RIM and the Curse of Success

A man who has committed a mistake and doesn’t correct it,
is committing another mistake.
~ Confucius

Another quarterly earnings release has come and gone, and once again Canada’s former mobile tech heavyweight has stunned even those who have grown used to disappointment. It might seem unfair to criticize a company that services roughly 75 million BlackBerry subscribers worldwide — that is, when its service hasn’t failed — and sold over 14 million new phones and 150,000 tablets in the last three months alone. After all, Research In Motion (RIM) still generates 37 per cent margins and earns almost $1 billion in service fees every three months.

That said, the company’s devices currently boast the fastest-shrinking share of the growing smartphone market (plunging to 10 per cent in 2011 from 44 per cent in 2009) and its PlayBook accounts for less than one per cent of ultra-high-growth tablet sales. Worse still, there doesn’t seem to be any confidence among market commentators, consumers, investors, app developers, and even employees that RIM’s senior management team has what it takes to turn this ship around. That combination is a death sentence for any modern mobile ecosystem, which relies on a steady stream of new app supply and new customer demand to drive network value and support ongoing investment.

In the face of this existential threat, there still seems to be a fundamental disconnect between the company’s go-to strategy (i.e., “Keep on trucking”) and its evolving reality (i.e., “Barbarians at the Gate”). The former certainly served RIM well during its early entrepreneurial successes in the late 1990s, and likely accelerated its meteoric rise over the first five years of the 21st century. As with most successful startups, the company has since matured and grown strategically complacent. Graced with $1.3 billion in cash and an established market for its hardware and infrastructure, RIM continues to focus its innovative energies on making enterprise information technology professionals happy — rather than designing for end-users like its most successful competitors — with painful economic consequences.

The opportunity

After reporting an abysmal 71 per cent drop in earnings, RIM’s senior management team used its latest quarterly earnings call to announce a few minor tweaks to governance, strategy, and outlook, resulting in a swift and unanimous response from the investment community. RIM’s shares plunged 10 per cent within minutes of the press release — instantly wiping out more than $1.5 billion of the firm’s market value. A brief look at three of its key talking points reveals why:

  • On governance: RIM co-CEOs, Mike Lazaridis and Jim Balsillie, offered to reduce RIM’s annual cash compensation to a token $1 to demonstrate our passion, alignment, and commitment to RIM’s long-term success. Investors have been pressing for a more comprehensive governance review, led by the company’s highly regarded independent directors. Despite promises in June 2011 to establish a special board-level committee to “propose and provide a rationale for a recommended governance structure,” RIM hasn’t made any material progress, reinforcing an organizational pattern of complete deference to the company’s founding fathers.
  • On marketing: In an effort to stem the flow of RIM customers to competing smartphone platforms, the company announced a $100 million “marketing and consumer retention campaign.” The first red flag is that the company even needs a “consumer retention” campaign. Apple doesn’t spend money on consumer retention because its technology naturally retains. Perhaps more importantly, all the advertising in the world won’t convince buyers to adopt an inferior software and hardware ecosystem, and promoting the company’s existing technology is simply throwing good money after the bad.
  • On technology: RIM announced that it is delaying the launch of its promising new operating system — recently rebranded as BlackBerry 10 — until the “latter part of 2012,” because the chipset the chief executives want will not be available until then. When pressed by an analyst from Morgan Stanley, Lazaridis argued that RIM wants to “target a higher efficiency, lower power consumption chipset.” For context, the company’s love affair with battery life — and its misguided projection of that priority onto consumers — has been cited as one of the reasons it took the company so long to add cameras and music capabilities to its phones, long after the first iPhone was introduced.

In short, RIM’s devices are becoming increasingly irrelevant and the company’s executives are neither good at leading the mobile pack nor at catching up. Lazaridis and Balsillie’s early innovation identified the power of secure mobile messaging, but RIM hasn’t introduced a single meaningful innovation in the smartphone world ever since.

The co-CEOs can’t seem to agree on where they ought to focus their efforts in the years ahead. As a Deutsche Bank analyst recently remarked: “The company now supports nine operating systems or run-times. We think this implies RIM’s management remains unfocused in their smartphone strategy and have left the door wide open for competitors to encroach further into their markets.”

The curse

The great challenge of early entrepreneurial success – typical of tightly controlled businesses, such as family enterprises – is that founders often have trouble letting go. Inflated with more success than most will ever achieve in life, and fuelled by their wealth and influence, these leaders can’t seem to accept the fact that the most valuable thing they can do for their organization is transition active management and strategy into more capable hands. As one of the authorities on succession planning clearly warns, closely controlled companies at this stage of entrepreneurial maturity…

“…often run the risk of losing sight of two business basics they probably understood well in their earlier stages: strategic focus and market-smart innovation. Mature companies can begin to see their success as inevitable, rather than fragile, and stop listening to customers. They can close their eyes to current and potential competition and stop keeping up with technology. This turn inward generally spells trouble and sometimes is disastrous.”

As RIM continues to lurch from failed imitation to failed imitation, chasing the great ideas of others rather than building its own, there are only three ways out: leadership change, technological innovation, or both. In the absence of any appetite for even a basic governance review, all hopes now rest on a small band of programmers the company acquired in 2010 to help build a new operating system for its “me-too” tablet.

Conceived belatedly and delivered prematurely, the PlayBook is a surprisingly fantastic piece of technology. With a single and dedicated operating system serving a single and dedicated piece of hardware, the QNX team has provided the company with one last shot at technological relevance — assuming they can get basic email and calendaring up and running. If RIM fails again with their latest product launch, as many already expect, even leadership change may be too little too late