Bowing to Critics and Market Forces, RIM’s Co-Chiefs Step Aside
The two men, in developing the innovative device that was the first to reliably deliver e-mail over airwaves, turned a tiny Canadian company into a global electronics giant. But they are stepping aside after disappointing investors and leaving customers wondering whether RIM still has the ability to compete, and perhaps even survive, in the rapidly changing markets for smartphones and tablet computers.
Stiff competition from the Apple iPhone and phones using Google’s Android software drastically eroded RIM’s share of the American smartphone market to about 9 percent in the third quarter of 2011 from nearly half the market two years earlier, according to Canalys, a market research firm based near London. The company’s stock price reflected that by dropping about 75 percent in the last year.
But while Mr. Balsillie and Mr. Lazaridis, who have become the targets of some disgruntled shareholders, are stepping aside, investors and others looking for changes in the company’s strategy may be disappointed.
The company named Thorsten Heins, currently one of RIM’s two chief operating officers, as chief executive. He pledged during an interview on Sunday to follow the strategy Mr. Balsillie and Mr. Lazaridis set in place.
Mr. Heins said he was staking the company’s revival on a new line of phones and a new operating system known as BlackBerry 10. Over the last year, that project has run into a series of delays. The new phones are not expected until the end of 2012, almost five years after the appearance of the first iPhone.
RIM has many other problems, including its PlayBook tablet computer, which lacked crucial features like e-mail when it was introduced; it is now being sold at prices below RIM’s manufacturing cost. But Mr. Heins echoed his predecessors when he said that RIM was, in fact, still a success story.
“We are still very, very convinced that this was the right path to go,” Mr. Heins said. “Now, were there bumps in the road? Sure, but with the kind of growth we had it is not uncommon to hit bumps in the road.”
Barbara Stymiest, a former chief operating officer of the Royal Bank of Canada, will become chairwoman of the company. RIM’s share price rose this month after a report that Ms. Stymiest, who has no background in electronics or consumer products, would become chairwoman.
Mr. Lazaridis, who co-founded RIM with a childhood friend in 1985, will become vice chairman and head a new “innovation committee” of the board. He said in an interview on Sunday that despite his changed status, he intended to remain active in company affairs.
Mr. Balsillie will remain a director. He joined RIM in 1992 and invested $250,000 in the then-struggling company, which was producing a variety of electronic devices including a machine for reading bar codes on motion picture film. While his future role will be more limited, he said on Sunday that he would maintain his stake in the company.
Mr. Heins, who joined RIM about four years ago from Siemens of Germany, needs to prevent additional development missteps in the BlackBerry 10 software project. He will also need to convince investors that the new smartphones will find a receptive audience among buyers in a world increasingly dominated by iPhones and Android-based handsets.
The decision by Mr. Balsillie and Mr. Lazaridis to step aside comes after an agreement RIM reached last year with Northwest and Ethical Investments, a mutual fund company controlled by several Canadian credit unions, to study the relationship between RIM’s directors and its two senior managers.
While a report and recommendations about the company’s governance from a committee of directors, including Ms. Stymiest, was expected to be released shortly, both she and the two former chief executives said the management changes were unrelated.
Mr. Balsillie and Mr. Lazaridis, whose combined holdings rank them among RIM’s largest shareholders, said the pending release of the BlackBerry 10 smartphones, as well as the introduction of an updated version of the company’s aging operating system, made it an ideal time for them to step aside.
“In every successful company that’s developed by founders,” Mr. Lazaridis said, “there comes a time when it enters a new phase of growth and it’s time for the founders to pass the baton to new management.”
The two men have acted as a team for 20 years. After the first BlackBerry appeared in 1998, Mr. Lazaridis supervised RIM’s technology, while Mr. Balsillie was effectively the company’s financial head and chief salesman. At a time when conventional e-mail was still seen as novel, Mr. Balsillie had to convince carriers like Verizon that a wireless e-mail service from an unknown Canadian company was a viable business proposition. He also had to persuade corporations that confidential communications could be safely and reliably sent over the air.
As the BlackBerry brought RIM the highest market capitalization among Canadian companies, Mr. Balsillie and Mr. Lazaridis became business folk heroes. A 2002 poll of Globe and Mail readers named Mr. Lazaridis Canada’s “nation builder of the year.” He edged out the hockey hero Wayne Gretzky.
Despite their fame, both men continued to live relatively modestly. Their only major extravagances involved financing new educational institutions in Waterloo, Ontario, the midsize city where RIM is headquartered and where they continue to live.
At the time the first iPhone appeared in 2008, RIM had successfully moved the BlackBerry into the broad consumer market from its base of government and corporate customers. But the company was totally unprepared for the popularity of a phone that lacked a physical keyboard and ran thousands of applications — in effect a versatile Web-connected handheld computer.
RIM’s co-chief executives were initially dismissive of the challenge from Apple, and Mr. Balsillie boasted that the iPhone would enhance RIM’s fortunes by increasing awareness of smartphones.
But the iPhone introduced two broad changes to the smartphone market that had severe consequences for RIM and other phone makers, including Nokia.
The iPhone and its apps shifted the emphasis from hardware to software. Then, the iPhone’s popularity led corporate information technology departments, which once allowed only BlackBerrys to connect to their e-mail networks, to support employees’ iPhones. The arrival of Android-based phones from a variety of manufacturers only compounded RIM’s woes.
While it has struggled to respond to competition from Apple and Android, RIM has continued to grow by expanding into overseas markets. Because BlackBerrys are more efficient on wireless systems than iPhones and Android handsets, RIM’s smartphones have been most successful in parts of the world where networks are less developed. That, many financial analysts say, is likely to be a temporary advantage that will disappear as overseas carriers upgrade their networks.
At first, RIM sought to adapt its aging operating system to create touch-screen models. Then 18 months ago RIM acknowledged the need for a major change. To create what has recently been named the BlackBerry 10 operating system, it purchased QNX Software Systems of Ottawa, a company with a long history of making operating systems used to run everything from navigation and entertainment systems in automobiles to the control systems at nuclear power stations.
The initial shortcomings of the PlayBook tablet and the delays in delivering BlackBerry 10 smartphones have led many analysts to speculate that RIM has serious development problems in the new operating system and the software required to integrate it with RIM’s global network, which gives BlackBerrys their security advantages.
On Sunday, Mr. Heins acknowledged that the BlackBerry 10 software was still incomplete, but he said it would be ready before the year’s end.
“Would we have loved BlackBerry 10 to be out earlier?” he asked. “Yes, sure. But we had to manage a very, very challenging situation where we need to continue our growth based on the existing BlackBerry platform and we had to transition the company.
“I can’t tell you how much effort, hard work it is to architecture a new platform, build it and bring it to market within 18 months’ time.”
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