RIM’s Blindspot

I know I’m a little late to this party, but I finally have some time to put down some thoughts on the latest Research in Motion news. Once more, there are signs that RIM is in trouble, and now some of it may be of their own making. Their latest quarter missed analyst predictions, and were less than stellar at a time where companies like Apple, Google, HTC, etc are showing continued increases in marketshare, unit sales, revenue and profitability. RIM’s only response was to cut headcount.

Some investors are calling for restructuring of management, mainly by having a single CEO and a single chairman, and RIM’s response is that the structure has worked fine in the past so why change it. Some have made noises about not just changing the positions, but who occupies them. Naturally, this starts the rumour mill about RIM being a takeover target, and I expect more noises about management changes and other restructuring among the usual market overreaction. But then we have the reaction to the overreaction, claiming the problem is being vastly overstated and that RIM’s demise is not imminent. We have groups wondering about the downstream impact on Canadian technology businesses if RIM were to go away.

First, a message to Balsillie and Lazaridis: doing more of the same isn’t going to improve the fortunes at RIM, nor for Blackberry and Playbook. Pretending that Blackberry is still the king of the smartphones is simply being delusional. Does Blackberry still command the enterprise market? Sure, it does, but only for now. The iPhone and some Androids are starting to make their way into the enterprise, and more and more companies are having to find ways to support them. But the Blackberry has been largely non-existent in the retail market, the segment that has done far more to drive smartphone sales than the enterprise. The Playbook has failed to put even a scratch in Apple’s share of the tablet market. Fans of the device are stoked about it selling 45,000 units in the first day, and 500,000 units to date. Let’s put that in perspective: the iPad 2 sold more units in the first hour of being on sale in the US that Playbook did all day, and they sold more units in the first weekend than Playbooks have sold to date. Clearly, the lack of Flash support (one of the few things the Playbook has over the iPad) isn’t as big a deal as people believed it would be.

For RIM to try to “stay the course” is simply continuing to steer the ship toward the iceberg. Another note for RIM senior management: you cannot cut your way to prosperity. Trying to cut costs isn’t the formula for success, and it will have a negative impact on the people you need most, the guys designing, building and supporting your product. Sure, some “deadweight” may be removed, but you can also expect two other side effects. First, good people you want to keep will leave, because they would rather work somewhere with some certainty. Second, the people left behind have had their morale kicked and bruised, and that affects both quality of the work and productivity.

Survival means radical change, but intelligent change. Do you want an example? Look at IBM. Up until the mid 1980’s, IBM was the king of computing. PC’s and UNIX workstations were interesting, but mainframes ruled the roost, and IBM made them. “You couldn’t lose your job by choosing IBM” was a mantra for IT executives everywhere. But then, something happened. The world changed, PC’s gained traction and importance. UNIX-based workstations from Sun, HP and Apollo started to see more and more use as servers and for general purpose computing. IBM responded badly, stumbled horribly, and came closer to bankruptcy that they would have liked. By the late 1980’s and early 1990’s, IBM was a company in some very, very serious trouble. They lost money for the first time in their (at the time) 75-year history. They sold far less product that they had come to expect. Mainframes were being returned at the end of their leases and not being replaced. They didn’t have a credible answer to the UNIX machines that start to appear, and they had a diminished presence and influence on the PC world. They at first tried reassigning staff from other jobs to sales in a bid to increase revenue. When that didn’t work, they had to layoff people for the first time in their history. It cut costs, but it didn’t improve anything. It was time for real change.

What did they do? First, they hired an outsider as CEO for the first time in the company’s history. Louis Gerstner was brought in from Nabisco, and his first major activity was to change the culture and attitude inside IBM. He started by showing up for work in casual clothes. No blue suit and white shirt. Instead, it was jeans and a flannel shirt. Gerstner also refocused the business in a few ways. First, he emphasized services and software over hardware. That shifted the focus and behaviour, and changed what IBM would try to sell to a customer. Second, he changed the focus of technology, by starting to shutdown or sell off parts of the business that were failing or didn’t fit with IBM’s future direction. They dumped the failure that was OS/2, designed and built a UNIX family that was a credible alternative to the reigning systems, and started what would be considered by some to be the gold standard for business notebooks with the ThinkPad.

How about another example: Apple Computer, Inc. After a brief honeymoon where the Macintosh actually had decent sales and a respectable share of the PC market, things deteriorated. Steve Jobs was let go, and a parade of CEO’s came and went that tried vainly to either keep doing “more of the same”, or tried to imitate others rather than lead. Their first entry into the PDA market, the Newton, was a neat machine, but it was slow, big, bulky and expensive. The Macintosh languished under an evolution of tired technology, and a reluctance to try to truly lead the way. Apple tried other products like digital cameras, only to waste time, effort and money on products with little chance of success. Before Steve was brought back, Apple was a company on it’s way to either firesale or bankruptcy. Steve’s return heralded a significant change. It was about design product to an internal standard, not about cutting costs. Steve dumped products and activities that didn’t fit with his core plan for the company. He refocused the Macintosh. He did take some gambles, first with the iPod, and then again with the iPhone. But Apple has, by making significant changes in their company and the way they work, managed to increase the PC marketshare, took an insurmountable hold over the MP3 player market, and are a major factor in both smartphones and tablets.

RIM, though, seems more bent on doing what Sun and Palm did: more of the same, with a maybe a different coat of paint. Sun waited far to long to find a CEO that could build the company and take in a direction that would give it a shot at long-term success. McNealy was over his head, and was obsessed with trying to replace Microsoft on the desktop, and he spent billions on an unwinnable battle. Palm coasted for far to long on a tired and outdated platform, and by the time they came out with something that was technologically comparable to iOS and Android, it was too late. Both companies disappeared into the arms of far larger organizations (Sun bought by Oracle, Palm bought by HP), now nothing more than a memory.

But a message to the fans that think RIM’s problems are being overstated: remember Sun and Palm. Those are lessons on how “more of the same” won’t right the ship, and there is only a limited window of opportunity before radical change won’t help. Apple and IBM managed to make their significant changes before it was too late. Sun and Palm waited until it was past too late, and paid a price. Is RIM going to into Bankruptcy and Insolvency Act (BIA) bankruptcy protection tomorrow? Not hardly. But they are currently on a path where they will be left with few choices: be sold to someone else, or go into BIA protection and see how that sorts out. That path doesn’t end tomorrow or next week, but it will come unless RIM does something, and something significant.