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Motorola: Is a High Performance Culture Enough?

Developed by David S. Chappell, Ohio University and modified by Hal Babson, Columbus State Community College.

Motorola Inc., world famous for its Six Sigma quality control program, was an early success story in the computer/electronics age. Motorola moved from being a decentralized but integrated, narrowly focused electronics firm at $3 billion sales in 1980 to being a decentralized and disintegrated broad portfolio firm at $30 billion in 2001.¹ Motorola is one of the world's leading providers of wireless communications, semiconductors, electronic systems, components, and services. Its cellular phone and pager products were identified among the very best in the early 1990s. However, increased competition, the Asian economic crisis, and its failure to fully embrace the digital revolution severely tarnished its operating results and image. Can Motorola return to its high performance ways?

The Evolution of Motorola

Motorola Inc. was founded by Paul V. Galvin in 1928, as the Galvin Manufacturing Corporation. Motorola's long history of technological innovation began in the 1930s with the first car radio. Under the brand name "Motorola," suggesting "sound in motion" the company name was changed to Motorola, Inc. in 1947.² Being the sound of innovation, it was Motorola's goal to provide products that would give people the time and freedom to explore new worlds and handle daily tasks in the most efficient way.

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Motorola represents a large number of firsts, including the first rectangular television picture tube, first practical car radio, pagers, and more. In 1988, Motorola won the first Malcolm Baldridge National Quality Award in recognition of quality in American business. This is the same year that George Fisher (who later became president of Kodak) became president of the firm; he is credited by many with bringing Motorola into the cellular age.

Beginning in 1987, Motorola began the design of IRIDIUM. The system was a satellite-based, wireless communications network. It consisted of 66 interconnected, low-orbiting satellites that delivered voice, data, fax and paging through a hand-held phone. The system would simplify communications for business professionals, travelers, residents and other users, permitting them to reach any destination on Earth. Along with Motorola, Sprint and Iridium Canada were contributors to the development of IRIDIUM system for the North American continent. The development of IRIDIUM was intended to provide customers with high-quality service at a reasonable rate.

As Motorola continued to expand its worldwide presence in the global marketplace through products and services, the need for talented personnel to uphold these established standards increased. In recognition of this essentiality, Motorola demonstrated a high commitment to seeking and developing a broad base of knowledgeable, highly trained employees, evident through their innovative training programs, through the establishment of Motorola University, and through the offering of expansive benefit plans to all associates.

The Importance of Organizational Culture to Motorola

In the early 1990s, Motorola was recognized as a true high performance organization with its innovations and socially responsible corporate attitude. Indeed, its organizational culture was identified as a source of competitive advantage for the firm. Working in quality teams, members sought to provide the highest level of customer satisfaction, measuring defects in incidents per billion. Motorola earmarked more than $100 million a year for training, with everyone in the organization, however humble, spending at least a week a year back in the classroom at Motorola University, courtesy of the company.³

Motorola listed its fundamental objective as total customer satisfaction: "To serve every customer better than our competitors do with products and services of excellent value and quality, and thereby earn continued enthusiastic trust and support."⁴ It wishes to accomplish this objective with respect for the individual, a statement it makes clear in its shared beliefs.

People

To treat each employee with dignity, as an individual; to maintain an open atmosphere where direct communication with employees affords the opportunity to contribute to the maximum of their potential and fosters unity of purpose with Motorola; to provide personal opportunities for training and development to ensure the most capable and most effective work force; to respect senior service; to compensate fairly by salary, benefits and, where possible, incentives; to promote on the basis of capability; and to practice the commonly accepted policies of equal opportunity and affirmative action.

Integrity and Ethics

To maintain the highest standards of honesty, integrity and ethics in all aspects of our business — with customers, suppliers, employees, governments and society at large — and to comply with the laws of each country and community in which we operate."⁵

From a proponent of leadership training to a leader in quality control processes, Motorola has created an internal climate that fosters high standards and a high performance culture. The firm depends on Total Customer Satisfaction Teams (TCS) to ensure the firm's commitment to quality. These teams are now made up of almost 30 percent of Motorola's 150,000 employees, and a goal of 10 times reduction of defects every two years puts pressure on them to constantly devise new ways to develop and deliver their products and services.

Motorola views itself as family and encourages employees to balance their work and family responsibilities. They support onsite child care centers and fund a wellness program for all employees.

Authors John Kotter and James Hesket's study on corporate culture shows that:

1. Corporate culture can have a significant impact on a firm's long-term economic performance.
2. Corporate culture will probably be an even more important factor in determining the success or failure of firms in the next decade.
3. Corporate cultures that inhibit strong long-term financial performance are not rare; they develop easily, even in firms that are full of reasonable and intelligent people.
4. Although tough to change, corporate cultures can be made more performance enhancing.⁶

Organizational culture can be a two-edged sword, however. Strong cultures may contribute to high performance for extended periods of time but may actually result in an inability to adjust when conditions change. It's important to foster a balance between stability and flexibility for change, an objective that is difficult to maintain. For many firms, success in the short term causes problems with inflexibility to changing situations in the long term.

So What Went Wrong?

In early June 1998, Motorola CEO Chris Galvin announced that the company would take a $1.95 billion charge and lay off 15,000 employees. Motorola's semiconductor business, which grew 23 percent in 1995, slowed to a 1 percent growth rate early in 1998. In recent years Motorola's stock had dropped 40 points, to a low of $50 in 1998, and its share of the U.S. cellular phone market had plummeted to 41 percent from 54 percent. "It's kind of depressing," moaned one money manager. "It's not as though people weren't barking and screaming to management about what was going wrong."⁷

Maggie Wilderotter, a former top executive with AT&T Wireless Services and its predecessor, McCaw Cellular, provided insight into Motorola's troubles. In the early 1990s, 85 percent of the cell phones McCaw sold to subscribers were made by Motorola, whose flip phones, the most advanced at the time, were in hot demand. Around that time McCaw decided that the future of cellular was digital, and over the next few years Wilderotter met repeatedly with managers at Motorola's Schaumberg, Illinois, headquarters and in her Seattle office, urging them to develop a digital phone. Motorola said it would work on it. So in the beginning of 1996, not long after AT&T Wireless had rolled out its digital network, Motorola unveiled its StarTAC phone: light, beautiful — and analog. AT&T had no choice but to turn to cellular phone manufacturers Nokia andEricsson for digital handsets. By the end of 1997, fewer than 40 percent of AT&T Wireless' cell phones were Motorola's.

"It was bizarre," says Wilderotter, now CEO of Wink Communications, an interactive-TV company. "We were very forthright with what we wanted. I don't know if they didn't listen or they thought it wasn't going to happen. It is absolutely amazing to me that they lost their way."⁸ In 1998, Nokia replaced Motorola as the leading supplier of mobile handsets, a position Motorola had held since the mobile phone industry began. Nokia sold 37.4 million units (an 81.5 percent increase from the previous year), representing a 22.9 percent market share compared to Motorola's 32.3 million units (only a 27.6 percent increase in volume), representing a 19.8 percent share.⁹

Much of Nokia's success was based on its digital technology, which accounted for 84.6 percent of the 163 million phones sold worldwide in 1998. Motorola remained the world leader in the declining analog handset sector, perhaps because of its presence in the U.S. market where digital was slower to take off. Even with Motorola's introduction of a digital alternative to its popular StarTAC model, it retailed for $500, compared to Nokia's 6100 at $200 and twice the battery life.¹⁰

Inspection of the company's IRIDIUM satellite system uncovered other weaknesses. The system eliminated "dead cells" by providing complete global coverage for cellular services. However, it came with a price. The Motorola 9500 phone cost around $3000, and calls were priced anywhere from $1.75 to $7 a minute. The phone was bulky — about the size and weight of cell phones 10 years ago — with a thick, black antenna. In addition, the system needed an unobstructed view of the sky, with tall buildings and even dense foliage blocking transmissions.¹¹ With AT&T and others offering near unlimited long distance cellular service in the U.S. for under $90 per month, did the Motorola system make sense for anyone but the most remotely located employee?

Some of Motorola's problems were external, including a drop in semiconductor sales due to the Asian economic crisis, increased competition in cellular products, and a decline in pager sales. Motorola attempted to restructure its operations in combination with cost-cutting measures. However, its situation illuminated the need for a culture that was both strong and responsive to external factors. In the quickly changing high-technology field, companies were being forced to make difficult and costly choices among competing technologies.

Another concern for many was the presence of Chris Galvin as chief executive since January 1997. Unlike his predecessors, Chris had no engineering background; he studied marketing at Northwestern and rose through the sales side of the business. He intended to break down internal rivalries within the company and to create links between Motorola and other technology companies.¹² Could Motorola regain its dominant market position without painful adjustments to its organizational culture? And could Chris Galvin lead them into a new era?

In 1999, Chris Galvin became Chairman of the Board as well as continuing as the CEO. The company's IRIDIUM products had been sold through a partnership between Motorola and Iridium but Iridium declared bankruptcy and its assets were acquired by Iridium Satellite Systems. Motorola then became simply a provider of equipment to Iridium Satellite. By 2002, Motorola made a major plunge into digital technology and by March of that year it introduced a broad range of innovate products employing digital technology. It was still number two behind Nokia in world cellular phone sales but it was striving to regain its number one position. Its March 2002 offerings include a new handset and accessory portfolio of digital personalization options, six new handsets providing consumers the ability to personalize their phones with new applications as their individual needs change and grow, several handsets in the new portfolio also provide consumers with either multimedia messaging technology - adding a new level of expression through messaging with audio, graphic, text and imaging content and with faster data and Internet, and demonstrated wireless communications where video merges with voice and data. It had products with translucent housings and rich finishes and covers which rotate open to display blue electroluminescent (EL) MotoGlo emanating through a translucent keypad with the ability to compose one-of-a kind "ring tunes" that play true musical chords while simultaneously using other applications, such as surfing the Internet and downloading movie clips, customizing messages with either video or audio files, advanced messaging, ring tone composition, and an accessories collection which included: MP3 Player headset, carkit, desktop speakerphone, and retractable headset.