August 5, 2008
Motorola: The New CEO’s Real Challenge
There's no question what Wall Street thinks about Motorola's (MOT) new co-chief executive, Sanjay Jha. The communications conglomerate's shares jumped 11% to nearly $10 on Aug. 4 after announcing the former Qualcomm (QCOM) chief operating officer would take the reins of Motorola's mobile-phone business. Jha brings loads of industry experience and extensive familiarity with wireless investors, ending the Schaumburg [Ill.] company's five-month search for an executive to head the troubled cell-phone unit. "He is the perfect guy for Motorola," says Mark McKechnie, an analyst with American Technology Research, who worked at Motorola years ago. "If anyone can turn this handset division around, it's Sanjay Jha."
Still, for all of Jha's experience, he faces one huge challenge: Motorola's corporate culture. For the cell-phone unit to recover, Jha will have to fully cleanse Motorola of its sluggish, bureaucratic ways and teach a company that has long let engineers drive product development to think more like marketers, in tune with consumer tastes. It's a challenge that has proved insurmountable for several top Motorola executives.
Getting Connected with the Market
Motorola's history is marred by marketing missteps. When the industry shifted from analog phones to digital in the mid-1990s, executives and engineers at Motorola underestimated the significance of the shift, stumbled in introducing digital phones, and then lost their lead in the market to a Finnish upstart called Nokia (NOK). Then as the pace of product cycles quickened in recent years, Motorola's plodding culture contributed to its inability to deliver new phones to market as quickly as competitors.
Every CEO who has run the company since Gary Tooker took over in 1993 has attempted to infuse the company with more entrepreneurial DNA. Under Edward Zander, who left in December, Motorola managed to hasten the production of a new slim phone, which became the spectacularly successful Razr. But leadership could not keep pace when consumers turned their attention away from hardware to an increasing focus on the software that bestows new functionality on phones. Motorola also fell behind as the industry shifted to so-called 3G phones, optimized to surf the Internet and handle multimedia such as music and video. Jha's daunting task: Keep the troops in better touch with the market and "get new products to market quickly," says Richard Windsor, an analyst with Nomura.
Jha, an engineer by training, sounds hesitant to overhaul the company's deep-rooted engineering culture, however. "I think the engineering culture is a tremendous asset to Motorola," he told BusinessWeek in an interview. "I think the challenge is to make that culture stay in tune with the marketplace. When it's a problem is when it gets disconnected with the marketplace. And my job is to keep it connected." Jha says he'll take 90 days to assess the situation before making any final decisions.
Jha has plenty of motivation to tackle the challenge. His base salary is no less than $1.2 million. He will receive 3.7 million restricted Motorola shares, worth approximately $35 million at the Aug. 4 stock price. He also receives loads of stock options. Think Jha might rethink the spin-off? Think again. In the event of a spin-off, Jha would receive stock and option awards giving him a 3% stake in the company. In other words, if the new company achieves a $1 billion market cap, Jha gets $30 million in equity. If it reaps $2 billion, he pulls in $60 million. And if the spin-off does not happen before Oct. 31, 2010, Motorola will still give Jha $30 million in cash.
Can he make a lasting difference where others couldn't? His reputation at Qualcomm is stellar. Under his leadership as COO, the company's chip division grew into the largest mobile chip business in the world, with $5.7 billion in sales last year. It's grown much faster, in fact, than the chip businesses of top competitors such as Texas Instruments (TXN). While Qualcomm's chip sales rose 74%, from $3.2 billion in 2004, most top rivals' revenues only grew 20% to 30%, according to consultancy iSuppli. "He's a very talented guy," says Qualcomm's Len Lauer, who will replace Jha as COO at the chipmaker. "He has strong carrier relationships and he knows the competition."
Jha's experience in innovation could prove to be the most helpful at Motorola. Qualcomm is known for staying one step ahead of rivals in incorporating extra capability into its products. One Qualcomm chip often replaces two or more of a competitor's components, analysts say. Jha is one of the people most responsible for this corporate foresight. He was the point person for developing the company's road maps, and plotting forays into new wireless technologies. "He understands the wireless industry market and how to implement [upcoming developments] in hardware," says John Lau, an analyst with Jefferies Group (JEF).
One thing is certain: Jha can't turn around Motorola on his own. Among his first priorities will be to attract the best and brightest from around the industry to lead execution in areas where he doesn't have deep experience. Motorola has lost several top executives, especially some talented marketing and product sales executives to the likes of Apple (AAPL) and BlackBerry maker Research In Motion (RIMM). "He's going to have to get some top-notch people," one former executive told BusinessWeek. "The guys there now are the same guys that have not produced product for several years."
Jha is well-connected in the industry and told analysts on a conference call that he would do extensive recruiting for major talent. One draw some industry observers suggest for down the road is to move the phone unit from its current location in the northwest suburbs of Chicago to the West Coast, where there is a tech culture with hundreds of companies and workers that move at a more brisk pace. Jha lives in the San Diego area and Motorola has operations there, as well as in the San Jose area, that could serve as a starting point to move development and resources. "The most important thing they need is a sense of urgency," says the former executive. "He may go to Chicago and six months later decide that [raising the level of urgency would come] by moving at least part of the management team to the West Coast."
Wherever the phone unit is located, Motorola executives seem to understand that the company has to change its ways to drive better results. "Sanjay has very rigorous operational discipline and he knows the processes here that have been inconsistent," says co-CEO Brown. Resurrecting Motorola's mobile-phone unit will be a daunting task, but Jha's convinced that he's up to it. "This is unique opportunity," he says. "And I really feel that I can make a difference."