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Motorola


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 a member."

Now Breen oversees not only the broadband-cable unit but also Motorola's entire network-systems business. His cut-to-the-chase style is a refreshing break from Motorola's bureaucratic culture. During a quarterly operations review in which wireless execs set forecasts for phones and options for plant expansions, Breen was quickly bored by what seemed like endless debate over a frivolous matter, executives in the meeting recall. Whenever discussion lingered, "his eyes opened wide, he looked around and said, `For Christ's sake, why don't we make a decision? We don't have to talk it to death,"' Wapole remembers. "It became very obvious to folks that Breen's sort of leadership and decision-making is what Motorola needs."

The idea of tacking Breen's name on the CEO's office is being whispered more and more around the company's water coolers. And what of Galvin? If he kicked himself up to chairman and "backed off on assuming sole leadership, he'd be revered," says one former manager. Galvin has no plan to do that. "My interest is not to be popular, but to lead," he says. Galvin doesn't intend to be Corporate America's Hamlet. He plans to turn forceful, decisive, ruthless even. That's what it may take to put the sheen back on Granddad's legacy. By Roger O. Crockett


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