Thank you for the article. The similar discussion was reported on WSJ on April 22. I'm betting its turn around and its success from Iridium.
Motorola's Chief Attempts Turnaround,
Trying for Peace Among Warring Tribes
By QUENTIN HARDY
Staff Reporter of THE WALL STREET JOURNAL
SCHAUMBURG, Ill. -- Christopher Galvin, chief executive of Motorola
Inc., has been fuming over the condition of the company founded
by his grandfather and led by his father in its glory days. And he
hasn't kept it to himself.
In an unusually frank internal memo sent to his executive staff on Jan. 28, Mr. Galvin declared that Motorola had become "arrogant and dogmatic" and "slower than we should have been in adapting to new events." The company had "systemic problems" in marketing, timely delivery of products, and in the quality of its wireless networks. "Motorola," he concluded, "traditionally has been unable to collaborate successfully inside or outside the company."
What's shocking is not the vehemence of Mr. Galvin's diagnosis, but the difference between the Motorola he is describing and the Motorola of a decade ago. From 1985 to 1987, Motorola teams achieved technological breakthroughs in miniaturizing pagers and cellular phones -- just before those markets took off. Through 1995, the company recorded one of the highest average growth rates in sales and earnings among major American multinationals, as it became the global leader in pagers and cell phones.
But Motorola stumbled badly when it failed to anticipate the industry's switch to digital cell phones from its long-dominant analog devices and then overestimated its capability to get digital equipment to market. (In analog systems, radio waves imitate voice patterns; more powerful digital systems translate voices into computer code.)
Clinging to No. 1 Spot
According to analysts' and competitors' estimates, Motorola still
clings weakly to its No. 1 spot in the U.S. market for wireless
phones, but its share has fallen about 30% in the past three years,
to just above one-third of the industry's sales. Its world-wide
share of wireless-network systems has dropped sharply over the
same period, to below one-third.
Motorola disputes these figures but declines to provide its own. It
can't contest that profits have fallen as sales growth has slowed
over the past several years.
"If current trends continue, [Motorola] won't be one of the biggest
companies in wireless," predicts Richard McGinn, chairman and chief
executive officer of Lucent Technologies Inc., the former unit of
AT&T Corp. that since its 1996 spinoff has become a dangerous
rival of Motorola. In fact, absent a quick recovery, he thinks
Motorola could become a "second-tier" player behind Lucent,
Canadian giant Northern Telecom Ltd., and Swedish wireless titan
Telefon L.M. Ericsson.
Mr. Galvin, 48 years old, can't be held responsible for much of Motorola's decline. He has been CEO only since January 1997, when he was chosen by a board largely hand-picked by his father, Robert Galvin. He notes in an interview that some of Motorola's problems stem from external events it can't control, such as the collapse of consumer demand for its products in Japan and Southeast Asia and the retrenchment of overextended U.S. paging companies. "We didn't cause the key paging customers in Asia not to have working capital," Mr. Galvin says.
But he also blames Motorola's own culture of "warring tribes," the
teams and sectors that have traditionally fought each other for
funding and support from headquarters. The tribal approach, once
so effective at weeding out weak ideas and identifying the
strongest products, had become increasingly counterproductive,
Mr. Galvin says. In one memorable incident, top managers visiting
Hungary were shaken when a telecommunications minister flung
Motorola calling cards at them from a dozen different divisions.
"Which of these people am I supposed to talk to?" the minister
demanded.
Damper on Partnerships
The tribes often repeated each other's mistakes, and they impeded
the company's ability to work with outside partners vitally needed
to provide components that Motorola doesn't produce, such as the
powerful switches that tie cellular systems to wired networks. Mr.
Galvin decreed an end to the warring tribes in the middle of last
year.
Even though Mr. Galvin doesn't deserve the blame for much of
what has happened in the past, current and former Motorola
managers wonder if he has the talent the company needs to
overcome its current troubles. These skeptics claim that Mr. Galvin
isn't a leader of his father's caliber, nor that of George Fisher, who
followed Robert Galvin and left in 1993. The elder Mr. Galvin and
Mr. Fisher did succeed in getting Motorola teams to collaborate,
combining chip and manufacturing expertise to produce
breakthrough pagers and phones. They also got Motorola into
markets early.
But the younger Mr. Galvin, who started in the company as a
salesman in 1973 and held staff jobs from 1986 on, has had little
operating experience. In contrast to the tough style of parts of his
January memo, he hasn't yet shown a willingness to hold his
executives accountable. The January memo also announced an
"amnesty" for "past mistakes and judgments so we could move
forward."
Many of those executives are aging. A 1994 internal report
informally known as "the gone chart" projected that two-thirds of
the top managers will be 57 or older in the year 2000.
Mr. Galvin so far hasn't demonstrated the foresight so
characteristic of his father. For example, before the younger Mr.
Galvin became CEO, he was a major supporter of Motorola's
premature push to develop wireless data devices, which provided
users with stock quotes, news services, airline schedules and other
information. The devices bombed because they were too expensive
and didn't work well over major public networks.
Can't Predict Future Growth
Mr. Galvin says he can't predict what future markets will restore
Motorola to high growth. He seems open to practically anything,
holding what executives call "strange idea" meetings, where he and
others brainstorm about the future. Mr. Galvin has in the past
talked of chip implants for human ears that could be hooked up to
cell-phone networks. With an eye on the timber and biotech
industries, others at the company have discussed developing
semiconductors that could be placed in trees to monitor growth.
"They're struggling mightily to figure out their next major chunk of
growth," says Ed Staiano, a former Motorola sector chief who is
now chief executive officer of Iridium LLC, the nascent global
satellite-telephone company partly owned by Motorola. "The
so-called warring tribes had a real commitment to their plans.
Maybe that's what is missing today."
For his part, Mr. Galvin concedes in the interview that it has been
"hard to make a variety of changes in [the company's] portfolio,
people and partnerships." He declines to engage directly with those
who criticize him personally, saying only that "I've had no real
surprises" since taking over as CEO. As for those who laugh at his
interest in chip implants and biotechnology, Mr. Galvin notes that
the company's early investment in transistors was also considered
a long shot. "I don't know what the next business will be in 2003,"
he adds.
Too Early to Judge
Many communications executives say it's far too early to judge Mr.
Galvin, and some, including Mr. Fisher, are still convinced he has
the right stuff. "Chris has prepared for this all his life," says Mr.
Fisher, now battling his own problems as CEO of Eastman Kodak Co.
"He's a global thinker. Through discussions with his father, he has
been able to think above the noise."
Moreover, Motorola still has the resources to stage a major
comeback, including enormous expertise with the sort of
microprocessors that are being added to VCRs, microwave ovens
and other products to create what could become a new generation
of consumer devices. The company recently beat out Intel Corp.
and other major chip makers to win a series of lucrative contracts
from General Instrument Corp. to supply the digital brains for the
cable giant's next generation of set-top boxes. These boxes are
expected to launch the era of interactive television.
Mr. Galvin may also reap the benefits of a daring decision made by
his father in 1988 to begin the $4 billion Iridium project. Motorola
spun off Iridium in 1991, retaining what is now a 20% interest and
its role as general contractor. Iridium, which plans to offer a global
cellular-phone service and connections among land-based cellular
systems, has most of its satellites up. If it can successfully handle
millions of calls after its commercial launch this September,
Motorola could become a big manufacturer of satellite systems.
That, in turn, could help it obtain the financing its needs for an
even more ambitious $9 billion satellite network offering high-speed
video conferencing and data services to corporate customers.
Iridium's success would also be proof that Motorola can collaborate
with outside partners. It is a hugely complex project that requires
painstaking coordination with major subcontractors and software
developers.
Iridium Is a Major Risk
But Iridium is still a risk because Motorola has had so much trouble
getting complex projects up and running in recent years. A digital
phone system built for Nextel Communications Inc. came close to
failing in 1994 because it provided poor voice quality and coverage.
Although Mr. Galvin blames changing demands by Nextel, a
Motorola executive who worked on the project says, "Our first field
rollout was sloppy." Motorola had to put together an internal
software team dedicated exclusively to problems with the project,
the executive adds.
A lack of software skills has plagued many Motorola projects.
Competitors point to it as one piece of evidence that Motorola
doesn't have the basic abilities needed to build digital networks
that have the nearly perfect reliability required by telephone
companies. Such systems also require powerful switches that
manage traffic and link wireless systems to the wired networks.
Motorola doesn't make such switches; its rivals Lucent and Nortel
do. To fill this crucial gap, it tried to form a partnership with Nortel
in 1992, but the joint venture, Motorola Nortel Communications Co.,
lasted just 18 months.
The venture's top management, dominated by Motorola executives,
was dismissive of Nortel's digital-transmission technology, which
they considered inferior to one Motorola was backing. The two
sides never agreed on strategic decisions and didn't cooperate on
joint sales calls. Members of the joint venture say internal fighting
across the ranks culminated in shouting matches between Motorola
and Nortel executives over the lack of cooperation.
Motorola tried to go it alone by offering telephone equipment that
it says will work with other companies' switches, an approach
considered confusing by many customers, who want one-stop
shopping.
It is understandable that traditional telephone-equipment giants
would have an easier time adding wireless capabilities to complex
networks than Motorola would have adding expertise in digital
switches, computing and software. What's inexplicable is that
Motorola's greatest woes are in producing cellular handsets, a craft
the company pioneered.
Problems in Introducing Service
Motorola has had problems with all three of the world's major digital
phone-operating systems, known as TDMA, GSM and CDMA.
Motorola produced one TDMA phone that essentially blocked any
other phones from using the same central receiving site. This
caused the recall of more than 30,000 units in the U.S. and twice
that number in Israel.
The company was late with GSM phones in Europe and then
shipped them with bad batteries and few accessories. Motorola's
market share among German service providers fell 24 percentage
points, to 6%, from 1992 to 1996, although lately has improved.
Motorola lost over a year of business by developing its own
technology for CDMA phones, rather than buying expensive licenses
from Qualcomm Inc., a CDMA pioneer. Motorola bet incorrectly that
the market would move away slowly from its own analog phones.
Instead, more than half of wireless subscribers will be using digital
phones by the year 2000, according to Technology Futures Inc.,
an Austin, Texas, research firm.
Qualcomm-based phones have sold by the hundreds of thousands,
but Motorola has yet to ship in meaningful numbers. As delays
became embarrassing, investor relations-director Edward Gams told
analysts in February and April that CDMA phones had been shipped.
They had, but only in tiny volumes to Asian markets. In the U.S.,
the phones are still being debugged at company labs. "We hope to
get commercial quantities this summer," says Tom Murphy,
spokesman for Sprint PCS. "The nontraditional phone suppliers, like
Sony and Samsung, have been much better about getting phones
to us."
Mr. Galvin says that better management techniques will address
some of these sorts of snafus. He has started a new incentive
program, Totality of Motorola Leadership, that promotes managers
for taking risks and delivering results. Just last week, he named his
corporate mentor, Merle Gilmore, to a new position that is
supposed to draw together what once were the warring tribes to
cooperate on building cheap, effective communications systems.
"What is important is the long term," he says. Certainly he sees
himself in charge for the long term, talking of "standing on the
podium, God willing," at Motorola's 100-year anniversary in 2028. |
