Pioneering Innovative Companies - Sustaining First Mover Advantages - Essay Example

? Why can’t pioneering innovative companies sustain their first mover advantages? A case analysis of Research in Motion BY YOU YOUR SCHOOL INFO HERE DATE HERE Why can’t pioneering innovative companies sustain their first mover advantages? - Research in Motion case study 1. Introduction Research in Motion, now conducting business under the name Blackberry, is a Canadian-based telecommunications company that experienced significant industry laurels for its innovative launch of the Blackberry branded tablets and smartphones. Since the introduction on the market of the Blackberry 850, recurrent product evolutions and new innovation developments such as the Blackberry Pearl continued to find market favour with mass market consumers and corporate buyers alike. The Blackberry was the first device of its kind on the market, thus giving Research in Motion significant competitive and profit advantages. Porter (2011) identifies that a business’ position can be weakened when there are substitute products on the market. However, being a true innovator in wireless handheld devices, until 2007 there were virtually no comparable products in the mobile market, thus giving RIM significant market power. However, in 2007, Apple Inc. launched its own wireless device innovation, the iPhone, which was comparable if not superior to Blackberry products. This led to the development of the Blackberry Storm, a competitive product offering designed to outperform Apple’s first innovative smartphone launch. The Storm, though, received considerable negative publicity with dissatisfied consumers stemming from problems connecting to AT&T’s 3G network (Phone Arena 2009). Thus, even though Blackberry was providing legitimate innovations by changing design and features that were unique to competitive offerings, the impact of consumer discontent coupled with negative publicity eroded some of the brand reputation of Blackberry products despite their innovative enhancements. This report highlights the factors that led to significant reductions in the many first-mover advantages experienced by Blackberry until 2007 and seeks to explain the influencers leading to the rapid common stock share price of the company. 2. Explain the first mover advantages that once drove RIM to the pinnacle of its innovation success. Being the innovator in providing smartphone technologies, Research in Motion was able to establish barriers to new market entry by building a loyalty to the company and the Blackberry brand. Such loyalty, however, does not occur overnight or within a vacuum without publicity and promotion. As such, it was not until approximately 2006 that the share price exploded, which would be an appropriate time period by which to establish loyalty, especially with the corporate markets. It was not until 2007 with the release of the Apple iPhone that any notable competitors maintained ability to move against the market share of Blackberry, thus investors believed until 2008 that RIM would always dominate the market. This is evident in the interactive stock chart (below) showing the growth and sudden declines of stock valuation for RIM. Furthermore, as there was not the technological prowess with competitors (Blackberry was supported by substantial venture capitalist investment for development), RIM maintained dominance until 2007 in this industry. It was not until major players began changing their operational strategies to develop similar products; which RIM was not prepared to combat with an appropriate contingency plan in the event of new competitive entrants. Associated with loyalty, Blackberry was able to develop a powerful reputation for quality by having a superior product on the market. Research in Motion experienced advantages in this capacity as there is a consumer propensity to judge pioneers more favourably to late movers. Without having to invest much capital and other investment into concentrated and focused advertising, as the Blackberry was quite unique to other mobile technologies on the market, it imposed late entrant costs on imitators for having to establish their own brand. In this sense, it would have been nearly impossible to shed the initial perceptions of quality that had been established by RIM simply by having a better and more sophisticated product. Such consumer beliefs about superior quality are quite difficult to deconstruct and a company that attempts to do so impose risks with the considerable investment into the marketing function that may not even achieve any significant return on investment. 3. Changes in share prices for Research in Motion in the stock market Research in Motion Limited Interactive Stock Chart (Source: http://www.nasdaq.com/symbol/bbry/interactive-chart) Upon the rather immediate success of Blackberry products, the company’s stock price began to escalate. In 1999, the share price was $1.31 (USD), further climbing swiftly to $23.15 in 2000 (Yahoo! Finance 2013), this was due to investor confidence in the future of Research in Motion backed by solid consumer adoption and success of the Blackberry 957 in 2000; its first smartphone. The business did not produce any widely-accepted innovations until 2006 with the launch of the Blackberry Pearl series, which maintained video and camera functionality, GPS and wi-fi capability (Blackberry 2013). By 2008, the share price had increased exponentially, climbing to a peak of $144.56 (Yahoo! Finance 2013). The rationale for this increase: Investors and other business practitioners believed that RIM would be able to keep up with the same pace of innovations in an effort to outperform the Apple Inc. iPhone launched the year prior with the firm’s Blackberry Storm device. It quickly became apparent that Apple’s iPhone was going to dominate the market as the Apple brand had already established considerable brand loyalty with markets that trusted in Apple quality and functionality. Over six million iPhone units were sold in the first 15 months after its release in 2007, significantly outpacing the sales volumes experienced by Blackberry. Concurrently, Blackberry was receiving a great deal of negative publicity by industry leaders and other media sources that favoured the iPhone as the Blackberry Killer and the Jesus Phone. All of this media attention provided Apple with the positive brand enhancement it required and likely contributed to sales losses by the Blackberry brand. Thus, in 2009, the stock price dropped to $40 as consumers began rejecting moderately modified versions of the Blackberry product being launched into national and foreign markets in favour of competitors. “(RIM) stock was priced for perfection under the assumption that the company would continue to grow at its early rate and that competitors wouldn't covet its position and work feverishly to share its lunch” (Dixon Mitchell 2009, p.2). 4. Examine both the external and internal factors that may have prevented the company from maintaining its first mover position in the market. Research in Motion had, until the emergence of Apple and a handful of other competing products, maintained first mover advantages for its innovation successes and ability to capture market share of the mobile telephony market. However, RIM was unable to successfully create barriers to new market entrants, those with ample capital resources such as Apple and Google, thus it was not long before competitors began replicating each innovation and subsequently improving on design and features. This is an industry where replication of products and services is not difficult for resource-rich manufacturers and, in a competitive environment, the only genuine asset that a business maintains is its brand reputation which cannot be duplicated (Nandan 2005). Therefore, a marketing problem and positive brand personality/reputation of Apple Inc. significantly contributed to loss of market share and stock declines for Research in Motion. Apple devotes considerable resources to establishing its powerful brand, including customer relationship management and injecting transparency into the business and sales models through social media presence. Apple’s brand strategy is focused on emotions including such consumer-centric constructs as “dreams and aspirations, liberty regained, passion and power-to-the-people through technology” (Robinson 2012, p.1). According to Patel (2012) consumers do not seek out purchases of Apple products out of need, they find a sense of personal identity when connecting with Apple branded products. Unfortunately for RIM, which really does not seem to have had internal problems with recognising opportunities for innovation (as the business kept up with competitor innovations until recently), Apple’s powerful and accepted brand personality was long-standing on the market with many diverse niche and mass market consumers and professional buyers. 4-1. Using Tidd and Bessant’s (2009) model of the innovation process, in order to identify the main causes of concern. Lieberman and Montgomery (1988) assert that much of first mover advantages stems from the ability of an innovator to raise the switching costs of consumers for brand defection. This is supported by Porter (2011) who also identifies this ability as a method of removing competitive risk in a market structure with brand-powerful competitors. Even though Blackberry seems to have followed the stages of innovation in the innovation model provided by Tidd and Bessant (2009), including adequate search for opportunities, selecting benefits and features to outperform a growing basket of new entrants, and successful implementation, RIM was unable to successfully capture long-term, sustainable benefits of each innovative product release. This is due to the fact that Research in Motion did not invest enough internal capital into the marketing and promotional function in order to build brand loyalty with its desired target markets. Coupled with recurring failures (or perceived failures) of different innovation releases, such as the aforementioned breakdown of 3G capacity on the AT&T subscriber network, the brand reputation of Blackberry products continued to experience erosion that led to less-than-stellar sales results. A. Context Research in Motion further appears to have cut its own proverbial throat with its market penetration strategies utilised between 2000 and 2004, in an effort to make Blackberry appeal to large corporate buyers (Rixner, Hubka and Booth 2007). Gounaris and Vlasis (2004) emphasise that building a brand is strategically important as it provides competitive advantage and insulates the product or service from the competitive marketing strategies of powerful competitors. RIM utilised its sales people as its most powerful marketing presence during the time period between 2000 and 2004, negating the concept of building a strong brand that reached more than just the corporate marketplace (Rixner, Hubka and Booth 2007). As such, it was utilising traditional methodologies of sales that did not consider the importance of modern movement marketing and creating market-specific promotions based on known consumer characteristics in the target market. As such, the sudden speed by which competitors were entering the market with disruptive innovations made it easier for more contemporary marketing-focused brand-building activities were able to erode RIM’s first-mover advantages. It is likely that Research in Motion believed in the integrity of strategic theory that indicates pioneers in a market maintain favour with buyers in which consumers will assess a late entrant unfavourably (Kalyanaram and Gurumurthy 2008). However, RIM was unprepared for the level of loyalty and dedication sustained by Apple (and even other competition entering the market after 2007). Goodson (2011) reinforces that a business must establish relationships with its desired target markets, with emphasis on transparency and building trust with markets. Apple does not focus on product in its efforts to boost transparency, rather selling a set of values associated with the Apple brand (Goodson 2011). This was something that could not be matched by the lesser-known Research in Motion (the owner of the Blackberry brand) regardless of the innovative features and benefits provided by new innovative product and service launches. B. Search: Additionally, Komninos (2002, p.8) informs strategic leaders of the difficulty in trying to “conceptualise the decline signals” of a product or service. Decline usually arrives with loss of sales sometimes without forewarning. Blackberry, having held somewhat of a monopoly in this market until the growth of new competitors after 2007, believed it was strong in its market position, however this is due to the fact that there were few if any substitute products. As such, the switching costs for consumers were high until they had more product options available for consumption. Over-confidence in RIM’s market position seems to have contributed to the sudden onslaught of competitive successes that continued to outperform Blackberry’s reputation. If the business had been more diligent in recognising its own strengths and weaknesses in marketing and other promotional strategies, it is likely the business could have extended the life cycle of many Blackberry products without having to rush to market with new innovations to successfully compete. King (2007, p.158) refers to this type of oversight as inter-firm causal ambiguity, or lack of understanding about the inter-dependency of firm inputs and outputs. This causal ambiguity is inability to recognise what is working for competition and then being reactive and flexible in order to outperform these advantages. Research in Motion does not seem to have been aware of the social connotations involved in the industry that influence consumption behaviour by buyers and what influences them in selecting one product brand over another. When circumstances change in the market, a firm’s organisational structure must be modified in order to adapt successfully to these changes (Buchanan and Huczynski 2010). This is referred to as contingency theory which is necessary for a firm to maintain its competitive positioning and be able to supply relevant and acceptable innovations that will be embraced by the buying audience target markets. Research uncovered no examples of this type of organisational redesign occurring at Research in Motion, instead utilising its existing structure that could have provided more productive ideas on how to compete with emerging competitors using different strategies to appeal to their desired markets. C. Select There is yet another failure that is directly involved with the internal competencies of the leadership team at Research in Motion. During the early years since the launch of the first Blackberry smartphone and email pager, the business had (as mentioned previously) been seeking corporate buyers as its most viable target buyer. The business was not seeking out important alliances with other knowledge experts and industry leaders in the telecommunications industry or in the supply chain, that is, until new competitors began to erode market share. Joint ventures, cross-border alliances, even when between competing firms or product brands, improve the knowledge base of the partner and allows them to leverage the synergies of collaboration (Steensma, Tihanyi, Lyles and Dhanaraj, 2005; Lane, Salk and Lyles, 2001; Inkpen 2000). Even Sprint Nextel, a service provider for many smartphones, realises this was an oversight on behalf of Research in Motion. Offers the Sprint Product Chief, “We are working closely with RIM...the market is consolidating around Samsung and Apple and that’s not necessarily a good thing” (Miller 2013, p.1). There were many oversights in attempting to create knowledge, not only about product development and service capacity with allied partners, but also about knowledge of market characteristics (consumers) and many other important areas that contribute to sales success or failures. It was not until only recently that growth in power by Samsung and Apple were creating market barriers in a variety of dimensions that RIM began to seek out these publicised alliances to assist in the launch and sustainability of its new innovations. Stover (2004) reinforces that in order for useful knowledge to be created, interaction with other parties rather than isolated business activities are necessary. Many in business seem to believe that alliances and similar partnerships with knowledge experts in the industry are only associated with new business development. It is likely that if RIM had been more diligent in establishing these strategic partnerships early in the marketing process after supplementary innovation launches, the business could have raised the switching costs for service suppliers and for consumers as well thereby establishing barriers to its growing competitive base. The rapid decline of new innovations forced into this beyond-mature stage from competitive offerings also created financial problems for Research in Motion. When a product reaches the decline stage, management of cash resources and the costs associated with abandonment timing become more and more complicated and burdensome (Dooley 2005). Loss of capital resources created by products in decline, especially when there was an over-abundance of inventories in the distributor system and in-house, significantly depletes the ability to adjust manufacturing and other operational structures necessary to support new service innovations now available in the new product. It does not seem that Research in Motion was aware of the speed at which its innovations would reach decline and therefore did not develop contingency strategies to manage the cost impact of recurring rapid decline of its Blackberry products. RIM should have considered a diversification strategy as a means of sustaining the business long-term rather than focusing simply on mobile communications technology developments. Under this strategy, the business seeks out new business opportunities as a means of expanding its brand presence and gaining new market attention. Research in Motion did have a quality reputation with the corporate market and the company could have advanced into providing server technologies to businesses or any other variety of product or service offerings outside of the smartphone. Diversifying in this way would have allowed RIM to establish new ground to offset any losses that were being created by more successful competitors in the smartphone market. However, in relation to the innovation model provided by Tidd and Bessant (2009), this would have involved recognising opportunities for new innovations and would have also required the leadership to remove causal ambiguity from the business model. It looks as though Research in Motion was simply too complacent believing that it could sustain its Blackberry models indefinitely so long as individual and customised innovations were added to products that compared or outperformed competitive product offerings. Many competitors of Research in Motion utilise differentiation, expanding their well-earned brand equity into diverse lines of new business opportunities to ensure they are not placing all of their proverbial eggs into a single revenue-producing basket. RIM could have developed innovative products and services for a variety of corporate buyers and therefore focused on this particular niche in which RIM already maintained a dedicated and profitable following. Even further, Research in Motion maintained, during much of the life cycle of many Blackberry products, a very sophisticated security system. Blackberry automatically encrypts texts and other transferred information over its network, making these products ideal for a variety of buyers that require these encryptions such as government and law enforcement. Blackberry performed these security practices wholly in Canada in the business’ data centres, thus making it difficult for data breaches to occur that would erode buyer perceptions of product and data security and privacy (Daltario 2010). The business could have reached new markets that are concerned about these issues whilst also utilising its powerful decryption and encryption technologies to gain market attention. In recent years, even Apple and other competitors were hit with privacy concerns that were publicised. If the business had taken this significant competitive advantage and utilised it as an advertising opportunity, it is likely the life cycle of innovative Blackberry products could have been sustained by creating more market interest and, therefore, higher profitability. 5. Conclusion It does not appear that Research in Motion maintained any problems with internal culture and competency of technology experts and development teams at the business, as research did not indicate these internal failures. The largest problem with RIM and the Blackberry is that the business leadership genuinely did not seem to understand what determines competitiveness today or successfully predicted that market trends would not always sustain continuity. Research in Motion was not successful in fully understanding the external market factors that strongly influenced the firm’s ability to compete, even though the degree and quality of innovations being launched into the marketplace were ample and successful in terms of market-based relevancy. It was not the technology and operational prowess of Research in Motion that has led to its decline, just poorly executed strategies targeted at the consuming buyer and failure to recognise the signs and symbols of market characteristics that strongly influence firm competitiveness. By the time Research in Motion had realised its errors, the stock had fallen back to its 2000 levels and has barely increased since now that investor confidence and even some buyer confidence has been eroded. If RIM had been more proactive with conducting market research, seeking strategic alliances for better knowledge production, and creating promotions that were relevant to the motivations and emotions of important markets, it is likely Blackberry would be in a better position today and experiencing a higher share price. This case study is a lesson for all other businesses that operate in these highly competitive and dynamic markets where competition is able to replicate innovations due to having high technology prowess, capital availability and operational flexibility. RIM was neglect in being adaptive to changing market dynamics believing in the long-term sustainability of its current brand position and focusing too much on the tangible product variations rather than creating relationship connections with important buyer markets. A business analyst can take advice from Fournier (1998, p. 349): “The end consumer is maybe the most important gatekeeper, especially when it comes to the choice of distinct brands. This reflects a view that consumer are very self aware and reflexive; people are not buying products just because they work” Research in Motion did not effectively take into consideration this fact, believing instead in the integrity of the specific technologies, which was apparent when viewing the case qualitatively. Far too much emphasis was placed on product in the marketing mix, rather than promotion using effective methodologies, significantly eroded RIM’s market position among growing and similarly-competent competitors. These competitors did and currently do understand market characteristics are an important risk factor when determining innovation launch and promotional strategies and successfully adjusted strategies according to these characteristics. RIM’s utter lack of adaptability to the external market as an influencing force that determine likelihood of sales revenue production illustrated a type of (alleged) managerial incompetence that superseded the expertise and competency of research and development teams and other internal contributors when determining and developing appropriate innovation opportunities. As Deming (2002) points out nearly 85 percent of all problems occurring within a business are a direct product of management failure. Research in Motion is a prime example of managerial error by not aligning internal functions directly to changing market dynamics, thus eating into the technological gains of new innovation development that could have been better exploited properly. 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