improvements. Plus, a manager or supervisor who has resisted efforts to continually improve processes in his or her area of responsibility should be included at the top of any list of headcount reductions.

Another problem with across-the-board cuts is that there are certain products or services that, for strategic reasons, may require additional funding, thereby necessitating a budget increase. An across-the-board reduction not only consumes the attention of those leading the strategically important areas to reduce spending, but it also misses an important opportunity for the company to pull itself out of the crisis in a way that actually strengthens the organization.

What's the Alternative?

Instead of implementing across-the-board cuts, the organization's leadership team really needs to conduct a strategic planning session to establish a consistent, in-depth understanding of its current situation and develop a limited set (two or three, at the most) of critical initiatives to pull the company out of the downturn.

The entire company needs to become focused on productivity improvements - without sacrificing quality - to assure any spending that does not add value is reduced (which actually should be done whether the organization is facing a downturn or not). Some areas of the organization will undoubtedly face cuts and leaders will need to identify ways to reduce spending immediately in a way that does not negatively affect the company's overall health. As mentioned above though, some departments, locations, or projects will need to receive additional focus and investment to speed up developments or increase capacity.

Avoid the Easy Solution

It is not difficult for an organization to be profitable during the good times. The true test of leadership occurs, however, when the economy contracts and the market for a company's products or services shrinks. When a crisis does occur, leaders must mobilize their teams to analyze the situation and determine the actions necessary to pull out of the downturn as quickly as possible. Responsible leadership dictates that the plan consider the need to survive along with the need to strengthen the organization for the future. This means avoiding the temptation to implement easy solutions, including across-the-board cuts.