Monday, June 20, 2011

What is up with RIM?

RIM is one of the leading technology companies in Canada and one of the largest employers in Waterloo. There are a few strategic mistakes that seem obvious in hindsight, but it is easier to list them now than to predict in advance.

RIM is losing market share in North America, but surprisingly the execs were focusing on developing markets for growth. Obviously, profit margins from developing countries are minimal when compared to the lucrative NA market.

RIM’s strength is in the enterprise market. The primary growth is happening in consumer market, but RIM has had trouble gaining traction there. RIM will continue to rule the enterprise for now, because changes come at a slow pace there. Still, the consumerization of IT is the biggest threat for RIM in this area. The current instability doesn't help them advance in enterprise either.

RIM is losing the high end smart phone market which is ruled by Apple and Android devices, but instead is happy with the wins in mid-low end of the market. Again, this is likely to be short lived because cheap Android phones are just around the corner.

RIM’s strength is the security and convenience offered to business customers and the Blackberry brand represented by successful executives and presidents. But, RIM did nothing to promote these advantages, rather diluted the brand by issuing a lot of cheap phones for a short-term gain.

RIM chose to act on Apple envy rather than trying to innovate and differentiate itself, which was all the more important in the crowded and fiercely competitive smartphone market. This meant acquiring TAT, introducing Playbook etc, but also that RIM would trail Apple by at least one release.

RIM focused completely on the Playbook perhaps ignoring the Blackberry product line. The co-ceo at one point indicated that it is his ‘baby’ which is both good and bad. It is good because it shows passion, but could also be the root cause behind why RIM announced that all other product releases are delayed now.

RIM introduced the Playbook which was indeed the type of innovative initiatives that the company needed, but they did make a few strange decisions like using Flash for the UI. Many enterprises wouldn't even think of having Flash given its reputation on security. So, it was indeed a strange marriage of the 'most secure' OS with the 'most unsecure' UI technology. Perhaps, they should indeed have acquired Palm.

RIM expressed high confidence on the yearly guidance despite multiple indicators of slowed growth. RIM also had to revise the quarterly numbers multiple times. It clearly showed operational challenges at the top and it is easy to lose your credibility when such things happen.

RIM is highly optimistic about the 2nd half of the year for some mysterious reasons. It seems unlikely from the outside that a revamped Blackberry running the QNX platform will even be able to work such magic. But, then they are not even expected until early-2012 as per the earnings call.

RIM decided to pre-announce that all Blackberries would shift to QNX platform, it was better to keep it a rumour thus not affecting current Blackberry sales. Everyone knows that companies in transition are vulnerable. Execs are blaming the 'temporary' problem on Argentina etc, but then why do you layoff people if you don't foresee an extended downturn?

RIM acquired QNX in 2010 and was able to produce a new device running the OS and a new set of applications in less than an year. It is an unbelievable engineering feat and they had to pay a big price for that strategic decision in the form of bad reviews, poor quality and lack of features. eg. home page icons that open up the browser.

RIM’s strength is their employees and that is the only hope for a turnaround. The employees are largely graduates from the reputed UW, but who have probably not worked anywhere else. There is definitely a precedent where companies with talented workforce and good management have turned around, even though comparisons to Nortel and Nokia are floating around as well.

RIM unfortunately was caught up in the game of numbers played by Wall street analysts. The layoffs are just the standard operating procedure for meeting targets when things go wrong. But, they could have seen the weakness in market ahead, cut down on hiring, removed perks like free BB, salary hikes, cut 401k etc as well. But, the execs decided to play it by Wall street rules to make the analysts 'happy' - at this late stage?

RIM co-CEOs are indeed heroes who have built this $20 billion company from scratch. It is rather a strange management structure with two CEOs who are chairmen of the board as well. Sadly, their recent interviews and actions have also affected the company adversely. BBC and Mossberg interviews for example. Perhaps, it is a good option for them to take a break once this storm is blown over.

“strong, consistent leadership is critical to RIM at this juncture” – is partly correct, what RIM really needs at this juncture is fresh management that would instill confidence in the investors and bring revolutionary changes instead of “hoping” for the next batch of devices to solve all the problems. It should focus on its core strengths and leverage them for the new market requirements.