WSJ: 28/6/2012 Multiple Missteps Led to RIM's Fall..the CEO problem

WATERLOO, Ontario—As the BlackBerry smartphone fell steadily further behind

app-loaded rivals like the iPhone in recent years, it was time for an

unambiguous response from the chief executive's office.

 

At Research In Motion Ltd., however, that was complicated. The BlackBerry

maker had two chief executives. Moreover, their offices were about a

10-minute drive apart. Meetings with both of them present were rare, say

former RIM executives and people who dealt with the company.

 

Many forces have combined to bring RIM to the point of reporting a

quarterly operating loss, as is expected on Thursday, but one of them was a

split personality in the executive suite, former executives say. As

investor pressure mounted at the company recently, one CEO, company founder

Mike Lazaridis, was focused on a make-or-break push to launch a

next-generation BlackBerry with a new operating system. His co-CEO, Jim

Balsillie, started pursuing a separate strategy that envisioned licensing

out some of the company's proprietary technologies.

 

Both men are gone from the CEO suite now, replaced in January by former

Lazaridis lieutenant Thorsten Heins. He is slashing costs. RIM says it is

committed to seeing through the rollout later this year of its next

BlackBerry. But Mr. Heins has hired investment bankers to explore options

and hasn't ruled out a sale of a company, whose stock has tanked nearly 70%

in 12 months and pushed its market value, at under $5 billion, to less than

one-fifteenth of its peak.

 

RIM still has a comfortable cash cushion of more than $2 billion, which it

said last month is likely to have grown in its fiscal first quarter ended

June 2. It also is debt-free, giving it more breathing room to get out its

new phone, with an operating system called BlackBerry 10 that RIM says

"sets the standard for reliable, secure mobile computing." RIM has told its

bankers it is focused on that rollout, said a person familiar with the

matter. If the phone is a hit, the company will recover some of its lost

value, and the new technology will be a boon to any possible sale or

partnership in the future, this person said.

 

According to interviews with more than a dozen former RIM executives and

industry executives who worked closely with the company, it was a blinding

confidence in the basic BlackBerry product that was at the root of RIM's

current troubles. Compounding that, as they describe the events, were a

drawn-out internal debate over who their core customer was; a series of

catch-up products that didn't really catch the company up; and tensions

within parts of the company.

 

The bet long made by RIM was that both corporate and individual customers

would continue to favor the BlackBerry's easy-to-use mobile email over the

multiplying features and apps on Apple Inc.'s iPhone and devices running on

Google Inc.'s Android operating system. When it saw consumers starting to

gravitate away from BlackBerrys, RIM moved tentatively.

 

At one point, RIM worked to challenge the iPhone with telecom carriers that

were fearful of Apple's dominance. The new models that came out of these

collaborations, however, failed to generate iPhone-like buzz.

 

RIM isn't alone in failing to adapt quickly to the transformation of

smartphones from devices to talk and email into pocket-size computers.

Once-dominant Nokia Corp. has been forced into a partnership with Microsoft

Corp. to equip its phones to compete, and is slashing thousands of jobs as

its share of the global smartphone market erodes.

 

[image: Emacs!]

 

At RIM, executives eventually brought in outside talent, but that raised

tensions inside the ranks of a company that already harbored separate

Lazaridis and Balsillie fiefs, some former RIM executives and executives

who have worked with RIM say. According to them, the separate teams

sometimes clashed, especially as the onetime smartphone leader slipped

further behind.

 

RIM, in a statement, said the split-personality characterization wasn't

accurate. "As with any innovative company there were times when various

people within the organization disagreed, but this was not the norm," it

said.

 

"The CEO structure worked well for many years and allowed each of the

co-CEOs to focus on their areas of strength," RIM added. It said the

co-CEOs started out sharing an office, had offices next to each other, and

then, "as RIM grew, they each took offices closest to those areas each

supervised in order to stay close to their teams. At all times, they had an

efficient, professional working relationship and were in close

communication."

 

Mr. Heins, soon after taking over as CEO early this year, put an end to the

strategy pursued by one CEO: Mr. Balsillie's licensing initiative. RIM said

it doesn't discuss nonpublic internal deliberations.

 

Mr. Balsillie has given up his board seat. Mr. Lazaridis remains

nonexecutive vice chairman.

 

"Successful companies take what they can learn from every situation and use

that to push forward," Mr. Lazaridis said, noting that he and Mr. Balsillie

"felt it was the right time in RIM's life cycle to turn the leadership of

the company over to someone else." Mr. Balsillie didn't respond to requests

for comment.

 

RIM didn't make Mr. Heins available, citing a quiet period before the

earnings release.

 

*RIM essentially invented email on the go. Founded by Mr. Lazaridis in 1984

with a $15,000 loan from his parents, the company grew to a stock-market

value of more than $80 billion at its zenith in 2008, controlling about

half the U.S. smartphone market.

 

* [image: Emacs!]

RIM CEO Thorsten Heins

 

RIM hosted lavish banquets for its inventors. To mark milestones, it

treated employees to concerts by bands such as U2 and Van Halen. At the

company's campus of low-slung gray buildings 70 miles from Toronto,

employees got free ice cream on "Frosty Fridays."

 

Amid its cost-cutting, RIM isn't giving up entirely on ice cream days. "Ice

cream is a relatively low-cost way to build stronger bonds within our

team," RIM said.

 

Mr. Balsillie, who came aboard in 1992 after having explored a takeover bid

for the company, and Mr. Lazaridis became Canada's best-known billionaires,

each funneling chunks of wealth to pet projects. Mr. Lazaridis built a

theoretical-physics institute. Mr. Balsillie started a school for global

governance and tried unsuccessfully to buy three professional hockey teams.

 

Behind the success was Mr. Lazaridis's unrelenting vision for robust

engineering and innovation and Mr. Balsillie's push for market expansion.

But former executives say there was also an aversion at the company to

innovations that didn't buttress its core strengths: its proprietary

network and reputation for security.

 

At an investor meeting about a decade ago, analysts asked Mr. Lazaridis

whether RIM was moving to a color screen, a feature popping up on devices

in Asia. "Do I need to read my email in color?" he replied, according to

Brian Blair, then an analyst with Banc of America Securities.

 

[image: Emacs!]

Former co-CEOs Mike Lazaridis and Jim Balsillie in January

 

RIM says that at the time, color screens were impractical, with high costs

and high battery drain. It says it was among the first to adopt color

displays just a few years later.

 

RIM's customers then were overwhelmingly companies, which gave their

employees BlackBerrys for email. But a growing number were individuals,

often eager for features such as cameras, games and Internet browsing. RIM

brought out devices with cameras and MP3 players including the Pearl in

2006 and the Curve in 2007—the year the iPhone came out.

 

Still, RIM's carrier partners worried that the wild popularity of the

iPhone could give Apple outsize influence in the market. Executives at

Verizon Communications Inc. and Vodafone Group PLC approached RIM to work

together on a phone that could compete with the iPhone, say people familiar

with the matter. The collaboration resulted in RIM's first touch-screen

device, the Storm.

 

"Vodafone started really rushing around saying, 'Helps us build an

innovative competitor to the iPhone,' " said Pieter Knook, a Vodafone

executive at the time. He said Mr. Lazaridis came up with the Storm's

marquee innovation, a touch screen that physically clicked.

 

The Storm "sold very well," but wasn't a strong competitor to the iPhone,

said Denny Strigl, at the time president of Verizon.

 

In 2010, AT&T Inc., then Apple's exclusive carrier partner, approached RIM

about a plan to develop a touch-screen rival to the iPhone, said two former

RIM executives. The chief of AT&T's mobile division visited RIM's research

and development team in Waterloo to stress how important it was for AT&T to

have a successful BlackBerry product to sell, according to people familiar

with the visit. RIM said the objective of the visit was to develop "a

differentiated, unique BlackBerry experience for AT&T customers."

 

"We work with all device makers to bring the best products to market for

our customers," AT&T said.

 

A RIM-AT&T collaboration resulted in the BlackBerry Torch, say people

familiar with the effort, but it was hobbled by hardware and software

shortcomings.

 

RIM executives also missed some internal warnings. The sales division

produced a research report in 2010 on the future of tactile keyboards, the

thumb-friendly feature that was a favorite in the early days of the

BlackBerry. The report warned that in the era of Apple's touch-only

devices, keyboards would make up a diminishing share of the market,

according to a person familiar with it, who said the warning was ignored.

 

During a meeting the same year, Mr. Balsillie asked if RIM should be

worried about a new trend: consumers bringing their own smartphones to work

and asking their employer to let them work on the devices. Some executives

said the trend was a threat; a few said they weren't worried. Mr. Balsillie

went with the latter view, said a person close to the company. RIM said it

doesn't discuss nonpublic "internal company deliberations."

 

As Apple and Android devices ate into BlackBerry's market share, Mr.

Lazaridis started looking outside for innovation, bringing in a new

marketing team and other top executives. In April 2010 RIM bought QNX

Software Systems, a maker of operating systems for cars and medical

devices. RIM was readying a tablet to compete with the iPad, and executives

decided that they would use QNX to power the device, called the PlayBook.

 

According to people close to the company, the acquisition stoked tensions

between the teams led by Mr. Lazaridis, who was in charge of product

development, manufacturing and R&D, and Mr. Balsillie, who ran carrier

partnerships, sales and marketing.

 

[image: Emacs!]

 

The two CEOs met in person fairly regularly, and would send instant

messages or call each other to bounce ideas around or get progress reports

when they weren't in the same room. But as RIM hit trouble, they were more

often than not toiling in very different worlds, according to these people,

who say the teams reporting up to the two didn't communicate effectively if

at all. Some projects would go astray before either co-CEO noticed, these

people say, and disagreements between the two sides sometimes devolved into

shouting matches.

 

The QNX leadership team reported directly to Mr. Lazaridis, bypassing Mr.

Balsillie and other top RIM officers, rankling them, according to people

familiar with the situation.

 

Meanwhile, by late 2011, Mr. Balsillie was deep into his own project, an

effort aimed at licensing some of RIM's proprietary technology, such as its

security network and its popular BBM messaging tool, to outside companies.

Some analysts had long suggested such a move to boost revenue and buy the

company more time as it readied its new phone.

 

Mr. Balsillie and a team under him struck licensing agreements with several

partners, including carriers, according to people familiar with the effort.

The deals would have allowed other smartphone makers and the carriers to

use RIM's network for a fee.

 

But by the end of last year, RIM shares were hitting eight-year lows. On

Jan. 22, the board, led by Messrs. Lazaridis and Balsillie as co-chairmen,

said the two would step aside. They remained big shareholders and each kept

a board seat.

 

Within a week of becoming CEO, Mr. Heins, a Lazaridis lieutenant, scuttled

the licensing plan, people familiar with it said. He said he would focus a

slimmed-down RIM on rolling out its new BlackBerry phone moby.to/yh52ms

Done