978-1259913747 Make Or Break At RIM Launching Blackberry 10 Case

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Structure of the Case

Make or Break at RIM is the story of a technological leader in the market and how it lost dominance.

Once synonymous with mobile e-mail and security, RIM was drastically affected by the actions of com-

petitors and their ability to create superior value while chipping away at the differential value brought

by other smartphones and RIM devices—most notably, Apple’s preferred form factor and the App

Store, and the open-source Android operating system. The case opens with the appointment of a new

CEO following pressure from shareholders for a leadership change.

Just days before the launch of the BlackBerry 10 with its new software architecture, and following

a series of acquisitions to bolster resources and capabilities, Thorsten Heins wonders “Will this be

enough to rescue RIM?” If not, what are the strategic alternatives for the firm?

The case opens with the background of RIM and a description of the industry, as well as the technol-

ogy upon which RIM based its success. It follows chronologically how the industry shaped up, includ-

ing trends and competitive dynamics. Embedded in the teaching notes are concepts from Porter’s five

forces model and RBV, with attention on economies of scope, scale, and the learning curve in the dis-

cussion of strategic options. The case can also be used to demonstrate first-mover advantage and, in

the absence of an isolating mechanism, how this is temporary. The case can also be used to illustrate

product life cycles, saturation of segments, and how pressure on margins occur over time.

Suggested Answers

AnAlysIs: Focus on ExtERnAl And/oR IntERnAl EnvIRonMEnts

1. What trends in the enterprise market are affecting BBRY (BlackBerry)?

BlackBerry’s annual report states, “Historically, the wireless communications market has been highly

segmented. Where previously the market was segmented into distinct enterprise and consumer/pro-

sumer segments, the market has evolved in recent years and there is now significant overlap between

the segments. The enterprise market is now characterized by a combination of enterprise-deployed

The company openly acknowledges the concern about this in their core market. “These consumer

devices are supported in a corporate environment by IT departments for access to corporate messaging

and data applications. The Company has encountered challenges adapting to the ByOD movement

Teaching Note —Make or Break at RIM: Launching BlackBerry 10

2. What is happening with demand in the smartphone market?

One of the things happening in the corporate environment is saturation of power users reducing

demand. The people who needed to be connected to e-mail the most, enterprise customers, already

have a device. In the u.S., 78 percent of the adult population between the ages of 15 and 64 already

3. What usage trends are affecting demand for smartphones?

Increasingly, the smartphone is used less and less as a phone. As the device has gained functionality

through application, the amount of time spent talking on the phone is relatively small compared to our

actual total usage. The results of one study, where dataset 1 comprises a mix of 33 high school students

and knowledge workers and dataset 2 comprises a group of 222 users of diverse demographics and

4. What is the financial strength of RIM? What do the numbers tell us?

Exhibit 2 in the case shows some clear cause for concern. Despite the increases in efficiency stated by

Mr. Heins and working capital, the majority of items that would point to future financial health dem-

onstrate an inverted u. While students will easily look at revenue, the trend in gross margin is even

more concerning. After peaking in 2006, it has shown a steady decline. Operating margin lags this as

none of the profitability or yearly growth indicators trend in an optimistic direction. DSO can

also be an area of concern since this may be another indicator of slowing demand. A departure to an

Teaching Note —Make or Break at RIM: Launching BlackBerry 10

of McGraw-Hill Education.

the channel, it should show up in receivables. An alternative explanation is that they are gaining more

channel partners, but ones that take longer to pay, such as international. That is a rational explanation

however, while BBRy has 88 DSO, Microsoft is at 64, Motorola has 65, and Apple has 20.

In summary, what Mr. Heins may be saying is, “Look at the one number on the balance sheet which

is not abysmal.”

FoRMulAtIon: Focus on BusInEss,

coRpoRAtE, And GloBAl stRAtEGIEs

5. How has the smartphone industry changed, and is this an attractive industry?

One of the largest changes and determinants of profitability was probably the open licensing of

Android along with Google Play. Firms wanting to enter the handheld market for hardware sales for–

merly had to worry about developing an operating system. This operating system used to be a differ–

entiating factor. With Android being available under an open-source license in 2007, it had a number of

effects on the forces acting in the industry. First, it lowered the barrier to entry to makers of electronics.

Instructors can also draw attention to the role of strategic complements at the firm and industry

level. The App Store was a complement to Apple that significantly increased value to the iPhone.

Google Play and Android open-source OS now level the playing field at the industry level. Because of

the value brought by the apps and phone combination, firms in the industry without a similar breadth

of apps cease to be relevant contenders.

There may also be some interest in what BBRy believes are the barriers to entry as stated in their

40-F filing. These sorts of items can often be used during discussion to see if the focal firm has a realistic

view of how secure their position is in the marketplace. Such items include the following:

Teaching Note —Make or Break at RIM: Launching BlackBerry 10

of McGraw-Hill Education.

• Scarcityofhighlyqualifiedpersonnel

• Significantcapitalrequirements

• Significantdevelopmentcostsandtime-to-market

• Manufacturingexpertise

• Regulatorybarriers,suchasFederalCommunicationsCommission(FCC)approvaland network

certification

• Marketandbrandrecognitionofindustryleaders

6. What is BBRY’s business strategy?

Broad differentiation. BlackBerry wants to appeal to the masses and appears to focus on two areas.

The first is security. They are arguably the leader in security and have implemented several layers to

assure they keep this lead. Second, they want to offer a fully integrated end-to-end offering. For the

There are, however, some complications with this strategy. Their sources of differentiation are not

necessarily as valued by the mass audience. With 54 percent of enterprise decision makers allowing

ByOD, the implication is that these people feel the security offered with alternative devices is good

enough. While BBRy was the leader in security and reliability, other firms such as Apple, who had

7. What is BBRY’s source of competitive advantage?

Exhibit Tn-2 can be used to illustrate BBRy’s resources and capabilities to determine whether a firm

has temporary or sustainable competitive advantage or simply has achieved competitive parity. While

certain points may be open to debate, these are the elements thought to be related to commercial suc-

cess in the industry. unfortunately, in many of the cases BBRy has only achieved competitive parity.

Other sources of differentiation, and the value they bring, may be dependent on the segment you

wish to pursue. For example, for enterprise customers with deep security concerns, a fully integrated

solution may be necessary. For your average consumer or firms that allow ByOD, it’s not as critical.

Teaching Note —Make or Break at RIM: Launching BlackBerry 10

of McGraw-Hill Education.

Other things like push-based architecture fall into the same class. Something like efficient bandwidth

use or end-to-end security fall into a category of “Does it meet the user’s minimum expectation?” If the

benefit is not perceived by the customer, then it doesn’t matter. Security and efficiency is valued, but

competitors like Samsung and Apple have things figured out well enough that the quality of service

for end users is good enough.

IMplEMEntAtIon: Focus on REcoMMEndAtIons

And How to IMplEMEnt tHEM

8. Which of the options should Mr. Heins pursue and why?

The first option is one that suggests the firm stay the course and let the current strategy play out. They

had made a number of technology acquisitions and it will likely take some time for these to become

fully integrated. QnX is a relatively new operating system and there are a few product launches on the

horizon. However, this in itself will probably not appease shareholders. Pressure to split the firm up,

sell and get rid of top management is likely unless constituents believe the firm has a clear strategy.

unfortunately, after being a leader at the beginning of the industry, they have been reactionary in recent

years.

Another possibility is the licensing of their technology. With 77 million subscribers and some brand

equity, it is likely that another handset provider would add this to their current lineup. This could

spawn more innovative handsets for the platform and lead to a bigger subscriber base. The concern

here would be their ability to continue to compete in the handset business. It is likely they already have

A natural extension of this would be to entirely exit the manufacturing of their handsets. Many

other firms contract manufacture, and with the acquisition of The Astonishing Tribe, perhaps they

should simply focus on design, distribution, and service. The follow-up discussion could be around

Teaching Note —Make or Break at RIM: Launching BlackBerry 10

of McGraw-Hill Education.

who to partner with, and specifically what activities you should perform. For example, if I outsource

to Flextronics or Foxconn, BBRy will continue to do all the activities in the value chain. However, if I

were to have an alliance with someone like Samsung or HTC, it may be possible to achieve greater effi-

ciencies in distribution or service by having them perform these functions as well. Discussions of this

nature could include a question of why an alliance with Samsung may be a superior option to simply

licensing the BBRy OS. In the event there needs to be asset specific investments to optimize the value

chain, it leads us to a closer arrangement, such as exclusive licensing or if more investment is necessary,

an alliance.

The last option may be a sale of the firm. If this is a preferred option, the discussion may be around

why the BBRy would be better in the hands of another firm than on its own? What resources or capa-

9. Why did Google buy Motorola?

Instructors may wish to use this as a last question with or without discussion. On August 15, 2011,

Google announced an agreement to acquireMotorola Mobility, based in Libertyville, Illinois, for $40

per share.

The company stated that the benefits of the deal were that Google and Motorola Mobility together

would accelerate innovation and choice in mobile computing. Consumers would get better phones at

One potential explanation could be in the chronology of events. Google helps develop an open-

source operating system. Firms adopt the operating system because it creates an ecosystem with apps.

At the time, Google is not a hardware maker, and handset makers are not software developers. The

Recent Update10

The case ends on Tuesday, January 29, 2013, a day before RIM launches BlackBerry 10 (i.e., several

new devices and a new operating system). With the product launch also comes the announced that

RIM will formally rebrand itself as BlackBerry.

Teaching Note —Make or Break at RIM: Launching BlackBerry 10

Launching BlackBerry 10 was not a successful turnaround event for the company. The following

months saw a further decline in sales and share price.

the 600,000 mobile devices issued by the u.S. Department of Defense are BlackBerrys; President Obama

is also a BlackBerry user), there is likely to be close scrutiny and potential pushback from a Lenovo

buyout attempt of BlackBerry.

Additional Resources

Optional Topics for Discussion

An additional topic for discussion could be corporate governance. Why did it take a shareholder

revolt to remove the CEO? Why were the ousted CEO and Co-CEO allowed to choose the successor?

Teaching Note —Make or Break at RIM: Launching BlackBerry 10

ExHIBIt tN-1 Factors Affecting the Profitability of the Smartphone Industry

Factors Leading

to…

Threat of New

Entrants Power of Suppliers Interfirm Rivalry Power of Buyers

Threat of

Substitutes

High threat Little differentiation

Many competitors

Retail channels and

Moderate threat Revenues to handset

assemblers are not

essential since they

participate in broader

electronics assembly

Low exit barriers for

firms with multiple

lines (i.e., Samsung),

but this is a core

business for many

firms

Teaching Note —Make or Break at RIM: Launching BlackBerry 10

ExHIBIt tN-2 VRIO Analysis of to Determine Blackberry’s Competitive Advantage

BBRY’s Resources and Capabilities

… are they?

Valuable

Rare

Costly to

Imitate

Organized to

capture value

Excellent customer care ? üüü

Connectivity to personal applications (vs. enterprise) ü ü ü

Teaching Note —Make or Break at RIM: Launching BlackBerry 10

ExHIBIt tN-3 Top Five Countries Smartphone Shipments and Market Share,

2013 and 2017 (units in Millions)

Source: IDC Worldwide Mobile Phone Tracker, March 4, 2013.10

Country*

2013 Unit

Shipments

2013 Market

2017 Unit

Shipments

2017 Market

2017/2013

Growth

1. China 301.2 32.8% 457.9 30.2% 52.0%

2. USA 137.5 15.0% 183.0 12.1% 33.1%

Additional Exhibits

Teaching Note —Make or Break at RIM: Launching BlackBerry 10

Endnotes

1. 2012 40-Ffiling. From http://us.blackberry.com/company/investors/documents.html, accessed 30 May 2013.

2. Hempel, J., (2013), “Inside BlackBerry’s last stand,” January 30. http://tech.fortune.cnn.com/2013/01/30/

blackberry/.

3. 2012 40-Ffiling. From http://us.blackberry.com/company/investors/documents.html, accessed 30 May 2013.

4. Blodget, H. (2012), “Actually, the uS smartphone revolution has entered the late innings,” Business Insider,

September 13, accessed 31 May 2013 from http://www.businessinsider.com/us-smartphone-market-2012-9.

5. “Strong demand for smartphones and heated vendor competition characterize the worldwide mobile

6. Falaki H., et al., 2010, “Diversity in smartphone usage,” Mobisys ‘10, retrieved from http://research.microsoft.

com/en-us/um/people/srikanth/data/mobi155-falaki.pdf.

7. Kluger, J. (2012), “We never talk anymore: The problem with text messaging,” time, August 16, accessed

May 31, 2013 from http://techland.time.com/2012/08/16/we-never-talk-anymore-the-problem-with-text

-messaging/.

8. RIM servers and software allows IT departments full control over the corporate side (following Balance) of

the smartphone.

9. “Facts about Google’s acquisition of Motorola,” Google press release, accessed June 1, 2013, from http://

www.google.com/press/motorola/.

10. “Lenovo approaches BlackBerry,” the wall street Journal, October 18, 2013, http://on.wsj.com/17woMcp.

11. “Smartphones expected to outship feature phones in 2013,” Business wire, March 4, 2013,