Choose a point of view. Identify a problem or an objective of the case according to your point of view. Determine areas of consideration and categorizing them as strengths, weaknesses, opportunities, or threats. Assess and write down your alternative courses of action using the SWOT analysis. You must formulate at least two. Identify the advantages and disadvantages for each course of action. Conclude with your recommendation.

References In 1987, some of the engineers at the electronics firm

Motorola conceived of the idea of using a global satellite

system to build a worldwide telephone network, thereby

enabling customers to place and receive calls from any

where in the world. The engineers proposed the project in

a presentation to top executives at Motorola: Robert Galvin

(the CEO), John Mitchell, and William Weisz.

The initial presentation took about two hours. The

proposed global satellite mobile telephone project was

very ambitious, requiring a capital investment of several

billion dollars.

What was Motorola's CEO Robert Galvin's reaction? Did

he find the proposal attractive? Did he ask for a DCF-based

analysis in order to assess the net present value of the pro

posed project?

In Robert Galvin's own words, "with no further review, the

three of us approved the project on that first sitting." They

asked for no cash flow forecasts. Therefore, no discounting.

No NPV. No IRR. Not even a payback analysis.

The project led to the creation of a new firm, to be called

Iridium, with Motorola as its principal investor. Iridium was

neither a small-scale project, nor a short-term project. It

required an investment of $5 billion over 11 years, before

generating revenues, making it one of the largest private

sector projects in the world.

During the 11-year investment period, Iridium's engineers

achieved several technical successes. In November 1998,

Iridium began to offer phone service to customers in remote

locations. Yet, to the chagrin of its investors, the project

proved to be a commercial failure. Within a year, Iridium

had filed for bankruptcy protection and was sold to private

investors for $25 million.

The failure stemmed from a series of faulty judgments

and decisions that Motorola had made. The firm's execu

tives underestimated the risk associated with the number

of customers. Iridium's target market consisted of business

executives who engage in frequent international travel. Its

potential customer base comprised about eight million peo

ple. Despite 1 million inquiries from potential customers, its

subscriber base turned out to be a mere 20,000. Why the

low number? The answer involves a series of four surprises.

1. Indoors/outdoors. Engineers discovered that their

phones worked outdoors, but not indoors. This techni

cal difficulty was totally unanticipated.

2. Cellular competition. In 1987, cell phones were expensive

and used by only a few technically oriented individuals.

A decade later, when Iridium took its service to market,

cellular phones had become widespread in the general

population. Interviewed in 2003, Robert Galvin stated:

"I did not anticipate that by the time the Iridium product

would finally be able to present itself to the world that

the cellular telephone business would be so pervasive."22

3. Size. Iridium's telephone could not be made to be as

small as a cellular phone. Cellular phones could fit in

the palm of a user's hand. Iridium's phone was aslarge

as a hand and required a long antenna. Users of cell

phones viewed Iridium's phone as inconvenient.

4. Cost. Iridium's phones sold for over $3,000 each.

At the time, the price of a cellular phone was about

$100. Moreover, Iridium charged high rates for airtime,

between $4 and $10 per minute.

Answer rating: 100% (QA)

Point of View InvestorShareholder ProblemObjective Assess the failure of the Iridium project and identify alternative courses of action to mitigate th... View the full answer