RIM Disappoints Again Because It Continues To Be Product Driven

No surprise. RIM announced bleak results in its much-delayed earnings call today. Revenues are down 7% from the previous fiscal year. Fourth quarter results are dismal with revenues plummeting 19% from the previous quarter and quarterly loses totaling $125 million. Additionally, co-founder Jim Basille, resigned from the Board of Directors, and the CTO and COO of Global Operations are gone. More significantly, CEO, Thorsten Heins (appointed just over 2 months ago) has discontinued guidance on the stock, and said “The company expects continued pressure on revenue and earnings throughout fiscal 2013.”

Why is this no surprise?

RIM is product-driven rather than market-driven, the company has been on a downward trajectory 5 quarters in a row, and when Heins, the then COO, was appointed CEO 9 weeks ago, he said no major changes were necessary. Well, during the earnings call today, Heins reversed himself and said, “It is very clear to me that substantial change is what RIM needs.” This sudden reversal after a little more than two months, while disturbing, is actually a good sign. It shows that he finally understands that RIM has some serious problems. That is an important first step to finding a solution.

The bad news

According to Bloomberg, RIM’s market value has fallen nearly 80% since its high of $83 billion three years ago. This means shareholders have lost roughly $70 billion in value.

Will he be able to reverse the decline?

Time will tell if¬†Thorsten Heinz is the right man for the job. His technical background, with little or no marketing experience, very close relationships with those that led RIM down the wrong path, and initial naivety (no major changes are necessary) tend to fuel doubt. His realisation that “substantial changes” are necessary offers hope that he might be able to help right the listing ship.

Finding a solution will not be easy.

Since its inception RIM has been a product-driven company. Instead of listening to the marketplace and hiring people with sufficient marketing expertise to properly brand and communicate the benefits of their products, they focused on making better mousetraps. In the beginning, RIM made great mousetraps that were so addictive many jokingly called them “crackberries.” In recent years, however, the market has shown a preference for products from competitors that also know how to market them.

Formidable competition.

Apple’s iPad continues to increase its lead over the RIM Playbook and other tablets that have been introduced to de-throne them. Apple and Android-platform phones continue to dominate the smartphone market. Making good products gets you to the poker table, but it only takes you so far. To win, RIM has to focus on the users of the mousetraps and give them more of what they want. After the Playbook debacle, RIM terminated their ad agency and witnessed the exit of their top marketing executives. Upon being named CEO,Thorsten Heinz said one of his top priorities is to hire a strong CMO. As of this writing, the CMO position has not been filled.

What should RIM do? 

While it is important to hire a talented CMO with high-tech experience, it is perhaps more important for Heinz to begin transforming the culture of RIM from its product-driven technical orientation to a market-driven customer focus. That is not going to be easy because it never is. Corporate cultures and habits tend to be firmly ingrained in the fabric of the organisation. Even so, it will be easier than following the same path that has led to declining sales and red ink. Better products are a must, but the focus should be on “wowing” the marketplace rather than pleasing RIM insiders. When I ask my friends that use Blackberry’s to tell me why they like them, they all mention the buttons. The buttons are different than the touch-screen interfaces of Apple and Android platform devices. Maybe buttons aren’t the complete answer, but RIM needs to determine what customers want that they are unable to get in competitive products. Once it identifies these capabilities, it needs to incorporate them into RIM products. When competitors zig, RIM needs to zag much the same way that Nintendo targeted a different audience with a unique controller on its Wii products.

The lesson for companies

The lesson here is that to be successful in an increasingly competitive marketplace, being customer focused, or market-driven, improves your chances for success. An inside-out product-driven approach can work for a while, but when serious competition enters the market, the ones with better marketing prowess are likely to win more often. To date, RIM has failed to learn that lesson. Perhaps the wake up call of the past 5 quarters that culminated in today’s earnings report will accelerate the learning process.

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