I like this
post on Gizmodo for a number of reasons. I have a
piece on GNC talking about one, but here I am interested in what this shows about the inner workings of a company in trouble. Motorola has been around for a long time and has managed to reinvent itself a number of times to follow changes in society over time, and has managed to lead some of those changes. It was an early pioneer in the mobile phone space and helped to create the market. It fell behind as the market shifted to a more aesthetic rather than technical one but came back with the RAZR phone.
Motorola is now a
company in trouble. It has split into two divisions spinning off the troubled mobile phone division. This type of move is often a precursor to a sale of at least part of the company. I am betting that there are not many buyers for the mobile phone part at the moment. From the reports in the media and the managers letter in Gizmodo it looks very much like this is another case of executive moral hazard.
The previous CEO, Ed Zander, took the company into an ill fated partnership with Apple that gave Motorola an unpopular phone and Apple the experience in the mobile market to produce the iPhone. He also drove a re-direction of the company towards M&A and stock buybacks, all of these moves which drive up stock price. Generally a thing that executives get rewarded on. If this was the actions of a well managed company simply returning surplus money to shareholders there would be no problem with this. It appears though that the funds for these activities came at the expense of the R&D into their cash-cow market of the time, mobile phones.
As is clear to most people, the mobile phone market thrives on innovation, and there are very good profits for the company that can make the "it" mobile phone. This requires R&D funds and a team that either knows what they are doing or gets extremely lucky. From the history of the mobile team at Motorola it appears like they knew what they were doing, from the tone of the email it looks like they didn't get the management support they needed.
"You need to task the company's designers with the same mantra that created the RAZR -- make me a phone that looks, feels, and works like a symbol of wealth and privilege. Recognize the superiority of American software, and bring back those jobs so irresponsibly outsourced to China and Russia. Fully embrace embedded Linux and Google's Android initiative, and take the phone operating system out of the stone age. Recognize that, while rich people don't really know what they want, the lower end of the market does -- and fund the development of an online "crowdsourced" device design platform to take advantage of this fact. Get rid of all of your silly, useless marketing, including those overpriced and completely ineffective celebrity endorsements, and do one solidified global campaign with Daft Punk (the only group whose global appeal extends from American hip hoppers to trendy Shanghai club kids to middle-aged Londoners). Understand that the next big feature in handsets isn't a camera or a music player -- it is social connectedness; build expertise in this area, and sell it down the entire value chain."
It is scarily easy for the executive of a company to destroy value, which is why authoritarian leaders put themselves in a dangerous position. The occasional person has the right mix of smarts and luck to make it work, however all executives need to have good people around them who are not scared to speak up if they think something is not right. Those executives also need to listen to those people.
The moral hazard comes in because there is very little down side to an executive making the wrong moves in the long term. They can easily make value destroying moves that drive up the stock price and get rewarded for it. If everything goes pear shaped they will usually get a golden parachute to ease them out. On top of this a company is such a complicated thing it is easy for them to come up with seemingly valid reasons for failure so a firing will rarely hurt their ability to get another job. With little downside, and likely reward from putting short term stock price over long term viability, it is no wonder that some executives act in their interest rather than the companies.
