“Ah, my," the Toronto cabby sighs. "Afraid we'll have to take a slight detour, sir."

A dump truck, a radio report has warned us, has overturned in the roadway ahead. And that seems rather appropriate, since we're motoring toward one of the major epicenters for Motorola (www.mot.com), which has hit substantial business roadblocks in recent years.

"The Montreal software center represents Motorola's shift toward software development and away from our traditional base in hardware manufacturing," she says. "It is a shifting of direction up the value chain, recognizing that our products, like phones and pagers, are turning into commodities, that the value comes from the application."

Indeed, Motorola sees high-powered software paving the road back to fast-track growth. For example, the Schaumburg, Ill.-based corporate septuagenarian envisions "online refrigerators" that "can really talk to your online grocery store," says Hector Ruiz, semiconductor products sector president. That brave new software world is part of the company's big push toward what Ruiz calls "systems on a chip," a sector with fat, 50 percent margins almost doubling components' payoffs.

Disengagement Also Obvious
In short, this is no run-of-the-mill software center, particularly given Motorola's recent woes. Last year marked a precipitous plunge for the first Baldrige Award winner, which took a US$2 billion charge in slashing 24,000 jobs.

As one analyst observed, "Motorola has gone from corporate poster boy to whipping boy." That's why the "new rules of engagement" also entail substantial disengagement. Motorola has initiated a major manufacturing downsizing, with further shrinkage a certainty (see accompanying "Do Real Men Outsource?"). Already, chipmaking facilities in Arizona, California and North Carolina have been shuttered and Philippine operations consolidated. A $3 billion Virginia factory hangs on indefinite hold.

Lower-margin operations are also flying out the door. This year, for example, Motorola unloaded its commodity component division for $1.6 billion and sold its antenna site business for $255 million.

Simultaneously, though, Motorola is growing toward its reinvention. In August, for example, it purchased Austin, Texas-based programming toolmaker Metrowerks, which, say analysts, will appreciably slash to-market times for products based on increasingly complex chips. Similarly, Motorola recently acquired Silicon Valley's Starfish Software, which specializes in linking mobile devices and computers.

"Our effort has to be in the software side with the move towards the system-on-a-chip architecture," Motorola Semiconductor Group Vice President Billy Edwards says of the acquisitions. "Our tools have to match the complexity of the devices we're developing." That Motorola's digging in Canadian soil to unearth part of its software-driven strategy marks a return to roots of sorts. Canada was tapped in 1947 for Motorola's first expansion into the international arena, which accounted for half of 1998's $29.4 billion in sales.

New Montreal Center 'Will be a Strategic Link'
Motorola is hardly a neophyte in software, which powers all its products. The company's Montreal center will join its existing network of 10 software centers in Australia, China, India, Italy, Poland, Russia, Singapore, South Korea and the United States.

A new-breed Motorola, though, will unfold inside the Montreal center, which will be primarily focused on software for microcomputers, personal-communication devices, satellite communications and the transportation industry.

"Though Motorola's other software centers do some multimedia work, the new Montreal center will engage in our newest activities," Bouchard explains. "It will be totally dedicated to multimedia, [with] the convergence not only of voice, data and video, but also of all media: cable, wireless and wire-line."

Given multimedia's prominence in Motorola's reformation plans, this is clearly a strategic investment.

"It will not necessarily be the most important Motorola software center, as all the centers are important," Bouchard says. "But the Montreal center is going to be a strategic link for the whole software center network, taking us into the next generation of products. Even the other centers will also eventually take that direction, because we are going where the technology in the market is taking us."

Canada's R&D Muscle
Technology is also taking Motorola to Montreal, which landed the software center over strong competition, most notably from Mexico and Argentina (particularly Buenos Aires). Ultimately, though, the site search zeroed in on Canada, a Motorola R&D stronghold. The company already had five Canadian research centers: three in Toronto focused on communications, semiconductors and data networking and two in Vancouver focused on wireless products.

Part of Canada's high-tech allure lies in its four electrical engineering schools that The Gourman Report ranks among North America's top 10: the University of Toronto (No. 5), McGill University (No. 7), the University of British Columbia (No. 9) and McMaster University (No. 10). In fact, the Global Competitiveness Report ranks Canada No. 1 in its per-capita proportion of knowledge workers.

"Canada provides first-rate employees and strong support for dynamic, expanding high-technology businesses," says the Canadian-born Bouchard, an unabashed homeland booster. At that point, the search team winnowed numerous potential Canadian sites down to three: Montreal, Toronto and Vancouver.

That calculation, however, settled nothing. Instead, it sent the team searching for further resources. "At that point, we knew we had to bring the cost down to meet our criteria for fully loaded cost per engineer," Bouchard says.

Montreal's Cite du Multimedia
Montreal, however, had a location ready-made for cost slashing: the Cite du Multimedia, or Multimedia City (MMC).

Initiated in 1998, the ambitious MMC project is rising in an abandoned industrial area in historic old Montreal, overseen by a consortium of private companies and city and provincial agencies. When the renovation is complete, the historic swath near Montreal's waterfront will become an R&D complex with as many as 10,000 workers in 1 million sq. ft. (90,000 sq. m.) of space.

Already, Quebec Premier Lucien Bouchard (who's not related to Motorola's Bouchard) is touting the multimedia skills of MMC-based companies, including Discreet Logic, which created the software that powered many of the special effects seen in Titanic, Star Wars: Phantom Menace and The Matrix. As Quebec's premier joked earlier this year in a New York speech, "Yes, our software designers take responsibility for the partial destruction of New York City in Armageddon. The spectacular fall of the Chrysler Building makes them especially sad."

More than the benefits of high-tech clustering, though, are pulling firms to the MMC, which offers a red carpet practically macadamized with incentives. Quebec's government is providing tax credits of up to $15,000 of each employee's annual salary until 2008.

"The Quebec government's incentive program was very influential in our decision," Bouchard says. "It allowed Motorola to be more cost competitive."

Few firms wouldn't be attracted by Quebec's offer: a $50 million incentive package for Motorola's planned, 10-year total MMC investment of $300 million (including salaries). Other firms have found such incentives similarly persuasive. In the MMC's first year alone (through June 1999), it received commitments for 5,000 jobs, half its 10-year goal.

Quebec's Incentives Dust-Up
But the MMC hasn't thundered out of the starting gate without some heckling from the grandstands.

Quebec's government has frankly explained what it's trying to do: create an economic sector as strong as Montreal's multibillion-dollar aerospace and pharmaceutical industries.

"We really want a breakthrough in the multimedia, new information technology and communications sectors,'' says Finance Minister Bernard Landry. "They constitute a wonderful opportunity for Quebec to gain a major foothold in the new economy and offer its young people high-quality jobs with promising futures."

Straightforwardness, however, is no inoculation against controversy. Some Quebeckers, in fact, greeted the MMC subsidies with the kind of mile-high hackles that met the first big-bucks incentives introduced into the U.S. site selection equation in the early 1980s.

"If it weren't for the sheer cynicism of the political game they're playing with taxpayer money," Bryan wrote, "one could almost feel sorry for Premier Lucien Bouchard and Finance Minister Bernard Landry, as they scramble to create the illusion of an investment boom by shoveling money into the coffers of any high-tech company that agrees to locate jobs in Quebec."

Quebec 'Ahead of the Curve'?
You get quite a different take, however, from Motorola's Bouchard, a founding member of the Public Policy Forum, which promotes collaboration between Canada's private and public sectors. And with prior high-profile stints with Hydro-Quebec and Hewlett-Packard Canada, Bouchard, 52, knows the international business attraction game.

"The Canadian government has extremely generous, countrywide tax credits and incentives," she says. "In fact, I think we have the world's best R&D development tax credit program.

"Yes," Bouchard continues, "there has been some debate about Quebec's incentives, which are not unlike the incentives in much of the world, as in the U.S. But with its incentives, Quebec, I think, is definitely ahead of the curve in Canada."

The facts also indicate that Quebec's MMC strategy is no mindless giveaway. Montreal, for instance, will own all the MMC's land and buildings, even as companies come and go (as they inevitably do). Motorola is leasing its MMC facility and has built-in, periodic options to expand. Prudent quid pro quos are also built in. "The incentives are proportionate to the jobs that we create," Bouchard says. "If the jobs aren't there, we are not entitled to them."

Unquestionably, Quebec's incentives have elevated its profile for high-end facilities. Doug McCollam, NORDX/CDT executive vice president for finance, calls Quebec "the most economical place in the world to do R&D."

Then again, even before the MMC, the province was luring a number of multinationals' major location moves, including Ericsson Research, Excel Communications, Harris Farinon, Nortel and Nortek. In 1998 alone, the province's lead development agency, Investissement-Quebec (www.invest-quebec.com), or Invest-Quebec, landed corporate capital investments of $2.9 billion creating 15,735 jobs, reports Louis Roquet, Invest-Quebec president and CEO. (That performance earned Invest-Quebec SS's recognition as one of 1998's "Top 10 Development Groups").

Separatists 'Never a Factor'
Quebec's separatist movement, however, wasn't a consideration for Motorola, despite 1995's near-miss referendum that elevated separatist leader Lucien Bouchard to Quebec's top elective post.

"It was never a factor and never discussed," says Motorola's Bouchard, a native Quebecker. Global vet Motorola carefully weighs political risks, but also realizes that timidly opting for risk-less investments is incompatible with being a truly international player, Bouchard explains, "We have long been in places like China, India and Latin American, where business climates can be volatile," she says. "But unless they would immediately threaten business, such factors are not major concerns. We have proved to be very resilient."

Motorola's Reorganization
Motorola's Montreal center also represents the major reorganization initiated after decentralization practically ran amok, with 23 independent product groups working on 82,000 products. By all accounts, cooperation and coordination were anti-watchwords in a system one top executive publicly labeled "nuts."

Different product group salesmen, for example, sold the same product to the same customers. Many groups jealously kept their designs and designers shuttered away from other groups and maintained separate labs, fabs and libraries.

Motorola's bottom-line woes prompted 1998's reorganization by CEO Christopher Galvin (featured in SS's June 1994 cover story), a third-generation Motorola man whose grandfather founded the firm and whose father was CEO for 32 years. Galvin streamlined the unwieldy structure, slashing 23 product groups into four units -- automotive, cellular, entertainment and networking equipment -- and charged them with boundary-less "world product mandates." Canada's R&D operations reflect Galvin's reworking.

"Through the recently created Canadian R&D management team, Canadian R&D center directors will work more closely than in the past, exchanging methodologies, processes and technology," Bouchard says. "Our worldwide software labs will also increase collaboration. We don't want to reinvent the wheel."

Motorola's hyper-decentralized past, though, has left disparate workplace standards that must be harmonized.

"Right now," Bouchard sighs, "the corporation is pretty much all over the place in terms of workplace layouts, but we are refocusing, trying to find some common standards that are best for our employees."

Motorola's New Location Rules
As the Canadian R&D project indicates, Motorola is scrambling to regain robust health. But will the good fight be good enough? With so massive an organization (133,000 employees), individual signs are mixed.

August, for example, saw the bankruptcy-court touchdown of the once ballyhooed Iridium satellite project, in which Motorola owns 18 percent and has a $2 billion exposure. At this point, not even Lazarus, it seems, could offer resuscitation tips for Iridium. Motorola, though, is still running on schedule with the promising $12.9 billion Celestri satellite system, scheduled to go online by 2003. Motorola's long-term fate, says Brown Brothers Harriman analyst Robert Wilkes, hangs not so much on individual products as on organizational attitude. "They need to become a customer-facing organization, not the product-driven organization they've been," Wilkes says.

That idea is taking root, Bouchard indicates. "One of Motorola's new rules of engagement," she says, "is that we look first in every decision at what is best for customers, then what is best for Motorola and only then what is best for business sectors. Before, we operated in the reverse order."

Motorola's new order has also extended location parameters, she adds. "There's been a big, big change, almost a cultural shift, in the way we look at the world," Bouchard says. "Before, it was taken for granted that every large, strategic Motorola investment had to be in the U.S. That is no longer the case. A strategic investment could be in China or in Latin America."

Or, clearly, in Canada, where Motorola is heading down the road with a very strategic piece of its comeback plan.     SS