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Hi I really need your help with a case please.

Hi I really need your help with a case please.
1 BLACKBERRY LIMITED: IS THERE A PATH TO RECOVERY? * In mid -2017, the once high -flying Blackberry stock was trading for less than $7 a share. Remarkably, that was a drop of more than 94 percent from $139 in 2008. 1 The competitive lan dscape had shifted in recent years, and BlackBerry had lost its strong position in the industry. The company faced a severe reduction in hardware revenues and mobile subscribers. 2 BlackBerry Limited hired John Chen, a turnaround specialist, as its new CEO to get the former dominant smartphone producer back to profitability. 3 Soon after joining the company, Chen formulated a turnaround plan that emphasized corporate and government enterprises. This new plan significantly reduced the com pany’s operating costs. 4 After Chen started turning the steering wheel, BlackBerry appeared to be stabilizing, but th e sustainability of his strategy was still a big unknown. There have been rumors regarding a potential sale of the company to Samsung Group, privatization of operations to reduce the risk of shareholder activism, hostile takeovers, and a move to focus only on software and licensing agreements. 5 Each of these would be a very different scenario from what the Canadian tech giant faced just a few years ago. Industry experts speculate on what lies ahead, but new CEO John Chen seems to be optimistic about the future of Blackberry. The return to success of Blackberry in the smartphone industry might sound farfetched but it was n ot impossible. Once Blackberry had held significant market share in the smartphone space. It remained a question of what strategy the company should adopt to revive the admiration it once enjoyed and re – boot demand for Blackberry smartphones. The smartphon e industry had become immensely competitive with giants Apple Inc. and Samsung Group the two companies that held most of the market share in the industry. With Blackberry’s specialization in data and mobile security there seemed to be potential in Blackber ry’s software security enterprise division, which had not received as much attention and resources as the smartphone division. Research in Motion Milhal “Mike” Lazaridis and his childhood friend Doug Freign founded Research in Motion (R=M) in 1984. Lazarid is was born in Istanbul in 1960 and came from a Greek working -class family. :is father’s aspirations to become a tool -and -die maker led the family to relocate to Ontario, Canada. Lazaridis displayed remarkable intelligence at an early age and excelled in b oth reading and science. Lazaridis was frequently exposed to electrical engineering and sharpened his intuitive understanding of the basic science behind every electrical innovation. 3 After graduating from high school, Lazaridis attended the University of Waterloo. However, he dropped out before graduation and decided to try his luck in business at the age of 23. The Can adian government enabled the formation of RIM by granting Lazaridis and Freign a $15,000 loan. The duo set up RIM headquarters in Waterloo, Canada, as an electronics and computer science consulting company. According to Lazaridis, the name Research in Moti on meant, “we never stop, we never end,” 3 signaling innovation that would drive RIM forward. During the company’s ear ly years, Lazaridis accepted all sorts of contracts, most of which entailed writing code or making small insignificant technological gadgets. None of the early projects proved to be a commercial success, but they generated enough revenue to keep the compan y viable for more than a decade. The company’s game changer was introduction of e -mail and data devices. Lazaridis had been exposed to e -mail while in college, at a time when only professors and scientists were using the service. Lazaridis 2 was convinced th at data would become extremely important in the near future, but it was hard to find the funding for a project involving e -mail, because the early 1990s was a time when major mobile carriers were interested in devices with voice capabilities and in selling as much as possible until the market became saturated. Reading e -mails on a handheld device was unheard of. A nonexistent demand for devices with e -mail support did not weaken Lazaridis’s determination; he developed initial prototypes by writing gateway c odes hooked up to an 😛 Palmtop, the company’s first device with “e – mail on a belt.” Although the device was not commercially applicable, it became extremely popular with R=M employees. Lazaridis recalls that “employees started taking these things home, an d they wouldn’t return them.” 3 What he then understood was that the idea of “e -mail on a belt” had the potential to generate high demand, but the challenge lay in making such a product practical enough for consumers to use on a daily basis. The business aspect of RIM was made easier by the emergence of Harvard graduate Jim Balsillie. In the 1990s, Balsillie was an employ ee of a small technology companyPage 251 called Sutherland and Schultz, which would become one of R=M’s clients. Lazaridis and Balsillie first crossed paths when Sutherland and Schultz tried to acquire RIM. Lazaridis passed on the offer, but he got a chanc e to see Balsillie in action and was impressed. Lazaridis wanted someone to help out with the business aspect of his company. When a company from the Netherlands bought Sutherland and Schultz in 1992, Balsillie was left without a job. Lazaridis was quick t o pick up the phone and invite Balsillie to join his company. 3 Due to R=M’s small size and limited resources, Balsill ie had to accept a severe salary reduction and to spend $250,000 to acquire 33 percent of R=M. Balsillie believed in Lazaridis’s abilities and the potential for the company, so he agreed to the terms. 3 The two shared duties as co -CEOs and formed a powerful leadership team in which Lazaridis focused on product development, and Balsillie took responsibility for the busines s part of the company. Balsillie was clear about different responsibilities and said, “My job is to raise money, and Mike’s job is to spend it.” 3 With limited success up until 1992, RIM made a conscious decision to leave its comfort zone and pursue home -run products such as wireless data. Balsillie truly believed that the future could be great for RIM, and according to f ormer Senior VP Patrick Spence, “Balsillie was really strategic in terms of how he was thinking and really ambitious in terms of what he wanted to do.” 5 Introduced in 1996, the Interactive Pager 900 contained peer -to-peer messaging and also an e -mail gateway. Unfortunately, the device had several deficiencies and operating errors. It was also too big and bulky to gain co mmercial acceptance. 3 Thinking of its size, Lazaridis nicknamed it “the Bullfrog.” Following “the Bullfrog” came “the Leapfrog.” The revolutionary component of “the Leapfrog” was its ability to send e -mails at any time from any place. This product set the stage for the eventually hugely popular signature product we know today as BlackBerry. The product was a success: Bel lSouth, which had spent over $300 million in building its mobile “Mobitex” network, ordered Leapfrogs worth $60 million in 1997. 3 In order to get the necessary funds to continue its product development, RIM went public at the Toronto Stock Exchange in 1997, and the IPO raised more than $115 million. 6 The Blackberry and Its Success Lazaridis was responsible for developing R=M’s next version of a wireless data device that would have better parts, longer battery power, and a bigger screen. RIM hired Lexicon, the company that was credited for naming Apple’s PowerBook and =ntel’s Premium brands, to come up with a name for the device. The buttons on the new device looked l ike tiny seeds. Lexicon played around with different fruit 3 names such as strawberry and melon, before it eventually settled on BlackBerry. 3 Thus, RIM had a great product with a catchy name, and it became Balsillie’s responsibility to spread the word on the new offering. The BlackBerry 850 hit the market in 1999, with wireless data, e -mail, and a tiny QWERTY keyboard. 6,7 Initially, the Leapfrog and the early BlackBerry device were mostly used by law enforcement, firefighters, and ambulance workers. One of the things that this niche group greatly valued was the product’s extreme reliability and securit y features. Balsillie thought this would resonate well with corporations on Wall Street. He knew that corporate IT departments often made decisions regarding companywide hardware and purchased the same devices for all their employees. RIM next resorted to a guerilla marketing strategy, in which hundreds of devices were given away to ground -level employees on Wall Street. The strategy became an instant success as Wall Street employees got hooked on the device and subsequently pressured IT departments to make BlackBerry the official device for their companies. Big corporations like Credit Suisse and Merrill Lynch gave in to this pressure and ordered BlackBerrys by the thousands. 3 The success led RIM to go public on the NASDAQ in 1999, and RIM raised an additional $250 million to invest in the development of its technology. 8 Revenues increased from $47.34 million in 1999 to $84.96 million in 2000, with BlackBerry accounting for 41 percent of the revenues. 9 Balsillie, along with his management team, utilized the same guerilla tactic at the Capitol, where security and reliability are perhaps even more desir ed features than they are in corporate world. Soon, a large number of politicians and congressional staffers were ordering BlackBerrys. R=M’s reputation was seriously enhanced during the tragic events that transpired on September 11, 2001. Instead of relyi ng on cellular telephone systems Blackberry functioned on data systems that held up extraordinarily well. Data systems could be used exclusively to communicate data in the form of text messages or e -mails by using dedicated data networks which were abundan t in lower Manhattan. Almost all cellular networks shut down during the terrorist attacks, which disabled both incoming and outgoing telephone calls. However, the BlackBerry and its network remained operational, enabling victims to call loved ones and keep ing vital communication lines between law enforcement and rescue workers open. One of the victims of 9/11, a Ms. Federman, recalled, “= had my cellphone in one hand, and it was useless, and my BlackBerry in the other, and it was my lifeline that day.” 10 In the eyes of the government there was no doubt that BlackBerry’s features were important for public servants. Almost directly after the events on 9/11, the American government ordered 3,000 BlackBerrys for representatives, staffers, and senators. 3 This initial success meant that growth was rapid at RIM in this period, and it was enhanced by something that the company did not anticipate. All of a sudden, actors, athletes, and other high profile individuals were spotted using BlackBerry s. Among other organizations, the BlackBerry was standardized for 31 out of 32 teams in the NFL. 5 This created a dema nd among the general public, who wanted to use the same device they saw their favorite celebrities using.Page 252 The increase in demand resulted in rapidly expanding sales and market share; RIM had more than 2 million users in 2004 and sold devices in 40 countries through 80 carriers. 5 The massive popularity in the 2000s saw RIM emerge as a dominant producer of smartpho nes, and at its peak in 2009 it had acquired 20.1 percent market share (see Exhibit 1) and sold nearly 15 million devices per quarter. 3, 11 4 EXHIBIT 1 RIM (BlackBerry) Revenue 2004 –2017 Source: Statistica Inc. 2017. According to former account and carrier manager Chris Key, the BlackBerry became so popular with major companies that CTOs often referred to it as “digital heroin,” 5 and many started calling it “CrackBerry.” W ith competition from Google, Samsung, and Apple mounting in the mid -2000s, however, RIM decided to focus on its core competencies in security and reliability. Lazaridis and Balsillie were convinced that enterprises would continue to drive the market, and t herefore RIM continued to create devices that primarily appealed to professionals. 3 Patent Trolls Despite R=M’s succe ss, all was not rosy because its management failed to keep an efficiency check on product and service development, which led the company into trouble with patent trolls. A critical component of the tech industry is the presence of companies called patent t rolls. These are companies that do not manufacture anything or provide services but instead seek to make money on patent infringement claims. These companies often have no other assets than a portfolio of patents, and the patents are usually purchased from others. RIM got tangled up with one of such patent trolls, NTP Inc., a company with a portfolio of 50 patents, one of which was in the field of mobile e -mails. NTP took the Canadian tech giant to court, where RIM successfully proved that its e -mail system was invented before the patent in question. 3 :owever, NTP’s attorneys persisted and uncovered that an enhanced versi on of SAM software being used by R=M was launched after NTP’s invention patent. The judge subsequently disregarded R=M’s initial explanation. The case was long and complicated, and it consumed a 5 considerable amount of R=M’s energy and resources. Consequent ly, Lazaridis and Balsillie accepted a $600 million settlement to close the case in 2006. 3 This was a huge financial setback to the company. As RIM was experiencing exponential growth after the success of Blackberry, the company needed all its funds and resources to keep pace with the growth. This setback formed a managerial and financial obstacle for the company in the long run. Industry Landscape Apple Inc. entered the smartphone industry in 2007 when its CEO, Steve Jobs, introduced the world to the company’s newest innovation, the iPhone. Apple had a completely different strategy from that of BlackBerry. Apple’s strate gy was to cater to all the smartphone customers and not just the corporations. Steve Jobs and management at Apple believed that the individual consumer would drive the next surge in the market. 3 Clearly, R=M’s management did not believe that the market wasPage 253 shifting, and BlackBerry continued to enhance what it thought made its product great —battery life, security, and e – mail. In 2006, corporations accounted for the majority of RIM revenues, and the company intended to keep enterprises as its main target market. 3 Lazaridis believed that the iPhone would be a fad and could not understand why anyone would want an iPhone, given its poor battery life and capacity. He was also extremely skeptical of the touchscreen keyboard. In an inte rview in 2007, Lazaridis said, “As nice as the Apple iPhone is, it poses a real challenge to its users. Try typing a web key on a touchscreen on an Apple iPhone, that’s a real challenge. You cannot see what you type.” 12 BlackBerry’s inventor believed that consumers preferred typing e -mails and messages using a physical keyboard rather than using a touchscreen. Co -CEO Ba lsillie declared that the iPhone was “not a sea -changer for BlackBerry.” 11 With further developments in touchscreen phones, consumers cared more about iPhone and Android phones’ access to applications rather than battery life, security features, and QWERTY keyboards. The touchscreen smartphones also gained traction among suppliers. Software developers found it easier to work with Android and iPhone systems as compared to Blackberry’s complex Hava -based system. 3 Consequently, iPhone an d Android phones experienced rapid growth and market acceptance, which created internal tensions within RIM. There were those who thought that the company should change its strategy, but the co -CEOs unanimously rejected that notion. The competitive landsca pe changed further when the “Bring Your Own Device” (BYOD) trend emerged in 2009, when consumers started to take their personal devices to the workplace. 13 The BYOD trend had been directly related to the BlackBerry and the way the device became popular in the first place. It was the pressure from ground -level employees that led IT departments to adopt the BlackBerry —a b ottom up rather than a top down process. All of a sudden those same employees started bringing iOS and Android devices to work. Consumers valued the additional features in iPhone and Android phones, such as cameras, games, and Internet browsing. 3, 5 In several instances, corporations abandoned BlackBerry as the company phone, because products like the iPhone also had e -mail capabilities. Over past years, Android -based smartphones overtook RIM (shown among others in the graph) in terms of market share followed by the iPhone’s iOS (see Exhibit 2). 6 EXHIBIT 2 Global Smartphone Market Shares, 2014 –2017 Source: International Data Corporation 2017. When it was unable to acquire a license to sell iPhones, Verizon contacted RIM with an offer to collaborate on developing an “iPhone killer,” which meant a smartphon e with touchscreen capabilities and no QWERTY keyboard. The result of this partnership was the “BlackBerry Storm,” which unfortunately did not gain popularity among consumers because the Storm’s touchscreen was not easy to use, and the device was slow and full of bugs. 3 Verizon subsequently shifted its focus toward Google and its Android operating system, and launched a gigantic marketing campaign for Motorola’s Droid smartphone that operated on Google’s Android platform. The new campaign called “iDont” highlighted the iPhone’s shortcomings. 3 However, instead of hurting Apple, the campaign enabled Android phones to steal market share from companies like Palm, Microsoft, and eventually RIM. The Blackberry Storm debacle ended up hurting t he company considerably. Page 254 RIM tried its luck with a touchscreen phone once again in 2010, when AT&T contracted with the company to make a competitor to the iPhone. This could help AT&T to differentiate itself from Verizon, which now had obtained licenses for the sale of the iPhone. The result was the “Blackberry Torch,” but this too was not a commercial success. Even though iPhone and Android phones were gaining market share rapidly, Lazaridis remained optimistic about the BlackBerry’s sustainable advantage. He warned his fellow RIM directors in a board meeting that trying to sell all -touch smartphones in a crowded market would be a huge mistake. 14 Lazaridis maintained full of confidence that RIM would catch up to Apple and Google (Android) with their newest device, the BlackBerry 10. While developing the BlackBerry 10, Lazaridis decided to acquire QNX Software, a leading -edge software maker. QNX had the technology that the BlackBerry 10 operating system needed. Tensions were now growing between Balsillie and Lazaridis. Lazaridis was certain that the BlackBerry 10 would resurrect the company, while Balsillie was doubtful. 14 One of the keys to the company’s early 7 success had been the co -CEO structure, where Lazaridis was respon sible for engineering, product management, and supply chain, while Balsillie focused on sales, finance, and other corporate functions. 3 This complementary leadership structure was successful for a long time, as Lazaridis and Balsillie worked well together. However, the growing tension between the two led to a breakdown of communication, and RIM missed internal deadlines for launch dates as confusion and doubt spread among the company’s employees. 3 In order to fix the problem, Lazaridis decided that for their turnaround project, the BlackBerry 10, the development team would report directly to him and circumvent other top executives like Balsillie. The breakdown of communication and friction between management led to a disastrous 2011 for the company, where R=M’s network experienced tremendous difficulties for the first time, and the company was forced to undertake substantial layoffs due to rapidly decreasing sales. Balsillie also started to separate himself from the company. He establish ed an academic institution that focused on international affairs and tried to buy a National Hockey League team, but the move was opposed by the NHL. At an icebreaker event at a weeklong seminar regarding arctic issues in 2010, Balsillie said that BlackBer ry’s success was due to extraordinary luck at key moments and voiced his concerns regarding the future, saying, “This is a rapidly expanding market. We have a diminishing share of that market, but who knows?” 6 To end the managerial issues, the board at RIM finally decided to relieve Balsillie and Lazaridis from their duties as co -CEOs in January 2012 but allowed them to remain on the Board of Directors. Thorsten Heins replaced Lazaridis and Balsillie as CEO in 2007. Mr. Heins had previously held an executive position at Siemens before joining RIM. 14 The BBM Messaging Service To generate revenue for RIM, former co -CEO Balsillie saw great potential with the BBM messaging service. The BBM messenger was developed as an application for the BlackBerry in 2005, and it enabled users to communicate by using their devices’ P=N numbers. The BBM was innovative and is credited with being the first instant messaging service on wireless devices. 14 Among the BBM’s key strengths were its reliability and the fact that users could send an unlimited number of messages without any extra cost, unlike standard SMS text mes saging. Further, the messaging service was very secure and gave users the privacy they sought. With increasing competition and the decreasing sales and market share of Blackberry, Balsillie wanted to make the BBM platform available on all devices. He envis ioned that telecom carriers could integrate BBM as their own enhanced version of SMS text messaging. This could generate additional sales for the carriers, which would get R=M a percentage of the carriers’ revenues. 14 Balsillie’s plan created a divide within R=M’s management, particularly because BBM was still a key driver of sales of BlackBerry devices. Making the BBM service available to competitors could lead to market cannibalization. As Balsillie continued his push for the BBM strategy, the new CEO squashed it a few weeks after taking office. Lazaridis showed full support for the CEO’s decision, and Balsillie subseq uently resigned from the Board of Directors in March 2012 and sold all the stock of the company that he possessed. 14 In a statement to Canadian newspaper Globe and Mail, Balsillie left no doubt as to why he left: “My reason for leaving the R=M board in March 2012, was due to the company’s decision to cancel the BBM cross -platform strategy.” 15 The Blackberry 10 8 During :eins’s tenure as CEO, BlackBerry finally released the BlackBerry 10 in the market in January 2013 and changed the company name from Research in Motion to BlackBerry Limited. The BlackBerry 10 was not a commercial success, and the company continued spiraling down ward. Despite a number of good reviews, the new phone did not sell very well. Afterward, Blackberry launched the Z10, an all – touchscreen version to compete in the smartphone market. When the Z10 launched, BlackBerry had a confusing marketing campaign and w as unsuccessful in communicating the new device’s distinctive competencies. 14 The Z10 was also late to market and wa s launched at a time when the market was crowded and there was low demand for new touchscreen smartphones. In fact, the people that were willing to buy a new edition of BlackBerrys were consumers who still valued the QWERTY keyboard. Many loyal BlackBerry customers thought that the new system was far too different from the classic BlackBerry design, and that the new phones seemed to have relinquished all ties to old BlackBerry devices. The company incurred a quarterly lossPage 255 of $965 million in the sec ond quarter of 2013, mostly due to a huge number of BlackBerry Z10 phones that were not sold. 14 As a result of the company’s underperformance, Toronto -based investment company Fairfax Financial Holdings Ltd tried to take over Blackberry Limited, offering $4.7 billion, but the deal did not materialize. 16 Despite R=M’s diminishing position in the industry, its management continued to remain optimistic. Former managing director for the U.S. and Canada, Andrew MacLeod, stated, “= am hear tened by the fact that we have tons of assets —IP assets, technology assets. We have a culture that at its core is about innovation and are in an industry that moves incredibly fast.” 5 This signaled that there was a belief internally at BlackBerry that its core competencies could redefine the industry with new innovations. Lazaridis solidified this notion in an interview to the Globe and Mail: “Many companies go through cycles. =ntel experienced it, =BM experienced it, and Apple experienced it.” :e went on to say, “People counted IBM, Apple, and other companies out only to be proven wrong. I am rooting that they are wrong on BlackBerry as well.” 14 In order to prove naysayers wrong, BlackBerry needed to address the immense reduction in s ales that it had experienced since FY 2011. The company sold $1.431 billion worth of hardware in FY 2015 (see Exhibit 3 ), a reduction of 91 percent since FY 2011. Further, the sale of services lost 49 percent, while software performed better with a reduction of 20 percent for the same period. 17, 18, 19, 20 EXHIBIT 3 BlackBerry Revenue Mix by Segments, in Millions USD 2015 –2017 Segments FY 2015 FY 2016 FY 2017 Software & Services 249 530 652 Mobility Solutions 1,480 884 409 SAF (System Access Fees) 1,606 779 313 Segment Totals 3,335 2,193 1,374 Source: BlackBerry (RIM) annual reports. 9 Future of the Smartphone Industry The smartphone industry had been experiencing rapid development and high growth during the past decade. There were over a billion units of smartphones shipped worldwide, which constituted more than half of total mobile phone shipments. The industry was a large one, with total industry sales revenue reaching $429 billion in 2016. Although that was a remarkable number, new trends showed that th e smartphone industry growth rate had started declining. Growth in smartphone shipments was 40 percent in 2014, down from 46 percent in 2013. 21 This trend was expected to increase in future, as growth in smartphone shipments was forecast at a 9.8 percent compounded annual growth rate for the period 2014 –2018, which constituted 1.9 billion units in 2018. 22 The primary culprit for this decrease was the low growth in North American and Western European markets. Most individuals in these countries already had smartphones, so growth was driven by replacement sales due to a low number of first -time buyers. Research showed that as much as 60 percent of sales were expected to be replacements in North America and 40 percent in Western Europe. Along with the increase in reliability and lifespan for smartphones, such replacement sales put a downward pressure on the growth rate. More importantly, only 25 percent of smartphone shipments would go to mature or developed markets by 2018. 21 As a rational response to the conditions in developed markets, smartphone manufacturers were shifting their focus toward emergi ng markets, for instance, China and India, which were the most lucrative of the emerging markets. 21 Recent developme nts had made the industry much more complex and competitive. The most significant development had been the vast reduction in entry barriers, enabling emerging manufacturers to collectively become a significant force in the industry. Low entry barriers were propelled by two trends that were expected to continue. First, Google’s Android operating system was open source software that allowed mass adoption and customization. Secondly, turnkey reference designs from chipset companies like Qualcomm and MediaTek w ere shortening the design and manufacturing process. 21 This was due to the expertise of such tech companies to provi de fully packaged solutions with certified and tested components that were ready to go. Most emerging manufacturers originated out of Shenzhen, China, and they took advantage of the low – cost supply chain of their home market and expanding sales beyond thei r borders. In December 2014, Chinese smartphone producer Xiaomi cemented its position as the world’s most valuable tech start -up, with value exceeding $46 billion. 23 The emergence of low -cost Chinese manufacturers had segmented the market into a two -tier pricing strategy. Xiaomi, Vivo, Huawei, and countless other Chinese no -name brands were making very affordable produc ts with attributes that were good enough for most consumers. Apple had branded its iPhone as a luxury good, where a huge selection of well -implemented apps and other services went a long way to differentiating the iPhone from other smartphones. Because of these features, Apple was charging a premium for its product, which resulted in high operating margins. Hust 11% of the Apple’s global market share grabbed 36% of the global end user spending on smartphones (see Exhibit 4 ).21 The emergence of Chinese players had put everybody else virtually in a “no -man’s land” between Apple and low -cost providers. As a result, average prices on Android phones had dropped, a trend that was likely to continue. In dustry forecasts projected smartphones to have an average selling price of $241 worldwide by 2018. 10 Page 256 EXHIBIT 4 The Stratagem of Value versus Volume in Smartphone Industry Source: Statistica Inc. 2017. In many respects, the smartphone industry resembl ed a duopoly. Apple and Samsung accounted for the vast majority of industry sales and for most of the profits generated by the top 10 manufacturers. 21 Nonetheless, Apple and Samsung’s dominance and profit margins would be challenged in the future, primarily because of the competition emerging from China. Chinese manufacturers were expected to ship more than 350 million smartphones in 2018. The increase in competition was squeezing industry incumbents such as Motorola, Nokia, and Blackberry, and such competition was vigorously pressuring their profit margins. Most existing smartphones were similar in design, and had touch screen capabilities, ranging from four to seven inches. The similarity in design meant that innovation in hardware was at a historic low, because new hardware had to fit existing design models. 21 Curtailed difference in hardware had increased the importance of marketing expenditures, and leading industry incumbents in Western markets were allocating more and more resour ces to brand building and advertising. Another critical success factor in the industry was intellectual property. IP strength not only protected against infringement claims, but also constituted a significant source of revenue owing to licensing agreements . By 2017, in operating systems, Android dominated with 81.7 percent market share. Apple’s iOS ranked at number 2, with 17.9 percent market share. 24 The main difference between iOS and Android operating systems was that Android was spread across a broad range of manufacturers and prices, while iOS was Apple’s exclusive operating system designed only for Apple products. Windows phones were also 11 generating some momentum and had a market share of 0.3 percent in 2017 and ranked number 3 in the industry. 25 Mobile network carriers functioned either with or without subsidies. It was a norm for mobile network operators (such as AT&T and Verizon) to subsidize, or pay, the manufacturer of smartphones to carry their products. In unsubsidized mar kets, the competition was higher, and the markets were characterized by a more open supply profile in which manufacturers had the incentive to sell directly to the end consumer and circumvent network operators. It might have been beneficial for the market if carriers committed to offering many operating platforms, because doing so would increase competition and reduce the duopoly features of Android and iOS. However, having iOS and Android in their portfolio was ultimately beneficial for carriers because it meant that they distributed the vast majority of products among manufacturers. 21 Smart Phone Industry Competitor Analysis Apple Inc. A major player in the smartphone industry is iPhone by Apple Inc. The company has a core competence in product design, software development, application development, and hardware. Apple Inc. not only targets corporations and governments as potential customers but also targets general consumers, academic institutions, and SMEs. Most of the Apple products are sold through Apple’s own retail and online stores; however, the company also utilizes indirect distribution channels such as telecom carriers, wholesalers, retailers, and value -added resellers. Another core competence for Apple is a continuous focus on R&D, in order to keep up with and lead technological advancements. Apple =nc.’s R&D expenditure was about $10 billion by 2017 25 which is more than most smartphone companies were worth. A significant source of Apple’s competitive strength is its ecosys tem. 26 Apple’s iCloud service enables users to sync a particular file or data on all Apple devices, so if one edits a photo on iPhone, the changes show up automatically on all other devices. 27 These features give Apple users an ince ntive to purchase other Apple products, because benefits and convenience of use bring value to the consumer. (See Exhibit 5 for information on the most popular iPhone models that are on the market.) Page 257 EXHIBIT 5 Selected Information on Apple iPhones (without carrier contract) Model iPhone X iPhone 8 Plus iPhone 8 iPhone 7 Plus iPhone 7 Price $999 $799 $699 $749 $649 Capacity 64 or 256 GB 64 or 256 GB 64 or 256 GB 32, 128, or 256 GB 32, 128, or 256 GB Display 5.8″ Super Retina HD 5.5″ Retina HD 4.7″ Retina HD 5.5″ Retina HD 4.7″ Retina HD Talk time Up to 21 hours Up to 21 hours Up to 14 hours Up to 21 hours Up to 14 hours 12 Intelligent assistant Siri Siri Siri Siri Siri Source: Company websites. Samsung Electronics Co. The other major player in the smartphone industry is the South Korean tech giant Samsung Electronics Co. Samsung maintains its leadership status across multiple sectors by investing heavily in R&D. In recent years, Samsung has invested $13 billion in R&D, which has led to 4,676 new patents in the United States alone. 27 Samsung has strategic resources that competitors find hard to replicate, such as substantial economies of scale, which drive down per -unit cost. The company has a very favorable cost structure because of its great efforts in vertical integration. Samsung has an aggressive pricing strategy and allocates a large amount of resources toward marketing expenditures. 28 The company is a dominant force in the Android operating system. With Android, consumers purchase and download multiple applications, similar to Apple’s app store. Samsung sells products to authorized distributors, mainly through mobile network carriers or large electronic outlets like Best Buy. Samsung offers a wide range of smartphones with low, medium, and high price points. (See Exhibit 6 for information on the four most popular Samsung smartphones that are competitors of iPhone.) EXHIBI T 6 Information on Selected Samsung Smartphones (by Verizon) Model Galaxy S8 plus Galaxy S8 Galaxy S7 Edge Galaxy S7 Price $840 $756 $670 $570 Capacity 64 GB 64 GB 32 GB 32 GB Display 6.2″ Quad 😀 + & Dual Edged Superv AMOLED 5.8″ Quad 😀 + & Dual Edged Superv AMOLED 5.5″ Quad 😀 SupervAMOLED 5.1″ Quad 😀 SupervAMOLED Talk time Up to 34 hours Up to 30 hours Up to 28 hours Up to 28 hours Intelligent assistant S Voice S Voice S Voice S Voice Source: Samsung. 28 Restructuring and Future Operations of Blackberry In March 2013, BlackBerry announced the retirement of Lazaridis a s Vice Chair. 29 After the board at BlackBerry abandoned the buyout deal from Fairfax Financial Holdings, Mr. Heins w as also ousted, and Mr. John S. Chen was brought in as CEO. Mr. Chen was previously the chairman and CEO of Sybase Inc., 13 and his background also included executive positions at Siemens AG, Pyramid Technology Corp. and Burroughs Corp. 1 In 2014, the company announced a joint venture with Foxconn to develop a consumer smartphone tailored for Indonesia and other growth marke ts. 30 By 2017, the company carried six different versions of BlackBerry smartphones. Three out of the six smartphone s were Android operated while the other half supported BlackBerry’s operating system. BlackBerry’s recent smartphone models that supported company software had the ability to download apps, through the company’s own app store “BlackBerry World,” or through the Amazon Android app store 31 (see Exhibit 7 for information regarding BlackBerry smartphones). Page 258 EXHIBIT 7 Select Info on Selected Blackberry Models (without carrier contract) Model Pa ssport Leap DTEK 60 KEYone Price $549 $218 $440 $225 Capacity 32 GB 16 GB 32 GB 32 GB Display 4.5″ Square touch display 5″ Touch Display 5.2″ or 5.5″ Fully Touch Display 4.5″ Partially Touch Display with Key Hard Board Talk time Up to 14 hours Up to 12 hours Up to 26 hours N/A Operating system BlackBerry 10 OS BlackBerry 10 OS Fully Android Fully Android Source: BlackBerry. According to Chen, the company was in a far better position than industry experts claimed. Under his leadership, BlackBerry intended to return to its core strengths that catered to enterprises with security and efficiencies. Chen’s first task as CEO was to restructure the operating units. By 2017, the company had four distinct operating units: Enterprise Software, Secure Commun ications, Technology Solutions, and Secure Smartphones. 32 Chen believed this structure would lead BlackBerry to an i ncreased focus on software services and would make the smartphones unit more efficient. The company was still the leader when it came to enterprises, with a customer base exceeding 80,000. BlackBerry also continued to remain popular with governments; seven out of the seven G7 countries’ governments were BlackBerry customers. Furthermore, the company’s BBM messaging service was released for Android and iOS users through their respective app stores. BBM had generated more than 40 million users on Android and iOS devices. 33 Chen saw great potential with BBM, and BlackBerry was expected to continue reinvesting in this techno logy to update features and channels. Looking at the revenue trajectory of BlackBerry over past few years, a dramatic drop in the company’s revenues couldn’t be ignored. Company revenues dropped from $19.9 billion in FY 2011 to $935 million in FY 2017 (see Exhibits 8 and 9 for detailed information regarding BlackBerry’s financial situation). 14 Nonetheless, in April 2017, BlackBerry’s shareholders received momentous news when the company was awarded $815 million in an arbitration against Qualcomm, which boosted the company’s share price more than 18 percent. 34 Page 259 EXHIBIT 8 Blackberry Consolidated Statement of Operations, 2017 BlackBerry Limited (United States dollars, in millions, except per share data) Consolidated Statements of Operations For the Years Ended February 28, 2017 February 29, 2016 February 28, 2015 Revenue Software, services and service access fees $ 935 $1,276 $1,854 Hardware and other 374 884 1,481 1,309 2,160 3,335 Cost of sales Software, services and service access fees 109 247 287 Hardware and other 433 936 1,349 Inventory write -down 150 36 95 692 1,219 1,731 Gross margin 617 941 1,604 Operating expenses Research and development 306 469 711 Selling, marketing and administration 553 653 769 15 Amortization 186 277 298 Impairment of goodwill 57 — — Impairment of long -lived assets 501 — — Loss on sale, disposal and abandonment of long – lived assets 171 195 169 Debentures fair value adjustment 24 (430) 80 1,798 1,164 2,027 Operating loss (1,181) (223) (423) Investment income (loss), net (27) (59) 38 Loss before income taxes (1,208) (282) (385) Recovery of income taxes (2) (74) (81) Net loss $(1,206) $ (208) $ (304) Loss per share Basic $ (2.30) $ (0.40) $ (0.58) Diluted $ (2.30) $ (0.86) $ (0.58) Source: Blackberry Financial Documents, Blackberry Inc., 2017. Page 260 EXHIBIT 9 Blackberry Balance Sheet, 2017 BlackBerry Limited Incorporated under the Laws of Ontario (United States dollars, in millions) Consolidated Balance Sheets As at 16 February 28, 2017 February 29, 2016 Assets Current Cash and cash equivalents $ 734 $ 957 Short -term investments 644 1,420 Accounts receivable, net 181 338 Other receivables 34 51 Inventories 26 143 Income taxes receivable 17 — Other current assets 55 102 1,691 3,011 Long -term investments 269 197 Restricted cash and cash equivalents 51 50 Property plant and equipment, net 91 412 Goodwill 559 618 Intangible assets, net 602 1,213 Deferred income tax asset — 33 $3,263 $5,534 Liabilities Current 17 Accounts payable $ 103 $ 270 Accrued liabilities 258 368 Income taxes payable — 9 Deferred revenue 245 392 606 1,039 Long -term debt 591 1,277 Deferred income tax liability 9 10 1,206 2,326 Shareholders’ equity Capital stock and additional paid -in capital Issued – 530,497,193 voting common shares (February 29, 2016 – 521,172,271) 2,512 2,448 Retained earnings (deficit) (438) 768 Accumulated other comprehensive loss (17) (8) 2,057 3,208 $3,263 $5,534 Source: Blackberry Financial Documents, Blackberry Inc., 2017. Software Security Competitor Analysis Blackberry’s software security division has limited competition in the software security industry as compared to the competition that the company faces in the smartphone (hardware) industry. There is a long list of companies providing a wide range of different types of enterprise security. However, Blackber ry Limited specializes in Mobile and Data Security for Enterprises. A few of Blackberry Limited’s close competitors in the mobile and data security industry are Symantec, Verizon Enterprise Solutions, and Imperva. 18 Symantec (Mobile Security) Symantec is a C alifornia -based public limited company founded in April 1982 that offers a variety of mobile security solutions, and its security software is most popularly known as Norton. 35 Symantec specializes in mobile (software) security, and its information security revenue was about $3.77 billion by 2017. Symantec is a large company and employs about 11,000 people around the wor ld. 36 Symantec is a tough competitor for Blackberry. Nevertheless, by maximizing the allocation of resources to its software business, Blackberry might be able to do better than it was doing by the second quarter of 2017. Verizon Enterprise Solutions (Data Security) Verizon Enterprise Solutions is a unit of New Jersey –based Verizon Communications that offers mobility an d data security solutions. It was founded in 2006 and renamed Verizon Enterprise Solutions in 2012. 37 Verizon Commun ications is a big player in its competitive market of wireless networks. But Verizon Enterprise Solutions is relatively new in the software security industry. No doubt a company backed by such a giant market player is a challenge for BlackberryPage 261 Lim ited, yet a well -thought – out Blackberry strategy might turn out to be a success in the long run. Imperva (Data Security) Imperva is a California -based public limited company that provides a variety of data security solutions. It was founded in 2002. 38 It employs almost 1,000 people and operates in approximately 100 countries. =mperva’s revenue for fiscal year 2017 was a bout $264 million. Imperva has also experienced financial difficulties as its stock performance has been volatile over the past years. 39 Hence, Blackberry certainly might successfully compete against Imperva. Future of Blackberry =ndustry experts believe BlackBerry’s sales are yet to bottom out, putting a strain on the company’s cost structure. In a very crowded and hig hly competitive industry, the road to profitability will not come easy for Blackberry and will certainly test the company’s managerial skills as well as strategic thinking at higher levels. With rumors and speculations surrounding the Canadian tech giant’s future running rampant, Chen released an open letter to BlackBerry users, highlighting the company’s strengths, commitment to innovation, and dedication to “earning your business —or earning it back.” 40 The letter diminished speculations regarding a potential sale of the company, but a profitable future is still uncertain. Chen has difficult strategic choices to make. N onetheless, on December 20, 2016, Blackberry reported a GAAP gross margin of 67 percent driven by tremendous growth in software and service revenue. 41 Looking at the changing momentum of BlackBerry’s leadership as well as financial inflow, an objective observer might perhaps be optimistic that BlackBerry can make a big comeback.
Hi I really need your help with a case please.
BLACKBERRY 1. Introduction /Executive summary 2. What corporate strategy should BlackBerry Limited deploy in order to maximize profitability in the years to come? 3. What do you think about CEO John Chen’s turnaround strategy options? 4. What are key forces in the general and industry environments that affect BlackBerry’s choice of strategy? 5. What internal capabilities does BlackBerry have that can be used to craft strategy? How should BlackBerry compete? 6. What generic strategy are they using. Support it with facts from the case 7. Conclusio n 8. PESTEL 9. Porter ’s five forces 10. SWOT 11. Perceptual Map

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