McDonalds and Motorola corporate schools and

their effect on organizations

by
Ghulam Rasool Bugti

MBA 2 Section:3C
Department of Management Science (MS)
BAHRIA UNIVERSITY, ISLAMABAD.
McDonalds and Motorola corporate schools and their effect on organizations

Introduction
McDonald’s is the most famous and well-known fast-food company in the world. It
was started by Dick and Mac McDonald’s in 1940. Their concept of the restaurant
was based on speed and therefore called ‘Speedee Service System’ in 1948, which
in today’s times is known as the fast food concept (Wikipedia, 2009). McDonald’s
serves fast food to approximately 47 million people in more than 30,000 restaurants
located in 121 countries (Bized, 2009).

The product offering has chicken, beef, bread, milk, vegetables as the main
ingredients which are composed into burgers (chicken, ham, beef, and vegetable),
French fries, milk shakes, soft drinks, breakfast items, juices, and desserts. The
major marketing moment for McDonald’s was provided by Ray Kroc, and the brand
continues to be a major success by the hard work of its family of employees,
suppliers, and franchisees. McDonald’s for years have continued with an extensive
advertising campaign targeting children, healthy food, and convenience.
The advertising is done through television, radio, newspaper, billboards &
signage, sponsoring sport and charity events, many local events throughout the
world. ? Question 1 – Summarize the strategic situation confronting McDonald’s In
1973 Richard Steinig (27 years) became a junior partner in McDonald’s Corp.
Franchisee in his 2 stores that generates 80,000 in annual sale and earns 15% from
the profit. But since 1999, sales haven’t budged, but instead costs kept rising.
McDonald’s began advertising the Big N’ Tasty burger). Instead of living the
American Dream, Steinig says: ‘The business just isn’t nearly as profitable, I don’t
think that McDonald’s has the waiting list it used to, and part of that reason is that
the return on investment just isn’t what it used to be’. Prospective franchisee were
once eager to get into the 2 year training program by waiting in line for hours, but
no line exists today, and the current franchisee start to feels alienated.

The problem of McDonald’s is beyond cleaning up restaurant, but by facing rapidly

fragmented market, and by fast growing restaurant called “Fast Casual” segment like
Cosi & Quinzo. Immigrant made exotic food like sushi, barrios. Some quick
meals of all sort can be found in supermarket, convenience store, vending machine.
The Mickey D’s heyday didn’t help, 194 franchisees left the system, with 69
restaurants forced out for poor performance, the other 25 left seeking greener
territory.
McDonald’s buys back franchises if they cannot be sold. Opening a McDonald’s
franchise costs $500,000 to $800,000. McDonald’s would rent them the location and
demand high corporate standards and in return, franchisees could become very rich.
But many franchisees says that ownership of a Mcdonalds case study. McDonald’s
restaurant is no longer the reliable cash cow it once was. In the past, franchisees who
beat McDonald’s national sales average were typically rewarded with the chance to
open or buy more stores.
McDonald’s gave millions of Americans their first jobs, and has long symbolized to
some people the American way of eating, it is now struggling with an identity crisis.
Even though it is still the nation’s most visited fast-food (more than 20 million
people eat at McDonald), the company is facing a decline in its portion of the fast-
food market and in the estimation of many of its customers, Jack M. Greenberg (60
years) introduce 40 menu items that creates no differences, instead he let the burger
business deteriorate. Surveys shows delay in service & quality compare of those
of rivals.

Back in the 90’s McDonald’s had done so well in capturing market share through
their growth and perception of cleanliness and service The solution was to bring
back James R. Cantalupo (59 years) who saw in the 80’s & 90’s the
international success. But unfortunately McDonald’s recorded its first quarterly loss
in the company 47 years history as a publicly traded business. Cantalupo & his
team which included Charles Bell (42 years) and Mats Lederhausen (39 years), had
plan to concentrate on getting service & quality right, by introducing “Up or
Out” grading system.

Cantalupo is enforcing a “tough love” program, where McDonald’s is getting rid of

the weakest franchises. And the owners that flunk the rating and inspection system
will get a chance to clean up their act, but if they don’t improve themselves they’ll
be fired. Since McDonald’s is living through the death of the mass market,
Cantalupo had cut sales growth from 15% to 2 % annually, and added only 250 outlet
in U. S. , and 30 % less new opening in Europe, including closing 176 stores from
2800 in Japan.
Some McDonald’s outlets are trying to draw more customers with improved services
and products (some greets customers and opens the door for them, others built a
resemblance to a French cafe, with a chef who makes custom panini sandwiches).
McDonald’s receives funds from its franchises in two ways. There is monthly
service fee that varies but most recently in 2002 was 4 percent of total monthly sales.
Another manner in which McDonald’s receives funds from its franchises is in rent
money. McDonald’s owns all property in which a McDonald’s outlet was built
regardless if the location is a franchise or company owned.

It is estimated that McDonald’s generates more money from its rent than from its
franchise fees. Investors have accepted that the growth day are over, they remain
happily settled for a steady dividends. Many of McDonald’s franchisees have voiced
disappointment with lower profits, expensive new cooking systems, and stressed
relations with management. Now franchisees are jumping to rivals, like Paul Saber
who was a franchisee of McDonald’s for 17 years, then has sold back his 14
restaurant when he realized that the eating habits is shifting and open Panera Brad
Co. in 2008, a Health Magazine study, judged Panera Bread the America’s most
healthy fast food restaurant).

Now franchisees are jumping to rivals, like Paul Saber who was a franchisee of
McDonald’s for 17 years, then has sold back his 14 restaurant when he realized that
the eating habits is shifting and open Panera Brad Co. (in 2008, a Health Magazine
study, judged Panera Bread the America’s most healthy fast food restaurant). Made
For You was developed with computer software that gives operators the ability to
anticipate orders based on sales volumes during peak periods, according to
McDonald’s Corp. pokeswoman Anna Rozenich. So along with the entire
hamburger category, the company has been losing market share to what the food
industry calls the fast-casual restaurants like Panera Bread, Baja Fresh, Pret A
Manger and Chipotle Grill (McDonald’s has an ownership stake in the last two) that
have successfully domesticated exotic tastes for the mass audience. “We have a new
growth strategy,” said Charlie Bell, McDonald’s president and chief operating
officer. “We will grow by adding more customers to our existing restaurants … not
restaurants to customers.
So that means our two top priorities are operational excellence and leadership
marketing. ” 2003 could be more challenging for McDonald’s once it gets past the
initial sales boost it has experienced recently from its two major production launches
— the salads and the McGriddle sandwich. After months of sales declines,
McDonald’s has begun to bounce back, recently reporting a 1. 3-percent increase in
U. S. same-store sales in April followed by a 63-percent jump in May, which reflects
the domestic market’s best performance in four years. Wall Street applauded
McDonald’s for its US. esurgence, but some restaurant analysts noted that the
company faces an uphill climb as the chain’s overseas markets continue to post
negative comparable-restaurant sales. Uncomfortable points for franchisees is the
top-down manner 1. fix pricing & menu problems 2. “made for you” kitchen
upgrades in each restaurant 3. supposed to speed up orders & contain menu
items Irwin Kruger, a veteran McDonald’s franchisee with six stores in Manhattan,
has customized the hamburger chain’s Made For You cooking system for his high-
volume urban restaurants that operate without drive-thrus. 003 could be more
challenging for McDonald’s once it gets past the initial sales boost it has experienced
recently from its two major production launches — the salads and the McGriddle
sandwich.
”I have got to make sure that I’m not turning off a customer because I can’t deliver
the service he or she wants,” said Kruger, who was involved in the development of
Made For You. “I don’t see anything wrong with a small buffer at peak lunch hours.
Greenberg insisted, however, that the majority of front-counter slowdowns are
unrelated to Made For You, but instead are caused by inadequate staffing levels,
which can lead to such problems as fry stations not being properly manned Kruger
said one benefit of Made For You is that it has reduced food waste by 0. 25 percent
to 0. 5 percent in his stores. He also emphasized that McDonald’s food quality has
improved through such enhancements as toasted sandwich buns and the universal
holding cabinets that keep all meat products hot until the sandwich is assembled.

Other service improvements Kruger has implemented in his restaurants include a

designated traffic director, or “outside order taker,” who stands on the customer side
of the counter and facilitates the ordering process. McDonald’s has promised an
expanded menu before, but it has not had a blockbuster new product since the
Chicken McNugget, which was introduced in 1983. Other attempts to diversify their
hamburger offerings, like the McLean sandwich and the Arch Deluxe, have all gone
to their respective McGraves.

This situation is a result of several aspects that include an increase in competition,

poor management, bad marketing and lack of response to the changes in the needs
of franchises and customers. One reason for this is a high employee turnover rate.
McDonald’s has the highest employee turnover rate among its competitors. Another
contributing aspect to the poor customer service is slow service at the drive-through
window McDonald’s is struggling to overcome the longtime image problems
stemming from its food and customer service, and wants to cultivate a cool
reputation so it launched its first worldwide campaign “I’m lovin’ it. , which was a
key component of its massive revitalization program, and that replaced the “We love
to see you smile”. Question 2 – What initiatives can McDonalds’ take to strengthen
relationships with franchisees? MacDonald’s is operating in more than 122 countries
around the world and it has more than 30,000 locations that serve almost 51 million
customers each day. But what makes McDonald’s a global brand is that about 70
percent of McDonald’s restaurants around the world are owned and operated by
independent local businesspeople (www. thefranchisemall. com).
So that shows the important role of the franchise in expanding and increasing the
footprint of McDonald’s around the world. The Franchisee is granted the right to
operate McDonald’s for a period of 20 years in the franchise agreement. However,
McDonald’s was not an attractive place for the franchisees back in the 90’s. There
are many reasons that led franchisees to quit and cancel their agreement with
McDonald’s back in the days which made McDonald’s to lose a tremendous amount
of money that reached to approximately $292 million and closing 719 restaurants.
McDonald’s has forced and controlled their franchisees in a way that made them
repel against them. The menu items and pricing were decided solely by McDonald’s
corporation without considering the independent demands of the customers of the
local franchisee. Additionally, the high cost of operating and maintaining the
restaurants were imposed to the franchisee nonetheless, they were obliged to abide
by the low pricing strategy which made them generate a loss instead of the revenue.
So McDonald’s had a problem maintaining their franchisee motivating them.
Therefore McDonald’s has to take some initiatives to strengthen the relationship
with its franchisees, and some of these are as follow:
• They can lean up and hand over some more responsibilities for the franchisee to
control their own store, in which giving them the choice of choosing and organizing
the decor designs, signs and equipments. These compromises will increase the
franchisee’s control in running the restaurant and hence strengthen the relationship
with the franchisor. McDonald’s should permit the franchisee the ability of
formulating and choosing the menu items which allow them to match the local
demands with the items to generate the highest revenue.

• McDonald’s should allow the franchisee to execute their own marketing and
promotional activities depending on geographical area and provide assistance once
needed.

• McDonald’s should provide a free training program for the employees and lower
managers to facilitate the operation and ensure the high quality and customer service
and the brand image. McDonald’s should keep a close relationship with their
franchisees by offering expert consultation, financial support, and an advice once
needed. This approach will ease up the communication between the two parties and
secure the franchisee in the rough times.

• McDonald’s should encourage and reward restaurants not just for their best
performance and profit, but also for their community supports and actions. This will
motivate franchisees to compete between each other to better serve the communities
which will in overall improve image of MacDonald’s.

So it is a Win-Win situation. ? Question 3 – Evaluate McDonald’s price discounting

strategy. For any product or company, the price plays a vital role in terms of
positioning the product or the company. Cravens and Piercy (2009, p. 349) believe
that “pricing decisions need to be coordinated with decisions for all of the
positioning components”. Since we have an understanding about the importance of
pricing, it is necessary to analyze the factors that might impact the pricing situation.
The following factors should be taken into consideration (Exhibit 11. , Cravens and
Piercy, 2009: 353): • Pricing Objectives • Product Costs • Customer Price Sensitivity
• Competitor’s Likely Response During 1997 McDonald’s decided to slash prices
on their menu’s in order to attract more customers from their competition and retain
the current ones. This triggered a price war between the fast food giants, and
McDonald’s “sales fell over the next four months”, (Cravens and Piercy, 2009: 283).
The fall in sales clearly indicates that McDonald’s consumers were price sensitive
and perceived it as a cheap product rather than a high value product.
Although McDonald’s objective in a price discount strategy was to lure more
customers to its brand, instead it deteriorated the brand value and assisted their
competition in attracting those consumers. According to Nurseb911 (2008) some of
the other brands such as Wendy’s and Subway instead increased their prices and
“focused on quality, health related products and effective marketing of their
products”. Consumers started seeing the increase in price of other competitors and
perceived that it is healthier, and since McDonald’s had decreased prices recently,
they could relate that lower prices means lower quality.
Over a period of time, prices discounts that were planned for short period of time
become an expectation of a consumer in the long term. Initially the low priced
burgers were an augmented product in a promotional scheme to attract more
consumers, nonetheless, over a period of time of time they became expected
products because each time McDonald’s “attempted to raise prices again in an effort
to compete against surging competition, the consumer base went away” (Nurseb911
2008). Apart from the customer’s price sensitivity and competition response,
McDonald’s should have considered the product costs across their chain.

As per Gogoi and Arndt, McDonald’s franchise owner Steinig rebelled at the price
discount strategy because the “$1 menu featuring the Big N’ Tasty burger” actually
cost him $1. 07 to make it. For every burger that is sold in that offer Steinig is losing
7 cents. Product costs are higher than product selling price. All the above show that
McDonald’s had not taken into consideration while implementing the price discount
strategy of how it might affect the customers, the competition response, the product
costs, and above all the Brand value itself. ?

Question 4 – Discuss the threats to McDonald’s of the changes that are occurring in
the fast food market. Since McDonald’s is the most popular brand in the product
category of fast food chains, it has rising threats from its competitors and the
changing world. These threats can reduce the growth percentage of McDonald’s, and
also cause the end of the fast food giant. Firstly, the number of fast food chains is
increasing rapidly, and therefore the number of competitors is increasing which are
directly or indirectly in competition with McDonald’s.

This reduces the growth opportunities for McDonald’s as it is saturating the market.
The new competitors are accompanied by the existing competitors who can create
huge pressure on McDonald’s to stay ahead of the competition, and keep its loyal
customers. Secondly, the existing and the upcoming food chains in the world are
moving towards the healthy food. McDonald’s has started creating a line of healthy
food but it is minimal. Also, people in general are becoming health conscious and
trying to avoid unhealthy food.
Moreover, strong advertising and marketing campaign is required to inform
consumers about the new healthy line of food available. Thirdly, the image of food
available is negative. Consumers generally feel the food is the root cause of obesity,
heart attacks, diabetes, and other health problems. This causes negative publicity and
can cause people to avoid eating McDonald’s. Moreover, it has been displayed in
movies like ‘Super Size Me’ and others that eating McDonald’s causes obesity
which disturbs the positioning of McDonald’s (Press Release, 2004).

Fourthly, many people around the world are turning vegetarian due to many reasons
like avoiding slaughtering of animals, diseases found in animals like bird flu, swine
flu etc. But the McDonald’s menu does not provide a wide range of vegetarian
products and most of their products are not completely vegetarian. For example, the
French fries contain beef flavoring (Spiritual Guides, 2009). Fifthly, all the
McDonald restaurants have similar seating and the quality of the restaurant is
considered poor.
Today’s trend of restaurants has couches, plants, and better ambiance than
McDonald’s which has plastic chairs, and poor quality ambiance. Moreover, there
is a McDonald’s in nearby distance and mostly all of them look the same. This is
creating a repetitive atmosphere and competition against each other. Lastly, negative
publicity in news, movies, spam mails, etc spoil the image of the company.
Examples of spam include McDonald attaching Kids Meal coupon with report cards,
or issuing a fine for not finishing the meal (Barkham, 2008).? Conclusion

McDonald’s had become very successful during their initial days mainly because
there was less competition and the costs were low which helped the franchisees to
have better margins. Over the years, costs have been increasing at a quicker rate than
the prices of the food McDonalds’ serve, therefore leading to decline in the margin.
This is when McDonald’s started feeling the pinch and was forced to think of
different strategies to sort out the problem at hand. Franchisee contracts were not
renewed, underperforming franchisees were asked to leave, and overtime, people
started becoming more health conscious and changed their eating habits.

One of the strategies implemented by McDonalds was the price discounting plan,
where McDonald’s expected this strategy to increase the footfall in their stores,
instead it reduced because people started perceiving McDonald’s as cheaper brand
and started doubting on their quality of food. Competition took advantage of this
situation by hiking their prices and focusing their marketing on healthier food items.
Overall, looking at the size of McDonald’s, it is the first of its kind in that industry
(fast food) to reach such a high level.

Motorola training school

Motorola had started training its ernployees' way back in the r920s, and the
importance of training continued to grow. Till the early 1980s, Motorola had its
own standard employee development activities in rich training was the key
element. During those days, when people were recruited for manufacturing, the
company looked for three essential qualities in the employees - the communication
and computational skills of a seventh grader; basic problem solving abilities both
in an individual capacity and as a team player; and willingness to accept work
hours as the time it took to achieve quality output rather than regular clock hours.
The quality of the output was the primary consideration for Motorola, and
employees were expected to make full efforts to achieve qualify. Most of the
employees learned their job through observing the seniors at work and learning
through the trial and error ' method. The training lessons imparted to them involved
techniques to improve their communication skills and sharpen their calculation
skills. Employees were hired to perform set tasks and were not required to do much
thinking. If they had a problem with one of the machines, a trouble-shooter was
called to fix it.
after world war II, technologies changed and so did manufacturing practices.
Competition too became more intense. During the 1970s, Motorola’s human
resource (HR) department began to realize that training and education had to be
rewritten in tune with the company need.. The senior management’s role , no
longer limited to supervision; they had to learn new skills and technique exemprifv
them to subordinates. Employee training practices, the HR department conducted a
corporate-wide study in 1970 and tested the skills of employees. The tests revealed
the astonishing fact that a majority of employee don’t know of doing simple
arithmetic calculations like percentages and fractions; some of them could not even
understand the product related instructions on the packages. These discoveries
made the HR department think -of going beyond improving the working skills of
employees to enter new areas of educating ihut t,uo never been touched upon
earlier. Instead 9f gnly technicar skiil instructionr, made truining was now two-
pronged - teaching the lO'fi grade school basics at th. irnour.ntal training level, and
introducing nerv concepts of work, quarity, .orn.,unity reaming and leadership at
the development level. Gone rvere the days of ca.iling an expert every time a
machine deveroped a minor problem. Even if the services of thb expert rvere
unavoidable, the workers were at least expected to describe the failure clearly with
all technical details. Apart from maintaining a high quality of work, the empioyees
were also expected to understand their equipment, anticipate and anaryze
biealdorvns in equipment, and begin the troubleshooting process before the expert
anived ' ) In 1919, Galvin asked the HR department to design a five-year ord
training pran to upgrade the skills of its emproyees. Howev.r, ih. pran focusing on
n.* ,oorr, technologies and teamwork did not produce the desired iesults. Nerv"and
sophisticated equipment was deployed, .but-the plant managers did not change
their working sfyle. Galvin also established the Motorola Execr]tive Institute,
bJnowing faculty from leading universities across the world, to take a course on
management subjects to 400 executives in four weeks. The top management was
trained in international business issues such as economics, personnel and
intemational relations. 'fhe participants learnt a great deal but failed to implement
rvhat they learnt, and the ultimate result of the program rvas disappointing. Galvin
realized that the training programs were not yielding desired resurts because the
top management was rearning new things but was ,nriittin! to .t,ung. its ord rvays'
He believed that the top management would lead the.hang? onty irthey felt a
compelling need to change, and if this need was also felt ttrrougf ati lhe levels in
the company' It also lneant that training was required not just 6r executives but for
rvorkers as rvell. To cany out theie training programs, an emproyee education
department named Motorola Training and Education -centei (MTEi) was
establishecl in 1980. The trvin objectives or.tiis programs were: to expand the
parlicipative management processrr, and to help improie itre quality of products
tenfold in rhe coming five years. The prograrns wcre intended to educate
rr,loto,oiu;, peopre as rvel as to be an agent of change. Initially, MTEC analyzed
the existing jobs profiles and hied to anticipate how they rnight change in the near
future so as to train people acco^rdingly, A five-par1 cuniculum rvas designed
rvith a thrust on product quuiity (Refer to Exhibit I for highlights of the five-parr
cuniculum), However, this elaborate program meant that at a typical plant with
2,500 workers, the M'|EC was using 50,000 enrployee hours - a lot of time away
from the job for a training program which many skeptics cailed highly ,esoteric'12.
The company initially considered the time worth the investment, but ioon the
skeptics **r. pr-ou.il right. Later evaluations showed that people attended the
program, took the .burr.r, went back to their jobs and reassumed their old attitudes.
When the course was designed, the HR deparlment thoughthat the people at rvhom
it was aimed at would sign up enthusiastically. However, the experiment showed
that people resisted formal classroom training. Therefoie, MTEC developed self-
help material which employees could take home. But this attempt, too, failed as
thL workers did not consider the homework packages as real training.-They took
home the study material and never bothered to open it. The employees did not
seem to consider training necessary, whether it was imparted in a formal classroom
or as a learn-athome package. The HR department was now in a fix. It rvas not a
case of people not being able to learn but a situation where they were not willing to
learn. So, now the challenge was to motivate the people to overcome their
cornplacency and make them learn. Motorola had always emphasized employee
loyalty and in its early days, people were hired for life. After ten years of service,
they became entitled to membership of the Service Club, which meanthat they
rvould not be terminated except on the grounds of poor performance or dishonesty.
The management felt that the time had come rvhen people had to be told that'poor
performance' included unrvillingness to change. They made it clear that everybody
would be retrained on nelv technologies. If anybody refused to retrain, they would
be dismissed. Another challenge for the HR departrnent was the conflicting
behavioral pattems of different levels of management. The top management always
insisted on meeting the deadlines; whereas the workers, who had been taught
quality improvement techniques, were eager to implement them, sometimes
resulting in late deliveries. workers wondered why they were not being given time
to implement the nerv quality improvement techniques and the top management
wondered why quality rvas not improving in spite of training. The middle
management was caught between the conflict between the top and bottom cadres.
By 1984, the department lvas disheartened bythe discouraging results of the
training program, It decided that training rvas required for the top as well as the
bottom management levels, and that these two programs needed to be integrated so
that both levels would be aware what training was being imparted to the other
level. The HR officials wanted the different management levels to realize that
better quality could be achieved within the stipulated time by integrating efforts
across various levels. The top management was taught that simply meeting the
deadlines was useless unless quality standards were met, and the workers were
taught that production was a time bound process and they could not work for
indefinite periods to achieve perfect quality.. Since they rvere about to be given the
greater responsibility taking the company products globally, a quick math test was
conducted to assess the need for further training. The result was shocking. Only 40
percent of the employees knew l0 was what percent of 100, The reason for this was
that the immigrant work force found it difficult to comprehend English.

Motorola University
After conducting various training experiments that spanned afew decades,
Motorola came to understand that training involved more than designing and
implementing one particular program for a set of employees. To keep improving
performance, training should be a continuous learning process involving each and
every person in the organization. Normally, training was an ad hoc measure,
whereas education gave the recipient a vision, Education was viewed as an
investment rather than a cost. Therefore, Motorola decide to elevate MTEC to the
status of a university in 19g9. Motorola's objective in having its own university
was to provide education relevant to the company, to the job and to the individual.
Therefore, Motorola university could not operate on the same lines as regular
universities. It designed its own courses and method of imparting training, and
maintained absolute autonomy. It was decided at the time of the launch of the
university that it would operate with its own board of trustees.who were general
managers of the company. Their duty was to understand the training requirements
of the company, design a course to meet those requirements and impart training to
employees tore-define their responsibilities in accordance with the changing times.
The responsibilify of the universify was not just to educate people, but to operate
as a change agent. It served as the link between employee education and the
company's business strategy, whether the objective was reducing costs in
operations, improving product quaiity or accelerating new product development.
The curriculum was designed keeping in view the requirements of the company.
Emphasis was laid on participative management, empowerment, motivation,
individual dignify and ethics. Employees were taught various business-related
topics ranging from the fundamentals of computer-aided design to robotics, from
communication skills to customized manufacturing. Training instructions were
offered in three broad categories - engineering, manufacturing, sales and
marketing.
Until 1996, Motorola was considered by many to be the best-managed company in
the world. It was described as an icon of innovation, a pioneer of self-directed
teams, and a prince of profits; it wrote the book on decentralization, on job
training, and on promoting cooperation between labor and management. Motorola
was regarded as simply the best in the world in almost everything it did --
including cellular phones, pagers, two-way radios, semiconductors, and other
electronic gadgets. In 1995, Motorola had an incredible 85 percent share of the
world market in pagers, a 45 percent share of the world market for cellular phones,
and $6 billion in semiconductor sales (making it the world’s number 3 chip
producer, after Intel and NEC), and it generated more than half of its revenues
abroad. Contrary to many other large U.S. firms at the time, this was a large
company that sizzled. From a slowly declining electronics company in the 1970s,
Motorola had become a world technological leader, beating the best of its Japanese
competitors -- and in the process becoming an industrial legend and management-
books case study. By 1998, however, it was clear that Motorola had slipped very
badly. First, it failed to anticipate the rapid move to digital technology and so it lost
market leadership in cellular telephones, not only around the world but also on its
home turf, to a relative newcomer, Nokia of Finland. Then, came its leadership
crisis after its respected chief executive, George Fisher, left to head Eastman
Kodak and Chris Galvin, the unseasoned and less than brilliant third-generation
member of his family to run the company, took over. Finally, came its ill-fated
move into Iridium, the ambitious new satellite world-wide telephone service,
which failed to take off and filed for bankruptcy in August of 1999. The question
is: How could this have happened to a company that until a few years earlier had
been regarded as one of the best companies in the world? In a nutshell, Motorola
simply seemed to have lost its way during the second half of the 1990s. It had
grown arrogant with success, self-satisfied, and sluggish in execution, in a world
that had become increasingly competitive and fast. Motorola’s renowned “warring
tribes” culture, that pitted one division against the other, backfired and became a
stumbling block to change and renewal. Since 1998, Motorola has tried to turn the
company around by merging into one unit the cellular, paging, and the two-way
radio operations, which previously had been separate and beset by warring
divisions. Motorola sold the low-end chip manufacturing operation, laid off more
than 48,000 of its 150,000 employees, and shifted more than 3,000 engineers to
develop new digital handsets. Potentially more significant, Motorola tried to move
2 into a new direction, whereby it not only designed and produced the chips but
also designed and developed the software that ran them, as well as working with
customers to develop new products and services. Specifically, Motorola wanted
mobile telephones, two-way pagers, personal organizers, and other hand-held
devices to combine voice and Internet services, and in the process also regain
market leadership in digital cellular telephones in the United States and around the
world. But this did not work out and Motorola incurred its first annual net loss in
decades in 2001. After regaining some market share in recent years as a result of
the introduction of its highly successful Razor cellular telephone, Motorola’s
market share fell again from almost 23% of the world market in 2007 to just over 6
percent at the beginning of 2009 and 3 percent in 2010, while Nokia’s rose to
nearly 40%. In January 2011, Motorola split itself up into two separate businesses
(Motorola Mobility and Motorola Solution), and in May 2012 Motorola Mobility
was acquired by Google. In the meantime, Nokia lost a great deal of market share
in 2011 from competition from Apples’ iPhone and most recently from Apple's
iPad, and it was acquired by Microsoft in September 2013.