Text of BusinessWeek piece on Motorola.
JULY 16, 2001
COVER STORY
Motorola
Can Chris Galvin save his family's legacy?
During the fall of 1999, Geoffrey Frost went to his
boss, Motorola Inc. (MOT ) CEO Christopher B.
Galvin, and recommended that he fire the advertising
agency that was creating ads for its wireless phones.
Frost, a marketing executive freshly recruited from
Nike Inc. (NKE ), wanted one agency that could
produce a killer campaign for the whole company, and
he felt that McCann-Erickson Worldwide didn't have
the creative juice. Galvin wasn't so sure. McCann was
run by Galvin's close friend John Dooner, and Galvin
wanted Frost to give McCann a chance to compete for
the business. The agency put together a new
campaign--and again failed to impress Motorola. Finally,
last fall, Galvin agreed to dump McCann as the creative
force behind Motorola's ads. Frost, though, had to
deliver the bad news. "Chris has a huge sense of
responsibility and commitment," says Frost of Galvin's hesitancy. "But McCann just
didn't cut it."
Frost couldn't help but compare Galvin's actions with that of his former CEO,
Nike's Philip H. Knight. At Nike, Frost had stalled for days before telling his boss
that ad titan Weiden & Kennedy--run by a college buddy of Knight's--wasn't doing
a good job. They needed to scale back the ad agency's contract. Finally, Frost
gingerly broke the news. Knight's reaction? "What the f-- took you so long!"
Since taking over at Motorola in January, 1997, Chris Galvin has struggled mightily
in the chief executive's seat. The biggest problems, analysts say, have been his
Hamlet-like indecisiveness and his hands-off management style in a tech industry
that increasingly demands speed and conviction. Galvin took years to put a crack
executive in charge of his largest business, wireless phones. He sat by while execs
let costs spin out of control and failed to deliver on promises to customers. He has
allowed competitors to beat Motorola to market with everything from cell phones to
the latest microprocessors. And when opportunities arose to sell or close poorly
performing businesses, Galvin has moved methodically, losing money and
dampening employee morale at the same time. "From 1997 until now, he has made
every wrong bet," says James E. Schrager, clinical professor of entrepreneurship
and strategy at the University of Chicago Graduate School of Business. "His radar
screen is so bad."
By all accounts, Galvin is smart, gentlemanly and--well, a really nice guy. But his
genteel ways have taken a heavy toll on the company that his grandfather founded
73 years ago. Under Galvin, 51, Motorola has lost its lead in wireless phones,
slipping to a 13% share of the market vs. Nokia Corp.'s (NOK ) 35%. Although his
semiconductor unit is a leading seller of chips to the auto industry, that's a
slow-growth business. Galvin has not managed to steal the spotlight from Intel
Corp. (INTC ) and Texas Instruments (TXN ) in chips for PCs and wireless
equipment. And he lost credibility, to say nothing of millions of dollars, by holding
on too long to the company's ill-fated satellite venture, Iridium LLC.
NO CONFIDENCE? Motorola's spotty performance since 1997 has worsened in
the past 12 months. Since last May, the $37.6 billion electronics conglomerate has
lost 72% of its market value as the stock dropped from $60 to $16.75. On Apr. 10,
the company reported a quarterly loss of $206 million on sales of $7.8 billion--its
first loss from operations in 16 years. Come July 11, it is expected to report an
even deeper loss of $269 million, according to First Call's consensus estimate of
analysts. "Confidence in Galvin? I have none at all," says Jane A. Snorek,
vice-president at Firstar Investment Research & Management Co., a Milwaukee
investment house that owns shares in the company.
Certainly, Galvin is not to blame for all of Motorola's woes. Iridium was dreamed
up in the 1980s and championed by his father, Robert Galvin. Motorola fell behind
in the transition from analog mobile phones to digital phones under Galvin's
predecessor, Gary Tooker. And now, Motorola's problems are exacerbated by a
technology downturn that's slamming small fry and highflier alike--from Intel to
Palm, from Nortel to Nokia. That's one reason Galvin's job is secure, says the
company's board. "If Motorola were out there alone having trouble, that would be
another issue," says Nicholas Negroponte, a board member and director of
Massachusetts Institute of Technology's Media Laboratory. Many other companies
"are having more trouble than we are. It would be a total mistake, in any way, to
indicate that we don't have confidence in Chris."
Still, during Galvin's tenure, Motorola has underperformed its peers by a wide
margin. Since the beginning of 1997, Motorola shareholders have lost 16% of their
money, while the Standard & Poor's 500-stock index has increased 76%. Wireless
rivals Nokia and Qualcomm Inc. (QCOM ) have seen their stocks soar 544% and
1,100% respectively. Even beleaguered Ericsson has recorded a respectable 50%
return to shareholders. The only major telecom-equipment company with a track
record worse than Motorola's since 1997? Lucent Technologies Inc. (LU ), whose
CEO, Richard A. McGinn, was booted out nine months ago.
Now, workers inside Motorola are questioning Galvin's leadership. Since his
grandfather, Paul Galvin, founded Galvin Manufacturing in 1928, he is the third
member of his family to head the company that has become Motorola. Under Paul
Galvin and then Robert Galvin, Motorola developed a reputation for cutting-edge
innovation by designing the first portable two-way FM radio and the first pagers.
Robert Galvin's emphasis on product excellence helped Motorola win the famed
Malcolm Baldrige Quality Award in 1988. But the latest Galvin chief, whose family
now owns 2.5% of the company's stock, has been unable to lead Motorola to any
sustainable glory.
Indeed, some current and former Motorola executives say Galvin should give up
the CEO post and become a visionary chairman a la Ford Motor Co.'s William C.
Ford Jr., great-grandson of Henry. Galvin is most inspired, and most inspiring,
when he spins a vision of the future of technology. For example, he has been
critical in focusing the company on the opportunities of the wireless Internet. That
has made Motorola an early leader in telematics, technology that lets drivers surf
the Net from their cars to find the nearest repair station or Starbucks. And he is the
chief proponent of Motorola's research into biotech, a budding industry that Galvin
says could produce the company's next great innovation. For instance, the
company could use its wireless and chip technology to create a smart card with a
person's genetic code to enable better health care. As chairman, Galvin could
safeguard Motorola's values of integrity and share his passion and ideas for
Motorola--while not being on the hot seat for preserving his family's legacy. "He's
got the family fortune, his own reputation, plus the company's reputation to worry
about," says Professor Schrager. "Phew, he's got too much on the table there."
TOO HANDS-OFF. Galvin is both introspective and resolute in the face of such
criticism. While he acknowledges being too detached, he disagrees with the notion
that he has been indecisive. He says few people understand the complexity of issues
he must weigh as CEO of a global conglomerate. "When people bring high quality
of thought on a proposal or an investment and all the questions are answered, we
make decisions in nanoseconds," he says. But if his managers don't have the
answers, "I've had to send people back to sharpen their pencils," he says, and that
takes time.
As for being too hands-off, he couldn't agree more and is on a mission to change
that. He has spent his entire 28-year working career at Motorola and was brought
up on his father's management style of delegating and trusting executives to execute
smartly. He did what his father had done and focused on vision and strategy, only
to find that some of his management team let him down. "I take full responsibility
for what has occurred at Motorola," Galvin says. "But I get up every day saying,
`Don't focus on what happened yesterday. All you can do is take what you know
today and put together a plan."'
He vows not to give up the CEO post. "Been there. Done that," he says of his past
tactics of handing off to others. "Why do you think we got into trouble? Until
October of last year, I had created a chairman-like role for myself. Not any more.
Today, in partnership with our new team, I'm running it. I will not move to a
chairman-like role again until Motorola is performing preeminently."
He has an ambitious plan for restoring his grandfather's company to its former
glory. Since January, he has dumped the nice-guy, hands-off approach that got him
and Motorola into such hot water. He is delegating less and demanding more. The
new Galvin meets weekly with the top execs from Motorola's main sectors--four
times as often as in the past. They review the revenue flow over the phone for a
couple of hours. Once a month, he holds a Customer Performance and Operations
meeting, in which he stresses the importance of product quality and solid customer
relations. And Galvin, who rarely used to work on weekends, now routinely calls
managers on Saturday and Sunday mornings to discuss personnel moves or
product reviews. "I began with a philosophy that we could create an environment
where leaders felt empowered," Galvin explains. "Now, I'm not trusting in people
so much."
All this is putting an end to his old 8 a.m. to 6 p.m. workday. Now he's in the
office by 7 a.m. He wakes at 5 a.m. and rides his exercise bike for about 30
minutes while reading the morning papers and watching business news on TV. By
6:15, a Motorola security official picks Galvin up and drives him from his home in
Winnetka, Ill., to the office. Galvin's workday begins in the backseat, where he
makes calls to lieutenants in Europe and Asia or reviews memos and product
research submitted by his reports.
GADGET GUY. At the office, Galvin starts off talking with Chief Operating
Officer Robert Growney and other direct reports about the day's priorities.
Afterward, he checks his list of appointments for the day: technology reviews,
customer phone calls, scheduled meetings with employees in his office, calls to
government officials and policymakers such as Michael Moskow, head of the
Chicago Federal Reserve. Despite his impeccable attire for public appearances,
most workdays Galvin is tieless, his shirt sleeves rolled up. He's a gadget guy,
rarely without his black briefcase full of the latest Motorola phones, pagers, and
radios. Comfortable with computers, Galvin wears a headset that allows him to
send e-mail orally through voice-recognition software. Sometimes he'll send a
"three-page" response, says marketing exec Frost. His weekly e-mail to staff used
to focus on the balance between work and life. But starting this year, his messages
are about the economy, its impact on the company, and how best to prioritize work
to make it through rough times.
Is all this enough to retore Motorola's former luster? It will be a hard slog. Galvin's
gentility and his tendency toward study instead of action are at odds with the
hurly-burly, combative world of technology. Insiders say the privilege of family ties
has prevented him from taking the lumps most executives experience. "You need to
experience failure to hone your success characteristics," says Frank Wapole, who
was Galvin's boss in the two-way radio business and later a cellular executive
before he retired. Insiders say what the company needs now is a hyperaggressive
leader who can break down Motorola's bureaucratic ways and get innovation
popping again. Even if Galvin retains the CEO title, he could hand off responsibility
for day-to-day operations to a strong No. 2. Growney, the current chief operating
officer, may retire soon because of health issues, say Motorola insiders. That
would open the door for Galvin to promote someone else to COO--probably
Edward D. Breen, a hard-charging exec who heads Motorola's broadband business.
No question, Motorola will need all the leadership it can muster in the coming year.
In wireless network equipment, Ericsson has the lion's share of the market, with a
30% share, and will be tough to budge. And in the mobile-phone market, the
company's market share has slid from 26% in 1996 to an estimated 13% this year,
according to Bear Stearns & Co. Galvin plans to stop the slide with a new batch of
phones. One already selling in Europe can tap the Net at speeds as fast as today's
computer modems, and several neon-colored phones will be introduced in the
coming months, targeting the sub-$100 market where the company has been weak.
"They do have products that are pretty cool," says Frank C. Boyer, a vice-president
at Cingular Wireless. But "we are cautious. They need to execute on their plan
better than they have in the past."
Galvin realized he needed to change his ways when Motorola missed the goal it had
announced of selling 100 million mobile phones in 2000. Employees inside the
cellular unit knew for months that they wouldn't make the target, but Merle
Gilmore, head of the communications businesses, never let on to Galvin that there
were problems--and Galvin never dug deep enough to find out. Once Galvin learned
how bad it was, he fired Gilmore, a longtime friend, and vowed never to be
blindsided again. "I saw a thickening of the skin," says Janiece Webb, a marketing
exec in the mobile-phone division. He was "hurt, disillusioned, pissed, scared, and
determined. He realized that his reputation and his father's company would come
down on his watch." Gilmore declined to comment for this article.
The troubles began when Galvin started his CEO tenure by delegating responsibility
to his top managers. Take the first few months of 1999, when Galvin sat in on
meetings with the mobile-phone group. Back then, he rarely attended meetings held
by the unit, and when he did visit the cramped 12-by-15-foot conference room in
suburban Chicago, he usually listened without saying much.
Two and a half years ago, the group was working on a phone with the code name
"Shark," a peanut-shaped design that was designed to steal share from market
leader Nokia. Galvin's troops were trying to produce the new phone in three
different technologies and target the all-important low end of the market--the
fastest-growing segment. The version for Europe, rival Nokia's backyard, had to be
exactly right. Galvin knew that Europeans preferred sleek, simple, cheap phones.
Would consumers buy this curvy, 150-gram phone when competitors offered
smaller ones at comparable prices? Those in the meeting remember Galvin turning
to his marketing manager and asking: "Does the market data really support this?"
Absolutely, the manager replied. Galvin didn't delve any deeper into the matter,
letting his managers launch the product.
Pity. Once the phone hit the stores a year later, it bombed in Europe. Frugal,
fashion-conscious consumers wouldn't pay for handsets bulkier than those from
Nokia and Siemens. Rather than gaining ground in the wireless-phone war, the
gaffe contributed to Motorola's loss of share. Galvin concedes that the Shark phone
was one example where his hands-off approach failed. "In some cases, it worked
well," he says. "In other cases, it didn't."
PONDEROUS. Galvin's measured ways have proved to be an even bigger liability.
He is a deliberate man, from the crease in his slacks to his perfectly combed,
gray-streaked hair. He weighs important decisions carefully--at times too carefully,
co-workers say. "People get pissed off at him" because they think he sometimes
doesn't act quickly, says Patrick Canavan, special assistant to the CEO. To Galvin,
his methodical ways are simply smart business. "Depending on the complexity of
the situation, you had better think through it, because you want to make sure that
decision is a net-net positive," Galvin says. "Whether on acquisitions or dispositions
in the business, most of the time decisions have been made in eight weeks. We're
not ponderously studying them for eight months or eight quarters or eight years."
Yet it took 18 months, executives say, for the company to decide to sell its
semiconductor-components business. Hector Ruiz, president of Motorola's
semiconductor unit in 1998, came to Galvin early that year to propose that
Motorola sell a portion of the division that made older-generation components. The
move would help return the semiconductor unit, about 20% of overall sales, to
profitability and would help it focus on core products. Still, it wasn't until the
summer of 1999 that Galvin approved the sale.
Why? Galvin, executives say, wanted answers to countless questions--some were
reasonable, others didn't matter: Would we ever see the acquirer as a competitor?
Or, how is the sale going to be perceived by employees? "Chris is very worried
about how he's perceived," says a top manager who recently left Motorola. "We
would have to go back and lay out what the issues would be for employees and
how we should manage them. That burns time, resources, and effort."
One example of Galvin's decision-making involved Iridium, the go-anywhere
portable-phone system that beamed signals down from 66 satellites orbiting the
globe. By late 1999, some of Galvin's most trusted lieutenants were advising him to
abandon the business, which had cost $5 billion. To them, it was clear that no
viable market existed for the service and its $1,500 phones. Iridium had already
filed for Chapter 11, its investors were frustrated, and last-ditch negotiations to sell
the system were stalling. All the while, Gilmore--then head of Motorola's
Communications Enterprise division--Wapole, and other top wireless execs tried to
counsel Galvin to cut his losses and bail out of Iridium.
Although Iridium's phones were clunky and the service spotty, Galvin called the
globe-girdling system "the eighth wonder of the world." He stood behind the
money-losing satellite system until December, 2000--a year after colleagues first
advised Galvin to cut the cord. Executives close to the company say he told
staffers that holding on was important to Motorola's image and that the company
needed to stand behind the venture's investors.
"PARALYSIS." All told, Motorola wrote off $2.6 billion on Iridium. Galvin says
that Motorola bore most of the expenses up front and that any costs Motorola
incurred over the year were minimal. He also says he couldn't dispose of the
satellites until the courts gave Motorola the go-ahead. "If there was a way to save
money and to have [dissolved] it faster, we would have done it," he says. Perhaps,
but Motorola shelled out $50 million to $60 million a quarter in cash to maintain
Iridium--some $200 million over the final year--for a service that was doomed,
according to analysts at Bear Stearns.
Galvin's indecision was compounded by an organizational mistake he made two
years ago. In 1998, COO Growney, Galvin, and his assistant Canavan realized that
Motorola needed to break up the fiefdoms that had built up in the company over the
years. Besides its six main divisions, Motorola had dozens of $100 million to $1
billion businesses, all with their own managers controlling profit and loss,
marketing, and development. As technologies converged--pagers and cell phones
morphed into one, computing and Web browsing went wireless, and
semiconductors were needed for all of these--the myriad units caused confusion
among customers. Galvin ordered them brought together under an umbrella called
Communications Enterprise. But he left the controls in the hands of Gilmore, an
engineer who many thought was headed for stardom at Motorola. Distanced in his
CEO chair, Galvin didn't realize that the new organization created another problem:
bureaucracy run amok. "The last year I was there, you could get nothing
accomplished," says Julie A. Shimer, a 3Com Corp. exec who had been a
vice-president in Motorola's Internet unit. "The whole organization was in
paralysis."
The Communications Enterprise was a massive organization with some 500
executives across the nation overseeing cellular phones, infrastructure, and
broadband devices. A dozen or so lieutenants reported to Gilmore, but many of the
managers who once held profit-and-loss responsibility had been stripped of their
autonomy. They were expected to channel key decisions--which circuit boards and
software codes to embed in a line of phones, for example--up to Gilmore. That
could take weeks. "You couldn't make a decision without needing 99 other people
to make a decision," Shimer says. "It was horrible."
Galvin was shielded from the frustration, getting regular reports from Gilmore but
meeting with the communications unit just once a month. "Chris didn't screw it
up," Shimer says. "He was asleep at the switch while some of his lieutenants
screwed it up." Galvin acknowledges that the reorg was a mistake, and he
restructured the company again this year to remove one layer of management and
have the heads of Motorola's six main businesses report directly to him. "I hoped
that it would work, but it didn't," he says.
That's just one sign that Galvin is beginning to change his ways. Since January, he
has become relentless about staying involved with his businesses. In addition to
meeting with the heads of each sector weekly, he also huddles with top managers
monthly about the progress of key corporate initiatives, say, in e-business. And a
handful of times a year, Galvin convenes leadership-alignment meetings to ensure
that everybody is operating under the new rules. In short, no special turf allowed,
only cooperative teams.
Still, most Motorola employees rarely see Galvin. He is not like George M.C. Fisher,
who held the top post at Motorola from 1988 to 1993. Fisher liked "walking the
halls. And that made him seem more approachable than Chris," says Roberta
Gutman, who as executive director of the Motorola Foundation has worked for
both Fisher and Galvin.
Galvin is simply private, but people who know him say that he is certainly
approachable and down to earth. For example, after a red-eye flight to Germany,
all-day meetings with staff, and then a flight to Paris that arrived at 10 p.m., Galvin
was asked by a company security official to have a drink. Galvin said: "What the
heck," Canavan recalls. The three of them hung out drinking wine at a local bistro
for a couple of hours before going to bed. The next morning, however, Galvin was
in the hotel lobby by 6:45. "That shows stamina," Canavan says.
REFRESHING. If Galvin does decide to give up the CEO job, he need look no
further for a successor than straight down his chain of command to Breen. Some
current and former executives, as well as institutional investors, say Breen is getting
top marks as the no-nonsense leader Motorola adopted when it acquired
broadband-cable leader General Instruments in September, 1999. Assigned the task
of integrating GI and Motorola after the deal closed in January, 2000, Breen was
given six months to consolidate the staffs, their products, and resources, and come
up with strategic plans. Never mind that he had about 15 to 20 committees working
on various projects and combing hundreds of pages of legal issues related to the
merger. By Feb. 1, the decisions were made. "His ability to decide which issues to
firefight and which ones to bury is what Motorola would benefit from," says
Wapole.
Galvin agrees that Breen is an asset. "Ed is one of the key members of a larger new
team which we put in at the end of last year. We're building superb depth in our
bench. We are making available to the company, and the long-term succession of
the institution, a short list of people of which Ed is certainly ....
Copyright 2001, by The McGraw-Hill Companies Inc. All rights reserved.
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