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Case Study: BlackBerry and Thorsten Heins
[Editor's note: Since this case study was posted, two faculty members have also offered their insight to the BlackBerry situation. Read their comments below and keep the conversation going!]
BlackBerry CEO Thorsten Heins was hired in January 2012 with the mission of turning around the company, which was facing numerous challenges: a rapidly decreasing market share, falling revenues, and cratering investor faith. Heins went about cutting costs—including the layoff of more than 5,000 workers in May 2012—scrapped plans to make the popular BlackBerry Messenger service available on non-BlackBerry phones, and focused the company on the critical launch of its next iteration of handsets, BlackBerry 10. The phones came in two versions: first launched was a touch-screen phone designed to attract mass-market consumers, followed by version with a keyboard for traditional users. Neither could change BlackBerry's fortunes, though, as the company continued to post disappointing earnings. Heins stepped down on November 4, a few weeks after the company announced it would be laying off 40 percent of its global workforce.
So where did Heins and BlackBerry go wrong? Did limiting the reach of BlackBerry Messenger limit his market? Was the decision to release a touch-screen version before the phone with a physical keyboard—a favorite of the business class—a strategic error? Should he have re-focused on enterprise users?
Willy Shih, Robert and Jane Cizik Professor of Management Practice: The seeds of BlackBerry’s problems were sown well before Heins took on the CEO role. BlackBerry’s system had its roots in a mobile data architecture that came out of paging networks. By developing complimentary software that connected to email systems like Microsoft Exchange, it was able to pioneer things like push email with its BlackBerry Enterprise Server. This gave them a first-mover advantage, but as technology improved and data capabilities on wireless voice networks evolved rapidly and took off, the advantage turned to a burden with BlackBerry unable to transition to a more modern system architecture. They were locked into their old architecture as competitors like Apple built a device plus a third party app model that brought a much broader and appealing range of capabilities to users. By the time BlackBerry started making changes, even before Heins arrived, it was too late. The network effect from the Apple and then the Google Android ecosystems had overwhelmed them.Alan D. MacCormack, MBA Class of 1949 Adjunct Professor of Business Administration: Blackberry was in a jam well before Heins stepped in. By the time he took over, the firm's fate was mostly sealed. I don't believe there is anything he could have done to reverse the decline. In essence, Blackberry fell victim to a challenge that affects many companies in fast-paced, technology-based industries. Once they achieve market leadership, they focus their innovation efforts on technologies and features that preserve the status quo, at the expense of searching for (and investing in) the kinds of novel breakthrough ideas that originally propelled them to the top. Atari, Wang, Polaroid, DEC, the examples are so numerous it is actually harder to point to firms that have bucked this trend, sustaining success over multiple generations of technology. Microsoft and IBM perhaps? Yet no one is pointing to them as bastions of novel and breakthrough ideas!
It's easy to point to specific design decisions as the cause of Blackberry's demise. They ignored the potential of touch screens, believing consumers demanded a keyboard on smart devices (just like Polaroid believed consumers needed to instantly print their digital photos—when was the last time you printed a photo!). They kept their platform closed, avoiding the design and distribution of public Application Programming Interfaces (APIs) that would allow other firms to develop software to complement the firm's devices. But the problem wasn't with one or two design decisions—it was likely more deeply rooted in its processes and culture, a pattern I've seen affect many successful firms. They avoid novelty, eliminate variety, dismiss ideas that challenge the status quo, and focus on elaborate plans and execution infrastructures, in an environment more suited to trial and error learning. Ultimately, their core businesses are so large and successful, they have to be protected at all costs (sound familiar?).
So what could Heins have done? Perhaps focus the company more sharply on areas where its innovative capacity remained distinctive. Blackberry understands the demands of security conscious corporate customers better than most, and their software for handling corporate email seems second to none. But hardware? That's a tough business. I love Samsung's devices, but my bet is Google gains the most from Android's success. So finding a way to divest its hardware business may have been wise. But I'm not sure any one move would have been enough. Perhaps the best he could have done is to find a buyer for the firm that complemented the firm's assets and capabilities, providing resources, skills and cash to help the firm get back on its feet (and at a time when the firm was worth more to a buyer). Last year, my money was on Microsoft. Windows phone has never lived up to expectations, and the firm has a great understanding of the corporate IT user. But with the Nokia acquisition, that option may now have expired. So shrinking back to being a niche player may be all that's left.
It's a fascinating question, and I don't pretend to know what strategy would have been the right one at the time. But for those of you interested in continuing the debate, take a look at a recent case I wrote with Chris Kemerer and Brian Dunn from the University of Pittsburgh, in which we prompted thinking through the various options that Heins faced in January 2012. You can find it here.
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