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Senin, 02 April 2012

Rebuilding RIM

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Rebuilding RIM

There's something sick about our love of disaster movies.  We take pleasure in seeing great works of ego laid low -- that unsinkable ship is going down, the fireproof skyscraper is going to burn all the way to the top.  I think many observers are now watching Research in Motion like a disaster movie: It's too big to ignore, too sick to survive, every quarter is a new plot twist of devastation.  Some of the press coverage is taking on a mournful air of inevitability:

"RIM weighs bleak options," says the Wall Street journal (link).  The article quotes a customer as saying a recent meeting with RIM officials was "like going to a wake." 

But the reality is that RIM's future is not yet decided.  Definitely the odds are against it.  But well-known brands have an amazing ability to come back; people are almost always willing to give them another chance.  (Check the history of Packard Bell, a 1920s radio brand that came back as a 1980s computer brand.  Heck, you could probably revive Palm if HP took its cold dead hands off the thing.)  RIM's fate depends on a huge number of unpredictable details, some of which haven't even happened yet, and others that we don't know because we're not company insiders. 

So we can't predict what will happen to RIM, but we can talk about what the company needs to do to survive.  If nothing else it's an interesting case study for anyone who needs to turn around a tech company.

Step one: Acknowledge the problem in public

One of the smartest marketing people I ever worked with is Christopher Escher.  He was at Apple for a long time, and then served in the early days at Google.  Chris said that the process of rehabilitating a company's image was like moving the hands of a clock. Having a great image was at 12:00.  A company's image could stay in that position for a long time as long as it didn't have too much bad news.  But if bad news built up, the hands eventually slipped over to the 3:00 position, which meant you were perceived to be a troubled company.

Chris said companies always want to force the hands to go backwards to 12, because they want to get past the pain.  But his insight was that you can never do that.  First you have to acknowledge the problem (3 pm), articulate your plan (6 pm), and then show that you're making progress at fixing it (9 pm).  I think Chris had some other stages in there, but you get the general idea.  Only after you had taken all of the intermediate steps, and posted improved financials as a result, would people believe that you had actually earned your redemption and returned to stability at 12.

The business redemption clock, a concept by Christopher Escher.

A good example of this process in action was Stephen Elop's moves at Nokia after he became CEO.  The notorious "burning platform" memo, which I believe was deliberately leaked, acknowledged the problems at Nokia and made its later moves much more credible to the press and analysts.  That doesn't mean Elop made the right moves, or that they will work, but if he had denied there was a problem, people would not have even paid attention to his later moves. 

Until its earnings announcement last week, RIM was still trying to make the clock hands go back to 12, and it wasn't working.  All it did was convince people that management was out of touch.  When RIM acknowledged the depth of the problem, suddenly the tone changed in some of the coverage.  "RIM finally seems to get it," CNET declared (link). 

There is a downside to acknowledging the problem: you make it worse.  Remember the despair and disbelief that "burning platform" created among Nokia fans (link).  You frighten any customers who aren't already worried, and partners may delay or cancel their work with you.  As you'll see, this is a problem with many of the steps you have to take to fix a broken tech company -- the medicine makes you even sicker at first.

Step two: Focus

Almost by definition, a troubled tech company will be trying to create too many products and funding too many business initiatives, the leftovers from more optimistic times.  There isn't enough revenue to pay for all of them, so you have to eliminate some.  This is an agonizing process.  Usually there is current or forecasted revenue tied to every project (not enough revenue, but some).  So when you cut them, you don't just lower your expenses, you also reduce further your expected revenue.  That forces you to cut even more.

Companies often default to keeping their most profitable product lines, because that requires the smallest cuts.  "We're focusing on the core," the executives say.  But usually the most profitable product lines are the oldest ones with the worst growth prospects.  Focus on them and you'll lock the company into an irreversible decline.

The right way to focus is to plan from the bottom up.  Decide what you want the company to be, who the target customers are, and what special value you'll deliver to them.  Fund the projects that support that goal.  Everything else, no matter how valuable or emotionally important, is a candidate to be cut.  If those cuts don't reduce your expenses enough, revisit the goal and make it even more tightly focused, allowing you to kill more things.

This process forces you to slaughter sacred cows.  Steve Jobs returns to Apple, and decides the company will focus on making Macs for creative people.  Out goes Newton, out goes twenty years of painfully-assembled enterprise sales infrastructure, out goes the printer business.  Lou Gerstner decides IBM will be a services company; he kills OS/2, pulls its PCs out of retail, and preps that business for sale. 

RIM's focus is questionable at this point.  Thorsten Heins appeared to be very focused when said that RIM would "refocus on the enterprise business" because "BlackBerry cannot succeed if we tried to be everybody’s darling and all things to all people."  But the next day two RIM executives denied that the company was exiting the consumer market (link).

One of three things happened.  Either:

--Heins' remarks were remarkably badly scripted, and the company really doesn't plan to back away from the consumer market.  This would be a bad sign for the company's ability to execute.  How in the world could you botch a critical message like that in an important earnings call?  Get your act together.  Or:

--Heins really does plan to back away from the consumer market, but some others in the company are in denial about it and are trying to spin-doctor him.  This is unlikely since two executives delivered the same correction.  But I've seen weirder things happen.  Or:

--RIM plans to exit the consumer market but doesn't want to say so yet because it needs to sell all of its current products that are still in inventory.  I suspect that's the reality.  Shamefully sloppy marketing by RIM if tghey raised this issue without understanding the impact it would have on sales.  RIM needs to be crisper if it is to survive.

Messaging aside, the impact of a RIM focus on enterprise depends on your definition of "enterprise."  If RIM is planning to focus on top-down corporate sales through IT managers, good luck and goodbye.  The long-term trend is that IT has less and less control over the mobile device choices of users in the company, so RIM would be tying itself to a dying sales channel.  But if by "enterprise" RIM means it will focus on the needs of individual businesspeople rather than entertainment-hungry teenagers, that is RIM's best prospect for getting reasonable margins, and probably its best chance to survive.

Some of the diversity of reactions to Heins' remarks has been driven by commentators making different assumptions about the definition of "enterprise."  Roger Cheng at CNET assumed it meant business end-users, and praised the change.  On the other hand, Horace Dediu assumed it meant selling through IT managers, and was utterly dismissive (link).

The important question is what Thorsten Heins meant, and we don't know the answer to that. 

Step three: Get a win

The next step is to hold onto your installed base.  This is important for any device company, because your loyal customers are the nucleus from which you'll grow in the future.  No one else is going to hang out with you right now because you're damaged goods.  The base is especially important for RIM because they're paying monthly service fees to the company.  That high-margin revenue stream is critical to RIM's recovery, and must be maintained.  I was encouraged that even amidst all the bad news RIM still grew its subscriber base slightly last quarter.  I doubt that will continue, but if RIM can keep the base close to even, it'll help a lot with the future transitions.

This may be why the company was so sensitive to the idea that it would "abandon" consumers.  It's not the right time to send that message to the public, even if it is true.

Instead, you need to lavish love on the installed base.  That means giving them special discounts for buying a new BlackBerry, telling them how important they are, and getting them excited about the product's future.  They have heard those promises before, though, so to make it credible RIM needs some nice, solid new products.

I'm not saying killer products.  Those would be great, but since RIM was dysfunctional, I doubt there are killers in the pipeline.  At this point, it would be enough to ship a couple of very solid, well executed devices that deliver on RIM's expected value and don't crash.  Think of the role that the iMac played in Apple's recovery.  The device itself wasn't all that spectacular, but it was iconically Apple, and proved that the company was reconnecting with its values.  It engaged loyal Mac users emotionally, gave them a reason to believe, and put Apple back in the game.

So Heins should look at the devices in RIM's pipeline for the next six months, and focus everyone on implementing the few that look most promising on the core BlackBerry values of reliability, convenience, and great messaging.  Stop work on everything else.  It's better to have one or two wins than four mediocre products.  And stop producing a slightly different model for every mobile operator.  You can't execute well on that complexity; it's part of what got you in trouble.

Will this lose you some operators?  Yes it will, but it's better to have a smaller channel that is enthusiastic about your products than an overstocked channel that doesn't care.  (Again, look at the way Apple trimmed dealerships when it was working on its comeback.)

Step four: Create differentiation

Now you've focused the company and momentarily stabilized the installed base, or at least slowed its bleeding.  Next you need to add a few differentiators -- unique features that do things your customers will love and will drive them to come into stores and demand your products.  Create no more than three of these features.  You can't effectively advertise more than three anyway, so it's better to do three really well than to have six that kind of mostly work.

If you get these features right, your target customers will forgive dozens of other flaws in order to obtain the value of your differentiators.  This is what gets you off the hook for copying every feature of the iPhone, which you can't afford to do and won't implement well anyway (case in point, RIM's product history for the last several years).

What are those features?  I have some ideas, but a lot depends on which technologies RIM has in house and how talented its engineers and product managers are.  There are plenty of important unsolved problems RIM can tackle for businesspeople on the go.  Things like meeting planning, managing e-mails and text messages while you're driving, and finding parking in a crowded city might all benefit from RIM's integrated client-server architecture.  There are also plenty of opportunities to integrate BlackBerry uniquely with business infrastructure.  BlackBerry was first successful because it integrated so reliably with Microsoft Outlook and Exchange.  What could RIM accomplish if it applied that same sort of focus to or Dropbox or LinkedIn?

RIM has the pieces to build some of these solutions -- it has bought a number of startups like contact manager Gist and calendar manager Tungle.  I hope those are being viewed as part of the solution rather than random acquisitions that now need to be tossed out.

You'll notice that I'm not saying anything about BlackBerry OS 10.  That's because it almost certainly can't be a differentiator, for several reasons:
--The first release of an OS is almost always focused on just making the basics work properly.  If BlackBerry 10 is stable and doesn't crash, that is probably the most you can expect from it.  Maybe OS 10 will let RIM announce that its phones now suck less, but that's not a differentiator, that's table stakes.
--Until very recently, RIM's main explanation for why it needed BlackBerry 10 was so it could match the multimedia and entertainment features of iOS.  If that has been the development focus, it's very unlikely that the OS has a lot to offer to businesspeople in its first version.
--The average customer does not buy an operating system.  In the tech industry, we pay a lot of attention to operating systems because we know they are important enabling technologies.  But what customers respond to is the features they enable.  When is the last time you heard someone say they bought a mobile phone because its OS did a better job of paging memory or scheduling symmetric multiprocessing?

What about the idea of RIM licensing out its operating system?  Forget about it.  First of all, I doubt there are any customers.  But even if they are, the distraction of serving the different demands of various licensees would tear the OS team apart. RIM just doesn't have the money and staff to make this work.  Its best play is to deeply integrate its OS, devices, and services to create unique systems.  That sort of stuff is hard for Android to copy, and challenging even to Apple.

So those are the four steps:  Acknowledge the problem, focus (and cut brutally), find a quick win, and create differentiation.  Each step sounds fairly straightforward, but the hard part is that you have to get them all right, and you have to do them fast.  It's like doing brain surgery on yourself while driving your car down the freeway at 60 miles a hour.  Any mistake can be fatal.

The most difficult steps are the third and fourth, finding a quick product win and creating differentiation.  Typically a major new product or differentiator takes 18 months to implement, even if you're moving fast.  I think RIM probably has six months to roll out a product win, and at most 12 months to show some major new differentiators.  Go beyond that, and the installed base may be draining away faster than you can refill it.  When Steve Jobs returned to Apple, he was lucky that the industrial design team that created the iMac was already in place.  We'd better hope there are some great half-completed projects in the labs at RIM that Heins can focus the team on. 

What to watch.  It's because of uncertainties like this that no one can predict if RIM will survive.  But there is a metric we can watch to assess the company's chances: cash.  Cash to a device company is like altitude to an airplane. When a device company fails, it's usually because it runs out of the cash it needs to build inventory and advertise a new product release.  RIM currently has about $1.8 billion in easily-available cash, down about $300 million from a year ago.  Net income was $1.1 billion.  For comparison, in 1997 Apple lost $1 billion and had $1.5 billion in cash left.  Eighteen more months and it would have been dead.

So RIM is not as acutely sick today as Apple was in 1997.  But the BlackBerry base is not as loyal as the Mac base was, and Thorsten Heins isn't Steve Jobs.  The danger to RIM isn't an instant collapse, it's an accelerating decline into irrelevance.  That decline may already be irreversible.  If it isn't, RIM needs to act urgently to turn it around.  Acknowledging the problem is a good (if belated) start, but the hard work is still to be done.

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