Motorola’s (see chart here) idea to spin off its mobile phone business is probably a very good thing for investors. Because that part of Motorola is a sitting duck. Motorola undertook a number of Disruptions the last 4 years, and many of its businesses have White Space doing the right things – such as launching great new products and keeping customers highly satisfied – in markets from 2-way radios to enterpise networks to digital set-top boxes.
But the mobile handheld business, well it just tried to hand onto its success with Razr for too long (read article about Motorola product competition here). Razr was good, but in today’s economy competitors around the globe see your new product and copy it as fast as possible. Then they start one-upping you, such as Nokia (see chart here) did by making lower cost phones and RIM (chart here) and Apple (chart here) did by bringing out products with even more innovation (such as Blackberry and iPod phones).
Motorola had higher cost chips, but you don’t have to be low cost to compete. Samsung used its chips to differentiate with multiple variations every month, swamping the market with "new" product even if it just barely was new. Meanwhile, Motorola introduced only 1 new product this year – the Rokr E8 – which wasn’t even new but (as the name implies) an updated Rokr which was introduced almost 3 years ago.
Now the mobile phone business is well into the Swamp (possibly even the Whirlpool some claim), while other parts of Motorola are keeping themselves in the Rapids. As the above referenced article says, previous troubles in mobile phones "stir uncertainlty and depress morale, rather than inspire Motorola’s deep pool of designers and engineers to be more innovative." Employees don’t like working in the Swamp or Whirlpool, where chronic anxiety over cost cuts, and declining investment keep the business in an also-ran status. An analyst wtih Jackson Securities said "I don’t think the people in the lab are idiots. I think creativity hasn’t been incentivized.." Employees like working in the Rapids. They know that’s where success occurs, and that’s where Motorola’s mobile phone business was in 2005 and 2006. But now that competitors have created what Ross Perot called "that great sucking sound" in mobile phones, why would anyone want to work there?
The engineers in Motorola’s mobile phone business are hard working, industrious, and talented. I know several of them, and they are world class. Their business unit’s fall from grace isn’t because of employee weaknesses or insufficient loyalty. Rather, the leaders (including Mr. Zander, CEO) made the horrific decision to try Defending & Extending their business with the Razr rather than maintaining Disruptions and White Space letting loose the talent which made and launched the Razr in the first place. This decision kept the innovation minimal, the opportunity for new products to reach market negligible and turned the business unit into a sitting duck. If this business had maintained the Disruptive behavior that got the Razr out the door, and used White Space to keep innovations flowing to market – instead of chasing market share and trying to lower costs – these engineers would be sitting pretty, rather than sitting ducks.
The competitors have been taking potshots for months. And now that we’re learning White Space disappeared in this unit, the risk is the corporation keeps trying to pump money from the better units into the duck as fast as losses pour out from competitive shots. It will be better for the employees, the investors, suppliers and customers if Motorola puts its energy into growing the businesses it has kept on course the last 4 years, and let bygones be bygones in a market Motorola created – but let get away. When you see a sitting duck, best thing is to walk away.