Is management T-Mobile USA’s layer of fat ?

There’s an article in French magazine Challenges this week about Iliad and T-Mobile. It’s entitled “How Iliad-Free bluffed the Americans” (in French). As usual with the business press, it doesn’t actually answer the question, and by and large there’s little new in there. Still, there’s a quote that I found interesting in the context in which I view the potential acquisition, as described in my earlier post from last week. Here it is (translated by myself, apologies for imprecisions):

The synergies they are talking about mostly happen at management level, explains a business banker. Stating that they are capable of lifting the margin from 20 to 30% is an insult to the CEO.

Or is it?

The alternative is that the management is the layer of fat that you can most easily get rid of without harming the company. And that’s insulting to the CEO only because it means he hasn’t been doing his job.

Let me tell you a couple of anecdotes. Back in 2006-2007 when I was still a telecoms consultant in the French market, I wanted badly to have some kind of “Iliad” reference on my CV and on the roster of my company. I managed to set up a meeting with an ex-colleague and friend who’d joined Free in the early days. I asked him if he would introduce me to the marketing director. “There isn’t one” he responded. I was gobsmacked, but the fact is that they didn’t need one. They had less product managers than most companies have VPs, and it worked just fine.

Here’s another story, told to me by the CTO of a European operator. He went on a two-day fact-finding trip at Iliad’s in France. When he came back, during a board meeting, the CEO asks him to recount the trip. “Errr, there’s not much that’s applicable to us”, he responds, trying to dodge the topic. “Come on”, says the CEO, “they’re the most successful operator in Europe, surely there are things you learned that would help us”. Cornered, the CTO starts: “There’s no marketing director”. The marketing director blanches. “There’s no communications director”, the communication director blanches. You see where this is going.

Therein though, lies the challenge that Niel and his teams will face: as I mentioned last week, it’s one thing to create a super-lean corporate structure, one where anything that’s not vital is not necessary. It’s much harder, and much more painful, to trim down an existing “fat” structure into a lean one without losing the employees’ spirits along the way.