How shareholder commitments almost ruined Motorola

Step one when turning around an ailing company: Fire the shareholders.
Step one when turning around an ailing company: Fire the shareholders.
Image: AP Photo/Mark Lennihan
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How did a company like Motorola, which literally invented the cellular telephone, sink so low that it could be scooped up at a fraction of its peak capitalization by an advertising firm like Google? The answer should surprise no one who follows the fortunes of public companies and CEOs who are exposed daily to the blast furnace of public and investor scrutiny.

Buried in an excellent feature by Steven Levy on the genesis of Motorola / Google’s new “superphone,” the Moto X is this aside on how hardworking engineers at Chicago area-based Motorola had seen their talents squandered by managers who were themselves saddled with unrealistic goals.

[Motorola’s engineers] had worked hard despite being frustrated with Motorola’s decline, attributing it in part to a frantic treadmill that churned out zillions of models with limited appeal (catering to specific carriers, demographics or geographical areas) in order to generate temporary sales bumps to meet quarterly goals. Meanwhile, the company had shied away from long-term investments in riskier, but potentially more innovative products. “We had a lot of shareholder commitments and were churning out 40-plus products a year,” says Iqbal Arshad, who headed the Razr and Droid teams and is now Motorola’s senior VP of product development. “We really couldn’t focus and make a bigger difference.”

In other words, it wasn’t that Motorola as an organization lacked a deep bench of talented engineers; It was that the company’s leadership had put Motorola in a position that forced them to go for short-term gains.

Of course, what precipitated this decline in the first place was the rise of the iPhone and, later, the Android phones which run a mobile OS created by Google. So Google first kneecapped Motorola and then scooped up the wounded firm on the cheap, re-deploying its enormous patent portfolio and decades of experience creating unique mobile hardware to roll out the Moto X, which could become one of the most popular Android phones ever.

Motorola could never have produced the new Moto X phone on its own, not least because doing so required an infusion of talent from Google. Just as importantly, however, is the fact that as part of a larger and much more profitable company, Motorola no longer has to worry about its quarterly results. Here’s Levy, again:

In short, Google is doubling down on its massive acquisition fee to make phones that push technology and, not incidentally, promote Android and Google services in general. Building Motorola itself into a profitable entity is not an immediate objective. “Of course we can’t be a drain on the company forever,” says [Motorola CEO Dennis] Woodside, “but the goal is not necessarily to make massive amounts of money in a short period of time — we have a much longer time horizon than that.”

The lesson here is clear: If you want to transform an ailing company by making the needed drastic cuts and radical re-organizations, it’s much easier to do so once the firm is no longer trading on a stock market.