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BlackBerry maker RIM cultivates focus

The company is expanding manufacturing capacity rather than retrenching, defying today's economic gravity. Harvard Business School asks: What's Research In Motion doing right?

When asked to discuss his management mistakes--and what he learned from them--Jim Balsillie, co-CEO of wireless highflier Research In Motion, thought for a bit and then declined the invitation to confess.

"We've made very few mistakes," Balsillie said. And no use dwelling over them, he said; what is important is what's happening now. At another point in the interview, he said, "This company has always made perfect technical bets because we do our homework." And after that, "I've only failed at one thing in my life." But more about that last item later.

Some would call his attitude arrogant. And several company analysts suggest that arrogance is about to be wiped away by a flood of new competition bearing down on the Waterloo, Ontario, company--or perhaps by a slowdown in information-technology spending, which is dumping water on business plans throughout the technology sector.

Maybe. But RIM's track record is a string of successes dating back to its founding in 1984. Research In Motion makes a variety of wireless hardware devices and software but is best known for the popular BlackBerry gadget. The BlackBerry is a palm-size device that includes a small keyboard, often operated by a person's thumbs. Subscribers can send and receive e-mail and other information wirelessly, without the need to plug in a laptop, connect to a network and download. It's always on.

Almost three years in the market, the tiny BlackBerry has become a giant source of revenue. In the June quarter, BlackBerry sales totaled $50 million, accounting for 65 percent of overall sales. The BlackBerry has subscribers in approximately 10,000 companies, according to RIM.

The more experienced I get the more I realize that great focus is an excellent competitive strategy. Balsillie (pronounced Ball-sa-lee), who is chairman and co-CEO with founder Mike Lazaridis (together they own 23 percent of the company), has been instrumental in driving RIM from a $400,000-in-sales enterprise when he joined in 1992 to a company that in its last fiscal year earned $8.5 million on sales of $221.3 million--a 160 percent jump in revenue from the previous year. In the June quarter, RIM earned $3.8 million on sales of $77 million, up 184 percent, excluding a one-time write-down for investment declines.

Those sparkling results--and the fact that RIM is actually expanding manufacturing capacity rather than retrenching--appears to defy the economic gravity of the day. What's going right at RIM?

"Focus," Balsillie said. The company's expertise is developing hardware and software for sending packets of information over a wireless radio network. RIM has not tried to create an operating system, become an ISP or jump into sexier technologies, such as the circuit-switch technology used by your cell phone. Competitor Palm, Balsillie said, is an example of a company that lost focus by trying to do too many things at once.

"The more experienced I get the more I realize that great focus is an excellent competitive strategy," he said.

Early on, Balsillie and Lazaridis adopted an "entrench and extend" strategy, attempting to turn potential competitors such as Intel and IBM into allies by incorporating their technology rather than competing against it. For example, RIM's wireless devices tap into corporate e-mail and data via Microsoft's Exchange and IBM's Lotus Notes platforms.

"We believe in very, very aggressive cultivating partnerships to entrench and extend--that idea was magical," Balsillie said.

And RIM has always targeted corporate customers, leaving partners such as EarthLink and America Online to navigate the tricky consumer market.

But now Balsillie's focus could become somewhat blurred. RIM has encountered big-name competition through the years, but not much in competitive products. Think Motorola's Envoy--a technologically out-there product that made little headway in the market. And with the BlackBerry, introduced in January 1999, RIM has enjoyed the market more or less to itself.

But the wireless warriors are mounting another charge, some on the back of the emerging 2.5G (voice-and-data) networks that, like the BlackBerry, enable always-on devices. Enter the Palm VII wireless device, Motorola's Talkabout and Timeport, the Compaq iPaq and a slew of "smart phones" that promise to marry voice and data.

I've never screwed anybody and never lied--and I still have all the partners I've worked with. Balsillie acknowledged that some very strong companies are coming after him, and RIM isn't immune to the forces of competition. "There is no such thing as an absolute competitive advantage," he said. But the company has fought off Nokia, Motorola, Palm, Handspring, Ericsson and the like in the past. The reason? No one else is close to the depth of wireless packet expertise RIM has developed.

Most of the competition, he said, "doesn't know how complex this world is."

When it comes to competition, Balsillie and his team believe they have perched on a perfect niche in the market--a ledge too high for newcomers to scale but small enough to dissuade the big birds from landing.

The good news is that analysts see the wireless data market continuing to grow at a healthy clip in the next three years, enough to support more than one company. RIM doesn't have to keep dominating to win.

And RIM isn't standing still. To help grow the business, the company is planning product launches in Europe this fall. In fact, Research In Motion is playing its own 2.5G network card, just now beginning to ship GSM-based BlackBerry devices in Europe. The move means RIM products will run on 80 percent of European wireless networks--a huge potential playing field. A 2.5G BlackBerry device that encompasses voice as well as data will appear quickly, the company says.

In addition to extending its reach, RIM is marching to increase the usefulness of the BlackBerry itself beyond simple receiving and sending of messages. In June the company released a calendar application that allows a person's calendar to be updated instantly over the air. It also partnered with AvantGo and Neomar to provide customers with business-critical information.

On the day of this interview, however, there was a disturbance in the RIM force. AOL announced it was cutting the price of its RIM-based AOL Communicator--a bust in the market--from $330 to $99 and increasing the monthly subscription fee to $29. Balsillie said lackluster sales were not the fault of the hardware or indicative that consumers don't want the service. It was AOL's initial pricing model that was wrong.

"They have now decided to subsidize the product; that was wise," Balsillie said. "They marked it up before and we strongly disagreed with that. They wanted to do everything--billing, provisioning, the app, the care. They didn't take advantage to partner."

It's not just Motorola and other competitors that are turning up the heat. The dour economy has already eviscerated RIM's stock price from a 52-week high of $132 to a recent trade near $18. More potentially worrisome: IT spending is drying up across the board. So RIM's sales force hammers home to prospective buyers the proposition that the BlackBerry delivers an impressive return on investment.

"We're fortunate; we've weathered it well," Balsillie said. "But you have to work hard to communicate that value proposition."

In day-to-day management, Balsillie said, the economy has changed some things. "Everything is a little tougher. You watch costs, push sales a little harder. But we're well capitalized. (Cash, cash equivalents and marketable securities were $698.6 million as of June 2.) We've got great products and we have a leadership position."

Every Monday morning, 90 staff members gather for a meeting. Each staffer gets one minute to talk about what he or she will be doing in the coming week. RIM's corporate culture encompasses hard work, integrity and morality, instilled through the actions of the leadership, Balsillie said.

"We believe that bright people are more than prepared to work very, very hard, but they have a high sense of equity," he said. "That equity is violated when you have to put up with garbage. You can't tell them, 'Go bust your ass, I'm golfing for the next three days.' The world doesn't work like that.

"I've never screwed anybody and never lied--and I still have all the partners I've worked with."

Early on, Balsillie admitted to "having only failed at one thing in my whole life." And that was in a communications class at Harvard Business School. His fault may have been communicating too much.

"I believe in being honest."

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© Copyright 2001 President and Fellows of Harvard College