Management at WorkThe Not-So-Smart Phone Company“We would say, ‘We know better, and they’ll eventually figure it out.’”—Former BlackBerry executive on customer relations at RIMDuring the run up to his first inauguration, in 2009, president-elect Barack Obama was informed by security advisors that his beloved BlackBerry smartphone was a potential security risk. Hackers and spy agencies, they warned him, might figure out how to get into his e-mail. “They’re going to pry it out of my hands,” joked Obama, but he was adamant about his phone privileges, and security officials ultimately gave in. For one thing, BlackBerry was already known for such features as Secure Work Space and was the phone of choice for business leaders in security-sensitive positions. In addition, it was possible to modify the BlackBerry with enhanced encryption, and Obama soon became the first president to be connected by e-mail.In 2014, however, the White House Communications Agency announced that it was testing smartphones from Samsung and LG for future use by administration officials. President Obama would be holding on to his BlackBerry, but the announcement was bad news for the Canadian maker of Blackberrys, especially coming on the heels of a $423 million loss for the quarter ending on March 1. The company’s U.S. market share had also plunged to 3 percent—down from 43 percent just four years earlier. What had happened to the corporate inventor of the smartphone and one of the world’s most influential technology companies?Arguably, bad decision making.In 1999, Research in Motion (RIM), as the company was originally known, released the first version of its mobile e-mail device. The RIM 5810, with a tactile keyboard and preinstalled app for e-mail, became an instant hit—indeed, a cultural icon—and in the next decade, RIM would become the global leader in mobile e-mail communications. The BlackBerry was designed for and marketed to business customers—the executives who ran corporate IT programs and selected devices for use by all of the company’s employees who needed to stay in constant touch. RIM management assumed that mobile e-mail adoption would follow the same pattern as so much previous technology: Like the typewriter and the computer, the BlackBerry would win over business users and then extend its reach to individual consumers.Unfortunately, the world was on the verge of a revolution in technological diffusion: It’s commonly called the consumerization of IT, and it means that the adoption process started to flow in the opposite direction—from consumers to corporate buyers. New products like the iPhone (which was introduced in 2007) and Androids (2008) caught on with consumers, and although they came with a lot of extraneous apps, businesses began to consider them because employees were so attached to them.When it was first introduced, RIM co-CEOs Mike Lazaridis and Jim Balsillie publicly dismissed the iPhone as a potential threat to their product line. Said Balsillie: “It’s kind of one more entrant into an already busy space with lots of choice for consumers. … But in terms of a sea-change for BlackBerry, I think that’s overstating it.” According to some insiders, BlackBerry management suspected that iPhone technology was superior, but Lazaridis and Balsillie continued to express confidence in the BlackBerry’s security features and, especially, its tactile QWERTY keyboard: “Try typing a web key on an iPhone touchscreen,” suggested Lazaridis. “It’s a real challenge—you can’t see what you type.” As late as 2012, Lazaridis would hold up a BlackBerry for his board to see: “I get this,” he’d say. “It’s clearly differentiated.” Then he’d hold up a touchscreen phone: “I don’t get this,” he would declare. Lazaridis saw no reason to abandon RIM’s core corporate customers in order to cater to the perceived needs of consumers in a rapidly crowding market.It’s important to point out that the Apple iPhone had been developed in collaboration with Internet provider AT&T. Its touchscreen was more responsive, its browser was faster, and it was loaded with more apps, and it wasn’t long before it was being touted as a “BlackBerry killer.” As early as July 2007, RIM had been approached by AT&T competitor Verizon with a plan to develop an “iPhone killer” (which would feature a touchscreen and no keyboard). When the BlackBerry Storm was released in November 2008, however, customers didn’t like it. The touchscreen was awkward and the processor was slow. “The technology,” admitted one RIM executive, “was cobbled together quickly and wasn’t quite ready.” RIM abandoned the Storm, and Verizon turned to Motorola, which succeeded in adapting Google’s new Android operating system to its Droid phone, which came out in 2009 with a user-friendly interface.Not only was the Droid itself immensely successful, but Android quickly became the most popular mobile OS, with Android devices now outselling those with Windows, iOS, and Mac OS combined. Within 14 months, Android’s market share had climbed from 5.2 percent to 23.5 percent, while RIM’s share dropped 10 points, to 31.6 percent. A year later, Android commanded a 47.3 percent share and RIM a mere 16 percent.Back in 2007, when he first opened up an iPhone to have a look inside, Lazaridis, an engineer who’d founded RIM in 1984, was surprised to find that the device broke most of the rules that he’d helped to write. For one thing, the iPhone had a fully Internet capable browser—one of two—and its Android OS took up 700 megabytes. RIM’s OS, which had been designed in the 1990s, ran on one processor and used 32 megabytes. “I said, ‘How did they get AT&T to allow that?’” Lazaridis later recalled. He was certain that the iPhone would overstrain the network of its wireless partner. AT&T, however, was preparing to ride the consumerization wave. “There was a time,” says former RIM executive VP Patrick Spence, “when wireless carriers tried to keep data usage predictable. Then, when the iPhone became compelling, they shifted to. … trying to drive much more usage in different packages.”BlackBerry users told RIM that they wanted features like those on the iPhone, but RIM held on to the business rationale that it had pioneered—the one which operated on the assumption that the value of a smartphone lay in its hardware rather than in its software applications. Says a former company insider:We believed we knew better what customers needed long term than they did. Consumers would say, “I want a faster browser.” We might say, “You might think you want a faster browser, but you don’t want to pay overage on your bill.” “Well, I want a super-big very responsive touchscreen.” “Well, you might think you want that, but you don’t want your phone to die at 2 p.m.” We would say, “We know better, and they’ll eventually figure it out.”Case QuestionsOnce the iPhone and Androids had penetrated the market, RIM faced a serious challenge: It had two distinct groups of customers to which it had to market its products. What were those two groups, and why were their needs and wants incompatible? Explain how this situation put RIM in a state of uncertainty. What risks did it face in making decisions to respond to this situation?When RIM decided to incorporate personal apps into the BlackBerry, developers were required to use the company’s Java-based operating system, which had been created in the 1990s. In addition, they were required to submit apps for prior approval. Several apps—including Instagram and Tumblr—went elsewhere. Explain this problem as a problem in bounded rationality. Judging from what you know about RIM from the case, in what other ways would you say that RIM decision makers were hampered by bounded rationality?Hersh Schefrin, a pioneer in the behavioral aspects of financial decision making, studies how a specific set of psychological traps snare decision makers, causing them to make inferior decisions. [Two] of the most common are excessive optimism [and] overconfidence. … People learn to be excessively optimistic and overconfident. This means that successful people over-estimate their past successes, which feeds these biases. Judging from the details of the case, show how these two forms of “bias” affected decision making at RIM. How might RIM’s “inferior decisions” have been avoided if executives like Lazaridis and Balsillie had applied the steps in rational decision making?