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What happened to Motorola

Interesting article on what happens when your corporate culture goes bad.

Meanwhile, in arguably one of the worst decisions ever made by a major corporate CEO, Zander struck a deal with his Silicon Valley friend Steve Jobs, the CEO of Apple. Together their companies created a Motorola iTunes phone, the first phone connected to Apple’s music store. “We can’t think of a more natural partnership than this one with Apple,” Zander said at the time. Named the Rokr, the phone launched in the fall of 2005. Jobs, who introduced it, called it “an iPod Shuffle right on your phone.”

Zander says he believed that by working with Apple, Motorola could become cool again. But much as it had taught the Chinese to compete with it years before, Motorola was teaching one of the most creative, competitive, and consumer-savvy companies of all time how to make a phone.

Two years later, when Jobs introduced the first iPhone, Zander’s Motorola was still pushing Razrs, pumping up sales by taking new variations further and further downmarket. The result: ever-lower profit margins. One analyst calculated that the company made, on average, only about $5 per device.

Partly because of the huge layoffs of recent years, Motorola’s innovation machine was stalling. The company had long numbered among the top 10 American firms registering U.S. patents, notes analyst Joan Lappin; by 2006 it dropped to No. 34.

Zander insists that he saw the smartphone onslaught coming but that Motorola “didn’t have the DNA or the people” to understand the software involved. He also blames a less-than-speedy Motorola supplier that, he says, caused the company to miss nearly a year in the product cycle. “We should have just broken the contract” with the supplier, he says now. “The one regret I have is that I should have taken myself out of the CEO job and run the [phone] division [myself].”

Another mistake: Zander never engaged in China the way the Galvins had, leaving the details to his division heads and country managers. When China upped its networks to 3G, his managers pushed what they had—older 2G phones—at steep discounts in order to preserve market share, unbeknownst to the CEO. The collapse of the China business in 2007 left Zander dumbstruck. That year the South Korean company Samsung topped Motorola in phone sales for the first time, and it never looked back.

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