Business Failure: of BlackBerry - Case Study Example

Summary

This paper outlines and analyses the case of business failure at the Canadian tech firm, BlackBerry Limited, formerly Research in Motion (RIM). The report reviews the performance of the company since its formation in 1984 and the rise of RIM as a leader in the smartphone business. First, the study outlines the significant aspects of the financial success enjoyed by RIM in the years following its production of the first BlackBerry device, the Interactive Pager. The issues described include the soaring price of the company’s shares on the NASDAQ, as well as the ever-increasing revenues and company valuation that emanated from high sales of a brand that enjoyed massive consumer loyalty. However, the paper also outlines the progressive change of the company’s fortunes, ranging from corporate losses to massive employee layoffs, as well as suggestions of a corporate takeover.

The second segment of the report contains a multi-level analysis of the causes for the failure of BlackBerry. The paper identifies technological changes and changes in consumer needs as some of the reasons for the failure of the organisation that originate from outside the firm. Additionally, stiff competition from other communication companies such as Apple and Samsung led to the fall of BlackBerry due to its inability to produce innovative smartphones to match its competitors’ devices. On a micro-level analysis, a corporate culture that hinged on devices with a physical keyboard and the use of the rigid BlackBerry OS also hindered BlackBerry’s ability to compete, in addition to a corporate structure that made decision-making slow and problematic. Finally, the paper addresses recommendations to set the company on a path to recovery. The study recommends that BlackBerry sell its hardware business to concentrate on software production. Alternatively, the report suggests the ditching of the BB OS, accompanied by a shift to the Android platform.

Introduction

The decline of the BlackBerry brand and the financial struggles of BlackBerry Limited is one of the most prominent cases of business failure of the past decade. Founded in 1984 by Mike Lazaridis and Douglas Fregin in Waterloo, Canada, the company formerly operated under the name Research in Motion Limited (RIM), until the rebranding in 2013, when it adopted the name “BlackBerry”, a tribute to its pioneering and most successful mobile device.

The company specialised in wireless technology and the production of personal communication devices such as the two-way pager. RIM struggled financially in the wake of its formation, up until the year 1997 when the company went public to raise capital, and two years later, listed on the Toronto Stock Exchange. At this point, the shares of the firm started trading at $7.25 in the year 1998.The RIM IPO initially attracted $105 million, majorly attributable to the previous year’s launch of the first BlackBerry device, which had e-mail and two-way pager capabilities, besides being the first handheld wireless device (Research In Motion Annual Report 1998, 1998). In the same year of the IPO, the company released the Inter@ctive Pager, considered the first Blackberry device, marking the firm’s beginning of a meteoric rise to the top of the and-held device market.

RIM’s production of the Inter@ctive Pager, other personal mobile communication devices, and the IPO was crucial in jump-starting the company’s success in the FY1998 and beyond. During that year alone, the company received orders worth $10 million from IBM for their two-way pagers, on top of a contract signed with Bellsouth Wireless Data for the supply of the Inter@ctive Pager (Research In Motion Annual Report 1998, 1998). The fiscal year 1999 was an even better year for RIM because of the massive rise in revenues brought about by the introduction of the BlackBerry 850 device to the market in January 1999 (Sweeny, 2009), managing to more than double revenues from the previous year to $70483.

The BlackBerry was a revolutionary device in personal communication, enabling the user to integrate e-mail and personal organiser functions on their desktop to their handheld device through wireless support (Research In Motion Annual Report 1999, 1999). The device proved hugely popular among business executives to whom the company dedicated massive resources in marketing the device.

The rise of RIM in the production of handheld devices continued over the years following the release of the Blackberry 850, eventually marking an anniversary in 2004 having more than a million subscribers, and in the next year, 2005, the number rose to an incredible 2.5 million. Additionally, the company’s revenues sharply increased, clocking the $1 billion by 2005, owing to the growing subscription to the BlackBerry devices. As at the year 2005, RIM had diversified its devices, launching the BlackBerry 7290, the BlackBerry 7250, BlackBerry 7750, BlackBerry 7520, and a handheld device that could connect to WLAN (Research In Motion Annual Report 2005, 2005).

Over the next years, the firm’s revenue continued growing, reporting an average growth of 77% per annum between FY2006 and FY2009. In fact, the company got rev reviews, the Fortune Magazine ranking RIM as the fastest growing firm worldwide. This growth in sales was a result of the company expanding its market share over the years, as well as targeting non-business consumers. The company’s 2006 BlackBerry 7100 was the first device produced by the corporation exclusively aimed at non-business consumers, possessing camera and chat capabilities. The company followed it up by releasing the BlackBerry Pearl, which had a media player, on top of all the other capacities of the 7100.

However, the fall of RIM was a progressive, starting around 2008, after Apple released the first iPhone, as well as the introduction of the first Android device, the T-Mobile G1.The hype brought about by the smartphone devices meant that RIM had to respond, eventually releasing the BlackBerry Storm in the same year, amid poor customer reviews and sales. However, the company still held the largest share of the smartphone market, commanding around 19.9% of the global Operating System market share, as well as around 41 percent of smartphone sales in the United States.

Despite holding a huge chunk of the market, RIM’s problems were visible through its deteriorating share price starting 2008, when the stock price was $140, eventually falling to $5.44 in 2013, the lowest ever recorded price by the company. As at 2016, BlackBerry Limited trades at around $7.23 per share on the NASDAQ. Eventually, the company lost hold of the huge market share, with players such as Apple and Samsung pushing the company to the abyss of history. Similarly, subscribers have continued snubbing the company’s devices and services between 2008 and now, subscriber numbers falling from the reported 79,000 in 2013 to around 46,000 in 2015.Additionally,the company held under 1% of the global smartphone market share in 2015, down from the 20% in 2009 (Team,2016 b).

The financial aspect of Blackberry’s failure paints an even grimmer picture of the whole scenario, given the huge revenues reported by the company between 1999 and 2011.In 2011, RIM released the PlayBook, which recorded poor sales and consumer reviews. The company’s reputation was damaged by a four-day outage of RIM’s services, followed closely by announcements that the corporation was planning to lay off 5000 workers, as well as the resignation of the CEO, Mike Lazaridis and the Director of the Board, Jim Balsillie, in 2012. In the same year, the company’ revenues dropped to $4.2 billion, compared to the previous year’s $5.2 billion, as well as an adjusted net loss of $418 million. In 2013, the company posted even worse results, posting around $2.7 billion in revenue.

The poor performances and financial losses experienced by BlackBerry were a major result of falls in the sales of BlackBerry hardware, including its BlackBerry phones and tablets. During the same year, the company laid off 4500 workers, eventually downsizing to about 6000 employees. While BlackBerry has taken several measures to ignite a turnaround, the company still experiences financial problems, as well as fluctuating financial performance between 2014 and 2016, with little signs of improvement. There have been suggestions of takeovers by other big players in the market, though the company’s CEO, John Chen, has always moved to quell speculation (Sharf, 2015).

Root Cause Analysis

Macro-Environment

Technological Changes

While the ability to conform to technological changes in the communication industry may have been the making of RIM, failure to adjust to a changing technological environment or slow adoption of new technologies has been the major undoing of the company. In 1997, RIM produced the Inter@ctive Pager, a wireless device that enabled individuals to exchange messages in real-time. At the time, wireless technology was taking shape, and RIM took the centre stage in producing wireless devices. However, the rise of mobile applications finally caught up with the firm, still stuck in the world of wireless email and BlackBerry Messenger texting that had given the company so much success in the past.

The first iPhone released by Apple in 2007, on the contrary, contained a GPRS and EDGE internet browser, a keyboard on touch screen, a multimedia player, and a camera accompanied by photo-management (Gillette, Brady, and Winter, 2016). Additionally, the device could access thousands of third-party applications from Apple’s App Store. While IRM responded with the BlackBerry Storm, their device failed to offer the seamless integration of features that the iPhone offered, with a touchscreen that had a slow response, and a rudimentary browser that was buggy (Gillette, Brady, and Winter, 2016).

Furthermore, RIM only launched its app store later on in 2009, offering far less mobile applications than the Apple App Store, and the Google Play Store. Google’s Android OS also emerged around the time that the first iPhone was released, and the Android devices began stealing IRM’s market share in the United States (Mcnish and Silcoff, 2015). Therefore, IRM was slow in catching up with technological changes in the smartphone market, as well as responding to consumer preferences for all-in-one devices, which were the fad in the market.

Third-party mobile applications that could connect to the internet were being developed and adopted on both the iOS and the Android platforms, while RIM’s BlackBerry OS could not support many of the apps. The rise of social media platforms and applications such as Facebook, Myspace and Flickr changed the way that consumers viewed smartphones; RIM was unable to catch up with this technological revolution(Gillette, Brady, and Winter,2016; Mcnish and Silcoff, 2015). Additionally, many customers preferred a touchscreen keyboard, as opposed to the physical keyboard that RIM insisted on including in many of its devices. Even presently, the ability of the BlackBerry OS to integrate the ever-growing number of smartphone applications is still limited, compared to the iOS and Android.

Meso-Environment

Competition

RIM’s inability to handle tough competition, coupled with complacency over its established market dominance, has played a role in the failure of the company in the tech industry. As at 2009, the firm held a 20% share of the global smartphone market, more than Apple’s 13.3%.Comparatively, Samsung held less than 3% of the smartphone market share in the fourth quarter of 2009(Dal, 2015). However, fast forward 2015, Blackberry’s global market share had fallen to less than 1% in smartphone sales, while the two dominant players, Apple and Samsung held a joint 38.9% of the global market share of smartphones, in a market whose competition has increased tremendously over the years(Dal, 2015).

Additionally, the Android and iOS platforms had a joint holding of more than 90% of the global smartphone operating system market in 2015, compared to BlackBerry 10’s less than 1% share (Mitomo, Fuke, and Bohlin, 2015). The pressure brought about by competition in the smartphone market started becoming visible in 2007, when Apple released the pioneer iPhone device that used the iOS, and Google advanced its Android software, while RIM still held to its BlackBerry OS. While the earlier operating systems supported multiple smartphone applications, IRM’s OS was unable to support as many apps.

In launching the first iPhone, Apple Inc. had adopted a strategy focused on the individual consumer, rather than the business users that RIM’s devices targeted. The Android devices released at the time also offered the seamless integration of many applications and functions on their smartphones, meant for the individual client. Therefore, the ability of the iOS and Android to attract the largest percentage of consumers at the time, individual consumers, gave them an edge over BlackBerry devices developed for business users.

While IRM’s focus on innovation gave the company an edge during the period of its dominance (1999-2009), the firm lost its aggressive pursuit of product differentiation and creativity in the face of competition from the iPhone, and other Android device manufacturers such as Samsung. In contrast, the competitors invested heavily in R&D, as well as design-led innovation that focused on consumer needs, all fronts on which BlackBerry Limited has always lagged behind. RIM’s R&D spending went up from $685 million in 2009 to its highest spending, $1.5 billion in 2013, and since then, the company’s R&D spending has been on a downward trend, the company recording $711 million in R&D expenditure in 2015.

Comparatively, Apple’s R&D spending has taken an ever-upward expense in the same period, reaching the $8.07 billion mark in 2015 from the $1.33 billion R&D expenditure incurred in 2009. Samsung’s R&D investment in the same period is even larger, spending around $14 billion in 2015, up from the $6.4 billion spent in 2009(Mitomo, Fuke, and Bohlin, 2015; Leswing and Villapaz, 2015). Consequently, BlackBerry’s competitors have continued presenting innovative products into the market every year, with BlackBerry playing catch-up. Even new entrants in the global smartphone market such as LG Electronics and Microsoft have surpassed BlackBerry’s market share globally since 2009 (Nair, Ramalu, and Kumar, 2014; Satpathy, and Agrawal , 2015).

Microenvironment

Management and Organization Factors

RIM’s management organisation over the years has also contributed to the failure of the organisation. The co-CEO management structure at RIM with Mike Lazaridis and Jim Balsillie at the helm of decision-making in the organisation contributed to questionable decision-making. First, having achieved success in the past, the emergence of Apple as a formidable competitor in the smartphone market in 2007 was received indifferently by the two CEOs. The co-CEOs saw the iPhone as just another device that could not match the success of the BlackBerry, judging from its inadequate security and short battery life, as well as the product’s lack of e-mail capability (Mcnish and Silcoff, 2015). Furthermore, the high growth rate that IRM had achieved during the period convinced the co-CEOs that the company’s dominance could not be upstaged (Sminia, 2014).

While the two dismissed the iPhone publicly, their joint decision to introduce the BlackBerry Storm to compete with the iPhone and other touch-screen Android devices emerging at the time was ill advised. The product development was rushed, eventually producing a phone with multiple deficiencies that saw the company lose a major partner in business, Verizon Limited. The BlackBerry Storm received poor reception from consumers, many of whom returned it because of problematic bugs and slow response (Kokalitcheva, 2015).

Additionally, the CEOs, particularly Lazaridis, were conservative, opting for a device that could only accomplish a few tasks. Lazaridis also maintained that the company should retain its custom physical keypad in their devices, despite market indicators that customers preferred a touch-screen keyboard. The two CEOs also failed to agree on the innovative approach that RIM would take to compete, eventually resulting in Jim Balsillie’s resignation from the board. Balsillie suggested that the company’s carriers be urged to adopt the instant BlackBerry Messenger (BBM) in all their devices, to replace the SMS applications dominantly used before. While this move was bold, the co-CEO, Lazaridis, opposed the move, which was eventually discarded altogether by the incoming CEO, Thorsten Heins.

Turnaround Strategy for BlackBerry

BlackBerry Limited has already initiated a series of turnaround initiatives that have done little to reverse the firm’s misfortunes. First, the firm adopted efficiency-improving strategies aimed at cutting costs and reducing the company’s assets. Part of the company’s cost-cutting strategy has been laying-off staff that are considered surplus to requirements, as well as those in sections of the enterprise that have been having problematic performances. After the first quarter of FY2011, the company posted huge losses and responded by reducing workers. The trend has continued up to date, with the company holding only around 6000 employees presently. Second, the company investors clamoured for the entrepreneurial exit because the co-CEOs had been central to the firm’s stagnation in innovation, as well as poor strategic decision-making. As such, the co-CEOs resigned in early 2012 to pave the way for a new CEO, since the company reported a loss in the fourth quarter of 2011, a performance that veered from the board’s expectations of only a reduction in profits. Eventually, the company also changed the subsequent CEO, Thorsten Hens, replacing him with John Chen in 2013.John Chen was expected to give the company a new perspective, as well initiate a turnaround, given his experience in reviving Sybase.

However, the strategies adopted have not addressed the problems identified in the root-cause analysis, hence the poor performance in initiating a turnaround. First, BlackBerry needs to focus on improving efficiency to set the company on a path of eliminating losses, before they can turn to making gains in the market share. The company could choose to do away with producing handsets, and concentrate on creating software for mobile devices, given the reputation that the firm has built in software security. Adopting this turnaround strategy would require the company to eliminate its mobile handsets, which have been a source of losses for the enterprise. As such, the company could still target its strongest market segment, corporate customers such as banks, government departments, legal departments, and intelligence organisations who place a high value on the security of data and information.

Alternatively, BlackBerry could retain both the software and hardware business but do away with the backwards BlackBerry Operating System, which has been the primary source of its woes in the market. This retrenchment strategy should then be followed by the adoption of the more common Android platform that allows users access to a variety of apps on the Google Store, apart from containing a user-friendly interface. Taking this approach would enable BlackBerry to retain its traditional corporate customers, as well as having a share of the ever-growing individual consumer market. Additionally, adopting the Android operating system will also act as a springboard for enhancing the firm’s software development capacity and sales, since BlackBerry software will be available on all Android devices, which currently hold the largest share of the smartphone market globally.

Furthermore, the company will have the opportunity to invest more in R&D and create innovative products, without having to worry about competitive setbacks brought about by the current operating system. While the firm has already tried adopting the Android operating system through the BlackBerry Priv, its market penetration is still limited, owing to the poor marketing of the product, as well as the high pricing. The firm should also aim to diversify their devices, even after adopting the Android operating system, so as to target established and emerging markets by taking a cue from Samsung(Team,2016 a; Gilbert, 2015).

Conclusion

The fall of Blackberry from the global tech giant that pioneered the smartphone to its current position of financial distress is an example of the predicament that can befall even big and established companies that fail to adapt to changing market conditions. The failure of the enterprise can be looked at through a multi-faceted approach. First, the firm has failed to meet sales targets for new products, with handsets such as the BlackBerry Storm experiencing high return rates. Additionally, the company has been forced to retrench to cut costs that do not match the diminishing sales, reducing workers in the process. The steadily increasing losses in revenues and a diminished market share from a company that once held more than 20% share of the global smartphone market also highlight the failings of BlackBerry.

While the failure of BlackBerry has been popularly attributed to the stiff competition offered by the emergence of the iPhone, a multi-level Root-Cause Analysis indicates that the company’s problems originate from deep-rooted issues within the organisation and outside the organisation. First, technological changes saw the development of multiple mobile applications popular with customers shifted the market demand for smartphone devices, which could not be accommodated on RIM’s BlackBerry platform. Additionally, customer needs for an all-in-one experience exceeded the capacity that RIM’s single-processor and low-memory devices could handle.

On a microanalysis level, the company’s co-CEO structure created a system where decisions were made on consensus, leading to delays in responding to market needs and production, as well as disagreements that disabled the company’s competitive capacity. Even where the business responded to competitor pressure, it was too late to catch up because the company had already started losing market share and consumer trust. Finally, the conservative nature of the organisational culture and key individuals in BlackBerry made the company fall behind in innovation and consequently in financial performance.

The path to recovery for BlackBerry requires bold decisions that may change the structure and perception of the organisation. Therefore, initiating a turnaround may require the organisation to ditch the hardware business that set it on the path to success before becoming the company’s downfall. The firm would then concentrate on developing software for mobile devices, building on the already established reputation of secure software such as the BlackBerry Messenger. Alternatively, it is recommended BlackBerry ditches its BB OS altogether, adopting the popular Android platform for its devices. Such a device would enable the company to compete effectively with other players in the industry on both the device and the software fronts. Additionally, the approach would ensure that BlackBerry retains its corporate market, while also competing in the individual consumer market.