Motorola's Position In Cell Phone Business example essay topic

Competitive Strategy Min 3 - 45-888 Final Report Written by: Jeff Mukogosi Presented to: Professor, Jeffery R. Williams Motorola's Position in Cell Phone Business: Sustainability Analysis Executive Summary In 1999, Bill Gates said "Business is going to change more in the next ten years than in the last fifty... If the 1980's were about quality and the 1990's about reengineering, then the 2000's will be about velocity... A manufacturer or retailer that responds to changes in sales in hours instead of weeks is no longer at heart a product company, but a service company that has a product offering". Bill Gates - Business at the Speed of Thought (Penguin Books, 1999) Boy was he right, and particularly to what we have seen happen in the telecommunications industry.

Indeed, nowhere was this pace of change felt more strongly than in the telecommunications industry. Companies operating in this fast-cycle environment are required to deploy new and innovative technologies within a commercial framework which demands that their products and services must be faster, better, and cheaper in order to remain competitive. We see that even when such demands are met, these companies' products and services are still copied so quickly that they yield very short-lived advantage. Therefore, survival in these highly Schumpeter ian competitive markets depends, upon agility and flexibility in the way these companies respond to customer requirements. This demands that fast-cycle companies must be first and foremost, well managed to remain competitive. The question we " ll attempt to answer in this paper is: In such dynamic environments, how long can firms really exploit competitive advantage?

Motorola, the focus of this paper is a fast-cycle company that was once a leader in the telecommunications industry, but today is one of the struggling tech companies in this industry. In fact, it is not uncommon these days to hear industry analysts's ugg est that Motorola should spin-off and break-up in order to be profitable again. This paper attempts to explore strategies good or bad, which led Motorola's cell phone business to fall from the top of the convergence curve to the bottom, in a market they once had advantage. In particular, we " ll use Motorola as an example to make the point that advantage once achieved is temporary, (Williams 1998) and that sustainability strategies are critical to maintaining competitive advantage.

We " ll do this by using the three laws of competitive dynamics; Renewal, Alignment, and Convergence. Background Motorola specializes in the supply of communications infrastructure equipment including cellular transmission base stations, amplifiers, and switching products. The first handled two-way radio ever on the market was designed and manufactured by Motorola and these products being the first, they enjoyed first-mover status. The two-way radio was widely used by the US Army during World War II. As the number two biggest manufacturer of mobile handsets (second only to Nokia), Motorola used to get about a third of its sales from personal communications products- cell phones and two-way radios and nearly a quarter in sales came from its equipment for wired and wireless network.

Sustainability In the early 1990's Motorola was a clear leader in the cell phone market and enjoyed the benefits of being at the top of the convergence curve. Few giant companies grew as fast as Motorola did in that time period. Sales of Motorola's semiconductors; cellular phones, pagers and other electronic equipment more than doubled, to $27 billion, and profits nearly quadrupled, to $1.78 billion. However, in the last three years starting late 1999, Motorola's biggest wireless communications business, cellular telephones, has been wracked by price wars from competition and slowing sales.

With the fierce competition from external players (Nokia, Ericsson and Siemens) flooding the US market with cheap and high quality products, Motorola was caught unprepared and incurred large write-offs on inventory that depreciated substantially within one quarter; in other words, convergence occurred very fast. The advantage once enjoyed was gone. Therefore, to regain the market share, Motorola realizes that they have to make trade-offs to pursue those activities that yield the best operational fit for them (Alignment). They have to implement strategy elements (renewal) that can not only drive uniqueness, but those that must be maintained or extended (Williams 1998). Convergence Motorola is not well positioned on the convergence curve; today the company is almost half of its value compared to where it was a few years ago. Most of the lose is due to slowing sales of its cell phone business which used to bring in a third of the company's gross rents (see current value in billions $ below).

This portion of sales that Motorola lost (a third), coincidentally agrees with thirty percent (Williams 1998) of a typical company's value that is determined by its products' position and movement on the convergence curve. Motorola: $18,775.9 Ericsson: $511.4 Nokia: $60,997.9 Siemens: $33,796.7 In trying to understand Motorola's current position, it is quite tempting to blame outside factors for the company's under performance. But when we look back at how quickly other companies in the same industry like Nokia, and Siemens reacted to stop their dropping revenue streams, we have to ask ourselves why Motorola's management sat around and did little to prevent the company from shifting all the way to the bottom of the convergence curve. The main difference was that these companies implemented successful strategies, while Motorola did not. We noticed that one of the strategies these companies successfully implemented was taking immediate re-organization actions that included lay-offs and spin-offs to cut costs to offset their losses; actions that now Motorola is taking, but a little too late. Motorola failed to follow one of the core principles in strategy; observe, orient, decide and act - OODA.

As an interesting observation, we noticed that while it took these other companies' a short time to OODA, two years went by (1998-1999) without Motorola taking any action. In fact in early 2000, as a first sign of failing strategies, although Motorola was losing market share, the company under the direction of Chris Galvin, CEO, acquired General Instrument at $17 billion specifically for its Iridium system. That spring the Iridium project, the go-anywhere portable phone system that beamed signals down from 66 satellites orbiting the globe went out of business, leaving Motorola to oversee the de-orbiting and destruction of its satellites. By late 1999, some of Galvin's most trusted lieutenants were advising him to abandon the business, which had had already cost Motorola $5 billion at the time. To them, it was clear that no viable market existed for the service and its $1,500 -$3,000 priced phones. Iridium had already filed for Chapter 11, its investors were frustrated, and last-ditch negotiations to sell the system were stalling.

However, top wireless execs at Motorola tried unsuccessfully to advise Galvin to cut his losses and bail out of Iridium. In one of his public comments, despite the fact that 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 project until December, 2000 -- a year after colleagues first advised him to cut the cord. Executives close to the company say he told staffers that holding onto the project was important to Motorola's image and that the company needed to stand behind the venture's investors. The moral of focusing on Motorola leadership: It is due to failed strategies that Motorola finds itself in this bad situation. It is not by coincidence that Chris Galvin, appointed the CEO in 1997, has been blamed for most of the problems facing the company.

Since taking over the job after his father's retirement, Chris Gavin's performance as the company's leader has been in question. It is widely believed that his inability to cope with change, failure to create winning strategies, and failure to react fast in some situations, is part of the reason Motorola has shifted towards hell, characterized by low value on the convergence curve. How does Motorola get out of this mess? What should they do to move towards heaven, on the curve? We answer this question in the next sections that cover Alignment and Renewal.

Alignment Alignment requires the ability to make trade-offs to pursue those activities that yield the best operational fit. According to Porter's philosophy of evolving strategy, the capabilities of a company and the need for it to understand the dynamics of change in its environment, evolve together (Williams, 1998). As we have seen, Motorola is far from this concept. The best operational fit for Motorola is to take calculated risks and build new markets while taking advantage if its core competencies. As we stated earlier, Motorola was the first company to develop and market car radios, two-way radios, paging system, cellular telephony and satellite communications. Motorola needs to capitalize on the fact that the world's digital economy today is based largely on its core competencies of embedded electronics and integrated communications.

Ideally, companies should identify their core competencies right from the beginning and plan to ensure that they keep a head of their game and maintain their competitive advantage (Williams 1998). They should serve only markets that are well aligned with their capabilities. During our research for this paper, we " ve noticed that in its quest to distinguish itself and re-gain back lost market share, Motorola has now recognized that convergence, a universal law affects all companies. In other words, the company's management has finally come to the idea that because of convergence, advantage is temporary, and therefore the urgent need to implement changes that will lead them to realize the company's value.

Renewal To ensure its foothold on innovation and market leadership, the company has stepped up its pace of forging strategic alliances with other technology leaders. The following excerpt from an executive at Motorola, Barnaby J. Feder, lays out what seems to be the company's renewal strategy. "If you can't beat 'em, join 'em". Motorola is set to replicate itself through organizational DNA.

During our research, we noticed that a sign of Motorola's seriousness towards renewal, the company has embarked on several new strategies; they have already started to make their proprietary handset semiconductor and software technology available to rival cellular phone makers or to anyone else interested in entering the field. They plan to make available chips, a design layout for the computer board, software, and development and testing tools. Also in a surprising move, as one analyst noted, Motorola will begin offering the technology based on the next-generation general packet radio service (GPRS) standard, which offers faster access to data through "always-on" network connections. We also noted that Motorola was the first to launch GPRS phones in Europe. Rival Nokia isn't expected to launch its first GPRS phone until later this quarter. Analysts say the move should boost Motorola's profitability and increase pressure on competitors as they fight back for market share.

The company believes by introducing the GPRS phone it will be changing technology landscape that gives industry watchers a sneak preview of new and better things that consumers around the world are likely to come face to face with in the coming days. This is in line with Motorola's determination to maintain its role as innovator and technology leader well into the future. Motorola's strategic focus during this renewal phase is to bring integrated Internet, broadband and wireless solutions to the person, the work team, the home and car. Here are other Motorola's renewal strategy developments: o Its alliance with Cisco is designed to pave the way for the convergence of technologies. o Its recent alliance with IBM will help automakers bring a variety of wireless and Web-based services to car drivers and passengers worldwide. o Its alliance with Eaton Corp. will give General Motors a specialized integrated transmission control module, reducing GM's development time and costs.

We have seen that when times get tough, Motorola's strategy is to tighten their belt enough to get by without sacrificing investment in these new ventures that they believe will take them to back to heaven. Everything that they have done so far leads one to rethink of the vision that once guided them through the 1980's of a world where people wanted to be able to send and receive information anywhere, anytime and in any imaginable form, from voice to high-speed data transmission. With these strategies in place, Motorola figures that in such a roomy universe, there is plenty of opportunity that will allow it to achieve a goal of expanding its techno-empire at a 15 percent annual clip, doubling revenues every five or six years, just as it did during the last two decades. However, Motorola's size and the fact that they do business globally, has in the past forced its strategies into an ever-shifting and sometimes confusing array of alliances and battles with different governments, rivals and customers. As an example, major communication and computer companies like NEC of Japan, Northern Telecom, Texas Instruments or AT&T are suppliers to some parts of Motorola, competitors to others and customers of still others. While these factors may complicate Motorola's long journey back to the top of the convergence curve, we believe on balance, that the company has put together bold and sound renewal strategies that could make real difference.

Only time will tell.