Monday, March 3, 2008

More on Integration Challenges

In a continuing theme (most recent post on The Struggles of a Conglomerate), here's more evidence of the challenges facing companies that acquire other companies. Business Week discusses the problems Sprint has experienced in turning around a poor service reputation after its merger with Nextel.

A typical defense of acquisition / merger is the creation of "synergy" between the two companies. In this case, Sprint initially projected savings from synergy of $12 billion and later raised that estimate to $14.5 billion. Where do synergies come from? In addition to cost savings, another example might be taking some best practice within one of the merged businesses and applying it to the operations of the other. This argument, however, tends to ignore the potential of "negative synergy." As the article notes, importing the quantitative management approach of Sprint to Nextel appeared to have quite a few negative effects, especially in the management of call centers. Customer churn for the merged company rose to 2.4% in 2006, the highest among the major carriers and quite an increase above Nextel's 1.4% pre-merger rate.

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