The Business Enterprise Trust

MOTOROLA (A)
This case was researched by Stephanie Weiss and written by Matt Kelemen, under the supervision of Kathleen A. Meyer,
executive director of The Business Enterprise Trust.

The vote was eleven to one and Robert Galvin stood alone. It was 1979 and Galvin,
the CEO and President of electronics giant Motorola, had just proposed to his Board of
Directors that the firm make an extraordinary commitment to training its workers – from
executives to shop floor employees. He recommended establishing a department devoted to
educating employees with one major goal: improving product quality.

Galvin had made the proposal in response to the rapid change and increasing competitiveness
that engulfed the electronics industry in the late 1970s. The rate of innovation was staggering;
most technical knowledge became obsolete within five years. International firms, most notably
from Japan, were emerging as formidable competitors to U.S. companies such as Motorola.

But the Motorola Board, concerned with the time and financial resources such training would
require, was not swayed by Galvin’s arguments. With Motorola still competitive in the industry
and budgets tight, the other eleven Directors all voted against the expansion in training. As
Chairman, Galvin knew he had the power to overturn the Board’s decision. Training was
something he felt strongly about, but was this a battle worth fighting?

Motorola

In 1979, Motorola was one of the world’s leading manufacturers of electronic equipment and
components with $2.7 billion in sales (Exhibit 1: 1979 Earnings Statement). The company
designed, manufactured and sold products ranging from semiconductors to stereo tape
players. Employer to over 75,000 “Motorolans,” the company operated 27 major facilities
around the globe.

The multinational powerhouse had been created a half-century earlier as Galvin Manufacturing,
a start-up battery business that Paul Galvin and his brother Joseph launched in Schaumburg,
Illinois in 1928. By 1930, the team had made their first breakthrough developing affordable car
radios. Over the next 25 years, Paul led the company into new markets, patenting the first
portable two-way FM radio, better known as the walkie-talkie. In 1947, he changed the
company’s name to Motorola in recognition of the car radios that remained the flagship
product. At the same time, he was envisioning new frontiers, initiating semiconductor research
long before Motorola’s competitors realized their importance.

While bolstering the product line, Paul Galvin also nurtured an “industrial family” within his
company. In 1937, six years before Galvin Manufacturing’s first public stock offering (at $8.50
per share), the founder offered factory workers the chance to buy company stock. Galvin even
rewarded workers who used their annual bonuses to purchase company stock with an extra
stock bonus. He provided good benefits for his employees and looked out for their well-being.
The result was loyal and trusting workforce who saw no need to unionize.

…2
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In 1956, Paul Galvin turned over the presidency of Motorola to his son Robert. When the elder
Galvin died three years later, Robert became CEO, a post he would hold for three decades.
Robert Galvin oversaw Motorola’s entry into numerous new businesses, including television, 8-
track tapes, remote paging, microprocessors and cellular telephones. Still a pioneer, Motorola
developed the first radio pager in 1969, the first television priced under $200 and technology
that made the automobile alternator possible.

Under Robert Galvin’s leadership, Motorola’s sales and profits soared as the company became
an international leader in the electronics market. As a crowning achievement to the firm’s
ascendancy, a Motorola transponder relayed to the world the immortal words of Neil Armstrong
– “That’s one small step for man, one giant leap for mankind.”

The younger Galvin’s approach to Motorola’s growth mirrored that of his father. Always trying
to anticipate change in the industry, Robert Galvin believed that the company’s employees
were its biggest asset. Well before the Japanese concept of “teaming” was in vogue in other
American companies, Galvin put teams of employees in charge of their own work, requiring
them to monitor productivity, service and costs, and then rewarding them for improvements.

Motorola was one of the first large U.S. manufacturing companies to give employees significant
leadership responsibility. In so doing, it abandoned the classic, hierarchical factory
organization. Managers encouraged openness and participation on the shop floor. Motorola
invested heavily in research and development and gave workers the responsibility to fix
problems as they arose. As Motorolan Orhan Karaali, Senior Staff Engineer, explained:

“At Motorola, you do whatever is necessary

to get the job done. Not too many memos
flying around. Not too much politics. It is
more concentrated on our goals.”

With this culture firmly established, Galvin focused next on training to give employees the skills
and confidence needed to excel in a participatory environment.

Corporate Training

In the 1970s, most corporate training opportunities were reserved for senior management.
Companies tended to use training as a reward for executives who already performed well.
These executive education programs, which mimicked MBA programs, typically were
contracted out to universities. Using a case-study approach, they focused on management
basics like strategy, finance and marketing.

Motorola’s training effort at the time was no exception. The Motorola Executive Institute,
launched in the late 1960s, sent a handful of company executives to an intensive, month-long
program focused on business administration skills. Ultimately, however, Galvin was
disappointed with the Institute’s results, as the firm’s practices remained largely unchanged.
Galvin realized that these executive training efforts did not “touch” the whole workforce and did
not create a culture of constant change and renewal. He explained:

“We realized we had to be competitive one person at a time, counterpart to counter-part, to be

the best in our specific function versus anyone else in our business.”

…3
:3:

Increasing Competition

Galvin’s desire to bring competitiveness to each and every employee stemmed from his
understanding of the changing nature of the electronics industry. In the 1970s, the industry
was growing and diversifying rapidly. New competitors, primarily from Asia, but from European
countries as well, were entering the market. Other U.S. companies like Texas Instruments,
General Electric and National Semiconductor were all jockeying for larger share of the
increasingly competitive export market. New consumer and communications products were
being introduced each year.

To compete and prosper in the technology sector, Galvin knew that his workers needed more-
and better – training. When Motorola’s Board members voiced their reservations to Galvin’s
plan for expanded employee training, Galvin faced a dilemma. If he accepted the Board’s
counsel, the company might waste critical resources – both time and money – and fall behind
as the pace of technological change increased. If he pushed for investment in training, he
might jeopardize Motorola’s short-term performance and competitive position. As both CEO
and the largest individual shareholder, the final decision was his alone.

Exhibit 1

Statement of Consolidated Earnings and Retained Earnings

Motorola, Inc., and Subsidiaries, Years Ended December 31

(Dollars in thousands, except per share data) 1979 1978

Sales and Other Revenues $ 2,713,795 $ 2,219,744

Manufacturing and other costs of sales 1,624,966 1,339,806
Selling, general and administrative expense 672,282 548,667
Depreciation of plant and equipment 110,827 83,340
Interest and amortization of debenture discount, expense
and premium, net 36,114 27,541
Special charge 10,286 ----
Total Costs and Other Expenses 2,454,475 1,999,354
Earnings before income taxes 259,320 220,390
Income taxes 105,024 95,208

Net Earnings 154,296 125,182

Retained earnings at beginning of year 635,906 542,899
Cash dividends declared (per common share: 1979, $1.25;
1978, $1.05) (38,903) (32,175)
Retained earnings at end of year $ 751,299 $ 635,906

Net Earnings Per Share

based on average daily shares outstanding $ 4.96 $ 4.04

Average shares outstanding (in thousands) 31,112 31,019