DOES THIS GALVIN HAVE THE RIGHT STUFF?
Motorola's third-generation CEO must stop the slide at the $28 billion company
Even in the early days of his 50-year career at Motorola Inc., Robert W. Galvin rarely missed dinner with his wife and four children. If he couldn't get his work done during the day, he would still arrive at the family's white brick house in an upper-middle-class, mostly Catholic neighborhood in the Chicago suburb of Skokie in time for dinner. Afterward, he'd sit in his tan reading chair in the den and finish up.
The kids would wander in to see him. Christopher, the third child and first of the two boys, would perch on Bob Galvin's shoulders and pretend to give him a haircut. Michael, Gail, or Dawn might give their dad a make-believe shoeshine. When his work was done, Bob, who piloted Motorola from 1959 to 1990, would tell stories about the company.
He might, for example, talk about supplying communications equipment for most U.S. space missions, including 1958's Explorer 1. His father's message, Chris would later recall, was that business is fun and can change people's lives. Says Michael, 44: "It was no surprise that we would be begging him to take us to the office."
Now, Chris Galvin has taken over the office where he and his siblings once romped. On Jan. 1, he became the third Galvin to lead the company his grandfather, Paul, founded in 1928. After 24 years in sales, marketing, and management at Motorola, Chris, who turns 47 on Mar. 21, has won the board's respect. "I'm certainly a believer that he will provide the leadership we need, not just for two or three years, but for many years," John A. White, dean of engineering at Georgia Institute of Technology and a Motorola director, told BUSINESS WEEK when the promotion was announced.
Leadership is the issue because Motorola, long a juggernaut beloved by Wall Street, has "lost momentum," as James Burkart, vice-president at Northern Trust Co., one of Motorola's largest shareholders, puts it. Once a relentless producer of double-digit sales and earnings gains, the company is at a crucial juncture. Net income fell 35% in 1996, to $1.15 billion--its worst slide in more than a decade (charts, page 104). New competition and missteps in the cellular-phone market have cut its share to 35% worldwide, from 50% in 1994. And an indUSTRy downturn and troubles at customer Apple Computer Inc. sent sales of semiconductors, its other key business, skidding 8% in 1996. The company's stock is down some 30% from its September, 1995, peak.
SUSPICION. The question on the minds of investors, employees, and customers: Is the founder's grandson up to reviving Motorola? Many worry that Galvin owes his job to heredity and question if he can lead the $28 billion corporation out of its quagmire. "There's always the suspicion that they're not getting the best executive they could get because of the family history," says Bruce E. Behrens, manager of Flag Investors Telephone Income Fund, which holds Motorola stock. "He probably has a greater burden of proof than somebody else would." Says one middle manager: "I wonder whether he has a plan to fix this place, and I wonder whether he can make it happen."
What makes his burden doubly heavy is that Galvin promises no radical change. While he declined to be interviewed on the record for this article, internal memos and interviews with top executives indicate that he plans to manage the company much as his father and grandfather did. That means Motorola will keep making costly, long-term bets on emerging technologies for which it hopes to supply high-margin equipment. Research-and-development spending will remain at about 8% of sales--$2.4 billion last year. Short-term slumps will be tolerated for long-term gain. Large acquisitions are unlikely.
In meetings and monthly electronic messages to execs, Galvin has warned that execution must improve. But will a strategy focused simply on doing more of the same, better, be enough? As never before, Motorola has nimble, well-financed rivals that can quickly challenge it in new markets. In cellular phones, L.M. Ericsson and Nokia are narrowing its lead in technology and market share. And Motorola's Iridium satellite phone service was a cutting-edge concept 10 years ago. Now, the competing Globalstar system will make it to market with a cheaper service in 1998, the same year as Iridium. "We have great competitors," Galvin often tells his executives.
He has wasted no time in seizing command, quickly lining up a management team dominated by veterans of the successful paging business. His second-in-command, Chief Operating Officer Robert Growney, headed paging. Later, he led the sector that includes paging to 33% growth from 1994 to 1996. He's a respected, detail-oriented manager with ample factory-floor experience. Hector Ruiz, who also ran paging, has been given the task of reviving semiconductors. Galvin has also installed new heads at the core messaging and paging units.
EARLY PROMISE. Regarded as a long-term strategic thinker and an effective motivator, Galvin showed signs of leadership as far back as Cranwell, the Lenox (Mass.) prep school where he was captain of his ski and lacrosse teams and senior class president. Peter Coakley, his Cranwell roommate, remembers him as "a natural athlete and a far more serious student than I." At Motorola, Galvin is credited with helping to quadruple automotive supply sales in seven years, push open the Japanese market for cellular phones, and establish standards that are fueling growth in the paging indUSTRy. Even though he has less line-management experience than other senior managers, George M.C. Fisher, who resigned as CEO in 1993 to head Eastman Kodak Co., predicts Galvin will "prove a great leader" for the company. "I think he's every bit as good as his father," he adds.
Chris is extraordinarily close to his father, who at 74 is chairman of Motorola's executive committee. Chris bears a striking resemblance to Bob and like his father at the same age, has a shock of near-white hair streaking his otherwise dark mane. The two often lunch together in Motorola's cafeteria. But when Bob offers advice, insiders say, he does so behind closed doors.
In a company dominated by engineers, both are generalists with experience in sales and marketing. Bob, a cerebral, rather formal manager who never finished college, inspired loyalty with his long service and love of Motorola. Chris is more approachable, and his personable style and remarkable memory for names go a long way toward winning people over. A graduate of Northwestern's J.L. Kellogg Graduate School of Management, he prides himself on strategic analysis and the ability to pick enduring technology trends. Galvin, says semiconductor chief Ruiz, "wants you to accomplish something that will take up a chapter in a book on Motorola. He thinks in terms of `What is your legacy?"'
UNWAVERING PATH. The only one of Bob's children to make a career at Motorola--his sisters are homemakers and his brother runs a venture-capital firm in Washington--Chris followed an unwavering path. "Some kids want to be professional baseball players," says Michael Galvin. "Chris always knew he wanted to work at Motorola."
He joined in 1973, as a salesman in the two-way-radio business. Even then, he clearly saw his destiny. While still in sales, he approached his then-boss, Frank Wapole, with suggestions about strategic direction. "I told him, `When you get to be president of [the sector], you'll get to make those decisions,"' says Wapole, now director of global government relations, adding, with no apparent irony: "He appreciated the feedback."
As a manager, Galvin has had some rough moments. Even he has admitted that his 1982 effort to cut manufacturing time and boost quality in the mobile-radio business failed miserably because of weaknesses in designs and processes. His lack of engineering skills earned him an early reputation as a technical lightweight--a rap he later beat with his grasp of technological issues. Still, some employees consider him arrogant. "He thinks pretty highly of himself," snipes a midlevel exec. And some think his seemingly inevitable rise prompted the departure of skilled senior execs, including Fisher, though the Kodak CEO denies it. Says Fisher, 56: "I never felt any pressure. Bob Galvin was as much a father to me as he was to Chris."
Not surprisingly, Chris has always been seen as different from his Motorola colleagues. Early on, line workers sometimes asked for his autograph. (He would acquiesce--if they gave him theirs as well.) He was often put on high-profile special-project teams. And he skipped quickly up the ladder, becoming general manager of a semiconductor-equipment subsidiary, Tegal, in 1984 and general manager of the paging unit in 1986.
Still, Bob Galvin alone could not make his son CEO. The family holds only about 3% of Motorola's stock, and the board has many independent directors. When Bob suggested making Chris CEO in 1993, the board chose Gary L. Tooker instead. Since then, Chris has come to be seen as a capable, even inspiring executive.
Consider how, as assistant chief operating officer, he helped Frederick T. Tucker expand the Automotive, Energy & Components Sector. Auto supply has been a core business since the 1930s, when Paul Galvin began selling the first mass-produced car radios. But when Galvin started working with Tucker in 1989, the sector, which Tucker heads, had been stagnating for a decade.
Galvin began, Tucker says, by reassuring him that he considered him a top operator. Still, he pushed Tucker to take chances, using the sector's strengths to expand. So Tucker began selling batteries for computers and power tools, not just supplying them for Motorola products. He started making chargers for cellular phones and leveraged Motorola's semiconductor expertise to sell controllers for gas and diesel engines. Since 1989, the sector's sales have quadrupled, to about $2 billion. Says Tucker: "His leadership style has brought out the best in me over the last seven years."
Among the achievements of which he is most proud, Galvin counts having helped to open the Japanese market to foreign cellular companies. U.S. Trade Representative Charlene Barshefsky, then deputy USTR, was reluctant to join the battle until Galvin assured her that Motorola would share the heat if Japan resisted. As a result of their efforts, Japan in 1994 began letting customers own cellular phones and permitted more foreign competition. The effort wasn't a complete coup: Motorola still doesn't make money selling phones in Japan. But it has cut margins for Japanese rivals in what was once a profit sanctuary.
TEAMWORK. Galvin also articulated the vision that guided the growth of the paging business. During mid-1980s brainstorming sessions, he coined the phrase an "answering machine in your pocket" to summarize the paging group's goal. Since then, Motorola has introduced technology that makes possible two-way paging, text messages, and voice messaging. As general manager of paging, Galvin also led an effort that improved quality and cut pager-manufacturing time from 28 days to about two hours.
Now, as CEO, Galvin has begun attacking a culture that has long favored internal competition. Such behavior was championed by Fisher, who fashioned Motorola into one of the world's hottest technology companies. He went so far as to urge units to try to swipe business from one another, and his successor, Gary Tooker, who became chairman on Jan. 1, followed his lead. But Galvin wants Motorola's divisions to work together. He expects to cut costs through shared research investments, for example, and to serve customers better by packaging such products as cellular phones and equipment together.
STRONGER CELLS? In addition, he is demanding greater focus on customers through better sales and marketing, particularly in cellular phones. He also plans to hold managers more accountable. In a Jan. 31 memo on improving performance, Galvin declared: "There will be no more `rationalizations' by anyone on missing aggressive financial plans." His goal, the memo states: companywide sales and earnings growth of 15% to 20% a year.
But even if he succeeds in changing the culture, turning around Motorola won't be easy. Most worrisome are the company's mistakes in cellular phones. New products have been late to market, and--shocking for Motorola--the engineering has been flawed. One phone, for example, had two antennas that turned out to garble, rather than enhance, reception. Internally, Galvin has been highly critical of such blunders.
Semiconductor operations are another trouble spot. Sector sales slipped 8% last year, to $7.9 billion, largely because of an indUSTRy downturn and a steep drop in prices. Worse, sales of the Powerpc microprocessor, one of Motorola's highest-margin chips, were hurt by Apple Computer's declining fortunes. But Motorola still has a solid business in lower-margin chips, and under Ruiz, the sector will try to expand into new markets.
Even allowing for the long-range, risk-taking strategy that is a Motorola--and a Galvin--hallmark, some outsiders are concerned that the company's batting average in launching new businesses is slipping. In perhaps its biggest recent failure, Motorola poured millions into its handheld organizers, the Envoy and Marco, before discontinuing them last year because of lack of demand.
Now, Galvin's largest financial gambit is Iridium, the satellite-communications network that will allow travelers to receive calls anywhere on the planet. Backed by Motorola and others, Iridium plans to spend $5 billion for a 66-satellite system to provide high-quality digital voice-and-paging service. The potential payoff is huge: Motorola will supply two generations of Iridium satellites while developing expertise it will use to launch at least two more systems.
IndUSTRy watchers are skeptical. The rapid growth of ground cellular systems has cut Iridium's potential market. And competing systems--most notably Globalstar, backed by Loral Space & Communications Ltd.--are cheap enough that they plan to offer calls for less than half the $3 a minute Iridium plans to charge.
Motorola has intriguing new ventures, which Galvin backs with money and people. Most promising: the cable-modem, car-navigation, and software-modem businesses. But few seem likely to bring in significant revenue, and others are years from maturation. For example, the aggressive development of cable modems is meant to capitalize on the Internet boom. But "I'd have a hard time saying that will be a commercial success anytime soon," says Flag Investors' Behrens.
Galvin should have the benefit of a tailwind in the months ahead, as demand for both cellular phones and semiconductors improves. Already, in the fourth quarter of 1996, sales in the general-systems sector, which includes cellular services, increased 17%.
But what Motorola needs most, as Galvin continually tells executives, is "renewal." It must develop technologies that give rise to new indUSTRies. That's what his grandfather did with car radios, and that's what his father did with cellular communications. All his life, Chris Galvin has followed closely in Robert Galvin's footsteps. Now, he must blaze his own trail. Where does Motorola's future success lie? In Iridium? In cable modems? In some as-yet-unknown technology? To prove he's worthy of his inheritance, Chris Galvin must find the answer.By Peter Elstrom in Chicago, with Gail Edmondson in Paris and Eric Schine in Los AngelesReturn to top