Case Study History and Strategic Analysis of Motorola Inc
Strategic Analysis of Motorola Inc
The company that I chose to complete my Strategic Analysis on is Motorola Inc.. Many of us are familiar with Motorola products due to the advent of the cellular phones. Regardless of the carrier of the service, be it Verizon, AT&T, Sprint, many of these companies use a cellular device created by Motorola. However, the company does much more than just producing cell phones. One area that Motorola is trying to focus its current strategic actions in the area of Semiconductors.
History/Financial Portfolio Motorola Inc. started with the founding of the company by Paul V.Galvin (figure 1). Paul and his brother Joseph E .Galvin purchased a battery eliminator business from Stewart Storage Battery Company which made battery eliminators used in operating radios using household current in 1928 and created 'Galvin Manufacturing Company'. The company started with five employees and grew gradually. It expanded its business into automobile industry, by introducing auto radios sold to independent auto distributors and automotive dealers. With Galvin Manufacturing Company entering into the auto industry, Paul V. Galvin coined the word Figure 1 'MOTOROLA' linking motion and radio.
Daniel E. Noble joined Galvin Manufacturing Company in 1940 as Director of Research. As a pioneer in FM radio communications and semiconductor technology he originated the first hand-held two-way radio for the Connecticut State Police. He brought his designs to Galvin Manufacturing Company and developed a two-way radio system for the U.S. Army Signal Corps. Because of this, Galvin Manufacturing Company played a significant role in World War II with radio and communications equipment like the "walkie-talkie" (figure 2) and "handie-talkie".
The first public stock offering occurred in 1947. The company's name was officially changed to Motorola Inc. In 1948 Motorola entered into the television business and with more than 100,000 of these TV sets sold in one year, Motorola catapulted into fourth place in the television industry. During the late 1940's Motorola began to supply auto radios to Ford and Chrysler plants for installation in their automobiles.
Motorola introduced dispatcher radios by taking advantage of expanded allocation of radio frequencies and with aggressive marketing and a reputation for reliable equipment earned a leading role in the industry. Daniel E. Noble launched a Motorola Research and Development facility in Phoenix, Arizona. He anticipated the enormous potential of the newly invented transistor and helped Motorola became one of the world's largest manufacturers of semiconductors.
By 1950 the net sales of Motorola was $177,104,669 and the number of employees had grown to 9,325. Unfortunately, in 1952, Motorola's first color television was short of success due to technical problems, a high price tag, and the failure of broadcasters to offer an adequate amount of color programming. The product was pulled from the market in 1956. Among some of the innovations for which Motorola is famous are a new radio communications product, a small radio receiver called a "pager" that delivered a radio message selectively to a particular individual carrying the device and the "Motrac" with such low power consumption that radios in automobiles were able to operate without running the car engine Motorola was the first company to use epitaxial method to mass-produce semiconductors. It used low cost techniques in making silicon rectifiers, used in automobile alternators. In place of auto generators, the Automotive Products Division began producing alternators, inaugurating the company's role as a supplier of "under the hood" electronics. Motorola, in a joint venture with National Video, developed the first rectangular picture tube for color TVs and with Ford and RCAs designed and made 8-track tape players for the auto industry. Domestic and foreign auto manufacturers soon became customers for tape players and 8-track players became the Automotive Product Division's second major product line.
As the cost of semiconductors continued to decline, their application in consumer electronic products increased and created a new major market. Motorola responded with a full line of low cost plastic encapsulated transistors. The design of these devices was eventually adopted by the entire semiconductor industry. In 1967 the company expanded its international presence by adding six plants around the world. Lunar roving vehicles used Motorola's FM radio receiver to provide a voice link spanning the 240,000 miles between the Earth and the moon. It was 100 times more sensitive than any car radio. Motorola entered into the manufacture of components for battery powered quartz and between 1971 and 1979, the company gained critical experience in producing and supplying integrated circuits, quartz crystals, and miniature motors to manufacturers like Timex, Benrus and Bulova.
The company introduced its first 6800 microprocessor (see figure 3), which used only 5 volts of power for the communication and business machines sector in 1975. In 1979 Motorola introduced its first 16-bit microprocessor, Figure 3 the 68000. Capable of completing two million calculations per second, it used to run and write programs for scientific, data processing, and business applications.
In the 1980's Motorola controlled the emerging U.S. market for cellular phones and pagers but they were not aggressively focused on competing with the Japanese, even after Japanese firms began to flood the U.S. market with low-priced, high-quality telephones and pagers. Motorola, finding itself, pushed into the background heard the call to battle. Managers at first were not sure how they should respond, so they originally decided to abandon some business areas and even considered merging their own semiconductor operations with those of Toshiba's. After much searching they decided to fight back and regain the firm's lost market position. This fight involved two main strategies: Learn from the Japanese, and then compete with them.
This strategy seemed to work as Motorola's revenues tripled from approximately $10 billion in 1990 to almost $31 billion in 1999. However, more problems started to arise. The 1996-99 bottom-line performance did not match its rapid growth and profitability during the 1990-96 periods. One of the key issues facing Motorola was their weak financial position. Motorola had inopportunely chased the dot-com and telecom boom in 2000 and built up a manufacturing capacity and a global cost structure for a $45 billion revenue Martin Cooper demonstrates the first company going into 2001, but had achieved only $37.6 portable cellular telephone. billion in revenue in 2000. Then the reality of 2002 hit: *A telecom equipment downturn affecting both wire-line and wireless.
*The worst semiconductor decline in history.
*A U.S. recession.
*Appalling terrorist acts.
*Delays in the deployment of next-generation (3G) wireless technology.
*Large customer default *Sales of only $30 billion.
*Major and painful corporation-wide resizing.
These are some of the reasons for the weak financial position mentioned in the 2002 annual report. However, if you analyze these reasons it would seem that the company was trying to take the blame away from Motorola's management and place it on external factors. Some reasons alternate reasons might include: *Rapid technology gains and product innovations by Motorola's rivals in wireless communications.
*Outdated management style.
*Lagging digital cellular phone technology.
*Motorola's focus on a wireless-equipment technology that only covered half of the U.S. market potential.
*Poor quality and performance in some of its product areas (loss of customers).
In an attempt to regain its market position, Motorola began innovations with the development of multi-media mobile devices using Mobile Extreme Convergence (MXC) architecture. With this innovative architectural change many of the current design limitations of affordable, advanced, full-featured mobile devices were eliminated.
"With the Extreme Convergence architecture, Motorola's Semiconductor Products Sector has found a way to simplify the design of hardware and software and to reduce the cost of components for mobile systems. Motorola's technical and business strategy combines DSP and applications processor cores positioning the company to compete in a wide variety of applications that goes beyond traditional mobile devices and into consumer electronics. The rapid delivery of chips and platforms by Motorola for mobile and tethered applications will enable it to secure a solid share in an addressable embedded processors market that is expected to consume over 900 million chips by 2007." (Max Baron, principal analyst, InStat/MDR) Since the company's creation, Motorola's two key core values set the standard for its employees' actions. These core values are constant respect for people and uncompromising integrity. The company also considered trust to be part of its competitive advantage. As Motorola developed into a global company it continued to uphold its ethical principles. However, the company realized that its values were contradictory to how business was being done abroad which resulted in Motorola practically committing "business suicide" by adhering to its ethical policies in countries where bribery and other business practices that are considered illegal in the U.S. were common and expected. To combat the clash of ethics a group of retired Motorola officers were asked to look into the status of ethics understanding and compliance around the world. They created the Motorola Ethics Renewal Process (MERP). The chief purpose of MERP was to "help Motorolians at all levels in all countries make ethically appropriate business decisions everyday and to get them to take ownership and accountability for Motorola's key beliefs and ethical values" (Kary, 2002). Local, country, and regional ethics committees allowed employees to openly discuss issues surrounding Motorola's key beliefs and the code of business conduct. Despite Motorola's unrelenting attempts to become an international, ethical company, it continued to face the problem of staying profitable and growing market share.
II. Analysis of Current Situation Industry Environment The largest market share in the communications industry is held by Nokia, with Motorola trailing in second place. In general, economic conditions in most global industries have hit a point of stagnant or declining sales. In today's world businesses need to somewhat accurately forecast the outlook for global economies and then make investments and decisions accordingly. The communications industry is dependent on vendor financing and has taken a big hit because "[ve]ndor financing is an important part of the purchase decision for buyers. Vendor financing helps equipment makers capture large contracts even when capital is scarce while allocating carriers to build out their networks more quickly and cheaply" (www.activemedia-guide.com/telecos_equipment.htm).
Due to main reliance on vendors the communications industry has substantial risks so f Nokia and Motorola do not stay ahead of the cable companies in technology their position in the market will be highly threatened. "The biggest threat to telecommunication hardware vendors may be the growing clout that cable companies have with high speed Internet access using cable modems" (www.activemediaguide.com/telecos_equipment.htm).
Communication hardware companies are benefiting from "worldwide deregulation in telecommunication services and intense competition among industry players" (www.activemedia-guide.com/telecos_equipment.htm). Deregulation of the industry gives companies more freedom in their decision-making processes. In addition there is intense pressure and demand for emerging technologies. Communications hardware companies need to ensure that their products are compatible with the newest features. Many are trying their best to differentiate their product from their competitors with features including voice mail, two way text messaging, e-mail capability, digital photography and Internet access. The competitive advantages in this industry come from making versions of these features superior to those of the competition. With that in mind the industry is experiencing a transition from copper wire to fiber optic transmission. Due to the high costs of installing fiber optic cables it will take years for the global markets to become saturated. This change in the industry includes benefits such as "voice, data, video, and text over the same line"...and "fiber optic cable does not suffer from signal distortion and degeneration" which "copper wire suffers from" (Johnston, 2002).
Operating Environment Motorola is a main supplier of wireless infrastructure products, the support equipment that makes pagers, two-way radio systems, and cellular phones operate. The main source of revenue is typically from major telephone companies that place large orders to update or expand their network infrastructure. These customers seek innovative technologies that require significant investment in R&D. Economies of scale provide the bigger equipment manufacturers with a competitive edge in pricing when filling such large orders. Motorola also receives a significant amount of business from individual or personal subscribers.
Motorola's main competitors in the wireless infrastructure sector are Nokia and Erickson, along with Lucent and Nortel. The competitive environment for communications equipment requires that vendors offer attractive financing terms to their customers as an important part of their sales packages. Motorola leads the cable modem market with a 41% share, followed by Toshiba Corp. at 18%, and Thomson Multimedia at 13%. With intense pricing competition pricing pressure was as strong as ever in 2002 in such markets as wireless handsets. New competitors in the field such as Samsung and Siemens have helped to speed up the pace of innovation by pressuring established companies to protect their market share.
Rapid technology gains and product innovations by Motorola's rivals in wireless communications, combined with a downturn in demand for semiconductors and pagers, and an economic slowdown in parts of Asia have contributed to hurt the revenue and profitability of Motorola as well as a lack of a competitive digital product in the Asian market. For example, digital phones in Asia did not work on GSM (global standard for mobile communications). Motorola has lost a number of contracts and customers due to poor switching capabilities of its digital equipment. Motorola has made poor management decisions and has focused on the wrong products in these markets.
In order to improve market share and revenue earnings, Motorola re-organized into three major enterprises to reduce interdivisional competition, encourage sharing of ideas, reduce development costs, and coordinate actions between Motorola's business units. A major problem Motorola faced though was a decentralized approach to running its different businesses and divisions. Motorola had approximately 90,000 employees that speak more than 50 different languages and belong to as many or more cultures. These employees must be educated on other cultures' beliefs, customs, and ways of life. Unfortunately, Motorola, along with many other companies in the industry, forced to make workforce reductions to remain competitive, laid-off 32,000 employees in 2001, equaling approximately 22% of their entire workforce.
Most of the major communications infrastructure manufacturers maintain significant operations overseas. Motorola, along with other companies, are subject to foreign economies and currency risks. Firms based in the United States with overseas sales translate from local currencies into dollars so a strong US dollar hurts reported earnings and a weaker US dollar helps. Motorola must also keep a careful watch on other specific risks such as the affects of protectionism, fluctuations in economic growth, and political instability when investing in foreign countries. The Foreign Corrupt Practices Act is another concrete law that must be followed by Motorola to its fullest extent and the knowledge that what is considered unacceptable business practices in the United States is considered acceptable elsewhere.
Internal Environment Organizational Aspects One key issue that surfaces when one analyzes Motorola's organization is its decentralized approach to running its different business and divisions. Divisions are generally headed by strong managers and operated as virtual fiefdoms, pursuing their own agendas and priorities. Divisions are often not cooperative or responsive to the requests and needs of sister divisions, and are look on by outsiders as "warring tribes" (James, 2003). Another characteristic of Motorola's leadership culture is its engineering base. Most of Motorola's key executives are well versed in technology, and over time, the company has developed a high level of technological and engineering expertise. For many decades, this has looked as an advantage because this is the reason that Motorola has been able to stay on the cutting edge of technological advances. However, at the beginning of 1990's, some observers viewed Motorola's technology and engineering-based culture as a liability in a world that they saw as increasingly driven by marketing. In addition, some people have viewed the company's top executives as insular and tradition bound. In 1998, 67% of Motorola's top executives had been with the company for more than 20 years. This, to numerous critics, was a sign that Motorola was out of touch at the top.
Marketing Aspects Motorola markets its products in six different segments: The Personal Communications segment (32% of 2002 sales), The Global Telecom Solutions Unit (20%), The Commercial, Government and Industrial Solutions (13%), The Broadband Communications segment (9%), The Integrated Electronics System Sector segment (7%) and The Semiconductor Products segment (15%). They concentrate the majority of their marketing in wireless communications products. The company manufactures cellular products based on all three of the major digital standards: GSM, TDMA and CDMA. Motorola estimated that 425 million handsets were sold in 2002, up 13% from the estimated 375 million units sold in 2001.
Motorola's current marketing slogan is "Intelligence Everywhere" (Motorola, 2003). They want to be able to offer communication solutions everywhere a potential customer can be found. The Company's Intelligence Everywhere solutions include software-enhanced wireless telephone and messaging, two-way radio products and systems, as well as networking and Internet-access products for consumers, network operators and commercial, government and industrial customers, end-to-end systems for the delivery of interactive digital video, voice and high-speed data solutions for broadband operators, embedded semiconductor solutions for customers in wireless communications, networking and transportation markets, and integrated electronic systems for automotive, telematics, industrial, telecommunications, computing and portable energy systems markets.
Personal Communications Segment The Personal Communications segment (PCS) designs, manufactures, sells and services wireless subscriber equipment. Its wireless subscriber products include wireless handsets and personal two-way radios with related software and accessory products. The company markets its products worldwide to carriers and consumers through direct sales, distributors, dealers, retailers and, in certain markets, through licensees.
MXC Architecture Change The MXC architecture totally redesigns the mobile architecture to combine functions and offer high-performance. Mass-market mobile devices can be developed affordably on a platform the size of a postage stamp currently one-sixth the size of any other chip. The MXC architecture simplifies and reduces development times, drives new applications, increases carrier margins and speeds adoption of mobile devices by rethinking the architecture to remove current design roadblocks and reduce cost, complexity, size, power consumption and part count. It will open new markets for the next generation of "smart" mobile devices and consumer electronics.
SWOT Analysis STRENGTHSWEAKNESSESOPPORTUNITIESTHREATS Brand recognitionNo clear strategic directionFiber optic cablesShift in buyer needs to alternatives Superior hardwareInternal operating problemsForm strategic alliancesLoss of sales due to substitute products and services Attractive customer baseWeak income statementsConcentrate on R&DSlowdowns in market growth Important patents, copyrights, usage rightsLow profitabilityIncrease market shareAdverse shifts in foreign currency and economies Ethical Business Practices Strong ethical biasesMany marker participants Loss of customers Intellectual capital Growing bargaining power of customers Wide geographic coverage/ International coverage Management styleSophisticated use of e-business technology Lagging digital cell phone technology InnovationLow employee education, training, motivation, and moraleLearn from the JapaneseCompetition in the Vietnam Market from L G Information Communications Marketing developmentQuality of its productsTake part in joint ventures, new alliancesJapan has been allowed to enter U.S. markets with few barriers Software developmentA reputation of lacking a strategyIncrease reputationHard to penetrate Japanese markets Their passion, openness of executives, acquisitions, mergers, and business alliances are also part of Motorola s StrengthsOverall quality of its operations Untapped market opportunities around the worldJapanese Competitors have flooded the market with low- prices high quality products Table 1 III. Core Competencies Motorola, Inc. has two core competencies, integrated communications and embedded electronics. "Their core products include wireless, broadband and automotive communications technologies and embedded electronic products" (www.motorola.com/content/0,,1,00.html).
Wireless Motorola offers three wireless platforms, 2G, 2.5G and 3G total systems solutions. The systems "[f]eaturing fully integrated hardware, software, and support services, this platform enables the rapid development and deployment of cost-effective GSM handsets. The platform is flexible and scalable: it can support the high-volume production of economical phones as well as the use of higher-tier feature sets, and it provides a seamless migration path to the i.250-20/i.250-21 platforms and next-generation technology" (taxonomy.jsp). These platforms use i.MX & Dragonball Applications processors used in wireless devises including smart phones and wireless PDA's.
Broadband "Motorola's Broadband Communications Sector has a vision for the future. This vision is strategically focused upon the potential of broadband solutions for the delivery of voice, video and data over HFC networks" (broadband.motorola.com/noflash/bcsoverview.html). They have the ability to deliver digital video, high-speed internet access, and end-to-end solutions for wireless, cable and satellite networks.
Automotive Motorola's automotive products consist of Telematics, Automotive and Global Positioning units. "Motorola combines automotive-grade wireless communications, GPS technology and embedded computing to deliver the smart solutions, up-to-the minute information and peace of mind that drivers demand. With more than 1.5 million telematics systems shipped worldwide to date, Motorola is leading the charge to take you further into the future, faster than ever before" (www.motorola.com/automotive/prod_telematics.html).
Embedded Electronic Products "As the world's #1 producer of embedded processors, Motorola's Semiconductor Products Sector creates DigitalDNA&reg; system-on-chip solutions for a connected world" (www.motorola.com/automotive/prod_telematics.html). Embedded electronics can be found in Motorola's automotive, network and wireless products.
IV. Technology Innovation Motorola's strategy is "...to become a global leader in wireless, broadband and automotive communications technologies and embedded electronic products." They have been able to accomplish this goal by maintaining a continuous focus on research and development and dividing this product sector into smaller business units. Motorola's semiconductor product sector is divided into five business units: technology & manufacturing, wireless & broadband networking, transportation & standard products, global sales & support and "Metrowerks" (see figure 5).
Figure 5 The Technology & Manufacturing (T&M) organization is focused on the entire lifecycle of the product from research and development to the product reaching the customer. "Leadership technologies provided include silicon germanium carbon (SiGe:C), SMARTMOS&reg; technology, gallium arsenide (GaAs), BiCMOS and embedded memories including magnetoresistive random access memory (MRAM)" (e-www.motorola.com/files/abstract/overview/GMK2446_ABOUTUS_TECH.html).
Motorola has teamed with STMicrolectronics and Philips to research complementary metal oxide semiconductor (CMOS). Motorola believes that "[u]sing a combination of strategic internal and external manufacturing sources, Motorola provides flexible manufacturing to meet changing market needs" (e-www.motorola.com/files/abstract/overview/GMK2446_ABOUTUS_TECH.html).
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