Case Study: Reasons Behind the Collapse of Research in Motion (RIM)

2011 Worst Year for RIM

It all started in the first quarter of this fiscal year when RIM announced that it is having problems gaining traction in new markets and shipping updated products. RIM shipped lesser number of Blackberry units and announced the delay in introduction of BlackBerry Bold 9900 and next version of BlackBerry OS 7 to late August. The BlackBerry 7 handsets launch was delayed because RIM redesigned the hardware and switched to a higher-performance processor, which caused delays as wireless carriers had a qualifying process for new phones. Also RIM could only sell only 500,000 units of the newly launched Blackberry Playbook tablet in Q1, 250,000 units in Q2 and 150,000 units in Q3 far below the company estimates. The company is forced to offer huge discounts on the tablets to push the inventory into the market and a pre-tax provision in the third quarter of fiscal 2012 of approximately $485 million, $360 million after tax, related to its inventory valuation of BlackBerry PlayBook tablets. Playbooks had been launched prematurely and had a number of software issues like problems with Flash content. Carriers like Sprint opted not to sell the Playbook as it got very poor reviews which had a significant impact as RIM always depended on its wireless carriers to push the products on to the consumers. Hackers were quick to hack the playbook and made a dent to RIM’s product security reputation.

RIM’s new BlackBerry 7-based handsets sold well at launch and had helped company to meet its guidance of 14.1 million BlackBerry units but the revenue fell short of expectations as demand for older versions of Blackberry has drastically come down. Consumers completely lost interest in the Blackberry devices as the devices were slow, had few features, problems with browsers and lack of applications. RIM gave a bleak outlook for its Q4 i.e. 18 % drop in BlackBerry shipments (11-12 million units) and downgraded its expectations which made investors angry. Another issue is that during the Q3 call, RIM co-CEOs announced due to non availability of a more power-efficient dual-core processor until mid-2012, the BlackBerry 10 phones are not expected to arrive until late 2012. Blackberry 10 handsets will be the first the “mobile computing” handsets that RIM launches as it was all along launching messaging handsets and hopes the new handsets will turnaround the company next year. But the fact is US consumers that were addicted to Blackberry’s have deserted them and with new iPhone next year and Android Phones being released aggressively, RIM plan of spending on a new marketing and advertising campaign in 2012 will not help RIM in retaining the consumers.

Blackberry outage occurred in October 2011 which was a massive outage for three days due to which messaging and browsing were affected as a result of a core switch failure in RIM’s infrastructure and it affected BlackBerry users in Europe, the Middle East, Africa, India, Brazil, Chile and Argentina. Blackberry users had earlier too experienced outages in the last three years but not in the scale of the October 2011 outage. This happened just before the launch of the new iPhone 4S and it made a big dent to RIM reputation and the damage did not reduce despite the co-CEOs apologizing to their customers publicly. There has been a general perception that this outage was not handled properly by RIM in terms of communicating with their consumers. RIM is forced to give up the BBX name after a New Mexico ruling against using the BBX name and company is now referring the next generation Blackberry based on the QNX operating system as Blackberry 10. Next year RIM is launching the BlackBerry Mobile Fusion and the service will allow corporate IT departments to manage a fleet of Smartphones and tablets from a single web console—including rival iPhone and Android devices. This will help in raising the service revenues from current 24% but the company gets majority of revenues from hardware sales. RIM wants to be known as Product Company rather than managed services company.

A Failure of Leadership

RIM co-CEOs are being criticized by all the stakeholders and the ultimate proof for their poor performance is that they are no longer Billionaires as the RIM stock price had fallen significantly since mid 2009. They failed to understand the transformation that happened in the Smartphone market which is consumers’ preference towards a complete mobile computing with multimedia features device from just a messaging device. In 2007, Jim Balsillie stated that iPhone is not a threat to them, downplayed the significance of touch screens, felt that the Apple total control is dangerous and it is just another entrant in the Smartphone market with multimedia features. The first Blackberry touch screen phone was launched in November 2008 which was Blackberry Storm as the wireless carriers wanted a new device to counter iPhone. Mike Lazaridis even down played the touch screen only phones were not what the consumers wanted as late as in 2010 despite the phenomenal success of iPhone and other Android phones.  Not only had the Blackberry RIM co-CEOs blamed for the failure of Playbook tablet as they launched it prematurely that had severe problems but also for the delay that happened in introduction of new Blackberry and Playbook. They still believe that they can turnaround with the launch of Blackberry 10 and Playbook 2.0 next year in 2012 and are asking for patience from all the stakeholders.

Mike Lazaridis and Jim Balsillie
Mike Lazaridis and Jim Balsillie

The co-CEOs hold the position of co-Chairman also of the company which is being severely criticized by many and despite holding hold board meetings like any other corporation; they are accused of making the sessions a “non-event”. They have a tight grip on the company since past 27 years and since 2007 stock options scandal they are facing severe criticism and even more since mid 2009 the market cap reduced drastically and the blame totally lies on the co-CEOs. 2007 stock options scandal is about back-dating stock options that it gave to its senior executives in such a way that the options were made more valuable. Jim Balsillie was forced to step down from the role of Chairman but regained his position back after the 2010 settlement. Also they are criticized for not handling properly the proposed bans by governments of UAE, Saudi Arabia, India and other countries as Blackberry declined to provide greater access to the encrypted information sent by its devices. Recently an email surfaced supposedly from disgruntled executive in RIM that highlighted some of the key reasons for problems like lack of innovation support, lack of focus for the top management, failing to listen to the end consumer and understand their needs and the way the organization is become redundant with inefficient leaders and lack of quality employees.

RIM co-CEOs are also blamed for not communicating to the stakeholders about the delay in launches, in communicating the bleak outlook, fall in sales and accept failure of its Playbook tablet. They have overseen rapid depletion of the market cap since past two years (Share price fell 74% in 2011) and they are even now announcing more bad news than good news. They say transformation plan will turn around the company and asking for patience from the stakeholders. Research firm Strategy Analytics forecast RIM’s share of the US Smartphone market to fall to 12% in 2011, a sharp drop from 2007, when RIM had a 44% share. By comparison, Apple, which just started selling smartphones in 2007, is expected to grab a 24% US market share this year. The co-CEOs have decided to take a salary cut to token 1$ a year like Apple’s Steve Jobs, Google’s Eric Schmidt, Sergey Brin, and Larry Page, Cisco Systems CEO John Chambers and Oracle’s Larry Ellison who had at one time reduced their annual salaries to $1. They are also are believed to be holding closed-door meetings to discuss potential strategies for a shakeup in the company’s leadership. But the fact remains nobody will be interested to take over as the CEO of RIM as long as both of them stick to their co-chairman roles. Their fate hinges on the company’s board of directors report by the end of January 2012 on management effectiveness in response to demands from investors. Investors and other stakeholders are asking for the co-CEOs to step down as they lost confidence in them and doubt their capability to turnaround the company and want new leadership to take over the company.

Why so much criticism after running RIM for 27 years? Smartphone market has been drastically changed by Apple iPhone and Google Android based phones. They have successfully developed and launched devices that are way over consumer requirements and in fact they have provided consumers devices that have powerful hardware, unique functionality and features and million of apps and consumers are ready to pay for the powerful mobile computing devices that help them browse internet, listen to music, watch videos and use social networks. Apple iPhone and Google Android are both target creators that are immensely successful. Blackberry earlier created its own target market with Push email technology on the phone and created an uncontested market space in the enterprise segment and its devices are cult devices that made executives addicted to Blackberry. But the present scenario is different Blackberry is no longer in market but chasing the competition dominated by iPhone and Android phones. They are trying to follow the market leaders and it is till now not able to do it successfully. RIM co-CEOs believe that Blackberry 10 and Playbook 2.0 with QNX operating system will help them regain their lost market. They are betting big on this strategy and hope they will deliver this strategy to the consumers or else Blackberry will become another Palm in the Smartphone market.

Case Discussion:

  1. What are the reasons that are responsible for the failure of Blackberry?
  2. What should be RIM strategy to revive the company?
  3. Do the co-CEOs leave and bring in new leadership to take over?
  4. What should be the innovation strategy for the company and How to manage the product portfolio?