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AUGUST 8, 2005
How Motorola Got Its Groove Back Inside the creation of a hit new phone as CEO Zander tries to remake the company into a master of innovation It's a muggy Friday morning in mid-July and a group of Motorola Inc. (MOT ) designers are gathered on the 26th floor in the company's downtown Chicago design center. They're looking over prototypes for a new mobile phone when CEO Edward J. Zander pokes his head in the door: "Can I come in?" Dressed casually, in jeans and a polo shirt, he quickly gets down to business. The models on the table are for the Q, a phone with a full QWERTY keyboard designed to compete with the wildly popular BlackBerry, from Research in Motion Ltd. (RIMM ) (RIM). No detail is too small for Zander's attention. He and the employees put one Motorola prototype alongside a competitor's. "Ours is longer," Zander worries out loud. "Yeah, but it's half as thick," retorts designer Sean Daw. Zander picks up another model and starts poking keys. "I don't know," he says. "The Good feels better to me," referring to a device that uses software from Good Technology Inc. The Q prototypes look alike but have infinitesimal differences: keys raised a few millimeters more, buttons that require a tad more forceful punch. Finally, Zander finds one he thinks has the right feel. "Now this one feels pretty good," he says. Zander seems to have found just the right touch at Motorola, too. At a time when rivals Nokia Corp. (NOK ) and Samsung Electronics are reporting lackluster results, the once-troubled Motorola is on a tear. On July 19 the company reported that second-quarter sales had zoomed 17%, to $8.8 billion, while earnings hit $933 million, compared with a $203 million loss the previous year. The biggest driver? The cellular-phone business that shipped a record 34 million units. That gave it 18% share -- its highest in seven years and a big step closer to Nokia, which holds 33% of the market. "We're a stronger No. 2," Zander told analysts on the earnings call. "We've now set our sights on No. 1." At the heart of Motorola's pursuit is a radically revamped strategy for new products: Design leads, and engineering follows. Ever since its founding in 1928 as Galvin Manufacturing Co., the company had been dominated by engineers. That led to loads of innovation, including the invention of the modern cell phone. But in the late 1990s, the approach began to misfire, with a string of unpopular phones and missed deadlines. Now Zander has helped shift the balance of power so that Motorola's designers hold sway. "It used to be the engineers threw us a chunk of circuit boards and said: 'Put some plastic around that,"' says Daw. "Now we base everything on some experience we want to project and then have the engineering team help us get there." Motorola has been trying to improve its design for years. Christopher B. Galvin, Zander's predecessor and the founder's grandson, hired a series of talented creatives, including James Wicks, a well-respected Sony Corp. (SNE ) executive who is now head of design for Motorola's phone group. Yet the genteel Galvin rarely got involved in day-to-day decisions. Zander, though, plays a hands-on role in encouraging workers to come up with the latest in cool. He spends about half his time at the downtown design center, rather than the Schaumburg (Ill.) headquarters, and he constantly pushes, prods, and makes himself a general pain in the neck. In addition, Zander promoted former Nike Inc. executive Geoffrey Frost to the vacant position of chief marketing officer and charged him with making sure that designers' best ideas get aired among the top brass. KOREAN KUDOS The changes have earned Motorola recognition from carriers -- even in South Korea, home to several of its strongest rivals. "Motorola has certainly gotten its act together," says You Jong O, senior manager of product planning for SK Telecom, the country's top wireless carrier. "Their product management is excellent." Still, the mobile-phone business is more treacherous than ever these days. Zander and Motorola's good fortune could be fleeting if they miss a step or two. Besides Nokia, Motorola must stay ahead of Korea's Samsung and LG Electronics Inc. Some carriers say Motorola still has to prove it can move as swiftly as the Korean duo to incorporate extras such as cameras and games into its phones. "They still have a ways to go," says Dick Lynch, chief technology officer at Verizon Wireless (VZ ). Success won't come from one phone, no matter how slick. Yet what Zander seems to be developing is a process of innovation, to crank out hit after hit. The ultrathin Razr phone, introduced last year, has become a big winner, despite a price tag that started at a lofty $500. Consumers are already buzzing about the yet-to-be-introduced iTunes phone, which will download and play music from Apple Computer Inc.'s (AAPL ) online music store. And the Q phone that Zander put through its paces made its debut on July 25 to loud applause. A scant 0.45 inches thick and a feathery 4 ounces, the Q could be another big hit, analysts say. "It's got all the goods," says Ed Lewis, a general partner at consultant RelevantC Business Group. "With this device, Motorola could outsell BlackBerry within 24 months." The changes at Motorola are part of a broader movement in American business (BW -- Aug. 1). From General Electric Co. (GE ) to Proctor & Gamble Co. (PG ), companies are increasing their emphasis on creativity and innovation, as globalization brings low-cost rivals from abroad to their doorstep. The development of the Q provides a look inside one company's efforts to remake itself for a more competitive world. It's the story of how Motorola got its groove back. CONVENTIONAL THINKING The tale begins during the chilly days of January, 2004. Zander had come from Silicon Valley, where he had worked for years. There, the sight of techies tapping out messages on the BlackBerry was as common as snowplows scraping Chicago streets after a storm. Zander figured Motorola had to have its own version of the BlackBerry. But during an early visit to Libertyville, Ill., where Motorola's mobile-phone business makes its home, he was stunned to learn otherwise. He took one look at the product road map and asked: "Where is the RIM-type device that we're going to have?" Tom Lynch, then head of the phone business, had to admit the company wasn't developing one. Zander changed course in a nanosecond. He thought mobile e-mail would catch on with everyone from traveling salesmen to stay-at-home moms. The last thing he wanted was for Motorola to miss a revolution on his watch. "I just believed that this was a tipping point," he says. Engineers and designers hustled to fulfill Zander's command, and, by spring, they came up with several concepts. One, code-named DaVinci, unfolded like a clamshell. Another, ultimately called MPx, was wider and unfolded like a taco. Zander's take? Not good enough. He considered the ideas, particularly the MPx, examples of conventional thinking. "If we can't innovate, forget it," Zander recalls thinking. Frustrated by the sluggish bureaucracy, Zander began plotting a reorganization. Ultimately, Lynch resigned and took a job at Tyco International, while Zander started looking for his successor. He found the right guy in Ronald G. Garriques, a hard-charging 41-year-old who had turned around Motorola's phone business in Europe. A mechanical engineer by training, Garriques understood the guts of phones but also had a knack for design. Named phone division chief in September, 2004, Garriques set out to develop what he now calls "wickedly cool and compelling" products. He and Zander quickly agreed that neither DaVinci nor MPx cut it. Garriques turned to Wicks, head of design, for help. Wicks's team had just finished working on the Razr, the thin clamshell phone, and Garriques was looking for something with the same eye-popping elegance. Wicks listened and promised Garriques he'd come up with some ideas. A few days later, Wicks raised the challenge with his top design colleagues, Peter Pfanner and Marco Susani. They started brainstorming about how to put the Razr's pizzazz into Garriques' device when they landed upon a bigger idea. Why not use the Razr as the patriarch for generations of phones? With its hard edges and masculine feel, it could be the father, or yang, for future phones. The Pebl, a clamshell phone with soft, rounded edges, would be the mother, or yin. That would give Motorola's phones much-needed consistency -- and allow the company to plan years in advance. When Wicks explained the yin-yang idea last October, a lightbulb clicked on in he head. Just as Razr transformed the clamshell phone, he felt Motorola could reinvent every major phone category: the candy bar style, the slider -- and the QWERTY devices dominated by RIM. Motorola's designers quickly embraced the idea of a BlackBerry killer. In the Chicago design studio, they hashed out a range of options. They code-named the phone Franklin, after Benjamin Franklin, but many referred to it as the "Razrberry." By January, Garriques and Zander were convinced they had a legitimate rival to the BlackBerry device. Since then, designer Daw and other team members have been fixated on Franklin's all-important keypad. First they designed a flat keypad similar to the Razr's. It looked good, but was a pain to use. Each key controlled two letters and was more annoying than helpful. Then they tried raised keys, with one dedicated to each letter. Much better. As they worked, they kept the blinds on the room's windows drawn. Zander stopped in regularly to check progress. Rivals that just got a look at the new phone aren't giving any ground. RIM took particular issue with the device's software, which comes from Microsoft Corp. (MSFT ). "Big deal," says James L. Balsillie, RIM's co-CEO. "I'm at a loss to find the game breakingness of this." Plus, he says RIM plans to license its e-mail software to Motorola for use in devices similar to the Q. But at the unveiling of the Q phone, at a convention hall in suburban Chicago, the enthusiasm bubbled over. Steven A. Ballmer, Microsoft's chief executive, joined via a live video feed and said Q would "revolutionize mobile phones." Zander says the Q and the Razr are signs of the innovation that lies ahead. "We are far from finished building on [their] success," he says. He's determined to make sure of that. Even if it means poking his nose into many more design meetings.  By Roger O. Crockett in Chicago, with Cliff Edwards in San Mateo, Calif., and Spencer E. Ante in New York
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