Reinventing Motorola

CEO Zander is shaking things up in a bid to make the company a tech leader

It takes Motorola Inc. employees about 30 seconds after they meet Edward J. Zander to realize how different their new boss is from their last one. Where Zander's predecessor, Christopher B. Galvin, was reserved, polite, and genteel, Zander is a brash Brooklynite, incessantly pumping hands and flashing his trademark mile-wide smile.

But in March, three months after taking over the chief executive post, Zander showed he also was going to be much more demanding. He gathered his top 20 execs in the company's downtown Chicago offices, some 30 miles from the Schaumburg, Ill., headquarters, for a two-day brainstorming session on how to improve Motorola's lackluster execution. His message: Employees will be held accountable for customer satisfaction, product quality, and even collaboration among business units. "If you don't cooperate and work together, I will kill you," he said. Today, Zander laughs: "That's surviving-and-growing-up-in-Brooklyn talk. It was my way of saying, 'We're going to fix this thing."'

Zander is about as affable as CEOs come, but he's deadly serious about restoring Motorola to the top of the communications world. The tech veteran, who spent 15 years at computer giant Sun Microsystems Inc. (SUNW ) and eventually became its president, is trying to reinvent Motorola as a nimble, unified technology company. His most dramatic effort to date is a plan to dismantle Motorola's debilitating bureaucracy and end a culture of internecine rivalries so intense that Motorola's own employees have referred to its business units as "warring tribes." And he's not leaving it to chance: He has made cooperation a key factor in determining raises and bonuses. "It's a damn different place," says Patrick J. Canavan, a 24-year veteran and Motorola's director for global governance. "Everyone is looking out for everyone else."

The changes are just beginning. BusinessWeek has learned that Zander has been exploring a major reorganization, and the first steps of the restructuring may be unveiled at an investor conference in Chicago on July 27. By October, Zander hopes to abandon Motorola's stovepipe divisions, which are focused on products like mobile phones and broadband gear, and reorganize operations around customer markets -- one for the digital home, for example, and another for corporate buyers.

The reorganization will help Zander deliver on several new initiatives. Perhaps the most important is what the chief executive calls "seamless mobility." The idea is that Motorola should make it easy for consumers to transport any digital information -- music, video, e-mail, phone calls -- from the house to the car to the workplace. Mastering that technology would do more than boost cell-phone sales. It also could make Motorola a key player in the digital home, helping it sell flat-panel TVs and broadband modems, home wireless networks, and gateways to manage digital content. Separately, BusinessWeek has learned that Motorola is planning a major push to sell more services to corporations. While Motorola sells communications gear to corporate customers now, Zander sees an important growth opportunity in managing networks for those companies. "We have to get more focused on that," said Zander in an interview with BusinessWeek.

So far, Motorola is performing impressively under its new chief executive. On July 20, the company reported that second-quarter sales surged 41%, to $8.7 billion, while operating income rose five-fold, to $845 million. The primary driver was the mobile-phone division, which boosted revenues 67%, to $3.9 billion. Still, investors are looking for Motorola to get its profitability up to the level of its rivals. Despite Nokia Corp. (NOK )'s recent troubles, the operating margins in its mobile-phone business are 19%, compared with 10% for Motorola. "Margins are still sub-par," says Barbara L. Rishel, a senior portfolio manager for MTB Investment Advisors, a large Motorola shareholder.


No disagreement from Zander. Although he's unlikely to announce it on July 27, Zander is planning to trim costs in coming months by shedding employees, according to insiders and analysts. He's also plotting management changes that will bring in more handpicked people to help execute his plans. On July 20, Motorola said the head of its mobile-phone division, Tom Lynch, would leave the company at the end of the summer. Zander declined to discuss any details of cost-cutting or executive changes.

But investors that want Zander to jettison poorly performing businesses may be disappointed. The CEO proceeded with the spin-off of Motorola's semiconductor unit that had been put in motion before he arrived -- the deal took place on July 16, despite upheaval in the chips market. Still, insiders say he's impressed with the remaining portfolio of businesses, including the $4.4 billion wireless infrastructure business that some analysts have suggested that Motorola dump.

Instead, Zander is focused on reducing the number of separate businesses. Analysts say he is working on a plan that could combine the wireless network unit with the company's broadband division. By collapsing two units that make equipment to route data through networks, Motorola could cut expenses and smooth execution. Zander declined to comment on any potential reorganization.

Just as important as the structural changes will be the strategy that goes with it. The concept of seamless mobility was born on a flight to France in February, when Zander and his chief technology officer, Padmasree Warrior, were headed to a wireless-industry conference. The strategy has been refined over the past few months until senior leaders from Motorola's business units gathered last month at Motorola University, adjacent to headquarters, to discuss strategies for internal development and potential acquisitions.


The Motorola vision starts with users sitting at home watching, say, the New York Yankees battling the Chicago White Sox. To leave home, they pause the video, transfer it to their phone, walk into the garage and transfer the video to the car as they drive away. The car would switch to audio so as not to distract the driver and then switch back to video if the driver stops at a traffic light. Motorola has the technology portfolio to pursue the entire scenario. Besides phones and cable set-top boxes, it has a $2.3 billion automotive-electronics business that develops technologies for cars to communicate with outside networks.

The key will be beating rivals to market with innovative solutions. That's why Zander's top priority has been improving execution. The main driver is a new incentive plan. In the past, workers were compensated based on the revenue, profit, and cash generated in their particular sector. If one sector did well, its employees pulled in huge bonuses. A unit that didn't perform got little or nothing.

Zander has been relentless in trying to get the most out of his staff. A new bonus plan bases 25% on three key areas: customer satisfaction, product reliability, and the cost of poor quality. When the heads of each business unit first laid out their targets, Zander's no-nonsense roots showed: "You're sandbagging," he barked. Before long, the targets were more difficult. "We're driving for improvement year over year," says Michael J. Fenger, a vet Zander picked to improve corporate quality.

If Zander can maintain Motorola's momentum, the years ahead look promising. It's gaining share on the world's mobile-phone leader, Nokia, and the elements of Zander's master plan have yet to take root. "It's a big ship," Zander concedes -- so it will take time to change direction. But it takes no time at all to to see that Zander is committed to the challenge.

By Roger O. Crockett in Chicago

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