Innovation Management and Failiure Finkelstein and Sanford- The rise and Fall of Iridium Van de Ven- Central Problems In the Management of Innovation

Learning from Corporate Mistakes: The Rise and Fall of Iridium Sidney Finkelstein and Shade H. Sandford

Concept and development of Iridium Motorola engineer first gets the idea behind Iridium in 1985 Satellites would allow subscribers to make phone calls from any global location Motorola established Iridium as a separate company in 1991 and had its initial service in November 1998

Motorola experienced declining sales and needed technological success to protect its reputation Motorola invests $6,6 billion for satellite design, launch operations and management Strong top management team with many years experience from Motorola

The Launch Spectacular launch Nov 1, 1998 Handset costs: $ 3, 000 Cost per minute: $ 3 - $ 8

Results Devastating results by April 99 Only 10,000 subscribers CEO quits before quarterly results Bankrupt August Friday 13, 1999

Reasons for Iridium’s collapse 1. Cellular build-out reduces need for Iridium From concept to development: 11 years 2. Technological limitation and poor design Unable to use phone indoors Phone “the size of a brick” 3. Manufacturing problems Launching of service before enough phones were available 3. Insufficient marketing and sales plans Delay in marketing teams in foreign countries

What really went wrong? Breathtakingly elegant and innovative technology Untenable business plan Why did they go forward with an increasingly flawed business plan?

What was the problem? Problem 1: Executives made decisions based on the size of previous investments Problem 2: Staiano’s leadership: a double-edged sword “If I can make Iridium’s dream come true, I’ll make a significant amount of money.” Problem 3: The composition and size of the board of Iridium Lessons learned: Evaluate long concept-to- development projects: competitive landscape

Discussion 1. How important is diversity and independent perspectives in corporate boards? Examples, think Norwegian! 2.Pros and cons with financial commitment. For example a leader with many stock options

Central problems in the Management of Innovation Andrew H. Van de Ven

Introduction A conceptual framework Written in 1986 FAQ from CEOs What environment/ culture/ infrastructure is necessary to be able to innovate? The reason for the massive emphasis on project organization and team work?

Innovation…. …is defined as the developement and implementation of new ideas by people who over time engage in transactions with others within the institutional order.

Important factors and their problems Ideas and managing them into good currency People and managing attention Transactions and managing part- whole relationships Context over time and institutional leadership

Managing ideas Ideas are developed over time and in a social and political dynamic environment Implementation Good currency

Managing Attention Psychological limitations to managing complexity Stability versus creativity/ change Need for Innovation

Managing part- whole relationships Multiple functions from idea to reality- transaction between the different parts are difficult “Impeccable micro structures into macro nonsence” Self- organizing groups, redundant functions, requisite variety and temporal linkage

Institutional leadership Need to transform the structure and practices in the organizational and institutional environment The goal is to create an infrastructure and culture for innovation and organizational learning - Negative feedback - Experimentation and selection approach - Preserving uncertainty and diversity

Iridium- an alternative interpretation 400 MUSD for 25 % of total stock share, 750 MUSD in loan guaranties, an option for additional 350 MUSD 6,6 BUSD in contracts 50 MUSD in contracts per month with Motorola, lucrative, should be half SG Cohen has estimated the value of Motorola`s total exposure to be between 1 – 1.15 BUSD

Motorola gained 750 MUSD in profits from Iridium Additional to this, Motorola have the patent protection for the satellite technology, approximately 1000 patents at the time when Motorola was entering the satellite communication industry Staiano CEO 1996 Lack of focus

Final discussion Is Irididium an example of bad management in Iridium or good management in Motorola? Could this have happened in Telenor- Opera? (How does the Iridium leadership differ from Van de Ven`s article?) Who had the financial commitment and strategic control in the case of Motorola/ Iridium, Telenor/Opera, and what does this say about the organizational integration?

Everybody: Can you relate Iridium and Opera to one of these organizational models?