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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 has dropped 40 points, to a low of $50 in 1998, and its share of the U.S. cellular phone market has plummeted to 41 percent from 54 percent. “It’s kind of depressing,” moans 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, lends 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 and Ericsson for digital handsets. By the end of 1997, fewer than 40 percent of AT&T Wireless’ cell phones were Motorolas.
“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 is based on its digital technology, which accounted for 84.6 percent of the 163 million phones sold worldwide in 1998. Motorola remains the world leader in the declining analog handset sector, perhaps because of its presence in the U.S. market where digital has been slower to take off. Even with Motorola’s introduction of a digital alternative to its popular StarTAC model, it retails for $500, compared to Nokia’s 6100 at $200 and twice the battery life.10
Inspection of the company’s IRIDIUM satellite system uncovers other weaknesses. The system eliminates “dead cells” by provid-
ing complete global coverage for cellular services. However, it comes with a price. The Motorola 9500 phone costs around $3000, and calls are priced anywhere from $1.75 to $7 a minute. The phone is bulky—about the size and weight of cell phones 10 years ago —with a thick, black antenna. In addition, the system needs an unobstructed view of the sky, with tall buildings and even dense foliage blocking transmissions.” With AT&T and others offering near unlimited long distance cellular service in the U.S. for under $90 per month, does the Motorola system make sense for anyone but the most remotely located employee?
Some of Motorola’s problems are 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 is attempting to restructure its operations in combination with cost-cutting measures. However, its situation illuminates the need for a culture that is both strong and responsive to external factors. In the quickly changing high-technology field, companies are forced to make difficult and costly choices among competing technologies.
Another concern for many is the presence of Chris Galvin, 48, as chief executive since January 1997. Unlike his predecessors, Chris has no engineering background; he studied marketing at Northwestern and rose through the sales side of the business. He intends to break down internal rivalries within the company and to create links between Motorola and other technology companies.12 The question remains: Can Motorola regain its dominant market position without painful adjustments to its organizational culture? And can Chris Galvin lead them into a new era?
1. Discuss Motorola’s relative success at the two functions/components of organizational culture discussed by the author.
2. Compare the various levels (observable, shared values, and common assumptions) of corporate culture at Motorola.