Losing The Signal

By  Jacquie McNish, Sean Silcoff

42-MINUTE AUDIO / 6,000 WORDS (24 PAGES)

 

SYNOPSIS

Would you like to know how the company that created one of the world’s most addictive products and pioneered a market spiraled into holding only 1% of its market after losing its way? This book summary provides insight into what propelled the rapid growth and precipitous downfall of Research in Motion, the Canadian technology company that created the BlackBerry smartphone. Losing the Signal provides unique access to many of the key players inside RIM. It covers the backstories of founder Mike Lazaridis and his co-CEO Jim Balsillie, and the impact of their unique “business marriage” and dual leadership on the company. It charts the course of RIM’s ascent and descent, highlighting key business choices, market dynamics, and corporate scandals that led to RIM’s organizational unraveling, strategic confusion, and ultimate defeat in the smartphone race. 

 

SUMMARY

As partners and co-CEOs of Research in Motion, Mike Lazaridis and Jim Balsillie together achieved much more than they could have individually. The success of their partnership was largely due to their complementary skills and talents and the ambition they shared for the company they led. After spending several of RIM’s early years struggling to pay the bills and searching for customers, they knew they had encountered a big breakthrough when they entered into a service contract to help Canadian wireless carrier Rogers Cantel, Inc assemble a mobile network. Several failed product attempts later, the BlackBerry would come to life and solve the “mobile e-mail riddle” for high-powered customers the world over. The first of its kind, BlackBerry stood out in a sea of clunky two-way pagers and mobile contact and calendar devices. Lazaridis and Balsillie rode the wave of success for several years, until competitors like Apple and Google changed the game. Scandals, a protracted patent war, and strategic confusion also pounded RIM, in the end leaving the company without focus, direction, or leadership.

 

Partners in the making

The underdog – Jim Balsillie

“The smart-ass, as it turns out, really was smart”

Jim Balsillie was born in Seaforth, Ontario, Canada, near Lake Huron. Jim proved himself as a fledgling salesman from a young age, hawking Christmas cards door to door and succeeding at other entrepreneurial jobs as a kid. Though his father worked as an electrical repairman to put food on the table, the Balsillie’s had a storied and colorful past. The family was descended from aboriginal Canadians and could trace relatives back to dealings in the Canadian fur trade. Jim also had an aunt who made a name for herself managing exotic dancers. Sales, whatever the mode, was in his roots.

Balsillie’s mother used to tell him, “Jim, you always fall in shit and come up smelling like roses.” Even as a child, and certainly later charging forward as a CEO, Balsillie always found a way to come out on top of a situation not in his favor. As a twelve-year-old in grade 7 in Peterborough, Ontario, Balsillie was prohibited from math class after mouthing off to the teacher. After pursuing self-study, Jim scored first on the annual math exam, not only among his classmates at school, but among all children in the entire province.

As he grew into an adolescent, he became enamored with Peter C. Newman’s tale of the Canadian wealthy upper-class, The Canadian Establishment. “What Balsillie really wanted was to be someone.” Ever ambitious and dogged, he created a three-part plan for himself. First, he would enter an elite undergraduate institution. Second, he would land a good job in accounting at the firm Clarkson Gordon, and third, he would graduate from Harvard Business School. Though lofty, Balsillie succeeded on all three fronts. Through his pursuit, however, Balsillie was never truly able to hide what he believed was his “underdog” status. “In Balsillie, (college classmate) Wright saw someone who was determined to change a world he believed was stacked against people who shared his working-class background and lack of connections.”

After attending Harvard Business School, he could not resist the opportunity to prove himself in his home country of Canada while also gaining a position of real authority. Rather than pursue top-tier jobs in banking or consulting, Balsillie took an alternative route after meeting fellow Canadian Rick Brock at an event. Brock was the head of Sutherland-Schultz, a mid-sized Canadian electronic equipment maker headquartered near Waterloo. After further discussions with Brock, Balsillie was excited about the possibility of working in the fast-paced technology firm. After graduation, he joined Sutherland-Schultz with the title of executive vice president.

 

The boy electrician – Mike Lazaridis

 “In a sense (my parents) were entrepreneurs; they were explorers. To me, [change] was an opportunity.”

Mike Lazaridis, originally named Mihal Lazaridis, was born in Istanbul, Turkey. Mike moved with his family to Canada as a child for his father to pursue employment at a Chrysler assembly plant in Windsor. The immigrant family worked hard and over time achieved their “Canadian” dream. The Lazaridis’s bought a house, complete with a basement that would become known as “Mike’s laboratory.”

Just as Jim Balsillie was enamored with the book The Canadian Establishment, Mike Lazaridis fed off The Boy Electrician, “a chatty how-to guide for understanding and building electrical machines, radios, and other equipment.” Lazaridis was scrappy, always finding a way to create something new and exciting in his workshop. If he was missing materials, he would make them or find them somehow. Among other inventions, he created his own solar panel, oscilloscope, and computer in his basement.

In his 8th grade yearbook, his classmates depicted Lazaridis as a mad scientist with thunderbolts coming out of his head. Lazaridis was not only book-smart, he was savvy in all related “hands-on” technical topics. The first floor of his school housed the “shop” classrooms – an electrical classroom, a machinery one, etc. On the second floor were the advanced science, math, and business classes. Lazaridis was unique among his peers in that he was a star in both realms.

It was no surprise when he chose to major in electrical engineering at the University of Waterloo. In college, he secured a work-study position at the competitive Control Data Corporation. Assigned to the night shift doing computer diagnostics, he quickly outsmarted the system by writing an automatic program to do his job for him. When it came time for graduation and Lazaridis was considering different full-time jobs, Control Data Corporation was not an option as it had recently encountered severe financial setbacks. From this, Mike learned an invaluable lesson. After witnessing Control Data Corporation’s struggles, he concluded that, “Innovation could not thrive without corporate support and effective commercial strategies.”

Unaverred, Lazaridis decided to set up his own consulting and technology services firm. The first product he developed with close friend and business partner Doug Fregin was a system they called “Budgie.” Budgie was a customizable advertising device that could display whatever the user typed on the keypad onto a TV screen. Though the device did not gain traction with potential customers, it inspired the pair to license their business. It was March 1984, and they had officially started “Research in Motion.”

 

Research in Motion – Climbing up

“The innovations were promising, but buyers were scarce.”

Coming together

“I want this guy to work with me… It was like meeting your future wife. You just know.”

Mike Lazaridis and Doug Fregin spent Research in Motion’s, or RIM’s, early days pursuing modest ventures such as designing computer solutions for local technology companies and creating other devices like Budgie. Though Lazaridis in particular had ambitious goals, still five years into the venture the pair were still struggling to pay the bills, working above a Waterloo bagel store designing electrical components.

Engaging with their next client, however, would change everything. Rogers Cantel, Inc. was owned by Canadian cable businessman Ted Rogers. Rogers Cantel had an arm specifically focused on experimenting with messaging on radio waves, and they had a problem they couldn’t solve. They enlisted RIM’s services to help them understand and activate a mess of wires and parts they had acquired from the Swedish company Ericsson. The mess was called Mobitex, and it was supposed to enable a wireless data network for whomever controlled it. Rogers intended to use the network to communicate with its service trucks.

When Mike Lazaridis heard the assignment, he knew it was big. The Mobitex network would activate a “radio-based system that enabled communications on a network of computer and mobile devices.” While corporations had systems and networks at their physical locations, there was not a solution to enable data or messages to easily reach employees who were traveling. Though RIM went to work on activating the Mobitex network, the commercial side faltered. There were few believers and fewer buyers, in the mobile data that Rogers was selling.

As RIM and Rogers struggled with commercialization and financing, Jim Balsillie was reaching the end of his time at the Waterloo firm Sutherland-Schultz. It was being acquired, and the bureaucratic, by-the-rules takeover firm immediately saw that Balsillie would not be a good fit with the new management team. This departure reaffirmed Balsillie’s adherence to the beliefs of Sun Tzu, outlined in The Art of War. “It’s not a friendly world out there…you can’t panic. You have to stay focused. You got into a state. Emotionally you become formidable. You go into a warrior state.”

Balsillie got a healthy severance package, and intended to put it to good use investing in a new venture. His current boss recommended RIM, a supplier of theirs. Balsillie and Lazaridis first met in RIM’s offices above the bagel shop. Lazaridis was wearing sweatpants. Though Balsillie recollects that Lazaridis and his staff were clearly “geeks,” he also recalls that Lazaridis was “mesmerizing” when talking about technology. From Lazaridis’s perspective, he perceived a “confident executive who understood banking, finance, deal-making, and best of all how to sell a product. In other words, he had everything Lazaridis didn’t.” A partnership was born, with Lazaridis retaining a 40% stake in the company, Balsillie 33%, and other partners Fregin and Barnstijn the remainder. It was 1992, and eight-year-old RIM was finally positioned to begin making good on its ambitious goals.

 

The early days

“In a jungle of technology predators, the small company had to be as ruthless as the giants.”

In the years immediately after Balsillie joined, RIM continued to focus efforts on the Mobitex network – getting it off the ground, programming tools for users to write applications for it, and creating software for Mobitex users already connected to it. Soon, however, it was clear that the big money was in hardware, not software. While other players began charting the territory with devices like Motorola’s Tango (a two-way pager), Nokia’s 9000 Communicator (an expensive cell phone with a keyboard, the size of a book), and U.S. Robotics’s Palm Pilot 1000 (a sleek device with calendar, contacts, and other information), RIM was slowly and quietly building a wealth of experience and knowledge in the sector by operating the proprietary Mobitex network and experimenting with associated hardware. Lazaridis’s vision was a future where the most “logical device” would send and receive email.

RIM first responded by launching the Inter@active 900, also known as the “Bullfrog” internally due to its clunky and poor design. Early users, however, were taken with the device despite its aesthetics, after experiencing its convenience and utility. If design could be improved, they were convinced the product would become a game-changer. Lazaridis made the crucial decision to bring the design of the next generation “Bullfrog” in-house, whereas previously it had been contracted outside of RIM.

In addition to design, the success of the product depended on the expansion of the Mobitex network. If RIM could convince Mobitex owner, now Bell South, to expand it nationally, they were convinced that the product would take off. It was 1997, and, with the design of the new device underway, Bell South “bet the ranch” on the expansion of Mobitex. What would become known as the major innovative device BlackBerry was underway.

 

BlackBerry booms

“No one else had solved the mobile e-mail riddle.”

An intentional product design

After moving design in house for RIM’s next-generation device, Mike Lazaridis played a heavy role in monitoring all elements of hardware and software design. One of his mantras was to remove “think points.” He insisted that using the device should be seamless and pleasurable, not a headache. Rather than show any of the “back end” to users like the technical coding or headers on emails, he wanted to hide all of that. Rather than have the device “buzz” when the device received an email from the server, he instructed his team to program it so that it would alert the user when the email had been received, decoded, and was waiting in their inbox. Here are some other key aspects of design that would make the device a darling with its users and wireless carriers:

Efficient keyboard layout – Designers got rid of all extra keys and used a trackball for navigation instead. The keyboard was curved for thumbs to move ergonomically.

Satisfying “typing” feel – Lazaridis demanded that a metal base reside under the keys versus the plastic industry standard, leading to a satisfying “click.”

Shortcuts – Technology taken for granted today was pioneered by RIM, such as two spaces leading to a period and new sentence capitalization, auto-completing an email address using just a few letters, and holding down a letter to enable capitalization.

Good battery life – Lazaridis ensured that despite the device’s capabilities, it did not drain the battery quickly.

Low bandwidth usage – Similarly, the device did not hog network data, but instead was efficient when sending and receiving messages.

High degree of security – Government and corporate clients loved the fact that RIM’s Mobitex network encrypted all emails traveling across the network, making them much less susceptible to hackers.

 

Going to market

Though these aspects of the BlackBerry would come to be greatly appreciated by users, early on there was confusion and disagreement as to how the device should be marketed. Engineers who had worked tirelessly on the innovative email technology that the device offered were set on names like PocketLink, EasyMail, MegaMail, or Blade. Market research, however, showed that marketing that focused on the ability to easily respond to urgent emails was an “anxiety trigger” for users. Instead, they responded to the notion of “convenience.” The image of being able to be at the beach, at the ballpark, or at home, all the while efficiently reducing one’s email inbox, resonated much better.

Ultimately, it would be the Sausalito, CA firm Lexicon Branding to coin the name “BlackBerry.” They had commissioned a linguistics study on “sound symbolism” which showed that the quick succession of the hard “b” sound connoted speed and efficiency. The name was unexpected, catchy, and somewhat logical, when considering the fact that the tiny three-dimensional keys resembled the fruit sacs of the fruit.

Now all that was left was to take the BlackBerry to market. Balsillie and team coined a nickname for their approach – the “puppy” test, as in, “Take this puppy home and see if you like it.” Very few returned it, as it brought major improvements against rivals such as the Palm VII (whose email was clunky) and the Motorola PageWriter 2000 with its poor network. Although the BlackBerry was a technical marvel, it was not “techies” who were early adopters. Rather, it was professionals with demanding jobs who found the most value in the Blackberry – legal, banking, and corporate clients. Once the “BlackBerry virus” infiltrated a corporation, there was no going back. Balsillie and his sales team began by taking a guerilla approach. They would start by offering a BlackBerry to a CEO. Soon, the executive would become so addicted to the productivity gains and speed of responsiveness, that he or she would demand BlackBerrys for all their direct reports. And it would spread throughout. It did not take long for Chief Information Officers to catch on, however, and put the brakes on the tactic somewhat. They demanded to be at the forefront of all major information technology decisions. Therefore, Balsillie altered his approach. Instead of sending experienced, glib sales people to hawk the BlackBerry, he instead hired experienced IT managers, who could speak the same language as the dubious CIOs, convincing them of the value, security, and durability of the new technology.

Though RIM had previously gone public on the Toronto Stock Exchange, it was clear there was a bias towards “homegrown success” that was hindering the stock price’s growth. After a major conference in the States where the BlackBerry (and Balsillie) were a hit with major Wall Street financiers, Balsillie recommended they move towards the NASDAQ. Sure enough, RIM took off on Wall Street. Come May of 1999 the partners were very rich, at least on paper, with RIM being valued at $11 billion on the NASDAQ and pulling in annual revenues of $85 million.

 

The partnership

“It was absolutely incredible to watch them work in that kind of an environment, sitting right beside each other, where you think they’re almost connected in their brains.”

Close colleagues would share that Balsillie and Lazaridis had little in common other than their unwavering commitment to RIM and their unification against its competitors and other opponents. Together, they balanced “profit and invention,” forming a solid front to lead the company with their distinct abilities. At one point, they were so in sync that they shared unspoken secret signals in meetings. While Lazaridis was the “chief innovator,” Balsillie was the “in-house financier.” Lazaridis was an intellectual, fascinated by quantum physics, religious studies, and spirituality. Balsillie was outgoing and social, an avid sports fan who relaxed by getting out of the house and seeking the next adventure. “Work was the only language the two shared.”

As users skyrocketed and RIM’s workforce doubled, RIM struggled to keep up organizationally. Without a fully functional back office, staff slowly discovered hundreds of BlackBerry users were not being billed for monthly fees. The network was also becoming overloaded by all the new activity. Lazaridis and Balsillie brought in seasoned executives, co-Chief Operating Officers Larry Conlee and Don Morrison to help keep the ship sailing. Conlee was a massive Texan, towering 6 feet 6 inches, brought on to help Lazaridis manage the engineering teams in the “technically advanced company made vulnerable by poor discipline and coordination.” Don Morrison, on the other hand, was a grandfatherly figured nicknamed “Father Time” for his amiable and wise demeanor. He supported Balsillie on the sales and marketing front. The new co-COOs added much in bringing RIM from a place of “unfettered free-form innovation” to the “steely commercial discipline required to foster sustainable growth.” Still at the core, however, stood the unwavering partnership of Mike Lazaridis, the brilliant engineer and innovator, and Jim Balsillie, the savvy business “shark.”

RIM continued its growth through the early 2000s due in many ways to the distinctive partnership the two men shared, and the order and discipline brought by the new co-COOs. But, the company was not without its struggles as its growth expanded. The partners led much-needed improvements to the Mobitex network to accommodate more traffic, and ultimately ceded back office functions to network partner Bell South. This enabled the team to focus more heavily on next generation BlackBerrys. The smartphone race to the top was in full force.

Early warning signs began to surface about RIM’s ability to navigate a newly competitive market. RIM was slow to fully embrace key market shifts. For example, Lazaridis strongly opposed, at least initially, improvements to the BlackBerry such as voice call capability, video, and a color screen, claiming that RIM made functional devices, not toys. Soon, however, there was consensus that the BlackBerry should in fact be a phone. The initial design was incredibly poor, however, “The form factor was weird. It was a calculator, a piece of toast,” said Jason Griffin, RIM’s chief of product design. Ever-aware of the importance of design and removing “think points,” Lazaridis pioneered a redesign, calling it “Charm.” 20% thinner and longer, Charm was much more reminiscent of a telephone. BlackBerry sales grew accordingly, doubling from 1 million users in February 2004 to 2 million users in October 2004, and then again to 3 million in March 2005.

RIM proved the BlackBerry’s reliability and value even further, when on September 11, 2001, amidst countless failed voice calls and other communications, BlackBerrys carried important messages to loved ones and government officials as news of the attacks spread nationally. Soon after, BlackBerrys took off with government clients. In the aftermath of the tragedy, the U.S. government issued each member of the House their own BlackBerry.

The device and the constant communication it rendered changed the face of corporate life across the world. As a distinct shift towards a 24/7 work culture took hold, users became addicted to their BlackBerrys. Intel chair Andy Grove joked that RIM should be reported to the Drug Enforcement Administration for the device’s addictive quality. Salesforce CEO called it the “heroin of mobile computing.” Celebrities, royals, politicians, and world leaders were all seen hovered over their BlackBerrys. The BlackBerry was indeed booming.

 

Research in Motion – Falling down

“RIM was as a one-product company struggling with a damaged brand image and an outdated product. Years of strategic confusion and poor product execution had caught up to the BlackBerry maker.”

Patent wars

“For the first time in his life, Balsillie was confronted with a problem he could not fix.”

RIM’s precipitous rise through BlackBerry would be nearly matched by its incredible descent in subsequent years. Rather than one event in particular, there were several that led to RIM’s demise and ultimately the departure of Mike Lazaridis and Jim Balsillie.

One of the first signs of trouble came as early as 2001, when a small firm known as NTP Inc initiated lawsuits against RIM, claiming that RIM was infringing on several patents owned by NTP. NTP was headed up by a man named Thomas Campana and his friend and former corporate lawyer Donald Stout. Both men had worked at the company Telefind, which was supported by AT&T for a time. But, after AT&T pulled out, Telefind went broke and Campana was left with nothing but some patents to his name. Through NTP, Campana and Stout began efforts to monetize the patents by writing dozens of letters to corporations seeking licensing fees and suggesting infringement on the patents. Letters to RIM were sent and initially largely ignored by both parties, until a Wall Street Journal article on RIM’s successful patents was released, effectively “putting a target on their backs” for NTP. Campana and Stout pounced, and in November 2001 filed a case in the Eastern District Court of Virginia against RIM.

The trial was particularly hard on Lazaridis, the brilliant engineer whose intellectual property was at the heart of RIM’s success. NTP’s lawyers were particularly aggressive with Lazaridis on the stand, and it was clear he was shaken. As told by Larry Conlee, “What I sensed from Mike was a lot of pain. Here’s the founder of the company being told he’s cheating these people and his technology is wrong. He was personally hurt by it.” The jury deliberated for less than five hours, concluding that RIM did in fact infringe on five of NTP’s patents. They demanded that RIM pay NTP a lump sum of $53.7 million and royalty fees of 8.55%, summing to more than $250 million annually. It was an unthinkable requirement for RIM. They pushed back against the ruling, seeking further litigation to explore the matter. With Lazaridis sidelined, Balsillie handled the issue in the interim, but was similarly rattled, requiring anonymous retreats and employing a personal life coach to handle the stress. The judge ruling against them was threatening to bar RIM from the U.S. market if a settlement was not reached. This wasn’t a risk they could take. Finally, in 2004, the case came to close, with RIM paying NTP a one-time sum of $612.5 million. Apart from the funds, however, the cost to RIM was much deeper. Patrick Spence, a senior sales and marketing executive under Balsillie recalls the ordeal, “We lost some of who we were through that. That’s ultimately the cost to the company. It’s not the $612 million. It’s what that cost us in terms of taking focus away from where we needed to go.”

 

Illegal options

“Sitting next to the man he blamed for the regulatory nightmare, he [Lazaridis] had the look of a defeated general.”

It seemed that the patent litigation had just concluded when RIM was rocked with another nightmare. It was 2006, and RIM had been named among a list of companies that had illegally backdated options for company executives. A form of compensation, options are more valuable when originally acquired at a point in time when they were traded at lower prices, increasing in value as a company enhances its financial position. After investigation by regulators, they concluded that RIM suffered from “sloppy administration.” The investigation called for Balsillie to step down as chairman of the board, among other requirements. In Spring 2007, the Securities & Exchange Commission and the U.S. Justice Department “grilled” Balsillie, Lazaridis, and other executives about e-mail records that proved their knowledge, participation, and leadership in requesting options backdating for dozens of employees, inflating their compensation illegally.

Once again, Lazaridis took it hard. He was “completely humiliated” and, according to Larry Conlee, “I think Mike felt betrayed [by Balsillie].” Lazaridis says, “It was painful. I was frightened. I didn’t understand it.” Jim, for his part, was also deeply hurt. Unbeknownst to him, Lazaridis’s lawyers had sought leniency for their client, claiming that Lazaridis did not fully understood the legal requirements or processes around the options compensations. Balsillie felt thrown under the bus and betrayed as well, and the rift between the partners that began with the NTP scandal grew deeper. While RIM was forced to pay $90 million as a penalty, the major fallout was not the smeared name of the firm from a governance standpoint or the financial cost, but the havoc it wreaked on Balsillie and Lazaridis’s relationship. “The 15-year business marriage was coming unglued.”

 

Competition and distraction

“Dressed in his signature black mock turtleneck and faded jeans on the morning of January 9, 2007, Apple’s founder announced he would ‘change everything.’”

As RIM fought off scandals, another player was not wasting any time in the smartphone race. As of 2007, Apple announced the iPhone and its partnership with AT&T. At first, RIM wasn’t threatened. The iPhone went against most everything Lazaridis had intentionally designed the BlackBerry to be and to do. For one, he was not convinced that the future was in “touch.” He loved the BlackBerry’s satisfying “click click” and tactile keyboard too much. In addition, he predicted that iPhone users would start clogging the networks with all the data usage, and that the batteries would drain quickly. He was right about the latter two items, but not right about carrier and user reactions. The increased traffic, dropped calls, and poor service on AT&T’s network was not a deal breaker for many. “Bandwidth conservation was yesterday’s priority.” And, iPhone users didn’t care about battery life. They simply carried chargers or an extra battery stick with them.

As the iPhone took off with consumers, RIM was still reluctant to pay attention. This was in part due to RIM’s continued exponential growth in emerging markets and the multiple scandals competing for attention. RIM did, however, learn one thing. “Beauty matters,” said David Yach, RIM’s Chief Technology Officer. Though enterprise customers valued security and reliability above all, the average consumer was different, and RIM needed to start listening up.

It was August 2007, and wireless carrier Verizon was up against a wall. It needed an answer to the iPhone. Since AT&T still had exclusivity on iPhone sales, Verizon had approached RIM. They were eager to hear what Lazaridis was dreaming up next. Lazaridis introduced them to his vision for the iPhone challenger. It would be called the “Storm.” The concept for the BlackBerry Storm was a hit – one giant touchscreen that was still able to “click.” It would marry the alluring glass touchscreen so popular with the iPhone with the BlackBerry’s signature keyboard approach. When Lazaridis shared his vision with his engineering team, however, he was not met with the same enthusiasm. He had given them a deadline of 9 months, and many of the members of his senior team said it wasn’t possible.

After an intense several months, the result was as many of the senior engineers had predicted – “The device was dead on arrival.” It was torn to shreds in reviews, blogs, and the press. One reviewer wrote that typing an email on the Storm was like “an antelope trying to open a packet of cigarettes.” Besides the slow, clunky, imprecise keyboard, there was the “high infant mortality” rate of the device. Brand new devices were liable to just turn off and not be able to be re-started. Reviews characterized it as a “wannabe.” The early Storms were hand assembled and the keyboards precisely calibrated. Once mass production kicked into gear, however, the quality took a nosedive.

 

Despite the poor reviews and unreliability, Storm was initially a sales hit, as Verizon subsidized the price for customers were eager to try the new device, especially given RIM’s strong reputation. Later, however, after Storm users began returning their devices in droves, Verizon had had enough. They demanded $500 million from RIM in compensation for the faulty phones and staff time spent handling angry subscribers. Since Verizon had signed a contract accepting the phones, they had little bargaining power. The negotiation ended with Verizon accepting RIM’s concession of providing free repairs for Storms and funding device upgrades for unhappy customers. The more lasting damage, however was to RIM’s overall relationship with Verizon. Verizon would soon start backing away from the partnership, seeking their answer to the iPhone elsewhere.

Around the same time, Google began entering the smartphone playing field as well. After abandoning their own efforts to develop an all-touch smartphone (still in the research and design phase), they took a different approach. They placed their bets on playing in the operating system world, making the Android system available to any hardware manufacturer who so desired. This changed the game almost as drastically as the iPhone had, in effect adding a near-limitless number of competitor phones. When Verizon announced a partnership with Motorola and their Android phones in 2009, RIM saw the writing on the wall.

As RIM battled scandals and a whole host of new competitors, its leaders began to engage in activities outside of the company that sent the wrong message to investors, employees, and other stakeholders. Balsillie began to pursue his dream of owning an NHL franchise. He was determined to bring a team to Canadian soil. This did not sit well with NHL executives. He had two failed attempts at acquiring teams – first the Pittsburg Penguins in 2006, and then the Nashville Predators in 2007, but it was the $212.5 million deal for the Phoenix Coyotes that ultimately sealed the coffin on his NFL dreams. “He had lots of money and celebrity, but he tried to strong-arm the league as if he was outfoxing the likes of Nokia and Palm.”

From Balsillie’s perspective, “the [NHL] commissioner played the ‘Let’s get you in and then we’ll see [if you can move the team to Canada]’ card to me many times…” Balsillie wanted confirmation that he could move the team to Canada, whereas the NHL was repeatedly embarrassed by the multiple deals not going through. The NHL ended up rejecting Balsillie’s bid due to a statute that owners needed to be “of good character and integrity.” Balsillie perceived this as absurd, as multiple current or past owners had been jailed due to bribery or tax evasion, and at least one was an ex-mobster. This fiasco did little but distract Balsillie from re-defining RIM’s strategy in an increasingly crowded smartphone marketplace. Outsiders began to question his commitment and focus at a very important time for the company.

Lazaridis, too was pursuing “extracurricular” efforts in the wake of RIM’s initial success, and in doing so taking his eye off the moving target that was RIM’s strategic future. Just as AT&T’s Bell Labs had seeded funding that grew into Silicon Valley, he intended to found a “Quantum Valley” in Waterloo, Canada, giving $200 million and more to establish the Perimeter Institute. The Institute, situated at the University of Waterloo, would conduct research to “harness microscopic subatomic particles,” one of Lazaridis’s dreams.

The combination of damaging scandals, fast-rising competitors, and shiny “side-projects” left RIM flat-footed as the second decade of the 21st century dawned. In RIM’s early days, Lazaridis liked to claim that there would “always be another life raft,” whether it be a new investor, his next big innovation, or a promising customer. As the next chapter came into view, however, what he did not appreciate was that he would not be able to survive on the life raft without his partner, Balsillie. And that relationship, severely stressed due to all the issues RIM had faced and the personal betrayals they both had felt, was in no position to save them.

 

Research in Motion – Tailspin

“The two organizations reporting up to each CEO became increasingly dysfunctional silos and breeding grounds for distrust, politics, and factionalism, as layers of ambiguity and uncertainty consumed the company’s top executives.”

Organizational unraveling

The corporate culture at RIM had gone sour. RIM began with an engineer-driven, entrepreneurial culture that rewarded the brightest minds. Later, as Balsillie, Conlee, and other business executives came on, it morphed into an iconic brand at the forefront of technology. Now, as its reputation faltered and competitors nipped at its heels, working at RIM was becoming less and less of an ideal situation.

At the highest levels, there was a sense of disorganization. As a result of the options scandal, the consulting firm Protiviti was called in to assess boardroom and management practices. They encountered resistance among RIM employees, who refused to meet with the consultants, removed key passages from requested documents, prohibited them from making copies, and canceled interviews altogether. Protiviti’s report detailed a long list of issues with organizational health. Since Balsillie was ordered to step down from the board, there had been no new chairman appointed. In addition, the Chief Financial Officer position had remained vacant since the departure of RIM’s CFO during the scandal. There was no succession plan for future leaders beyond Lazaridis and Balsillie, no accountability for meeting objectives among employees, and “excessive deference” to the co-CEO’s. Most alarmingly, there was still some malpractice in issuing options to employees.

The organization was further destabilized with the departure of Larry Conlee, who had kept the engineering teams on track. Without his presence, the decision-making channels were unclear. Without someone to help resolve issues on a day-to-day basis, major problems surfaced too late, and Lazaridis and Balsillie argued openly in meetings about things like product quality and deadlines.

 

Strategic confusion

Adding to the stressors was the failure of the PlayBook, RIM’s attempt to answer to the iPad. The PlayBook’s customer segment, value proposition, and overall branding was incredibly unclear. Rushed to market, it lacked many of the features (like applications and email) that users typically valued in BlackBerrys, or that market research showed they valued in a tablet. Financially, RIM could no longer mask its over-arching downward trends with its growth in emerging markets. In 2011, RIM announced that it expected a weaker outlook for the year than had been predicted. In a period of two years, Verizon had gone from buying more than 95% of its smartphones from RIM, to buying 5% from RIM.

If Balsillie and Lazaridis could agree on one thing at that point in time, it was that RIM needed a major life raft. The problem was, however, that they couldn’t agree on what that looked like. Lazaridis was convinced that the future lay with BlackBerry 10. He had faith in a new company that RIM had acquired who he hoped would revamp the operating system for the device. Balsillie, however, was sure that RIM’s path forward was in becoming a software and services business. “Lazaridis and Balsillie pulled the company in different directions with opposing strategic ambitions.” In the end, time effectively ran out for the pair of iconoclasts who had together pioneered the smartphone market.

 

The end of an era

2011 was coming to a close, and things were looking continually darker for RIM. There had recently been a 72-hour network blackout and RIM had been forced to write down $485 million on PlayBook inventory. Balsillie had blown up at the board and at consulting group Monitor, who had been brought on at the board’s recommendation to help provide strategic clarity. It was becoming more and more clear that the CEOs’ relationships with one another had all but ended, and that their chances of extricating RIM from its current situation were slim to none. Two members of the board visited Balsillie and Lazaridis separately, suggesting they begin searching for replacements. The CEOs, however, had been meeting for weeks with the realization that their time at RIM was ending. They agreed they would step down, and that Thornsten Heins, the current leader of RIM’s hardware division, would become CEO. The change, announced on January 22, 2012, would not bring shareholders and employees the relief and clarity they craved. Announced as handpicked by Balsillie and Lazaridis in the official press release, from the beginning Heins was unfavorably viewed by those who were eagerly calling for change at the top. Heins took the reins and placed his bets on BlackBerry 10, which would fail to distinguish itself in a now incredibly crowded market of touchscreen smartphones. Heins did not last two years as CEO.

Though both Balsillie and Lazaridis initially agreed to remain on the board and play significant advisory roles, both resigned altogether soon after stepping out of their CEO roles. Seeing RIM being carried in different directions than they had envisioned was too painful to endure from the sidelines. What they had built no longer existed, and the two visionaries retreated to their private lives and passions. Sadly, the men who were once so close have only spoken on one occasion since leaving their positions at RIM.

Turnaround expert John Chen is the current CEO of “RIM,” which was renamed “BlackBerry” under Heins. BlackBerry, no longer a major player and in the process of continuing to reinvent itself, currently holds less than 1% market share of the global smartphone market.