Case 3: The Rise and Fall of Iridium

MGT 6772

Team 8
Farwa Akhtar
Maria Cynthia Martin
Sneha Gorantala
Vishwas Beedikere Venkateshmurthy
Yunnuo Cheng

Blame Game
Iridium was amongst the biggest failures of the decade. The failure was a combination of
disappointing technology and poor management. Behind the failure lies a salutary tale that shows
how a potentially revolutionary product was crippled by unrealistic planning, insufficient
management control, bungled marketing and technological stubbornness. This project was the
biggest deployment of low earth orbit (LEO) satellites. Due to its architecture, it got locked into
massive initial costs. The failure of Iridium can be broadly traced to three main individuals and
entities.
Motorolas Chairman, Bob Galvin
Initially when the idea of Iridium was presented to Galvin, he was very enthusiastic about
it and forced CEO John Mitchell to fund the development of the project. Though there is no harm
in approving $6 million for initial development, he should also have commissioned a parallel study
on technical and commercial feasibility. If this would have been done, and there was discussion
and knowledge sharing across Motorola about the pros and cons of a satellite phone network, then
many of the issues which came up later and caused a lot of design changes, could have been
encountered earlier.
Iridium Board
The board of a company, including the CEO, has a strategic function of providing vision,
mission and goals of the organization. As per the recommendation of Leo Mondale, investors in
gateway were made members of the board. There were 28 board members from countries all over
the world speaking different languages. It lacked cohesiveness in decision making. For example,
when CEO Ed Staiano wanted to launch the service in November 1998, in spite of the problems
with the headset, the board should have avoided this. Due to this when the service was launched,
not enough phones were available even to the few customers who wanted one. The board also
increased the expenditure of the company as its board meetings were held in different cities across
the globe. The fact that most of the board was comprised of partner appointees, made it difficult
for Iridium to apply pressure on its partners when they were slow to set up necessary sales and
marketing infrastructure prior to service launch. Also, the board lacked external directors who
could have provided objective viewpoints and diversity of expertise. It also failed in realising the
competition from cellular services and taking corrective actions during development.
Leo Mondale
Leo Mondale took over as the vice president of Iridium international in December 1991,
mainly to secure spectrum from different countries and develop a financing strategy for the
company. He came up with the plan of finding many investors who would commit smaller share
instead of few major investors. This forced the architecture to have many gateways instead of one.
Failure Becomes Imminent
The signs of failure were imminent when the much publicized launch of service had to be
postponed from September 23, 1998. This was a marketing disaster and after 12 years of research
and development, they still werent able to meet the basic requirements of a communication
system with clear access and no interference. This resulted in lower than expected customer
subscription. Although Iridium received estimates of 625,000 (on average) potential customers in
response to its marketing efforts, only 3000 (0.005%) translated into actual customers. This raises
questions about their market survey techniques and market segmentation strategy. Along with
this, they were able to come up with a handset which was huge and expensive when the cellular
industry was already on the path of miniaturization. These factors became even more significant
as they were targeting the premium segment of the market.
Flaws in System Design
Iridium was a one-of-its kind project aimed at providing global telephone coverage.
System design was ideal, but lacked consideration of possible political or social hurdles. For

example, it was the most sophisticated design of its time with complex on-board call routing
system. This was supposed to be the first satellite-based telecommunication with satellites
communicating with each other directly and only one gateway required on ground. This design
would decrease the cost as compared to having multiple gateways on the ground. But the leaders
faced lack of support from other countries for single gateway. The system was later redesigned to
accommodate multiple gateways on ground that could be plugged in local PTT system. The
sudden shift in the architecture design from a single gateway to multiple gateways led to
subsequent issues in the evolution of Iridium, as it increased the earth-bound infrastructure
required for global coverage causing financial and other technical issues. The project should have
been driven incrementally rather than achieving ideal goal of connecting all the places on the
globe. The project implementation could have taken place in stages i.e. one orbital plane
consisting of 11 satellites or maybe concentration in one region of the world e.g. North America.
Therefore, the sheer size of the project, lacking technical know-how on implementation, was one
of the problems that impacted the future evolution of the venture.
Another flaw in the system design of Iridium was the lack of quality testing. No prototype
was developed for initial proof of concept and for evaluation of functionality. The beta testing
period should have been increased to months instead of weeks in order to thoroughly test all the
functionalities. They found some major glitches in the system after the roll-out e.g. phone did not
work in buildings. This was a huge drawback of system design since phones only worked with
line-of-sight between the phone antenna and the orbiting satellite. All of these issues could have
been avoided if the prototype was timely developed and tested before venturing out into mass
production. Also, the lack of quality testing led to customers losing trust during its launch phase
and lack of interest in the service being provided and hence less than expected customers.
The introduction of bulky phones during the later stage of the project was also a wrong
decision. Firstly, the phone was very expensive and not user friendly. The phone was redesigned
to accommodate both satellite as well as cellular communication, but it did not receive a good
response from the customers. The system design failed to incorporate data services which was an
essential need of targeted customer i.e. business class. In a nutshell, the system design was never
suitable for its intended target market and this meant that the service would never be able to meet
the needs of its key subscriber group.
Furthermore, it seems that engineers did not take into account the sustainability of the LEO
satellites. The project consisted of 77 LEO satellites each having an average life-span of 5-8 years,
which meant that they had to be replaced periodically. The multiple issues and weaknesses in
system design led to technical and financial difficulties in the evolution phase of the project.
Shortcomings in Organizational Design
Iridiums organization had been quite chaotic, and not properly structured. From the initial
idea to the launch of the Iridium project, there has been a tremendous lack of business planning
due to emotional decision-making from Durrell Hillis and Bob Galvin. One solution to this main
issue would be to build a committee, who could have performed a SWOT analysis to evaluate the
internal and external influences. This would have helped Iridium Company face its greatest
challenges, and find its most promising market by helping it design a strong business strategy in
line with the realities of the marketplace. Furthermore, it was important to remain open-minded
and stay in the loop with market advancements and competitors. It would have increased the
probability of a successful outcome by increasing the number of companys subscribers and
therefore improving the overall revenues. In the world of technology, where new advancements
greatly affect the market structure, competition level and customer needs, it was essential to be
up-to-date with industry trends so as to steer Iridiums strategy in the right direction.
Moreover, there has not been a proper leadership in charge of the company. Leo Mondale
was a lawyer by training and thus he lacked management and strategic skills to provide guidance
to develop and execute a successful business plan for the company. Furthermore there were too
many board members involved for a startup like Iridium. At that time, an experienced leader in

the sector should have been appointed as CEO, along with few investors as board members to
execute a proper business plan regarding the market and finances for the future success of the
company. A Chief Technology Officer (CTO) could have been appointed to help the CEO and
align technology related decisions with organizations goals.
Additionally, Iridium had a rigid business plan from the beginning of the project. It started
as a way for Motorola to transition from a component supplier to a builder of entire systems. The
plan was to develop an entire communication system that would work anytime, anywhere and it
never deviated from this. Competitors, such as Ellipsat, who pursued similar ventures didn't focus
on achieving the most ideal system. If Iridium's sophisticated business plan had been more
adaptable, it would have been easier to handle external problems such as changing customer needs,
and budget issues, thus giving Iridium a better possibility of success. For ex. they didnt evaluate
the possibility of using MEO or a combination of MEO and LEO instead of only LEO. MEO
wouldnt have had the problem of shadowing experienced with LEO and would have reduced the
costs significantly as shown in table 1. As the cellular services expanded, they could have brought
in people who were responsible for expansion of cellular service in other companies, on to the
board, so as to take advantage of their knowledge and experience.
Lastly, when Iridium needed a new CEO, John Richardson, considered to be new blood,
was appointed. At this juncture, the second CEO should have been a person who was involved
with the project from the beginning. Iridium had moved into the era of marketing and financing
and it was believed that Richardson could execute the business plan effectively. However,
Richardsons pricing strategies were unsuccessful and debt built up, leading up to the big failure
of Iridium. Had Richardson been part of the team from the initial stages, his strategies might have
been different as he would have more knowledge and experiences from the projects past.
Wisdom from Failure
Iridium focused more on engineering and technology instead of being commercially profitdriven. Scientists and engineers, who are keen on making fascinating technology into reality,
pushed the whole project while marketing, customer relations, and financial departments got
involved too late in the overall product development life cycle. Any company seeking high
technology should also be aware that making profit is the base of all future development.
Secondly, companies should be aware of competitors and changes in the overall technological
environment and user needs. The competition may arise from companies in the same or different
industry. For Iridium, the company failed to keep up with the development of the Internet.
Providing data services could have given it a competitive edge over cellular services. Companies
need to design in such a way that upcoming technologies can be easily integrated and there is both
forward and backward compatibility. Third, perfectionism is another common problem for
technology-driven companies that they always wish to build perfect product in one step. However,
starting from a small scale and making iterations according to technological development and user
feedback will not only help the company to adapt better to the changes but also capture the market
earlier. This incrementalism also applies to the geographical spread. Fourth, Iridium ignored
testing, which is essential for delivering a good product. The design needs to be sustainable and
free of frequent maintenance issues. The companys organizational structure shouldn't be top
heavy, which may stymie innovation. Iridium suffered due to lack of knowledge sharing in the
initial phase. Innovation in organizations is affected by knowledge hoarding, hence an
environment where knowledge and failure sharing is encouraged must be developed. In the
development of new technologies, failure is common. Hence processes need to be developed
where people fail early. This saves costs because a product failure occurring early in development
is better than it failing in the hands of the customer, as in the case of Iridium phones. Finally, one
of the important lessons for technology companies is that the time between conception of an idea
and its implementation cannot be too long in the present era of exponential growth in technology.

LEO
72
6200-9400
6
0.1

MEO
14-20
450-1000
1.5
~0

Number of satellites
Orbit altitude (miles)
Revolution time (hours)
Time delay in
communication (seconds)
System cost
$4.9 B
$1.5B
Phone cost (for subscriber)
$3000
$1000
Call cost (per minute)
$3
$0.50
Table 1. Comparison between Iridiums LEO system and Ellipsos MEO system