Chapters 1 and half of 2 of my book im working on

[Hatta]

I can read your work and visualize how everything looks on my own, but I have no idea how you intend it to look.

I thought the great thing about literature is that it can mean whatever you want it to mean. At least, that's what people keep saying.

[Luke]

You just made my day.

[Ack]

I can read your work and visualize how everything looks on my own, but I have no idea how you intend it to look.

I thought the great thing about literature is that it can mean whatever you want it to mean. At least, that's what people keep saying.

Sure, it can mean something obscure, but usually the author will describe the characters. That way, it helps us to get a better feel for them. Right now, they're little more than two dots in space on bicycles, which could have anything at all applied to it. For all I know, Colon looks just like Paul Bunyan, and Palex is Mickey Rooney doing his Japanese man impression from Breakfast at Tiffany's.

[J T]

I think Colon is a metaphor for where the story is coming from.

[Jrecee]

ha

[Luke]

Why we're posting our work, here's part of my thesis from two years ago (abridged due to 60,000 character rule):


I. CURRENT SITUATION:
A. BRIEF FIRM HISTORY
Motorola began as the Galvin Manufacturing Corporation in Chicago in 1928 as a radio communications pioneer company. The company produced its first Motorola-branded car radio in 1930, followed soon after by radios for public safety officers. In 1940 Motorola developed its first handheld radio that was designed for the United States military. Beginning in 1946 when radiotelephone service began in the United States, the company produced mobile telephones in cars. In the early 1970s, Motorola announced plans for high-capacity mobile telephone systems based on cellular technology. By February of 1973, Motorola had produced a working DynaTAC (DYNamic Adaptive Total Area Coverage) portable phone prototype. They presented the DynaTAC prototype phone and system concept to the FCC, which soon announced that it would hold new hearings on allocating spectrum for cellular service. While Motorola worked with United States government agencies to receive regulatory approval, the team continued to test and refine the technology. Meanwhile, the cellular concept was spreading through other parts of the world. Motorola began supplying systems and phones to other countries. On September 21, 1983, Motorola made history when the FCC approved the DynaTAC 8000X phone, the world's first commercial portable cell phone. After more than 10 years and a $100 million investment, Motorola's commitment produced an innovative portable technology that revolutionized the communications industry and changed the lives of people around the world.
Motorola is in the mobile phone industry. Motorola primarily is involved in connected home solutions, government and enterprise mobility solutions, mobile devices, and networks & enterprises. This paper will be focused on the mobile devices business segment. Currently, Motorola is ranked number two in worldwide mobile phone sales and number one is North America and Latin America. During the first quarter of 2007 Motorola holds 18.02% of the worldwide mobile phone market share. Motorola comes in second to Nokia who currently holds 36.15% of the worldwide mobile phone market share. In the Fortune 500 Motorola is ranked 54 and is ranked 152 in the Global 500. The diversification of the firm in related.
B. STRATEGIC POSTURE
1. Current Mission
Motorola’s current mission is to be known around the world for innovation and leadership in wireless and broadband communications. Inspired by their vision of Seamless Mobility, the people of Motorola are committed to helping the customer get and stay connected simply and seamlessly to the people, information, and entertainment that they want and need. Motorola does this by designing and delivering the "must have" products, "must do" experiences and powerful networks, along with a full complement of support services. Motorola’s current mission is more of an abstract idea and does not have a clear quantifiable destination.
2. Porter’s generic strategy
Motorola’s current strategy is differentiation, although management in not currently following this strategy. This strategy is appropriate for the competitive environment when implemented and followed appropriately. The strategy is stated in the mission statement. Motorola’s strategy is to design and deliver to their customers what products they desire and feel they must have. Differentiation works best within this industry because there is rapid product innovation and frequent introductions of new or updated versions of mobile devises, which help maintain the customers’ interests and provide space for companies to pursue separate differentiating paths.
II. EXTERNAL ENVIRONMENT
A. SOCIO-CULTURAL
As stated in the industry analysis, in the context of global challenges such as poverty, discrimination based on information access, and women’s societal role, the positive impact of the mobile telephone companies can contribute in many ways to lessening the global societal ills. The Motorola Foundation, created in 1953, has had a large impact on increasing awareness and raising funds for global charities and causes. The strategic focus of the foundation emphasizes education, connecting the unconnected, critical community needs and employee involvement. In addition, Motorola also help deliver relief when natural disasters occur anywhere in the world and along with encouraging education in science, technology, engineering and math they also support environmental education and preservation.
Also as acknowledged in the industry analysis, the United Nations, under its UN Environmental Program, has established a set of guidelines that address how e-waste is to be controlled and electronic appliances are to be discarded. In July of 2005 Motorola announced by mid 2007 they should be done phasing-out materials used to manufacture mobile phones that were considered to be hazardous and were not in violation of the Restriction of the Use of Certain Hazardous Substances (RoHS) requirements. In May of 2006 they announced they would not be able to keep their intended deadline. Other mobile phone companies such as Nokia and Sony Ericsson have been able to make progress towards removing all toxic waste from their mobile phones so environmental groups are upset with the false promises Motorola had made and what they feel are excuses for not removing the toxic waste from their mobile phone manufacturing. As of July 1, 2006 Motorola is meeting the RoHS requirements in Europe.
B. TASK ENVIRONMENT
A current threat for Motorola is the change in how mobile phone customers use their phones. Major carriers are now looking to purchase phones that are set up to be use on third generation networks. Motorola has not successfully produced a phone that enables the mobile phone customers to use their phones for music downloading, web, picture and video messaging, and web access without delays. The third generation networks allow for mobile phone users to use these functions with more speed.
A current opportunity for Motorola is the continued sales growth of mobile phones. Mobile phone sales are expected to reach one billion units by the year 2009. As stated by Ben Wood, research vice president for mobile terminals at Gartner, “The world's appetite for mobile phones has exceeded even the most optimistic expectations. Mobile phones could go on to be the most common consumer electronics devices on the planet.”
Another opportunity for Motorola is the untapped Asian mobile phone markets. Asia cannot be regarded as one homogenous market, but rather one region made up of many diverse markets. The mobile phone market opportunity in Asia is extremely large and fairly untapped. In both China and India, the overall wireless penetration rate remains low, less than 10 percent. India's estimated population today stands at about 1 billion and China has a population of more than 1.3 billion. Achieving just 15 percent penetration, for example in China, would mean more than 195 million subscribers or more than the current number in the United States, which is already at 45% penetration.
III. INTERNAL ENVIRONMENT
A. MANAGEMENT
1. Board of Directors

Motorola currently has 12 acting board members. The Board of Directors has only one insider, Edward Zander, who serves as Chairman of the Board, Chief Executive Officer, and Principle Executive Officer. The remaining ten members include a variety of other CEO’s, CFO’s, Global Marketing Officers, Presidents, and chairmen on other firm’s boards. Although Motorola has 11 operating board members, there is only one insider, and one main influence within the board, the Chairman of the board. Having only one point of view within the board is unattractive for the firm.

Nokia, a better performing firm, also has 11 members on the Board of Directors. Nokia also has only one insider within the firm, CEO Olli-Pekka Kallasvuo, who has also served as the COO as well as the CFO of Nokia. Another similarity in the two firms is that the remaining board members for Nokia are also CEO’s, CFO’s, COO’s and members on other firm’s boards. Nokia also has only one main insider and influence, and although it could be assumed that this would be unattractive for the firm, Nokia has consistently out-performed Motorola. This may be related to the fact that Edward Zander has been a board member for Motorola for only three years, where as Olli-Pekka Kallasvuo has served on Nokia’s board since 1990.

The Board of Directors is responsible for supervision of the overall affairs of the Company. The Board of Directors held seven meetings during 2005. Overall attendance at Board and committee meetings was 91%. All incumbent directors attended 75% or more of the combined total meetings of the Board and the committees on which they served during 2005, except Mr. Fuller who attended 71% of the meetings.

Members on the Board of Directors for Motorola have a vast array of experience in several areas of concentration, which cover the four functional levels, although Motorola renames these areas as: Audit and Legal, Compensation and Leadership, Governance & Nominating, Technology & Design, Executive, and Finance. Ms. Lewent was elected Senior Vice President and CFO of Merck & Company, a pharmaceutical company, in 1992, and became Executive Vice President and CFO in 2001. Mr. Stengel is currently the Global Marketing Officer of Procter and Gamble Company, a consumer products company. Mr. Warner was Chairman of the Board and Co-Chairman of the executive committee of J P Morgan Chase and Company from 2000 until he retired in 2001.
Audit & Compensation & Governance & Technology &
Legal Leadership Nominating Design Executive Finance
Non-Employee Directors
H. Laurance Fuller Chair X
Judy C. Lewent X X Chair
Walter E. Massey(1) X Chair
Thomas J. Meredith X X
Nicholas Negroponte X X
Indra K. Nooyi X X
Samuel C. Scott III Chair X
Ron Sommer X X
James R. Stengel X X
Douglas A. Warner III Chair X X
John A. White X X
Miles D. White -2
Employee Director
Edward J. Zander Chair
Number of Meetings in 2005 10 5 4 3 None 6
Table 1 Background of the board members

Members on Motorola’s board also have experience in related fields. Thomas Meredith previously was the Managing Director of Dell Ventures and Senior Vice President, Business Development and Strategy of Dell, a computer manufacturer, from 2000 until 2001, and was Chief Financial Officer of Dell, from 1992 until 2000. Nicholas Negroponte is a Co-Founder and Chairman of the Massachusetts Institute of Technology Media Laboratory, an interdisciplinary, multi-million dollar research center. He also founded MIT’s pioneering Architecture Machine Group, a combination lab and think tank responsible for many new approaches to the human-computer interface. In addition, Ron Sommer was Chairman of the Board of Management of Deutsche Telekom, a telecommunication company, from 1995 until he retired in 2002. He is also a Director of Muenchener Rueckversicherung and Celanese, Chairman of the Advisory Board of AFK System and member of the international advisory board of The BlackstoneGroup.

Nokia’s board also has experience in related fields. Daniel R. Hesse served as Chairman and Chief Executive Officer EMBARQ Corporation, member of the Personnel Committee. Mr. Hesse also served as CEO of Sprint Communication, Local Telecommunications Division 2005-2006, and Chairman, President and CEO of Terabeam 2000-2004. Additionally, he served as President and CEO of AT&T Wireless Services 1997-2000, and Executive Vice President of AT&T 1997-2000.

The following table sets forth information as of February 28, 2006, regarding the beneficial ownership of shares of Common Stock by each director and nominee for director of the Company, by the persons named in the Summary Compensation Table, and by all current directors, nominees and executive officers of the Company as a group. Each director, nominee and named executive officer owns less than 1% of the Common Stock. All current directors, nominees and current executive officers as a group own less than 1%. (Shares owned by directors 5,992,066 / total shares outstanding 2,397,400,000 = 0.002499)
Shares Under Total Shares
Exercisable Beneficially
Name Shares Owned Options Stock Units Owned
Edward J. Zander 135,599 1,094,810 214,351 1,899,816
David W. Devonshire 47,306 111,760 5,235 169,536
Ronald G. Garriques 25,000 43,586 0 169,156
Gregory Q. Brown 17,937 167,640 0 337,861
Adrian R. Nemcek 47,394 550,695 0 601,780
H. Laurance Fuller 936 112,318 13,002 126,256
Judy C. Lewent 47,604 112,318 0 159,922
Walter E. Massey 20,684 87,172 5,979 113,835
Thomas J. Meredith 4,223 0 0 4,223
Nicholas Negroponte 44,511 112,318 0 156,829
Indra K. Nooyi 4,579 33,528 5,545 43,652
Samuel C. Scott III 33,629 112,318 6,501 152,448
Ron Sommer 3,043 0 0 3,043
James R. Stengel 7,305 0 0 7,305
Douglas A. Warner III 24,372 50,292 5,695 80,360
John A. White 44,266 41,910 0 86,176
Miles D. White 2,000 0 830 2,830
All current directors, nominees and current executive officers as a group (23 persons) 595,073 4,080,507 257,138 5,992,066
Table 2 Common Stock owned by each director


2. Top Management


Edward Zander currently serves as Motorola’s Principle Executive Officer, CEO and Chairman of the board. Prior to joining Motorola, Mr. Zander was a Managing Director of Silver Lake Partners, a leading private equity fund focused on investments in technology industries. Mr. Zander was President and Chief Operating Officer of Sun Microsystems, a provider of hardware, software and services for networks, from 1998 until 2002. He serves on the Board of Directors of several educational and non-profit organizations, including the Jason Foundation for Education, the science advisory board of Rensselaer Polytechnic Institute and the Advisory Board of the School of Management of Boston University.

Mr. Zander is also well compensated for his contributions. His current compensation consists of base salary, awards from the Motorola Incentive Plan (MIP), the Mid-Range Incentive Plan (MRIP) and the Long-Range Incentive Plan (LRIP), stock options, restricted stock or restricted stock units and certain other benefits:
· Pursuant to the terms of his employment agreement, Mr. Zander’s annual salary for 2005 was $1,500,000.
· Based on the assessment of performance against 2005 MIP Business Performance Factor targets and on the assessment of Mr. Zander’s performance in 2005, the Committee decided upon, and the independent board members concurred in approving, a 2005 MIP award of $3,000,000 (119% of the formula-driven award).
· Based on these results, the Committee decided upon, and the independent board members concurred in approving, a 2004-2005 MRIP award of $7,500,000 (100% of the formula-driven award).
· The Motorola Long-Range Incentive Plan (LRIP) replaced MRIP with the inaugural cycle starting on January 1, 2005. Mr. Zander’s January 1, 2005-December 31, 2007 LRIP target award is $3,750,000.
· Mr. Zander is eligible to participate in all long-term incentive plans, pension plans and health and welfare, perquisite and other arrangements generally available to other senior executives. He is also entitled to reasonable use of Company aircraft for personal and business purposes.

Edward Zander promotes his vision in the 2006 annual report; “seamless mobility-to build seamless connections to people, information, and entertainment - and the opportunity it brings to our business”. His vision is abstract and contains no quantifiable points. As of May 3rd, 2006, Edward Zander holds 906,118 shares of Motorola stock.

Recently, the mobile phone industry has been a discounted operation and the segments were realigned into three operating business groups: Mobile Devices, Networks and Enterprise, Connected Home Solutions. Although separated within the firm, these divisions still follow a hierarchy of command. Focus, strategy, and vision are delegated to the Principle Executive Officer, and in turn, he relies on the experience and background of fellow board members to oversee and direct his decisions. However, having only one main influence makes the organizational structure seem rather unattractive.
Motorola’s culture is one that is best thought of as a culture of strong business ethics. “Motorola's "Key Beliefs" have been in existence for decades, and Motorola continues to have a strong culture of corporate ethics and citizenship. The Code of Business Conduct sets the standards for Motorola's commitment to uncompromising integrity. Since its original establishment in the 1970s, the Code has provided Motorola employees guidance for their business activities, placing a priority on establishing trust with our stakeholders. However, it is not enough to declare our good values. Motorola is committed to acting on them - through the potential of our technology and the way we conduct our business.
As part of its commitment to Uncompromising Integrity and Constant Respect for People, Motorola has established the Ethics Line for its employees, business partners and others to report any questions or concerns they may have about compliance with the Motorola Code of Business Conduct, or the laws, regulations or contract provisions that govern Motorola's business.
An Audit Committee Line also has been established to allow access to the Audit and Legal Committee of the Motorola, Inc. Board of Directors for any interested party with a concern about Motorola's accounting, internal controls or audit matters.”
Although Motorola’s management has clearly defined their culture, there have been recent events that contradict their philosophy.
· Zander was brought in to change "a culture he saw as inward and bureaucratic," yet he encountered a power struggle between the handset division president and an underling right away and seemed unable to defuse it. A year later, the division president left and his rival, Ron Garriques, replaced him. Garriques scrapped much of the ongoing development work his predecessor had authorized, and started afresh. Whatever the personal, business or technical reasons for the change, it had a nasty side effect--Motorola fell dangerously behind in developing 3G-capable handsets.
· Mr. Zander came to see that Motorola had a few cultural problems. For starters, the company's units for too long had operated as "warring tribes," as “Motorolans” called it. The different units would fight each other, often harder than they fought outside competitors. The units had different strategies and clashing products. At CES, they'd have separate booths. "We had to get people on the same page," Zander recalls. "We said, 'The batwing (Motorola's logo) is all that matters.' “Zander ordered the divisions to work together for the good of a single brand.
· Another cultural problem was fear. In the 1990s, Motorola took a shot at one of the most audacious projects of the decade — the $6 billion Iridium satellite phone system. The company, based outside of Chicago, might as well have dumped the $6 billion into Lake Michigan.
Motorola’s value of ethics is the only attractive segment of Motorola’s management.
3. Conclusion

Motorola Strength Weakness
Board Size and Composition X
Percentage of Stock Owned by Board X
Motorola’s Vision X
Organizational Structure X
Culture X






B. MARKETING

1. Market Share

The objective of the marketing function is to achieve maximum market share. As of the first quarter of 2007, Motorola at 18.02% is second to Nokia in worldwide market share . Table 1 illustrates how Motorola has compared to the five leading firms in worldwide market share from 2003-1Q 2007.


Table 3 Market share percentage of the industry

In recent years, Motorola has maintained its number two ranking among mobile phone manufacturers in worldwide market share, seeing an overall increase in market share for the time period going from 14.5% to 18.02%. The top five firms in the industry have also maintained a fairly steady market share, and all have shown slight increases in market share. This increase has come at the expense of the smaller firms in the industry, as indicated in Table 1.
While the market share numbers for the five largest firms have seen slight increases, the growth of the mobile phone industry has increased at a much greater rate. Table 2 shows the year-to-year growth rate of the mobile phone industry from 2000-2006. , .


Table 4 Growth rate of the mobile phone industry

For the exception of 2001, the mobile phone industry has shown significant growth. The boom in growth can be credited to emerging foreign markets, such as India, China, and Africa, as well as growth in the US market due to increased functionality of mobile phones , . As new markets have emerged, Motorola penetrated these markets to keep and increase their market share. Given the rapid growth of the market, Motorola has done a suitable job at sustaining its market share. However, there are concerns about Motorola’s ability to capture market share in foreign markets. Currently, Motorola is depending on the US market for a majority of their worldwide market share. Motorola has an 18% advantage on the nearest competitor in the US, holding 35% of the market share . Being a US-based company may be a contributing factor to Motorola’s success in the US, but the reliance on one market could be a problem in the future. For Motorola to gain market share on the leader, Nokia, they must be able to penetrate emerging foreign markets in an effective manner.

2. Product

Motorola is a provider of integrated communications solutions and embedded electronic solutions for consumer, business, government, and service providers . More specifically, Motorola has divided their revenues into three product categories: mobile devices, networks and enterprise, and connected home solutions . Mobile devices consist of mobile phones, two-way radios, cordless phones, portable radios and MP3 players. Networks and enterprise products consist of wireless LAN infrastructure, wireless broadband access, real-time data access, and dispatch operations systems. Finally, the connected home solutions products include home networking; cable modems and gateways, wireless security sensors, and home media systems. Motorola has a variety of products to meet the needs of almost any consumer, small business, or large organization that is customizable to the needs of the buyer .
Nokia, the world market share leader in the mobile phone industry, offers a similar array of products that Motorola does. Nokia manufactures mobile phones and accessories, mobile software, security solutions, enterprise solutions, and other multimedia products , making the product mix at Nokia very similar to that of Motorola. Nokia offers mobile devices in the way of mobile phones and their accessories. They offer business and enterprise solutions in the form of security products, networking software, computer-to-mobile phone synchronization software, and real-time data access software. However, Nokia appears to be very business oriented and does not offer the mix of home solutions Motorola has to offer. Motorola has an overall larger product mix than that of its biggest competitor, Nokia.
Motorola while offering a broader product mix, which seemingly would reach a wider array of customers, is significantly behind in world mobile phone market share. The question that remains is: why? It could be that Motorola has broadened its product mix to the point where they have lost some focus on their main product, mobile phones. Nokia may outperform Motorola because their main concern is mobile phones and mobile phone accessories. While Motorola continues to expand their product mix, Nokia continues to focus on what it does best, and this could be the major contributor to Nokia’s success in the worldwide mobile phone market.

3. Price

There does not seem to be a pricing war between top mobile phone manufacturers at the end-user level. Motorola has phone offerings in retailers from $59.99-$429.99 . These prices are similar in comparison to rival companies offering similar phones with the same features. To illustrate this Motorola has its MOTOQ smartphone that retails for $429.99. Nokia offers the E61i smartphone that retails for $456.99 . Each phone features a full “qwerty” keyboard, email capability, voice recognition, and various multimedia features, and both are similarly priced.

Although there is no current battle in pricing among the world market share leaders, there is potential for one in the near future. There is a growing niche market for low-income and cost-conscious consumers in emerging economies including India and Africa . To compete for market share in these regions, Motorola and the rest of the major competitors in the industry will have to battle to become the low-cost leader for the emerging international market. This pricing war, however, has not yet taken place. The current trend in mobile phones is increased functionality . As more features are added, more costs per unit are incurred, which those costs result in higher retail prices for the consumer. An example of willingness to pay a high cost for high functionality can be seen with the recent release of the Apple iPhone. Launched June 29, 2007, the New York Times reports that the combination phone, web browser and music player, sold about 525,000 units in the first weekend . Depending on the amount of memory the consumer wants, the iPhone can have a price tag of $599.00 , and has sold on www.eBay.com for over $2000.

With similar phone capabilities and similar price structures, there is little price competition in the mobile phone industry, and Motorola’s pricing is appropriate. While there is potential in the future for a pricing war between mobile phone manufacturers in emerging economies, the current trends would indicate the opposite is occurring. Evidenced by the popularity and heavy price tag of the iPhone, prices may climb with increased technology and functionality. With prices going up on mobile phones, a low cost strategy may prove to be an advantage.

4. Place

Mobile phones are distributed through a variety of channels throughout the world. Phones may be purchased directly through the manufacturer via their online websites , various retail outlets, service providers, and other Internet websites. Both Motorola and Nokia offer their mobile phones at all of these locations. Motorola and Nokia are competing for sales based on their product and price rather than place since both manufacturers are utilizing the same channels of distribution.

5. Promotion

Motorola and Nokia do not have their advertising expenses reported within their income statements, and therefore the advertising as a percentage of sales is unable to be calculated.

6. Conclusion

Brand identity is paramount in the mobile phone industry, and for this reason it is critical for mobile phone firms to place emphasis on marketing. Motorola over the last five years has made some strides in closing the worldwide market share gap on Nokia. However, most of this market share comes from Motorola’s increases in market share in the US markets. While increasing the market share lead in the US is a strength, Motorola must not lose focus on markets elsewhere in the world. From a product perspective, Motorola is offering a wide array of products, ranging outside the realm of mobile phones, which can be both a strength and weakness. It can attract a wider variety of customers, but at the same time spread Motorola’s resources and focus thin. Nokia has concentrated on a specific set of products, and has placed all of their energies in solely mobile phones and mobile phone accessories. Both Motorola and Nokia are offering their products in the same channels of distribution and are competing for sales based on product and pricing. Finally, there are no available advertising expenses from Motorola or Nokia to determine Motorola’s performance in promotion, but to broaden name recognition throughout the world, Motorola must invest significantly in promoting their products and brand name if they hope to catch Nokia in world market share.
C. OPERATIONS/PRODUCTION.
1. Reinvestment

The objective of the operations function is to increase productivity. In order to achieve increased productivity, Motorola must reinvest in itself. By making comparisons to Nokia, it can be determined if Motorola is making the necessary capital investments and improving productivity to compete with the world leader.

Table 3 shows that Motorola is outspending Nokia in capital investment for the period of 2002-2006. While Motorola saw a significant decrease in capital spending in 2003, Nokia saw a similar decline and was not able to move ahead of Motorola. As of the end of 2006, Motorola still maintains a 5.53% advantage over rival Nokia. Both companies share similar trend lines for the time period, for the exception of 2005, where Motorola saw an increase in capital spending as a percentage of sales and Nokia saw a decline. The benefits of Motorola’s additional spending can be seen in the overall market share numbers from 2005-2006. Motorola gained 3.64% market share on Nokia between 2004-2006.

At the conclusion of this five-year period, both Motorola and Nokia have experienced declines in capital spending as a percentage of sales. However, Motorola finished the period with an 8% decline and Nokia with a 15% increase. This would indicate that Motorola is not reinvesting in itself as it has in the past, which does not follow Chandler’s Logic of Managerial Enterprise.


Table 5 Percentage of capital spending per sales $

According to Table 4, which compares Motorola and Nokia’s production in sales per employee from 2002-2006, Nokia has maintained an advantage throughout. However, Motorola has seen increased production every year while Nokia fell in production for 2005. Motorola has seen much greater improvement over the last five year in productivity from its employees gaining $374.28 per employee. When compared to Nokia, which only gained $184.39 per employee, Motorola has made significant strides in catching Nokia in terms of productivity. This would suggest that Motorola has been placing a greater emphasis on getting the most out of employee productivity than Nokia over the last five years.


Table 6 Sales per employee

2. Operating Leverage

Operating leverage is the replacement of employees with machines. If firms are using operating leverage, they should see increases in capital investments and productivity over time. For the period 2002-2006, Motorola and Nokia showed some inconsistencies in their use of operating leverage. Given the decline of leverage by Motorola from 2004-2006 and Nokia’s inability to sustain leverage, it would appear that firms are having difficulty achieving operating leverage within the industry. Frequent model changes and updates to hardware appear to be the cause.


Table 7 Operating Leverage

Table 6 shows the amount of plant, property, and equipment (PPE) per employee at Motorola and Nokia for 2002-2006. Both companies have shown a downward trend since 2004 and appear to leveling off in 2006. This means that the ratio of PPE/employees is holding steady. If the firms were using operating leverage, PPE would be increasing while the number of employees would remain the same or decrease. This is another indication that operating leverage is not being achieved.


Table 8 Motorola vs. Nokia: Plant, Property, & Equipment/Employees


3. Research and Development

Table 9 illustrates the differences in research and development expenditures between Motorola and Nokia. In 2002, Motorola spent more on R&D than Nokia, but this trend did not continue into 2003-2006. Nokia pushed ahead of Motorola in 2003 and has significantly outspent Motorola on R&D expenditures. Both companies are showing a current upward trend in R&D spending, which shows they are making the necessary reinvestment toward product development. A logical conclusion to this increase in R&D spending has to do with the current focus of the mobile phone industry on increase functionality of mobile phones14. As demand requires more features such as email, web access, and media players for mobile phones, manufacturers must develop the necessary technology to meet this demand.


Table 9 Research and Development in relation to sales

4. Conclusion

Increased Operations/Production Decreased Operations/Production
Re-Investment X
Operating Leverage X
Research & Development X

Motorola has seen a decline in all but one of the operational areas. However, it would appear as if the industry is following the same trends, as Nokia is showing similar movements as Motorola. Motorola has consistently been ahead of Nokia in capital expenditures as a percentage of sales over the last 5 years, while Nokia has shown some decline. Motorola is also making significant gains in worker productivity over the past five years. They have begun closing the gap on Nokia in that area, which shows Motorola is placing a greater emphasis on employee productivity. The increased reinvestment by Motorola has helped contribute to Motorola gaining market share on the world’s mobile phone leader, Nokia. Operating leverage within the mobile phone industry is difficult to achieve due to frequent model changes and updates to hardware. However, if Motorola is able to find a means to achieve operating leverage on a consistent basis, it will be able to gain a significant advantage over the competition in the future. Motorola and Nokia have both seen declines in R&D as percentage of sales over the last five years, but Motorola is currently holding a slightly higher expenditure rate than Nokia. For Motorola to further improve its position in the world market continued reinvestment and R&D must continue to be a top priority.

D. FINANCE , , , ,
1. Total shareholder return

The total shareholder return is calculated as: [(closing balance – opening balance) + dividends)]/ opening balance. Based on this, Motorola is compared to Nokia on a yearly as well as a monthly total shareholder returns, one time with dividend payments, and one without dividend payments. The yearly calculation with and without dividend payments shows a trend, which is also reflected in the monthly calculation, but harder to interpret since both companies showed an increase in total shareholder return from 2002 till 2005, and a breakdown for both from 2005 to 2006 (calculation w/o Dividends). While Nokia still has a positive shareholder return, Motorola went negative in the last year.


Table 10 Total shareholder return without dividend payments (year view)

Including dividend payments, both companies increased the total shareholder return from 2002 to 2004 (for Motorola) and 2005 (for Nokia) and then had decrease in percentage in the remaining years. Including the dividend payments, Nokia is still in 2006 positive, while Motorola turned negative. Both companies increased their total shareholders return over the five-year period.

Table 11 Total shareholder return with dividend payments (year view)


The following two graphs show the monthly movements of the total shareholder return, with and without dividend payment.

Table 12 Total shareholder return without dividend payments (month view)


Table 13 Total shareholder return with dividend payments (month view)

This shows that Motorola has problems competing within its environment.

2. Return on Assets

The ROA (Return on Assets) for Motorola was 8.8%, and equaled 20.2% for Nokia in 2006.

Motorola's low ROA in 2005 is partly due to its increase of Cost of Good sold ratio, but also in part as a constant trend of having more fixed assets tied into property, plant, and equipment than Nokia. The trend is going down, while Nokia’s going up, but compared to the net sales level it is still high. Also from 2005 to 2006, Nokia reduced the amount of current assets that were tied up in inventory while Motorola's increased by 1.5%.

Table 14 Return on average assets

3. Return on Equity

ROE (Return on Equity) is of great importance to shareholders because it is a measure of the return they receive on their money invested. As a trend, ROE has all but increased from 2002 for both Motorola and Nokia, however, in 2004 Motorola's ROE drastically dropped 24.3%, while it increased the from -14.8 in 2002 to 41.7 in 2003. This drop can be attributed to Motorola's, specifically administration lack and the layoff in 2004, which has a lot restructuring. The decrease could also be resulting from lack of investment in Motorola, considering that the decrease in investment from 2003 to 2004 was 2,221 million US$. As indicated by the ROE shareholders were not rewarded for their substantial investment in MOTOROLA.


Table 15 Return on equity

Although Motorola performed extremely poorly in their ROE to shareholders in 2006, they have been able to increase their share dividends slightly since 2002, but with ups and downs in this period and more so than Nokia as an overall trend.

Table 16 Share dividends pay out

4. Liquidity Ratios/Profitability Ratios
4.1. Current Ratio
This is the most commonly used measure of short - term solvency and is a measure of a firm's ability to pay current debts from current assets. Nokia does an excellent job with managing its current assets as indicated by the trend of steadily decreasing the current ratio, but keeping it above a 1:1 ratio, which indicates poor liquidity. Motorola's trend is increasing and dramatically from 2002 to 2005. This is a sign of poor inventory and cash management and not employing their working capital as efficiently as possible. It is also indicative of Motorola's over investment in inventory and under investment in improving operations.

Table 17 –Current Ratio

4.2. Quick Ratio

A quick ratio of more than 1:1 indicates a greater degree of financial security. Motorola has been able to increase its quick ratio from 2002 to 2005 while Nokia's ratio has ups and downs and is consistent above the 1:1 mark. However, Motorola's high ratio is a result of amounts of idle cash due to lack of reinvestment and a higher percentage of marketable securities.

Table 18 Quick Ratio

4.3. Net profit on sales ratio

Measures the firm's profit per dollar of sales. Motorola's ratio is considerably lower than Nokia's are for 2002 and 2003 (Nokia's ratio is more than four times Motorola's). This could be an indication that either Motorola’s prices are relatively low, which is not the case, or costs are rather high.

Table 19 Net Profit Margin

Motorola‘s high costs are associated with its fixed assets such as property, plant and equipment (refer to excel spreadsheet for % of fixed assets) and Motorola’s increase in inventories cost as a percentage of current assets, as well as the low inventory turnover.

Table 20 Inventory Turnover

5. Leverage Ratios

The Debt Ratio measures the percentage of total assets financed by common equity.

Motorola’s ratio is fairly consistent with Nokia's ratio. Motorola 's slightly higher ratio is probably due to operating expenses, which are a result of poorer efficiency in operations than Nokia. Since Motorola has a higher ratio, it makes them a higher risk to investors than Nokia.

Table 21 Total dividend per common share outstanding

6. Operating Ratios/Activity Ratios
Net Sales to Working Capital (Net Property, Plant & Equipment) Ratio
This is an indication of how efficiently working capital is used to generate sales. Whereas Nokia in 2002 generated $16.1 in sales for one dollar of working capital, Motorola could only generate $4.4 per dollar. Motorola and Nokia had an increasing trend until 2006, but Nokia was at least $ 5.0 ahead of Motorola. Motorola’s low ratio is an indication of its inability over the past five years to generate a significant increase in sales and use its working capital to cut cost and improve operating efficiency.

Table 22 Net Sales in relation to net property, plant and equipment

Fixed asset turnover ratio
Measures how effectively fixed assets are being utilized. The greater the turnover then the more sales the firm is generating with a dollar of total assets. Motorola has always lagged behind Nokia with the exception of 2002 and in 2006 the largest discrepancy in five years occurred. This is an obvious sign of fixed asset mismanagement.

Table 23 Fixed asset turnover




Total asset turnover ratio
This is a broader measure that incorporates current assets. Here both firms have similar ratios but once again Motorola had a small increase from 2002 to 2006. This increase can be attributed to management of cash or accounts receivable or both, but the discrepancy between total asset turnover and fixed asset turnover is not enough to consider current asset management as relevant.

Table 24 Total asset turnover

7. Income Statement analysis
Gross profit margin
Motorola’s gross margin dipped between 2002 and 2006 9.9% while Nokia's dropped only 8.8%. This was probably a result of Motorola’s poor sale increase.
Selling, General, and Administrative expenses (SG&A)
Motorola’s SG&A were always higher except of in year 2005 were Nokia had slightly higher percentage of sales as Motorola. The trend is for both companies declining, which could also be an effect of higher sales.
8. Balance Sheet analysis
Inventories as a percentage of current assets
Nokia has been able to stay on a constant inventory level. However, the same does not hold true for Motorola, which decreased inventories as a percentage of current assets by more than six percent between 2002 and 2005, and increased by 1.5% in 2006. Motorola had to make significant reductions in inventory, but is still in 2006 3.8% higher than Nokia. This is further evidence of Motorola’s trend of not being able to manage its assets sufficiently in order to achieve a greater return.

Table 25 Inventory as a % of current assets

Property, Plant, and Equipment (PPE)
As a percentage of total assets, Motorola has a very high percentage, close to twenty percent, while Nokia had eight percent in 2002. In year 2005 and 2006 this changed and Nokia has a higher percentage than Motorola. Such investment in property, plant, and equipment left Motorola very little money for investment in itself, such as R&D, and other markets or agencies, which changed in the percentage but not in the total value.

Table 26 Net PPE as % of Total assets

9. Cost of Capital for MOTOROLA

(Ki = Rf + Bi (Km – Rf)); Ki = 12.0 %, Bi = 1, Rf = 5.25% Ki = expected rate of return
Rf = risk free return
Bi = market risk
Km = return on equity market

The expected rate of return for Motorola according to the cost of capital model is 12.0%. There is no difference between the expected rate of return at 12.0% (Ki) and the required rate of return of 12.0% (Km). Currently Motorola’s return is 8.9% and since the market risk is 6.75%, the higher risk does not yield a higher return for investors. Also Motorola’s return of 0.9% (dividend/share price) does not even come close to the required rate of return of 12.0%. There is no difference in the expected rate of return for Motorola and the required rate of return on average stock, therefore as noted above the investor is not profiting from the additional risk. In fact the cost of capital model will almost never allow a firm to show that it is capable of making a return above the average rate of return and thereby not allowing the investors to fully benefit. In addition since the beta for most companies and especially mobile phone companies is below 1 the expected rate of return will never surpass the required rate of return. It is also very unlikely that beta will be greater than 1 in such a highly competitive industry as the mobile phone industry, which based on this formula, would be the only way to achieve a return that is higher than the required rate which is what investors expect for the risks that they are taking.

10. Conclusion

Motorola has to improve not only financially in order to survive in the market, but the company also needs to concentrate on their core competence. Motorola must also reconstruct their mission as well follow this mission. The company at the moment could be a take over target of any venture capital fund, which would like to split it apart and sell pieces. The brand name is still very strong, but the productivity – cost drivers need to be identified and the problems need to be solved. This could only work, if the company is downsizing and improves in every aspect.


E. HUMAN RESOURCES

Before Nokia became the number one mobile phone manufacturer in 1999, Motorola was the world leader in mobile phone manufacturing i. The company has hired close to 150,000 employees in more then 50 plants worldwide. By January of 2007 Motorola’s workforce had declined to 66,000 employees due to several plant closings and job cuts around the world. By 2002, Motorola had cut over 48,000 jobs with the most recent cut being 9,400 employees. Motorola’s Chairman and CEO at the time, Christopher Galvin made reference that the job cuts will result in a leaner, more flexible and more profitable company in a global environment. What Mr. Galvin perhaps did not consider is that the job cuts would create culture of uncertainty among the remaining employees. Motorola has recently announced in January they plan to lay off 3,500 more employees by June of this year. In May, Motorola also announced they will be cutting another 4,000 employees by the end of 2008. The company has been cutting jobs and closing plants to make up for the lost profit margins due to the slowdown of RAZR sales. Motorola’s strategy to cut prices to sell more units seems to have backfired. As of 2001 all of Motorola’s mobile phone manufacturing facilities in the United States have been moved outside the country in order to lower operating costs and become more competitive. Motorola is estimating saving around $400 million in 2007 and another $600 million in 2008 by cutting jobs. The company restructure is expected to cost around $300 million in 2007. The charge will cover the costs from severance and related staff cut expenses. In recent years it seems to be a trend of Motorola to cut jobs in order to drive out additional costs in hopes to achieve sustainable profits. This demonstrates a poor management decision because cutting costs through layoffs will only work in the short-term and will inevitably affect the drive and innovation of the remaining employees. Motorola needs to strengthen their product line, improve on innovation, and create a stronger focus to create new products that will increase sales, which will achieve long-term, sustainable profits.

IV. CRITICAL SUCCESS FACTORS

1. EFFICIENCIES

The mobile phone industry is one of high fixed costs and being efficient is a key to success. Motorola has placed an emphasis on employee efficiency and productivity over the last five years, which allowed Motorola to significantly reduce the gap between them and rival Nokia, as Table 1 indicates. Motorola has made great progress in getting the most out of its employees in the last five years by more than doubling productivity in sales per employee. Nokia has seen only minimal gains in productivity, and is losing its advantage over Motorola in this respect.


Table 27 Motorola vs. Nokia: Sales/Employees 2002-2006

To further illustrate Motorola’s continued emphasis on efficiency, Table 2 shows a comparison of Motorola and Nokia for cost of goods sold per employee. As the table shows, Motorola has consistently outperformed Nokia in CGS/employees over the past five years. As of 2006, Motorola’s CGS/employee is $449.21, while Nokia’s is $529.23. Motorola seems to be holding onto this advantage, but Motorola must keep placing emphasis on their efficiency as their costs have gone up significantly over the last five years from $163.02 per employee to $449.21.


Table 28 Motorola vs. Nokia: CGS/Employees 2002-2006

2. SUCCESSFUL PENETRATION INTO FOREIGN MARKETS

Recent reports confirm that the mobile phone industry is growing in foreign economies at an alarming rate , , . Mobile phone markets have already seen rapid growth in China, while places such as Africa and India are beginning to grow with their economies. While the US continues to be the largest source of revenue for mobile phone companies , , it is clear that in the very near future emerging foreign economies will be major consumers in the mobile phone industry. For example, China’s mobile phone market is expected to grow 22% in 20071, while the US grew at a rate of 12% according to first quarter 2007 figures6.

Motorola has not done a great job of establishing itself as a “world” leader in mobile phones. As of the first quarter in 2007, Motorola holds 35% of US market share, which is a 25% advantage over the world leader, Nokia who has only 10% of the US market . Despite the dominance in the US market, Motorola still lacks Nokia in world market share by nearly 18%. It can be concluded that Motorola is not earning revenue and market share outside the US on the same scale as other competitors. Furthermore, Motorola is not emphasizing penetration into emerging and growing foreign markets needed to close the gap on Nokia. The importance of penetrating these foreign and emerging markets in the mobile phone industry is paramount in achieving additional world market share. In the future it will be critical for Motorola to increase their focus on successfully penetrating these markets ahead of their rivals, or Motorola will likely suffer the loss of world market share.

3. BRAND IDENTITY

Brand identity is a key element in the mobile phone industry. In order to be among the industry leaders, firms must be able to market their name to buyers. If buyers are able to identify with a brand name, then increased sales become possible. Motorola has developed a strong brand name through their products and services, but also through aggressive marketing of their products. However, we are only able to make this assessment through observation of media advertising campaigns, because neither Motorola nor Nokia has provided advertising expenses in their financials.

This observation of aggressive marketing is biased as the only advertising observed was within the US. The strong advertising of Motorola within the US could help account for the market dominance of Motorola in the US. Upon further observation, it is likely that foreign-based Nokia has a stronger marketing presence in Europe and other foreign markets, which may help to account for Nokia’s worldwide lead in market share.

V. STRATEGIC PROBLEM

Management has failed to ensure the long-term survival of Motorola by not placing enough focus into foreign markets. Developing economies such as Africa, India, as well as rapidly growing markets such as China will be significant sources of revenue for mobile phone manufacturers in the coming years. In the categories of efficiency, production, and reinvestment, Motorola has shown that it is capable to competing, and in some cases, bettering the world leader Nokia. However, Motorola has not been able to make a meaningful gain for the top spot in world market share. Furthermore, Motorola has proven itself as a leader in the US, but remains far behind Nokia in world market share, which indicates Motorola is not focusing on foreign growth, but rather domestic. In order for Motorola to maintain or grow its position in world market share, they must develop a better foreign penetration strategy to ensure long-term success of the company.

VI. STRATEGIC ALTERNATIVES

Currently, Motorola is not following any of Porter’s strategies. Their company’s vision is more of an abstract idea than a quantifiable plan for the future and long-term survival of the firm. Given this, all three generic strategies are options that could be implemented into Motorola.

There are a few advantages of adopting the low-cost provider strategy. Currently, one situation that is plaguing Motorola is the lack of market share as compared to Nokia. Implementing a low-cost strategy would help take market share away from Nokia, as well as other mobile phone manufacturers. In addition, money previously devoted to Research and Design could be re-allocated into other segments within the industry. Finally, previously Motorola has not been able to achieve economies of scale. If Motorola adapted a low-cost strategy, they could outsource the majority of their manufacturing process and technical support to drive the cost of goods sold down to finally achieve economies of scale.

There are also disadvantages of pursuing a low-cost strategy. First, being a low-cost provider could possibly attach unwanted stigmas to the Motorola product line. Motorola mobile phones might then be seen and perceived by consumers as being cheap and undesirable. Another disadvantage could arise from outsourcing. Investors and analysts could also attach negative stigmas to Motorola from downsizing its current manufacturing plants. The last disadvantage associated with being a low-cost provider is that in a research and development driven industry, Motorola would not be able to stay technically up to date, thus negatively affecting their image.

If Motorola used a differentiation strategy they would be able to charge a premium, and could possibly significantly raise their revenue. Using differentiation, Motorola could create a line of designer phones and distinguish them as the leader in mobile phone design. Motorola could target several markets, being the first to design phones with senior citizens or “teens” especially in mind.

However, using differentiation could be the riskiest of the three generic strategies. If Motorola implemented the differentiation strategy not only would Motorola have significant rises in Research and development costs, they would also have significant increases in design costs. These design costs could possibly limit funds previously allocated to R&D. Finally, there is a chance that designer mobile phones would not appeal to their target markets. If their target markets find the phones unattractive, almost all design and R&D costs could become sunk costs.

In order to have a focus strategy, Motorola would have to have a definable target market, and according to Porter, this is a relatively small group. Motorola would undoubtedly lose market share with this strategy. This strategy does not seem feasible within the mobile phone market, where market share is incredibly important. The only option that incorporates the focus strategy that could possibly work to Motorola’s advantage would be for Motorola to enter the satellite phone market. While the associated costs with R&D would without a doubt be close to astronomical, Motorola would have a first-mover advantage in the mobile phone market by focusing on the small niche that desires the efficient satellite allocating phones.
VII. RECOMMENDATION

We recommend the low cost strategy, because we want to keep retained penetrated markets as well as increasing market development. With this strategy we can increase Motorola’s market share by providing good products at reasonable prices. By increasing the productivity and the synergies of mass production, Motorola can also compete and enter into less developed areas such as India, China and Africa, were the buying power is very low, therefore the products have to be sold at a reasonable price.

VIII. IMPLEMENTATION

1. Programs

The core competence of Motorola will be their ability to provide durable mobile phones that are affordable, reliable and of high quality worldwide. By becoming a low-cost provider of mobile phones, Motorola can build a sustainable competitive advantage within the industry. It is recommended that Motorola should begin to create a cost-conscious corporate culture where more than one board member is a Motorola employee. Three more employees should be elected board members to ensure a broader point of view and adequate feedback. Management must increase their stock options in order for management to feel that they have a stake in the company’s goals. Requiring a minimum percentage of stock ownership by top management will also strengthen one of Motorola’s weaknesses. Management will also need to change Motorola’s mission from designing and delivering the "must have" products to designing and developing a durable low cost product within the foreign market. This new mission must be communicated and understood by every employee. The company’s objective is no longer innovation rather better value for lower costs. By communicating the new mission and making sure it is understood by all employees Motorola will add strength to their already strong culture.

[Luke]

Boring right?

[jp1]

Not sure...but it wins the award for longest post ever.

[deathbed8844]

Holy crap! I agee. Loest post evar!!!

[wakeup]

I actually read it. Damn Motorola's expected rate of return according to the cost of capital model is 12.0%!