Blackberry Case study

Introduction

Late last year, Research In Motion Ltd. chief executive officer Thorsten Heins sat down with the
board of directors at the company's Waterloo, Ont., headquarters to review plans for the launch of
a new phone designed to turn around the company's fortunes. His weapon was the BlackBerry
Z10, a slim device with the kind of glass touchscreen that had made Apple Inc. and Samsung
Electronics Co. Ltd. the dominant names in the global smartphone market.

But one of RIM's directors was frustrated by what he saw, and spoke out, according to one person
who was in the room. There is a cultural problem at RIM, he told the group, and the Z10 was a
glaring manifestation of it. The speaker was none other than Michael Lazaridis, the genius behind
the BlackBerry, the company's co-founder and its former co-CEO. Minutes earlier, he said, he had
spoken with Mr. Heins's newest executive recruits, chief marketing officer Frank Boulben and
chief operating officer Kristian Tear. Mr. Boulben and Mr. Tear had dismissively told Mr.
Lazaridis that the market for keyboard-equipped mobile phones – RIM's signature offering – was
dead.

In the board meeting, Mr. Lazaridis pointed to a BlackBerry with a keyboard. "I get this," he said.
"It's clearly differentiated." Then he pointed to a touchscreen phone. "I don't get this."

To turn away from a product that had always done well with corporate customers, and focus on
selling yet another all-touch smartphone in a market crowded with them, was a huge mistake, Mr.
Lazaridis warned his fellow directors. Some of them agreed.

The boardroom confrontation was a telling moment in the downfall of Research In Motion. Once
the giant of the smartphone business, RIM, which was renamed BlackBerry Ltd. in the summer, is
now on its knees. The company reported a $965-million (U.S.) fiscal second-quarter loss Friday,
primarily because of a massive writedown of Z10 phones that sit, unsold and unwanted, about
eight months after they first hit the market. The company is cutting 4,500 jobs, 40 per cent of its
work force, in a desperate bid to bring costs in line with plummeting revenue.

Investors, who have lived through the destruction of more than $75-billion of the company's
market value over the past five years, are still wondering how BlackBerry managed to blow its
runaway lead and became a bit player in the smartphone market it invented.

Once a fast-moving innovator that kept two steps ahead of the competition, RIM grew into a
stumbling corporation, blinded by its own success and unable to replicate it. Several years ago, it
owned the smartphone world: Even U.S. President Barack Obama was a BlackBerry addict. But
after new rivals redefined the market, RIM responded with a string of devices that were late to
market, missed the mark with consumers, and opened dangerous fault lines across the organization.

Months before their boardroom showdown, Mr. Heins and Mr. Lazaridis found themselves in
another strategic standoff in which they were pitted against Jim Balsillie, Mr. Lazaridis's long-time
business partner and co-CEO.
Inside RIM, the brash Mr. Balsillie had championed a bold strategy to re-establish the company's
place at the forefront of mobile communications. The plan was to push wireless carriers to adopt
RIM's popular BlackBerry Messenger (BBM) instant messaging service as a replacement for their
short text messaging system (SMS) applications – no matter what kind of phone their customers
used.

It was a novel plan. If RIM could get BBM onto hundreds of millions of non-BlackBerry phones,
and charge fees for it, the company would have an enormous new source of profit, Mr. Balsillie
believed. "It was a really big idea," said an employee who was involved in the project.

But the plan ran into stiff opposition at senior levels. Not long after Mr. Heins took over as RIM's
CEO in January, 2012, he killed it, with Mr. Lazaridis's support. That was it for Mr. Balsillie.
Weeks later, he resigned from the board and cut his ties to the company.

"My reason for leaving the RIM board in March, 2012, was due to the company's decision to cancel
the BBM cross-platform strategy," Mr. Balsillie said in a brief statement to The Globe and Mail,
his first public comments on his departure. He declined a request for an interview. Mr. Lazaridis,
who declined to speak about board matters, resigned as a director this past March after delaying
his retirement by a year at the board's request.

Now, BlackBerry's future is in doubt. This week, Fairfax Financial Holdings Ltd., a Toronto-based
investment company, announced a plan to lead a $4.7-billion takeover of the company. The offer
is conditional, and requires a group of so-far uncommitted institutional investors to back Fairfax
and provide financing.

The company's near-collapse is a painful situation for Mr. Lazaridis, a gifted engineer who co-
founded RIM in a tiny Waterloo office above a bagel shop in 1984.

"It's really hurting me," he said in an interview. "I can't imagine what the employees must be
thinking. Everyone is talking about the most likely scenario being that it will be broken up and
sold off for parts. What will happen to the Waterloo region, or Canada? What company will take
its place?"

A split company

One key to RIM's early success was its corporate structure. It is unusual for a company to have
two CEOs – Mr. Lazaridis focused on engineering, product management and supply chain, while
Mr. Balsillie looked after sales, finance and other corporate functions – but for a long time, it
worked. Mr. Lazaridis's side of the shop made the phones, and Mr. Balsillie's sold them. The two
men were collegial and collaborative.

Below the top executives, however, the two sides of the company didn't always get along. And as
the company grew into a leviathan with $20-billion in annual sales, the structure sometimes made
it difficult to get definitive decisions or establish clear accountability. That contributed to a chronic
problem for RIM: speed. "They were always slow to market, and there were always delays in
launching," said James Moorman, an analyst with S&P Capital IQ Equity Research. "It was
compounded by miscalculating the speed at which the consumer market changed." Sometimes,
feedback from customers that might inspire changes would die at middle management, because
senior executives didn't want to bring it to Mr. Lazaridis, a former insider said.

The split company also lost a major unifying force when chief operating officer Larry Conlee
retired in 2009. Mr. Conlee was a whip-cracker who held executives to account for decisions and
deadlines, establishing a project management office. Many insiders agreed that after he left, a slack
attitude toward hitting targets began to permeate the company. "There was a gap" after Mr.
Conlee's departure, Adam Belsher, a former RIM vice-president, told The Globe last year. "There
was no real operational executive on the product side that would really get teams to hit deadlines."

After relying on its own technology for so long, Mr. Lazaridis decided the company's next advance
would come from outside. In April, 2010, RIM announced a deal to acquire Ottawa-based QNX
Software, a cutting-edge software maker that would provide the building blocks for the BlackBerry
10 operating system – the new platform Mr. Lazaridis knew the company needed.

QNX was a specialist in industrial controls that used up-to-date software tools to run applications
ranging from 911 call centres to wireless broadband services in vehicles. Its technology was the
perfect core for smartphones and tablets, RIM's leaders felt.

Mr. Lazaridis decided to take a page from the business strategy book The Innovator's Dilemma by
Clayton Christensen. The book outlines how established organizations that succeeded against
challengers often did so by allowing small, cloistered teams to develop their own disruptive
products, free from the influence of the rest of the organization.

Mr. Lazaridis decided he would isolate the QNX team and get them to focus solely on the new
operating system, while leaving existing programmers to work on products for its existing
platform, BlackBerry 7. Eventually he hoped QNX, led by its CEO Dan Dodge, would retrain his
entire organization.

But first, RIM had to answer a key question: If it wanted to remake the BlackBerry on the QNX
system, what was the best way to do that? Should it move over some of its old Java-based
applications, or rewrite them all from scratch? If the company abandoned Java altogether, what
would it mean for third-party developers who used it?

These were not easy decisions. Discussions among the senior leaders in Mr. Lazaridis' organization
dragged on for a year – far too long, according to several insiders.

Eventually, the decision was made: BlackBerry 10 would be built from scratch. The problem with
that approach was that a new team was being entrusted to recreate the BlackBerry. Those who had
created the original system were still working on devices for the BlackBerry 7 platform. Once
again, the company was split.

"We had bought a powerful operating system and needed to move to it. But the BB7 was late,"
Mr. Lazaridis said. "Every week, I was getting requests for more hires, more resources. The
conundrum was, how do I pull resources off the BB7 to rewrite all the apps on top of QNX?"