RIM, the picture of a top-heavy company
If Research In Motion is going to take a scalpel to its work force, it should start at the top.
Monday's move to cut 2,000 jobs is designed to cut costs--RIM calls it a "prudent and necessary step for the long-term success of the company." But for RIM to remain in the game as a major player in the wireless industry, it needs to look at its management structure.
With two chief executives and two chief operating officers, RIM is the epitome of a top-heavy company. You've seen the consequences over the past few years: frustratingly slow innovation, shrinking market share in its core North American market, the lack of a new smartphone in nearly a year, and a half-baked tablet panned by critics (although CNET's Donald Bell was more generous in his review).
"The structure they've had in place has caused them to be a laggard in terms of new products," said Matthew Thornton, an analyst at Avian Securities.
RIM's sluggishness when it comes to innovation has hampered its ability to grow, allowing quicker players such as Apple and Google to set the pace. As a result, RIM's share of the global smartphone operating system market in the first quarter fell to 13 percent from nearly 20 percent a year ago, while Android's share has quadrupled to more than a third of the market.
Internally, RIM has failed to innovate beyond its e-mail platform, and instead relied on acquisitions to bulk up on features such as an improved browser or mobile operating system. But taking over a company requires time to integrate into the business, further hobbling an already slow company.
And Wall Street is calling for blood. One investor was readying a proposal to examine the dual-CEO structure, but withdrew it after RIM compromised and vowed to set up a committee to look at the management structure. Letters from RIM executives posted on Boy Genius Report lambasted the direction of the leadership, noting the inefficient nature of having both Jim Balsillie and Mike Lazaridis running the company.
RIM's recent strategy of buying companies to augment its technology has been one of catching up to its rivals. The company purchased Torch Mobile in August 2009 to get its WebKit browser, a standard feature on the iPhone and Android devices. The first phone to use the technology, the fittingly named BlackBerry Torch, didn't come out until a year later. Likewise, the much-lauded QNX software which powers the PlayBook won't show up in smartphones until next year.
RIM to lay off 2,000 employees
RIM misses on revenue, announces layoffs
Anonymous letter bemoans RIM management woes
RIM CEOs defend problematic PlayBook launch
The problems aren't just recent. The original BlackBerry Bold was plagued with delays before it launched in 2008. Its first touchscreen phone, the BlackBerry Storm, suffered from a number of glitches when it launched later that year. The Torch was the last phone RIM released. The next one, the BlackBerry Bold Touch, is now set to launch in September after initially getting a summer launch target.
"Their execution has been subpar," Thornton said.
Despite the problems and a stock that was beginning its downward trajectory, the dual CEOs won an increase in their pay. Balsillie and Lazaridis both saw a 12 percent increase in their total compensation, with each making $5.1 million, including base pay and stock, for the fiscal year ended Feb. 26. The three operating chiefs and chief financial officer each took home a little less than $2 million.
Since the fiscal year ended in February, the stock has fallen 61 percent and trades at about $27.
Supporters say it's easy to criticize the two when the company has fallen on tough times, and that many forget Balsillie and Lazaridis were responsible for building RIM into a powerhouse of the wireless industry. Lazaridis founded the company in 1984 and Balsillie has served as co-CEO since 1992.
"These are two very smart guys," Fared Adib, head of product development for Sprint Nextel, said last week to a roundtable of reporters. He added he wouldn't underestimate their ability to come back from their recent struggles.
The two were eager to defend their legacy during the company's earnings conference call last month.
"I believe, and I think Mike would agree, that neither of us could have taken the company this far alone, and that completing the transition and taking the company to the next level of success and growth is also something neither of us can do alone, and something that would be incredibly challenging for someone from outside the company to manage successfully at this critical time in RIM's development," Balsillie said.
Lazaridis: "I absolutely believe that the complementary skill sets and good working relationship between Jim and I led to the success of RIM over the past two decades."
Dual CEOs: A mixed history
Still, the corporate world is littered with the failures of companies trying to juggle too many executives. In January, Wipro Chairman Azim Premji removed dual CEOs Suresh Vaswani and Girish Paranjpe as the company faced increasing competitive pressures.
MySpace faced a similar situation when its one of its co-presidents, Jason Hirschhorn, departed, leaving Mike Jones to run the struggling social networking business. MySpace was sold to Specific Media for $35 million last month after News Corp. purchased the company for $580 million in 2005.
There have been exceptions that worked out. SAP has had a history of running its business with two CEOs at the helm. In fact, the company went from a co-CEO structure to a single chief when Leo Apotheker took over in 2009. But Apotheker's disappointed during his short tenure, and the company appointed Bill McDermott and Jim Hagermann Snabe as the new co-CEOs.
Motorola's two CEOs, Sanjay Jha and Greg Brown, also managed to co-exist amicably. But the two executives knew they were working toward a separation. The company split into Motorola Mobility and Motorola Solutions at the beginning of this year.
Improved focus needed
RIM, which has long been known for the ease of use of its BlackBerrys, failed to understand that it needed to step up its game even further for the touchscreen smartphone and tablet markets. Even the next-generation software powering the PlayBook lags behind Apple and Android, according to Gartner analyst Ken Dulaney.
"They need management that, like Apple, sends its engineers back to the drawing board when it's not an A+ interface," he said. "A B+ effort just isn't good enough."
In addition, RIM appears to be taking its overseas markets granted after several quarters of strong growth, Dulaney said.
"The question is did management their eyeballs off the need to drive down deeper [in the international markets]," he said.
RIM did make a minor management change Monday. The company said one of its chief operating officers, Don Morrison, who was on temporary medicine leave, will retire. The other two COOs, Jim Rowan, who focuses on operations, and Thorsten Heins, who focuses on product and sales, will take expanded roles at the company.
RIM enters a pivotal period over the next six to 12 months as it attempts to manage the transition from its older BlackBerry operating system to QNX for its smartphones.
"If they drop the ball in a situation like this, it proves to us that management has to be replaced," Thornton said. "They've had too long and too many chances."