Research In Motion: Dealing with conflicting interests

On a sunny summer Sunday in 2010, Mike Lazaridis, founder, president and co-chief executive officer at Research in Motion (RIM) gets a coffee from his wife in his home-office. Without having breakfast, Mike went straight to his office that morning to book a flight to Beijing for next week. After entering his personal data, a confirmation button pops up on his screen to confirm the flight. Just before clicking it, Mike sits back in his chair and has a look around his office. Besides the reports from his chief financial officer analyzing the tremendous growth over the last years, the room is filled with notes from his chief technology officer1. Participating in an industry characterized by constant technological innovation through high research and development (R&D) investments from its occupants, RIM has started the process of geographical expansion of R&D activities three years ago. However, new market developments justify the attention to making decisions that could potentially contradict the entrepreneurial roots which made the company so successful. In what way should Mike allocate his R&D spending and where is the trade-off between the companies initial value proposition and altering it to the industry? This case discusses one of the problems that can arise when business is exploding in a dynamic and fast-changing industry. Research In Motion (introduction) Research in Motion Ltd. (RIM) was founded in 1984 in Waterloo, Ontario, by Mike Lazaridis. Lazaridis, the son of Greeks who immigrated to Canada from Turkey in 1967, was 23 at the time. He had recently dropped out of the University of Waterloo, where he was studying electrical engineering. Backed by loans from friends and family, Lazaridis and two friends started RIM. During the first years of RIM, Lazaridis became interested in the long-term potential of digital wireless devices, after it received a contract that required RIM to investigate the potential of newer wireless digital network systems. By 1991 RIM was developing software to support a complete wireless e-mail system which led to the development of smart pagers that would utilize packet-based networks to provide wireless Internet access.
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Fictional and Illustrative story

As the first company in the world to introduce a device which is connected to wireless technology, RIM created a blue ocean with their BlackBerry mobile e-mail solutions in February 1999. The BlackBerry included a wearable wireless handheld device. The unique aspect of the BlackBerry is that the email-system could be integrated into the organizational email-system. Also, it featured a push system for e-mail delivery, which shortly means that it automatically updates incoming messages. When somebody receives an email, it immediately appears on your BlackBerry. Nowadays, the BlackBerry is a Personal Digital Assistant (PDA) which can be used for phoning, instant messaging, internet, GPS, and more. Besides the services for BlackBerry devices, RIM is selling wireless technology products and implementation services to other companies. The operating system of the BlackBerry is developed by RIM, unlike other major companies which used the mobile software developed by windows. This independency enabled RIM to react more flexible to market changes. Starting as a small company moving from contract to contract, the line of BlackBerry devices has led to a tremendous growth of the company. Over the years RIM has delivered multiple award-winning products, Research and Developments was at the core of the BlackBerrys success. The strategy is to set a standard for businesspeople. Vital for the BlackBerry success amongst them was the comprehensive security to access email and corporate information, confidential data encryption and firewall integrity from one single handheld device. Amongst the early adopters of the (adjusted) BlackBerry system was the National Security Agency for the system could meet the stringent security standards of governmental organizations. Blackberrys success led to a fivefold increase of revenues during the period 2004-2007. Although originally built for busy professionals, BlackBerry had made considerable headway in the consumer market and had become something of a social phenomenon. Revenues once again increased fivefold during the period 2007-2010, reaching close to $15 billion in revenues (see exhibit 1). The telecommunication industry The Wireless Telecommunications industry has been booming since 2005 as recent technological developments had encouraged making the normal mobile phone evolve to a new and more complex phone with more possibilities. The market shifted from cell phones to smartphones, which featured integrated e-mail, browser and organizer applications besides the traditional functions. New players (exhibit 2) entered the industry, which analysts predicted to ship around 1 billion smartphone devices by 2012. The biggest growing markets are India, China and the US. Since the launch of Apples iPhone in June 2007, a new device that introduced many features, rivalry in the smartphone segment was intensifying. Especially, since they announced to enter the business segment of the market. In 2008, an analyst commented: Apples innovation in its mobile phone user interface has prompted a lot of design activity among competitors. We saw the beginnings of that in 2007, but we will see a lot more in the future as other smart phone vendors try to catch up and then get back in front. Experience shows that a vendor with only one smart phone design, no matter how good that design is, will soon struggle. A broad, continually refreshed portfolio is needed to retain and grow share in this dynamic market. This race is a marathon, but you pretty much have to sprint every lap. 2

The wireless communications industry is characterized by rapid technological change, evolving industry standards, frequent new product introductions and short product life cycles. Any players success depends on the effects of its Research and Development efforts. Lazaridis responded: The process of developing new technology is complex and uncertain, and if we fail to accurately predict emerging technological trends and the changing needs of customers and end-users, our business could be harmed. The problem of explosive growth for RIM is to attract new employees, especially engineers. Lazaridis surely acknowledges the importance and difficulties of recruiting in this market: The Companys success is largely dependent on its continuing ability to identify, attract, develop, motivate and retain skilled employees. Competition for highly skilled management, technical, research and development and other employees is intense in the wireless communications industry. High growth (2004-2007) R&D and engineering were the heart and soul of RIM. Its most important efforts were to improve the functionality, security and performance of the Blackberry solutions, as well as developing new devices for current and new emerging segments. The first large revenue boom in the period 20042007 entailed R&D worries for Lazaridis initially, for the large growth could hinder RIMs ability to rely on its historic R&D-growth strategy: sourcing from the local talent pool and making selective acquisitions of small technology companies. Over the years RIM has built an excellent relationship with its hometown University of Waterloo. The talent at the University of Waterloo was so widely recognized that even Bill gates made frequent visits to court the best students. Lazaridis had to face the challenge to find capable engineers that would fit the RIM culture and figure out where to locate them, in order to stay competitive. And for that, he had to set his mind beyond Waterloo. However, expanding abroad opposed to some deeply rooted business principles, one executive commented: There are people here, even leaders and senior people, who have said: What? Products being built elsewhere? No! We cant do that! Then we wont have any control! So some of it is a cultural shift and a mind shift for the people that have been here and it is hard for them to let go and to be part of a really big company. And RIM is getting to be a big company now. And for some people, from an organizational culture perspective, it just doesnt resonate well with them. Besides moving abroad, recruiting abroad and subsequently having the recruits moved over to Waterloo could work as an alternative strategy. RIM has been very successful in nation-wide campus recruiting, it could expand co-op programs to other universities as ground approach for finding new talent. On top of it all, RIM was looking to hire a very particular mix of engineers. Although new graduates were essential, senior hires were also needed. As was common practice, growth by acquisition was another alternative. Many competitors of RIM have made strategic acquisitions of technology over the years. Where in the end the technology acquired became the base of that, so vital, new product feature. 3

Besides the strong desire to stay close to home, there were other burning issues that opposed against establishing core R&D sites outside of Canada. Legal issues, especially source code loss, software piracy and product imitations were more common in developing countries where protection laws lagged the Canadian, potentially leading to both explicit and tacit knowledge leakage. Also, there are restrictions regarding cryptographic software. Most governments regulated the import and export of encryption products due to national security issues. Once you encrypt data in China or India, you have to provide the governments with the ability to access the keys. High growth (2008 2010) R&D expenditures rose significantly after 2007 (exhibit 3), nowadays RIM is one of the biggest R&D spenders in the world. As of February 2010, RIM had approximately 13.875 full-time employees, 5614 on Research and Development (which was 2100 people in 2007, and 200 people in 2000). Besides the main R&D facility in Waterloo, RIM now has R&D facilities in Ottowa, Mississauga (both Ontario, Canada), Dallas, Palo Alto, Chicago and Seattle (US), Sidney (Australia) and Germany (one facility). RIM uses its personal and professional networks of existing employees as an ear-on-the ground approach to finding new talent. Also, it actively connects to top universities and colleges, not only in North America but all over the world, to attract the best and brightest students for the company. They organize recruitment events where they hope to connect with their future innovators, creators and leaders. Their so called Campus Ambassadors, old RIM interns still studying at the university, help to promote the company and select the top-students. We visit campuses around the world, attending career fairs, participating in information sessions and more. These events present a wonderful opportunity to talk to our campus recruiters, receive some neat giveaways and learn more about new graduate and student opportunities at RIM. Since 2007 RIM has made seven acquisition and acquired stakes in one other company (exhibit 4), to enhance and expand the BlackBerry wireless solutions or to be incorporated into the companys software. Despite these investments the companys spending on R&D is still much lower than those of the competition in terms of revenues2. The R&D spending in 2010 went up to 6,5%, which is still much lower than the average of the competition (10-12%3), Nokia for example had R&D spending of 14,4% of their revenue. Although the 2010 financial results for RIM are very satisfying, many telecom analysts think RIM delivers short. The companys recent entry into the consumer market has mainly caused the growth RIM is facing. However, in this fast moving industry, they are already losing shares to their consumerbased competitors.
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Investment analysts often looked to this percentage to gauge the sustainability of revenue growth, R&D expenses were seen as a proxy for new product or service developments 3 Collected from the competitors annual reports

Asia technological innovation The Asia Pacific region is becoming the powerhouse of innovation in everything from telecoms to computers. They are reinventing systems of production and distribution, and they are experimenting with entirely new business models. Huawei for example, a Chinese telecoms giant, has become the worlds fourth-largest patent applicant. Many analysts have reported a hastening movement of R&D facilities from the US to Asia, and the simultaneous migration of some of Americas leading researchers and innovators in the same direction. An R&D explosion is underway in China, with high-tech as its forefront Microsoft set up an R&D facility in Beijing in 1998 because of the great pool of talent located in the area Specifically China and to a lesser extent India have been pouring resources into education over the past couple of decades. China produces 75,000 people with higher degrees in engineering or computer science and India 60,000 people every year. The worlds biggest multinationals are becoming increasingly happy to do their research and development in emerging markets. Companies in the Fortune 500 list have 98 R&D facilities in China and 63 in India. Amongst RIMs direct competitors, Symbian4, Motorola and Nokia all have multiple large R&D centers in China, India, South-Korea and Vietnam, and all have extensive collaborations with many local universities. Conclusion Taking a sip from the hot coffee Mikes wife just brought in, he thinks twice before clicking the confirm button on his computer. Over the last years RIM has already made significant sacrifices maintaining their corporate culture in this rapidly changing and dynamic market. R&D expenses have increased over tenfold, but to what degree should RIM follow the trends of their industry? How far should Mike take his company to gain access to intellectual capital? Is it that RIM is changing the industry, is it the industry changing RIM, or is it there a dynamic solution in order to lead. The tremendous growth after 2007 is mainly to be attributed to the headway in the consumer market, however, Blackberry is originally built for professionals. The success of the company is based on RIMs cryptographic and software codes. Their value proposition is built around security. Should Lazaridis risk losing intellectual property by outsourcing their software development, for a risk reduction in collapsing under the tremendous pressures to be innovative? Mike switches to a new tab in his browser. He cant resist looking to his favorite tech-industry website, glancing over an article that is praising Apples innovative products. Even though located in the heart of Silicon Valley, Apple has no R&D facilities in Asia. After a few minutes Mike closes the browser and turns off his computer. He decides to take a break and go outside for a bike ride. He needs time to think about the true core of his company, and come up with an appropriate model that will sustain the companies leading role in this industry.
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smartphone software developing collective of Nokia, Ericsson, Motorola and Samsung

Exhibit 2 Short overview of competitors in same market as RIM Apple Apple Inc. is an American multinational corporation that designs and markets consumer electronics, computer software, and personal computers. The company's best-known hardware products include the Macintosh line of computers, the iPod, the iPhone and the iPad. Apple software includes the Mac OS X operating system; the iTunes media browser; the iLife suite of multimedia and creativity software; the iWork suite of productivity software;Aperture, a professional photography package; Final Cut Studio, a suite of professional audio and film-industry software products; Logic Studio, a suite of music production tools and its iOS Mobile Operating System. Motorola Motorola, Inc. is an American-based, multinational, telecommunications company based in Schaumburg, Illinois. It is a manufacturer of wireless telephone handsets, and also designs and sells wireless network infrastructure equipment such as cellular transmission base stations and signal amplifiers. Motorola's home and broadcast network products include set-top boxes, digital video recorders, and network equipment used to enable video broadcasting, computer telephony, and high-definition television. Its business and government customers consist mainly of wireless voice and broadband systems used to build private networks and public safety communications systems like Astro and Dimetra. Nokia Nokia Corporation is a Finnish multinationalcommunications corporation that is headquartered in Keilaniemi, Espoo, a city neighbouring Finland's capital Helsinki. Nokia is engaged in the manufacturing of mobile devices and in converging Internet and communications industries, with over 123,000 employees in 120 countries, sales in more than 150 countries and global annual revenue of EUR 41 billion and operating profit of 1.2 billion as of 2009. It is the world's largest manufacturer of mobile telephones: its global device market share was 30% in the third quarter 2010, down from an estimated 34% in the third quarter 2009 and an estimated 33% in the second quarter 2010. Nokia's estimated share of the convergedmobile device market was 38% in the third quarter, compared with 41% in the second quarter 2010. Nokia produces mobile devices for every major market segment and protocol, including GSM, CDMA, and W-CDMA (UMTS). Nokia offers Internet services such as applications, games, music, maps, media and messaging through its Ovi platform. Nokia's subsidiary Nokia Siemens Networks producestelecommunications network equipment, solutions and services. Nokia is also engaged in providing free digital map information and navigation services through its wholly-owned subsidiary Navteq Sony Ericsson Sony Ericsson is a joint venture established on October 1, 2001 by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to manufacture mobile phones. The stated reason for this venture is to combine Sony's consumer electronics expertise with Ericsson's technological knowledge in the communications sector. Both companies have stopped making their own mobile phones.

Palm Palm, Inc. is a smartphone manufacturer headquartered in Sunnyvale, California that is responsible for products such as the Pre and Pixi as well as the Treo and Centro smartphones. Previous product lines include the Palm Pilot, Palm III, Palm V, Palm VII, Zire and Tungsten. While their older devices run Palm OS Garnet, four editions of the Treo run Windows Mobile. In early 2009 Palm announced a new operating system, webOS, replacing the original Palm OS Garnet in their newest devices.

Exbhibit 4 Acquisitions and stake-outs 2008-2010 Chalk Media Corp 29 Jan 2009 - Research in Motion acquired all the outstanding common stock of Chalk Media Corp (CM), a developer of mobile communication software. It was acquired RIM for about $18 million.

Alt-N-Technologies Ltd 12 Feb 2009 - RIM acquired Alt-N Technologies Ltd, a Grapevine- based developer of email messaging and security server applications for the medium and small business communities. Certicom Corp 22 Mar 2009 - RIM acquired all the outstanding common stock of Certicom Corp (CC), for $15 million. The Certicom intellectual property portfolio includes over 350 patents and patents pending worldwide that cover key aspects of elliptic curve cryptography. 03 Jun 2009 - RIM acquired Dash Navigation Inc, a Sunnyvale- based manufacturer of car Global Position System (GPS) navigation system device for $8,3 million. 23 Aug 2009 - RIM acquired Torch Mobile, a Toronto-based developer of Web browsers. 26 Mar 2010 - RIM acquired Viigo Inc, a Toronto-based developer of mobile content and services applications.

Dash Navigation Inc

Torch Mobile

Viigo Inc

QNX Software Stm Ltd 07 Jun 2010 - RIM acquired QNX Software Systems Ltd, an Ottawa-based developer of realtime operating system software, from Harman International Industries Inc. Cellmania Inc 25 Aug 2010 - RIM of Canada acquired Cellmania Inc, a Mountain View-based developer of mobile software. 06 Sep 2010 - RIM acquired an undisclosed minority stake in DataViz, a Milford-based developer and wholesaler of productivity software.

DataViz Inc

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