Motorola may have been the pioneer of the Six Sigma quality programme and twice-winner of the Malcolm Baldrige Award, but did it pay excessive attention to efficiency at the cost of effectiveness, asks Kiron Kasbekar.
Motorola has been one of the few American consumer electronics companies that survived in a world increasingly dominated by East Asian and European companies. Earlier the US had to bow out of the TV and other entertainment electronics markets. Now the main US player in the mobile handset business, Motorola, seems to be on the way out.
It's sad, because Motorola was the pioneer of mobile phones, and more. It was also the pioneer of Six Sigma, and many other companies worldwide learned from it both how to make phones and to improve quality.
The Motorola website proudly talks of "Achieving a world first" when it describes how, on 21 September 1983, the company made history when the US Federal Communications Commission approved its DynaTAC 8000X phone, the world's first commercial portable cell phone. A decade of research and development and an investment of $100 million had resulted in Motorola producing "an innovative portable technology that revolutionised the communications industry and changed the lives of people around the world".
A little less than 25 years from there, and Motorola is ready to concede the game to its rivals - although its management is not saying it in so many words. The company has decided to hive off its troubled mobile devices operations into a separate company (see: Motorola to split into two companies - mobile devices, and broadband and mobility solutions.)
All indications so far are that no major mobile equipment company is interested in acquiring these operations - and these may decay slowly, unless a side player, such as China's Huawei, steps forward.
The purpose of this article is neither to debunk Six Sigma or other quality programmes, nor to imply that Motorola as a whole has ceased to be competitive. The company's quality initiatives give it considerable strength, as do its competencies in technology development and application. The point of this article is that remaining competitive in the world needs much more than these things, as can be seen in the case of the company's mobile devices division.
Doing the right thing versus doing things right
Was Motorola inefficient? Did it not manage its operations well? Was the quality of its products poor? It might seem impertinent even to ask questions like these about a company that pioneered the Six Sigma method and implemented it vigorously to improve quality and performance.
Motorola has won the Malcolm Baldrige National Quality Award twice, in 1988 and 2002, making it the only company in the world to receive this award twice (although three different AT&T companies have received the award once each). The company was seen as a quality leader not only in manufacturing but in its other business processes, including customer relations.
But the questions above are probably more irrelevant than impertinent. The real question is: is it possible for a company to become so engrossed in its process improvements that it fails to notice some vital trends in the marketplace? This may well have been the case with Motorola.
Remember Peter Drucker's repeated reminders that being effective (doing the right thing) is more important than being efficient (doing things right)? That is possibly where Motorola's mobile devices division failed. It was not paying enough attention to what it should be doing, where it should be going.
Misreading the market
It is one thing to assure quality in your existing products and processes, and to improve the performance of existing operations. It requires quite another way of thinking (and doing), not necessarily in conflict with the internal quality goals, to anticipate changes in the marketplace and to act on them.
As it turned out, the Motorola top brass was unable to read the signs pasted all around the market - about what kind of mobile phones people really wanted. The launch in 2004 of the ultra-thin, flippable Razr phones helped boost sales and profits for a while; but while Motorola executives celebrated the success of this product, rivals were not sitting still. In fact, they were better clued in on what the market wanted, and, as they launched their own new products, Motorola's Razr edge got blunted.
Consumers were not satisfied any longer with phones being phones. A better phone, with marginally more memory or weighing a bit less or, as Motorola described the Razr, "an ultra-slim, metal-clad, quad-band flip phone" - this was passť. There was a surge in demand for phones that did many things, especially managing multimedia (sharing pictures and videos, storing music, playing interactive games, accessing the Internet, and so on).
Third-generation, or 3G, phones had become a rage, especially in the rapidly growing Asian markets. Phones were not seen as mere phones any more; but Motorola had caught on a bit too late.
The misreading of the market resulted in Motorola lagging behind Nokia and the Korean electronics companies in the new growth areas. In 2007, the US company was reportedly selling less than a million 3G phones a quarter against Nokia's 3G phone sales of 15 - 18 million a quarter.
Motorola's misreading of the market also led to its complacency on the components front. It continued to procure chips, the vital core of phones, from Freescale Semiconductor, earlier a part of Motorola; and these could not match what its rivals bought either in power or miniaturisation. Only after it was too late did it decide to diversify its chip procurement to include vendors like Texas Instruments and Qualcomm.
But Motorola's problem was not technology; it was not being able to connect with people.
Motorola's mobile handset sales plummeted 38 per cent in the last quarter of 2007 from a year-ago level, and its mobile devices division made a loss.
The company's share of global mobile phone shipments
nosedived to 13.8 per cent in 2007 from 22 per cent
in 2006. Samsung has jumped ahead to global number two
position with a 14.5 per cent market share. Sony Ericsson
and LG are in fourth and fifth positions. Market leader
Nokia has a share of close to 40 per cent.
Motorola's net sales dropped 15 per cent from $42.8 billion in 2006 to $36.6 billion in 2007. This is how the management explained it: "The decrease in net sales reflects a $9.4 billion decrease in net sales by the mobile devices segment, partially offset by a $2.3 billion increase in net sales by the enterprise mobility solutions segment and an $850 million increase in net sales by the home and networks mobility segment. The 33 per cent decrease in net sales in the mobile devices segment was primarily driven by: (i) a 27 per cent decrease in unit shipments, (ii) a 9 per cent decrease in average selling price, and (iii) decreased revenue from intellectual property and technology licensing." In other words, the mobile devices division has been hit from all sides.
Billionaire financier Carl Icahn, who has invested some $2 billion in Motorola, seems to have understood the problem better than Motorola's board. He may have a reputation of predatory acquisitions and ruthless asset-stripping to milk all the value he can from his investments; but he knows his onions even if, as the Motorola management argued, he has no expertise in the mobile communications business. The reluctant Motorola management has had to eat humble pie and heed his advice to separate the mobile devices division.
The market had already read the signals; it has brought down the price of the Motorola share steadily since 2005 (see chart). It has taken a long time for the company's management to wake up to reality.
William J. Weisz, Motorola's CEO between 1993 and 1997, described the company's commitment to Six Sigma thus: "It's the next major step toward 100-per cent-perfect performance, which is the only acceptable goal."
The Motorola management should have re-read, many times, Drucker's caution: "There is nothing so useless as doing efficiently that which should not be done at all."