Monday, July 09, 2007

Hello Moto: A "Plan B" for Motorola



[The finalized version of "Plan B" was sent to the company in late July and is available here.]

As a Motorola shareholder, I’m calling on other institutional and individual shareholders to join me in standing up and being part of a “Plan B” solution for positive and much-needed change at the 79 year old American institution.

There is little to get excited about with Motorola these days. Since January 2004, the month Ed Zander took over as the Chairman and CEO, through today, Motorola has returned 13.5% to its shareholders. Nokia, the #1 mobile handset maker in the world, has returned 37.8% over the time period. The S&P 500 has returned 35.2%. Your returns as a shareholder would have been 3x if you had put your money in Nokia the month Ed Zander started. We don’t believe this past performance and the currently articulated strategy for a turnaround is sufficient or acceptable. This company has a leadership and a mobile product problem which needs to be corrected – not in 6 months from now, after it falls further behind its competitors.

Price/Earnings (P/E) Ratio is another way to measure the market’s expectations for Motorola’s growth prospects. While Cisco – a competitor in the Networks and Connected Home businesses – enjoys a 25x P/E ratio, and Nokia – the current leader in Mobile Devices – has a 21x P/E ratio, Motorola sits with a current P/E of 16x. This is less than half of Motorola’s P/E at the beginning of 2004 which was 38 ($14.50 per share with EPS of 38 cents for the preceding 12 months). The flip-side of this low P/E is that there is tremendous potential for unlocking value, if Motorola can succeed in getting greater growth from all 3 of its divisions but especially in the Mobile Devices Business (MDB).

As a shareholder, you could (a) sell your shares, (b) stay status quo with the current Motorola board and team and wait 6 months to see whether the promised turnaround appears, or (c) you can join our group now to propose a “Plan B” to Motorola and have them take action on it immediately.

After the May annual meeting, at which several shareholders expressed their disappointment and asked for change, Motorola and Mr. Zander promised exciting new handset models in the coming weeks which would play a key role in the turnaround for Motorola’s MBD and, thus, Motorola itself in the remainder of the calendar year. These models have now been released – to a tepid response from customers and Wall Street[1].

We believe that the time is now for the board to undertake aggressive changes at Motorola.

Instead of only presenting the problems, our investor group wants to be part of the solution which will deliver extraordinary value to Motorola shareholders and make it a better company for its employees and customers. We present the following “Plan B” to put Motorola on a path back to its rightful place as the worldwide leader in communications.

(The following points are presented in draft form on the unofficial Motorola wiki (hosted by Wikia) at http://motorola.wikia.com/ . Supporters are welcome to provide their comments/edits at the wiki. Once we receive final comments and suggestions over the coming weeks, we will finalize the plan and submit it to the Motorola board for action.)

1. Replace Ed Zander as Chairman and CEO immediately.

This January will mark the 4 year anniversary of Mr. Zander’s hiring. Nokia and the S&P 500 have exceeded Motorola’s shareholder returns by 3 times over that time period. Many suspect that Motorola will drop from the #2 to the #3 position in worldwide handset sales this year[2]. The results from the past three quarters have been under-whelming, as the company sank to negative margins. The Q2 numbers are expected to also be weak.

There is no obvious answer to the question: What has been Ed Zander’s mark on Motorola? He came with a Silicon Valley background, but how has that experience or those past ties translated into tangible results for the Schaumburg, IL-based Motorola? What has he brought to Motorola that is really unique in the last 3½ years? If it’s difficult to answer that question, we find it hard to imagine what he’ll bring moving forward, which is why we suggest a change is needed now.

You can agree or disagree with Terry Semel’s vision for Yahoo!, but he had a vision. There is no discernible vision or articulated strategy for Motorola by Mr. Zander. At the May 31st, 2007, Lehman Brothers Worldwide Wireless & Wireline Conference[3], Mr. Zander stated: “We have a strategy: Seamless Mobility.” This concept is repeated often on the corporate website and in recent letters to shareholders. What does it mean? How does it suggest Motorola will better compete with its rivals in its Mobile, Networks, and Connected Home divisions? If shareholders cannot figure this out, can Motorola’s employees? A concept is not a strategy.

Mr. Zander arrived at Motorola in January 2004 and was blessed with the good fortune of the success of RAZR. Only when troubles became obvious to all at the end of RAZR’s run did he begin to rationalize costs and accelerate plans for a next-generation of phones. Now, the focus is on turnaround.

We are also deeply concerned with the reports which surfaced in an April Wall Street Journal article[4] that Mr. Zander allegedly said: “I love my job. I hate my customers” in response to a question about why Motorola’s carrier customers were discounting the prices of Motorola’s phones. He later apparently suggested that, one day, he was going to use that line as the title for his memoirs. Motorola tried to defuse this story leading up to the May 7th annual meeting, by stating the company and Mr. Zander care about their customers. Everyone makes mistakes, but, in our opinion, this episode suggests arrogance or at least poor judgment that (1) Mr. Zander would actually say this and (2) he would be contemplating possible titles for his memoirs. According to research done by Dartmouth Tuck Professor Sydney Finkelstein (who is also a colleague), corporate and CEO arrogance is a critical reason “why smart executives fail”[5]. We believe that, although not the sole reason, this poor judgment or arrogance, combined with failing to articulate a strategy, failing to prepare the organization for the end of the RAZR wave, and – most importantly – the under-performance of the stock compared to its rivals are the main reasons why Motorola shareholders would benefit from new leadership at the top.

2. Replace Judy Lewent, Nicolas Negroponte, Samuel Scott III, and Dr. John White on the Motorola Board of Directors.

If you had a sense of déjà vu watching what happened with RAZR, it’s because Motorola has lived the story before of riding the wave of a hot product without sufficient heed to where the industry is moving to. Ten years ago, it was with StarTAC: the “iconic” hit phone, which was analog-based. All the signs pointed to the industry moving to digital. However, Motorola’s plans for digital phones were delayed, so that additional resources could “feed the beast” of StarTAC. The company almost drove off the precipice as a result. Fortunately, for its customers, employees, and shareholders, it pulled itself back from the brink. You would hope that an organization would institutionalize the learnings of such a heralding experience. Yet, the parallels between RAZR and StarTAC are eerie. Why didn’t Motorola learn?

Chris Galvin, the former CEO and grandson of Motorola’s founder, is no longer around. However, 4 of Motorola’s current board of 11 were around. Judy Lewent, the CFO for Merck, has served on the board since 1995. Nicolas Negroponte, a director of the MIT media lab, has been on the board since 1996. Dr. John White, the Chancellor of the University of Arkansas, has been on the board since 1995. And Samuel Scott III, the head of a corn refining business, has been on the board for almost 15 years.

In the wake of Sarbanes-Oxley, a lot of attention has rightly been paid to the issue of board “independence.” It is a good thing to have directors who are sufficiently vigilant and will ask hard questions of management. Yet, how “independent” can you be when you’ve served on a board for over a decade? Meg Whitman, CEO of eBay, famously said that no CEO should stay in the same job for 10 years or they risk becoming stale in the saddle.[6] We agree and think this same benchmark should apply to all corporate directors for the sake of fresh eyes and energetic vigilance.

One argument a defender of keeping a director on the same board for over a decade could make is that: it is critical for retaining some “institutional memory” in board discussions. Presumably, these longer-serving directors could remind their shorter-tenured brethren about organizational mistakes made in the past that shouldn’t be repeated – such as StarTAC. We thank Ms. Lewent, Mr. Negroponte, Dr. White, and Mr. Scott for their service, but respectfully and strongly suggest that the company would be better served by new independent directors with strong business and communications experience.

3. Appoint Edward Lampert to the Motorola Board and others with deep communications experience.

As mentioned above, the Motorola board has – in the past – chosen to appoint directors with an abundance of experience outside Motorola’s core communications industry. While we don’t advocate a board only consisting of industry veterans, we believe a solid majority should be experienced within the markets in which Motorola directly competes, rather than – for example – from the pharmaceutical, consumer packaged goods, agricultural, and academic worlds. Therefore, we suggest replacements for the 4 people named above reflect this. New Motorola director David Dorman who is ex-AT&T fits the bill for what we’re asking.

Strong business experience and a track record of success are also important criteria for a director. So is the psychological importance of owning stock in the company (which a director has directly purchased, as opposed to stock ownership through stock grants or stock options received as partial compensation for board service). We note that 10 out of 11 of the current Motorola directors own less than 50,000 shares, with 4 directors owning less than 5,000 shares (and we suspect that most of these holdings came through stock grants or through stock options received, rather than digging into their own pockets to purchase stock). In our opinion, that is simply not enough “skin in the game” for a corporate director of a major global company.

One candidate that we believe fits the bill for a strong track record of business experience, as well as Motorola stock ownership, is Edward Lampert of ESL Investments Inc. Mr. Lampert disclosed he is now a holder of Motorola stock following the May annual meeting[7]. We suggest that Motorola make a spot available for him immediately at the board of directors’ table.

4. Outline the long-term vision and strategy for Motorola.

In the May Lehman Brothers speech, Mr. Zander said a company’s strategy shouldn’t change year to year, but its tactics should. We couldn’t agree more. However, the stated strategy is simply “Seamless Mobility.” A recent analyst who has analyzed the clarity of Mr. Zander’s letters to shareholders for the last few years, according to the Wall Street Journal, called them “Bafflegab.”[8] A notable quotation from the 2005 Motorola annual report letter cited is: “Motorola's going to own Seamless Mobility, where today's hottest technology is converging -- where the Mobile Me lives -- where mobile broadband means everything everywhere and anything anywhere." A new clichéd term Mr. Zander is fond of using is “profit pools” (as in “we’ve got to find the profit pools”). Three and a half years into his tenure, the company and its shareholders desperately need to better understand the strategy for turning things around.

The recent attack which Motorola’s board directed at Mr. Icahn leading up to the annual meeting was – in our opinion – a smoke-screen. By asking shareholders to focus on the number of directorships currently held by Mr. Icahn, Motorola’s leadership avoided having to better explain its strategy for the company.

A long-term vision and strategy is not cost containments and site rationalizations alone. Controlling costs is obviously critical when your major division is seeing sales recede as much as they have in the last 3 quarters. Yet, no company shrank itself to greatness. The simple truth is that customers do not like the current line-up of phones and there needs to be a better strategy for more compelling phones that will raise revenue. Getting 18 new models out to market this year to lukewarm response doesn’t fix that problem. The RAZR2 is 10x as fast as the RAZR and has an armload of new features, but potential customers don’t seem to care. In our opinion, none of the models is a game-changing device that will sweep up the consumer or business space. They are incrementalist improvements on past styles. Recent excitement over competitors’ new product launches make the differences all the more stark. So, what must the new strategy speak to? Next-generation designs.

When you first saw the Chrysler S300, you likely turned your head; and you have designer Ralph Gilles to thank for it. The RAZR made this impact, and Geoffrey Frost (former Motorola Marketing head) played a key role in this. Yet, RAZR2, KRZR, ROKR, RIZR, and the Q9 appear to be so yesterday. Management is fond of talking about getting to Linux/Java platforms to make richer software experiences, and better competing with Nokia and others in certain tiers of the market in which Motorola doesn’t play. They need to outline the strategy for getting better product design out of the labs and into the market.

Corporate strategy also has to be more than just MDB strategy. Motorola investors want to know what they can expect from the Networks and Connected Home businesses as part of their MOT investment in years to come. What was the rationale for keeping them and jettisoning the Semiconductor business a few years ago? The process by which Motorola followed for getting out of the semiconductor business demonstrates poor long-term planning. The decision to spin-off the Semiconductor business was announced in October 2003[9]. The IPO came in July 2004, delivering $1.5 billion to Motorola shareholders[10]. The decision was defended as a way for the company to “focus” on its core businesses and increase shareholder value through the spin-out. Yet, Motorola continued to work with Freescale (the name of the spun-out entity), as if it was a business it owned within the Motorola family, sole-sourcing chips for many of its phones. Part of the recent downturn in MDB is due to the fact that Motorola has been producing phones at a cost disadvantage, because it hasn’t sourced silicon from other vendors two years after the Freescale IPO. This risk should have been identified and baked into the corporate strategy by head office well in advance.

5. Appoint a Permanent Head of the Mobile Devices Business.

Mobile represents more than half of Motorola’s revenues. The two smaller divisions have heads. Former head of the Mobile division, Ron Garriques, left in February to join Dell and, almost 6 months later, no successor has been named. There are currently two interim co-heads: Ray Roman and Terry Vega. At the moment, they are being supported by (according to the April analysts’ call) Ed Zander, Tom Meredith (the CFO), and Greg Brown (the COO). The Mobile Group needs one permanent head to drive leadership and turnaround through the group most effectively – not 5 heads.



We need all Motorola shareholders – large and small, institutional and individual – to join us, if they are also dissatisfied with Motorola’s performance for the last 3.5 years and want to see better performance from their investments. They can be part of our constructive solution. There is not a quick, financial fix for Motorola. In our view, investors need to take the long-view and dig in for some difficult work ahead. The changes must start now though. Our group is made up of long-term investors in the company who are committed to seeing it return to its rightful place of industry leadership. A stronger Motorola is good for its shareholders, customers, and employees.

The time is now. We need you to “pledge” your shares towards our “Plan B” group. By doing so, you will give us the strongest possible voice with which to negotiate with the Motorola board for these changes outlined above.

To offer your comments/suggestions/additions to the Motorola “Plan B” before we formally submit it to the board, go to our unofficial Motorola wiki at: http://motorola.wikia.com/

To “pledge” your Motorola shares to our group – expressing your desire for us to count your shares informally in our group that we represent to Motorola as wanting to see “Plan B” enacted, go to our YouChoose.net “pledge” site at: http://www.youchoose.net/pledge/motorolaplanb .

Thanks for being part of the solution for Motorola shareholders, employees, and customers. This is a great company that can be and will be again.

[July 10, 2007: PS If you are a current Motorola employee and want to take part in the "Plan B" campaign without formally registering on the YouChoose.net site, please email me directly at emj at jacksonleadership dot com. I will get back to you directly. Thanks.

November 30, 2007: Ed Zander resigns effective Jan. 1/08.]

[1] http://www.forbes.com/2007/07/03/zander-motorola-razr-pf-ii-in_jl_0703soapbox_inl.html?partner=yahootix
[2] http://www.suburbanchicagonews.com/heraldnews/business/423621,4_3_JO12_MOTOROLA_S1.article
[3] http://cc.talkpoint.com/LEHM002/053007a_jw/default.asp?entity=Motorola
[4] http://online.wsj.com/article/SB117798906186487805-search.html?KEYWORDS=zander&COLLECTION=wsjie/6month
[5] http://www.whysmartexecutivesfail.com/
[6] http://sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2006/11/19/BUGPUMEPAG1.DTL&type=business
[7] http://www.bloomberg.com/apps/news?pid=20601103&refer=us&sid=ai5qQcW6SJTI
[8] http://online.wsj.com/article/SB117866044480696317-search.html?KEYWORDS=motorola+zander&COLLECTION=wsjie/6month
[9] http://news.com.com/2100-1006_3-5086763.html
[10] http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BD21FF9BE-6F22-4F77-A6D8-A2FBCF53F90F%7D&dist=rss&siteid=mktw

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24 comments:

Anonymous said...

For the past several months I have felt that something like Plan B would come from within Motorola, but it never has. I absolutely agree that "Seamless Mobility" is not s strategy and continuing on this path under Mr. Z will just leave us looking at the same results or worse 1 and 2 years from now.

Internally, the organization elected to manage its supply chain in a matrixed environment. It's hard to tell how successful this really is with the numerous changes in roles / responsibilities / departures. Every 60 days is yet another organization change / leadership announcement as we continue to "align our strategies". How often do you need to align these? Why are strategies changing so much?

Be assured that middle management, which is extremely abundant now days, are big contributors to this lack of success as well. Their appointments to their positions seem to mimick the board of directors.

Eric Jackson said...

Thanks, Anon. We need to hear more from the employees who represent the "heart and soul" of the company. I hope you will consider some points you want added to the plan which we will finalize in early August and send to the Board. Perhaps some additional thoughts on the solutions to some of the problems you raise in your comments. Thank you again for your comment.

Anonymous said...

Hi,
I am a former employee and I have stocks bought using MotShare program, what a huge mistake :-(
Motorola management is not really focused, the success of V3 was the end of the bad times, a lot of marketers being recruited, envisioners "changing colours" and forgetting Motorola is a tech company, for enterprise, government solutions and consumers but we do/did technology.
Nokia did not loose market share even lacking a well known model as V3, why? they are covering all the range, low, mid, high-tier and high-tier productivity. Motorola launched very late the Q for gsm/umts, perhaps you could not be the first always but no arrive behind (nokia, palm, rim, samsung, HTC, HP).
In the networks side...Motorola bought a nice company, Winphoria, to fill the gap in Core Networks and provide end to end with the radio access technologies. In few months the Winphoria leadership was replaced by slow "Motorolans" who basically kill the project. MSS were cancelled, in PoC (push to talk) they were leaders and now they are delayed deploying OMA PoC standards and in IMS Motorola did not get any reference in huge Carriers (only Pakistan wifi carrier) and trying to get new trials never arriving.
It seems IMS development is being kept only until current leaders will find another position. Till then a lot of the most talented developers and architects are leaving the company in India and Spain sites. In Spain IMS development had leaders never coded a line, inherited from other departments, people with PhD ara undergraded, a common grade for 10 years experience is the same of 2 years in US, China and India, and some managers are forbidden "winners of best patent" to issuing more patents, just to keep their chair with no question about competence. In Spain HR policies are not clear, to the EMEA employees forum they send a HR person or an employee saying that everything is secret, just the opposite as the employee forum target, a representative getting feedback from colleagues and putting in common.
A lot of people in Spain is asking why in Ireland and other places Motorola is offering an VSP (voluntary severance program) package and in Spain where is being developed something Motorola is arriving too late and with no chance to win, people is kidnapped, with very low grades, managed by less skilled, less travelled, and with less academical degrees managers with the only purpose that have solidiers to justify the salaries, company cars and priviledges of managers friends of HR people.
Motorola lost the networks bet, they should focus now in MDB and Connected Home (the strategy now in CHS is better) and no sense firing people from mobile devices development and keeping people developing a non saleable product as Motorola IMS.

Anonymous said...

From Yahoo Post.
I have been a long time Motorola, Employee and Shareholder that is absolutely disgusted with the current Senior Management of the company. Despite all efforts to create change, and contribute directly to Motorola's future .... Senior Management will not allow anything that might lead to company improvement, especially if it affects their own personal interests. The company is now being run by a small group .... for the personal gains of only those in that small group. It is corrupted to its core, and quickly spiraling out of control.

I know we can come here to complain about how bad it is .... but what can we do to FIX it ? I'd like to see this be a forum and a catalyst to share ideas, network skill sets and brainstorm on how to get Motorola back (slowly) to where it once was. There is still a tremendous amount of talent at the company that can do great things, and we need to demonstrate it now by taking back our company.

The Facts:

1) A large portion of all employees are currently idle, with no active work assigned. There is nothing in the pipeline to work on, and there is no leadership to drive the existing workforce.
2) Our BOD is completely driven by self-interests, and have mechanisms in place to protect their control (e.g. Icahn). They are loading up on equity and driving short term, unsustainable changes to improve them.
3) Morale is at all time lows. The problems with the company have been carried on the backs of the employees and share holders .... not the SLT.
4) The competence of the SLT is below what is needed to manage and grow a company like Motorola.
5) Ed Zander is the WRONG leader for the job. He has no ability to inspire or lead internally ... and no respect externally.

What to Do:

1) Please post this on internal newsgroups, forward to co-workers, and start asking questions to management about YOUR company. Let's keep the upward management chain accountable for their jobs.
2) HR .... this is a semi-anonymous forum. Please provide some suggestions on how to challenge the sitting management to make change. How can there be an objective method to weed out the poor management team, from the real leaders.
3) Outside investors / industry experts .... how do we make Zander and the SLT more accountable, and reduce the smokescreens for them to hide behind. How can Zander's 56,000,000 failure package be challenged so he is not rewarded for destroying a company, and still allow him to be terminated ? What can Motorolan's do to work with investor activists to help add more power to outside influences to change the company.

The 77,000 remaining Motorolans are now the ones that have to be accountable for the company, and define its future. The current SLT, CEO, and BOD has proven they are incapable of this action .... and need to be removed or step down.

Ed Zander is not my king, God or dictator. He is just a boss, that needs feedback on how poor he is doing. Any 360 model will allow that, but Ed has severed the path back to him so he can isolate himself in a world where he is all three. This needs to be stopped, and in a way that is legal, ethical and effective.

Let's start talking and turn the discussion from insults to an action plan.

"Dissent is the Highest form of Patriotism"
Howard Zinn

Eric Jackson said...

Hi...

Thanks for the last 2 anonymous comments - especially the last one. It's very important for all MOT employees (and shareholders) to turn your frustrations into clear and logical arguments for change.

Please use these comments as a forum to discuss and share ideas with others.

Another good way to do this is in our wiki (http://motorola.wikia.com) but adding in your suggestions to our draft "Plan B."

We will finalize the plan in early August and then send to Motorola's BOD for action.

Thanks again for the comments.

Anonymous said...

Forward P/E is probably a better indicator

NOK P/Ef = 16
MOT P/Ef = 20

Anonymous said...

Please verify the credentials of the CTO of the company. Do you think that person is qualified to run a TECH R&D? CTO who sounds like CMO (Marketing Officer) doesnt help at all. Non sense blog can be found at: http://blogs.motorola.com/author/padmasree-warrior/

Anonymous said...

I disagree with the last comment, I think CTO Padmasree Warrior is the best among the SLT and the motorola labs under her management are being very productive. The problem is the lack of efficience translating own innovation to top class solutions/products and making cash, and it is due to the bad management and own interests of senior leadership.
Motorola is becoming as Soviet Union, they put the dog in the space but the TV a lot of years black and white. There is a lot of work done not being used to get revenues due to the management, but it is not the CTO responsability.

Anonymous said...

I believe she failed to realize that its no more how the phone looks that matters. CTOs failure to understand that its the operating systems that matters now. Had she gained that knowledge earlier Moto would be in better shape now. I dont think she has a technical background to be a CTO. Technology companies need someone with strong technical skills which she lacks anyway.

Anonymous said...

Read this: "Padmasree is recognized internationally as the thought leader who shaped the industry vision of "seamless mobility" for next generation communications. She is credited with crafting much of Motorola's strategy around seamless mobility; to deliver easy uninterrupted access to everything people want in a flat and mobile world."

The fact is the "Seamless Mobility" theme was already around when she showed up.
She has fallen into the same trap as the management around her.
Buzzwords and bullsh!t are not things to run a company like Motorola on.

Anonymous said...

MOTOROLA RWARDS FAILURE:

As a long term Moto employee, it is very disappointing to work at this place. Zander inherited a super hit product (RAZR) and still managed to screw up royally as such I am not sure why board of directors or shareholders expect that he is going to deliver now.

As an engineer I also wonder what our Chief Technology Office is doing other than chiming about what we frequently call “shameless mobility.”


Fact 1: Zander has not performed up to the expectation since he joined Motorola but still seems to get the biggest bonus every year.

Fact 2: Under Greg Brown’s leadership Motorola’s public Safety Sector (GEMS or who knows what it is called these days) lost the biggest ever contract from Government’s Home Land Security Dept. Given that Motorola has almost monopoly in this business, this was biggest slap in the face. But Mr. Brown is president of Motorola these days. This philosophy to reward failure trickles down middle management.

Fact 3: Current state of Motorola resembles that of a panic. Where neither the senior management, nor middle management, or technical staff has any clue what to do. As a result, they are busy restructuring, creating new names for business and what not. But nothing tangible is being delivered to customers.

Fact 4: Work atmosphere is such that groups of employees gather in cafeteria at lunch time to just bitch about how awful everything is about their job. An organization with such low employee moral does not innovate.

Anonymous said...

I own or control over 7000 share of Mot some at pre split. They were expensive to buy and hold. I am very disappointed in this company, but feel with better management it will turn around. The guys at the top need to go now.

So, I am behind you Eric. Let me know what to do next.

Marc

Mike said...

As employee I see the same other posts are telling, people motivation is very low, a lot of restructuration, new merge and splits of business but nothing new to deliver, the senior management is only focus in keeping their chairs

Anonymous said...

It is easy to say “come out with new phones to grow revenue”. It is another thing to actually do it. Zander and senior management sure want these phones and I am sure most, if not all employees in the Mobile Devices unit want to do that. But are they enabled to do this? Is the proper organizational structure in place? Are the right processes in place? Looking at the performance, the answer is clearly no. This is one of the main responsibilities for senior management.

De-centralize the organization

With regards to the organization, Motorola is very vertically structured. For example, the business units and manufacturing/supply chain group do not meet until Ed Zander/Greg Brown. The business units have no control over the supply of their products. Supply chain has different priorities and metrics from the business units. Within the supply chain, there is a matrix organization so the plant manager of a factory does not even have control of a majority of the management in the building – they report to someone in Chicago. It is clear that the organization needs to be de-centralized and control is pushed down the management chain. Also, less staffing will be needed by eliminating a lot of management.

Reduce Bureaucracy

As outlined in this article, the RAZR phone was developed by a small, cross-functional group outside Motorola’s standard processes. Since Zander has joined Motorola, the bureaucracy has gotten substantially worse. Though a new product introduction process is needed, an overburdening one is not. More time should not be spent on generating paperwork than actually developing the product.

Another major source of bureaucracy is being compliant to the TL9000 quality system. So many processes and metrics have been generated to comply with this. There is whole quality organization in place to enforce the processes. TL9000 actually may have negatively impacted customers due to higher costs and late products.

As this article, on 3M shows, following quality process too religiously has a negative effect on innovation.

This bureaucracy needs to reigned in, and some of it probably should be eliminated.

Anonymous said...

I am also a 20+ year MOT employee. I marvel at the emphasis I see in the invesment community on the Cellular side of this company. While the traditional two-way part of the company isn't perfect, it is still out there taking care of buisness and our public safety customers.

Why doesn't this seem to matter or get any attention? Why does the investment community take little notice of this? We do WAY MORE that just cell phones.

If this company is going to get broke up, at least leave the Motorola name with the two-way radio group. I would be proud to help strengthen that name in the market again and continue to serve my customers.

Anyone in the Galvins reading this?

Phil said...

I could understand engineering and developing costs are a key issue.
American engineers are being as developement and engineering sites are moved to APAC (india and china mainly) and it is hard but it could be understood under costs basis. What is not clear and it makes no sense is keeping small development sites very expensive in Europe (Ireland, UK, Spain) with the EURO very high.
A lot of sites were "justified" in the past due to alliances or sinergies with huge customers (i.e: BT in UK, Telefonica in Spain) but it is not anymore sustainable. BT is not anymore a big customer and TELEFONICA since the 40% of GSM radio did not buy any more infrastructure, not GPRS core, not UMTS radio, no PTT, no IMS.
I vote for less sites, less management and more continous evaluation about the performace of each site.

Anonymous said...

I, too, am a long time employee. I agree that the company is being controlled by a few at the top for their personal benefit. David Devonshire, CFO, retired in 2006. His 2006 compensation was approx 8m.

Anonymous said...

Anonymous Ex-Europe, Some interesting observations from current, former Motorolans and interested parties.

Motorola treated me extremely well, I had an Expat assignment for 5 years here in the USA from Europe, had my MBA paid for and my Green card procured, I also have '000s of options which expire in the next 180 days so I would very much prefer to see a turnaround produce results. A couple of observations if I may :-

- Ed Zander is clearly not the right man to be leading the company now, if he exits with or without his package, the stock will bounce $3.

- Most if not all the current Mgnt team Ed bought in, none have performed, Brown whom Galvin acquired is smug and a poor mgr, CTO padmasree came from SPS(now freescale) she coined seamless mobility Ed latched onto it strangely since he didnt have a phrase of his own, Padmasree doesnt know squat about Mobile devices, PMR or Set top boxes, she knows semiconductors.

- Motorola is horribly overstaffed and staffing is remunerated some 30-50% above market in most positions. Even Ed abhors layoff's however, without Motorola slimming down to the size of RIMM it stand no chance, least of all if it retains an Illinois Midset and 77,000 employees with full benefits;ie: pension, healthcare etc. Motorola needs to loose some 25,000-45,000 positions over the next 18months without doubt, believe me I was a Director of Finance for the past 5 years and know very well the costs & revenues and comps

- Corporate headcount remains unreasonably high, Corp should loose around 80% of all positions they add NO value to the bottom line and shareholder returns. if sharelholders knew what staffers in Corporate do all day, they would be appalled, I know I am and I worked in Corporate for many years in Europe.

Connected Home (aka General Instruement) was bought for $11bn, Cisco acquired Sci Atlanta the last remaining independent set-top box maker. This could be a huge business on its own, I suggest a 6th point be the IPO, spin off to existing Motorola shareholders of the Connected Home business, renamed GENERAL INSTRUEMENT

- Motorola have always been amongst the better innovators, but lousy and commercializing and marketing a product, how it can do better I am not sure, but RIMM sure do as do Apple, NOTE Ed Z HATES Apple and abhors them, Why..?

- Motorola is seriously conservative, it could and have become an Apple, CISCO or RIMM during my 15 years with the company, it didnt, it had all the products these firms commercialised but never bought them to market.

I'll post more this weekend, when I have more time and can provide more depth to my observations.

Unforunately I know where many of the Skeletons were found and some which remain, can you say....$$$$

My 5 point plan for a $30 share:-

- Axe Zander ($3)
- Raise the dividend 50% ($.50c)
- Raise the buyback to $12bn in 18 mths ($2)
- RIF 40,000 Motorolans ($1)
- Spin off the Connected Home Business ($6 per share)

More to come this weekend, Eric I will call you next week.

just do it said...

here are more points for your plan b

6) fire the "seemless" technology officer "PXXX". Fire all the useless VPs

7) join force with Microsoft or sell Motorola, or buy Microsoft, just do something, or do somehting on Linux
building new architecures with Mobil carrier - need that to beat RIMM and APpple (make good technolgoy techgnoloy works)
we can not wait thing happen here

it is the conservative approaches in software that hurts motorola, if fact, Motorola's Rokr E6 pre dates the iphone (still on market for $300)

Anonymous said...

A couple of additional thoughts, perhaps someone can add to them and craft some strategic rationale to them:-

- Mot just bought Symbol for 43bn+, where has it gone, that money is no longer sitting on the BS for shareholders, I fear Symbol will be crushed by the Mot bureaucracy, suggest someone asks how its doing, its now lost in Networks and Enterprise. Is there some way to create value here and leverage the customer footprint, i have yet to see any strategic play from Motorola with this.

- Motorolans fly around the globe more than associates from any other Fortune 50 company, (flight miles/ revenue wise). Suggest we confirm appropriate measure have been introduced to stop. Also everyone who flew over 5 hours got to fly business, has that ended?, suggest we seek input from Dean Lindroth in Investor relations, (bet he wishes he;d stayed in Japan)

- Whats Icahn's next move, is he going to dump the stock he acquired, if so and he's done it during the Qtr to June 30, he will have to file with the SEC by early September I think. Is Eddie Lamert really serious about his stake, has anyone spoken to ESL or him?

- Outsourcing of Development has occured over the past 5 years, most devel and production is now ex-USA. Whats left for the Mgnt to do to reduce platform costs, Nokia still have a margin benefit to Mot.

- Could Motorola float the Networks and Enterprise (2 way & cellular infrastructure) business off?. It's a $5bn ayear business, it may be worth more on its own, its very profitable and maintains a 70%+ MS

- Should Mot cut retiree benefits and medical benefits to staffers, others have (IBM), Nokia don't have these costs nor to Foxcon or Apple, should these costs continue to drag down the current business and shareholders..?

- Mot has little or no revenue stream from patents, yet for years it was a top 5 patent filer, could the patent inventory be sold/securitised or leveraged with others/competitors.

Nothing can be done really without the BoD first figuring out a plan for the 2nd half, with or without Ed. My feeling is he may just fly of his own choice. You must know Ed owns many homes and has a net worth o/s Motorla of several hundred Mill, he only works for his ego to be stoked and he doesn't even get that anymore, whats the back up plan?, god forbid if they ask Greg Brown to step up temp, have they spoken to possible replacements, have they initiated a 'secret' committee and instructed an placement firm, can anyone find out..?

One observation after the profit warning last week the stock didnt drop, true it was a strong market, but I think we may have hit a temp bottom in the stock, it's all washed out, with Ed's departure we may get $1 bump short term, but where is the longer term plan BoD.?

regards

Phentermine said...

Thanks for interesting article.

Anonymous said...

After just under 1 year of merging 2 big divisions (Networks and Government Sector), making hundreds of people redundant, the SM did a 180 and start splitting them apart. Granted, Galvin (Chris) wasn't the best CEO but with him it is for the company and the buck always stops with him, Zander is coated with Teflon and takes no responsibility or blame.

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