Research In Motion: Case Analysis
Research In Motion (RIM) was founded by Mike Lazaridis, a graduate student from the University of Waterloo, in 1984. It designs, manufactures, and markets wireless solutions for the worldwide mobile communications market, and it is currently one of the world’s leading companies in the mobile industry.
RIM’s revenue comes from wireless devices, software and services, but handheld sales make up the majority (73%) of revenues. One of RIM’s most successful inventions, BlackBerry, has recently achieved over $6 billion in revenue. This product integrates a unique set of functions such as “push e-mail”, Instant Messaging, Short Message Service, internet, music, camera, video, radio, organizer, GPS, etc. RIM initially targeted busy professionals and organizations such as the US government and large financial institutions, who gravitated towards the BlackBerry because of the safety and security of its delivery of e-mail and because it effectively combined other business and Internet services. BlackBerry’s success with the business professional market has since expanded to the consumer market since additional features like IM, SMS, and Facebook make the BlackBerry very attractive to the general public, especially younger consumers.
The above information shows that RIM has a strategy based on differentiation and a broad target market. They differentiate themselves based on innovation, quality, and security, and aim at a broad scope in the sense that they target organizations, governments, business professionals, as well as consumers with a variety of product lines.
RIM is experiencing incredible growth, both from a revenue and a subscriber standpoint, and in their competitive, fast-paced, and ever-evolving industry, they need to maintain and effectively manage this growth. The main issue facing RIM is that they are unwilling to make significant changes to adapt to the changes in their industry and in the global market and this is hindering their growth potential. This unwillingness to change negatively affects their R&D growth, their physical expansion, and their hiring ability.
Innovation: RIM has a reputation based on being technologically innovative. This is especially important in their industry, and the fact that RIM focuses on it is a strength. A big factor in RIM’s innovation is their R&D, which they focus on to enable them to meet customers’ needs, improve the quality of their products, and stay unique in the marketplace, thus staying consistent with their strategy.
First Mover Advantage: RIM’s early entrance into the telecommunications market with push email and a focus on security gives them a first mover advantage. It allowed them to capture large market share (like the US government, large financial institutions, and business people in general), establish their brand and build brand recognition, and also gain experience that increase efficiencies.
Competent Work Force and Management: RIM focuses on hiring the best and brightest, especially developers and engineers. They mainly recruit from universities with top engineering and computer science programs, like Waterloo, and thus are able to get the best talent. This competent work force allows RIM to maintain and/or improve the quality of its products and meet the growing needs of their customers.
Culture: RIM’s culture is something that sets them apart from many technology firms. They emphasize flexibility, adaptability, collaboration, a friendly and dynamic environment, and valuing their employees. This culture has led to low employee turnover rates. Low turnover means happy employees, which in turn leads to higher quality work because people feel appreciated and valued.
Recruitment: RIM’s current hiring practices are creating difficulties in finding enough qualified people to hire. They mainly recruit out of the University of Waterloo and the surrounding area and the employee pool there is limited. They are also struggling to find more mature, experience developers and engineers in the areas that they operate in.
Limited physical space: Although they want and need many new developers and engineers, RIM currently does not have the physical space for them. This limits their ability to hire, which in turn limits the amount of R&D that is being done, leading to a decline in quality and the competitiveness of their products.
Insufficient R&D Expenditures: Despite an almost doubling of revenue, RIM’s R&D expenditures in 2007 only rose by 52.5%, dropping their R&D as a percentage of sales from 7.77% in 2006 to 5.99% in 2007. This is problematic in an industry that depends so heavily on new, innovative technology.
Local and Historical Focus: Since RIM began in 1984, management has remained adamant about growing organically, following its historic growth strategy of “sourcing from local talent pools, through employee referrals and new graduate recruitment, and making selective acquisitions of small technology companies”, and staying centered in Waterloo (including keeping all core work there) (Mazutis, 2008, p. 6). While this has worked in the past, the market is getting increasingly competitive and sticking to their current practices is limiting their ability to handle their growth effectively.
Positive Outlook for Smartphones: The demand for smartphones is very high, as there has been a shift in the telecommunications industry towards them. Market share is expected to reach over 30% in the early 2010s and the number of smartphone users and global shipments have been steadily increasing. This demand means RIM has the opportunity to increase their customer base and market share.
Acquisition Opportunities: The United States’ depressed economy has led to financial struggles for many small technology firms and even larger competitors. This provides RIM with an opportunity to acquire these small companies in order to meet their technology, R&D, and personnel needs. If these companies are international, it could also provide RIM with a way to break into these foreign markets.
Unsaturated Markets in Developing Countries: While market penetration in the United States is relatively high (87%), market penetration in places like China and India are relatively low (39% and 21%, respectively). This means the markets are not as saturated, so RIM could greatly increase its presence in those areas of the world.
Competition: Competition in the smartphone industry is increasing and a number of large players (like Google, Apple, and Microsoft) are actively pursuing RIM’s business segment. Many of RIM’s competitors have also already established R&D facilities and bases in places like China, the UK, and India. This increased competition puts pressure on RIM to maintain its market share and continue to be innovative.
Legal and Political Issues: Intellectual property protection laws are much less strict in countries like China and copyright violations, product imitation, software piracy, and government interference are much more common. Given RIM’s adamant nature regarding its security, these factors threaten RIM’s global expansion because they may have to sacrifice one of their core values in order to break into these markets.
Market Saturation: Intense competition in the industry coupled with high market penetration (87%) and low growth in the number of new customers (9.5%) in the US means that the US market (where RIM derives 57.9% of its revenues) is basically saturated. This could threaten RIM’s revenues and growth.
Employee Pool Competition and Limitations: The market for qualified employees in RIM’s industry is also getting increasingly competitive. Big players like Apple, Google, and Microsoft are hiring many developers and engineers, offering compelling recruitment packages, and even targeting RIM’s hiring pool from the University of Waterloo. Also, many of RIM’s competitors have already set up international hiring networks that allow them to tap into a new employee market.
Recommendation & Implementation
RIM’s unwillingness to make significant changes to adapt to their changing industry and competitive environment is, as mentioned before, limiting their growth potential and is hindering their ability to effectively manage the growth they are experiencing. By remaining adamant about keeping all core work in Waterloo and growing “organically” they are restraining their R&D (a crucial area of their business) mainly because these practices lead to space shortages as well as engineer and developers shortages. To solve these problems, we recommend that RIM expand its R&D facilities into foreign countries. This will not only break them out of their limiting, historically focused ways, but it will solve their R&D expenditure, space, and hiring problems as well.
RIM currently has a few R&D facilities internationally (in the US and England) and customer service and sales and marketing operations in places like France, Italy, Hong Kong, and Germany. However, we believe that the scope of these operations, especially R&D, is too small. RIM needs to expand R&D facilities more aggressively into new and strategically chosen markets that will meet their technical, human capital, and space requirements. Although expanding within North America could be an option, the market saturation, growth in number of customers, and hiring pool situation are not favorable, so it makes more sense to expand into regions that have more potential in terms of market share, potential employees, and space. Thus, while North America is currently RIM’s main market in terms of revenue share, they need to focus on other markets, like Europe, Asia, and South America for future growth. Launching in these new markets will be crucial going forward and will enable RIM to reach its obtain the customers, employees, and market share they need to stay competitive.
Another potential site for establishing R&D operations would be China. The market there is huge as far as subscribers and potential employees are concerned and is not currently very saturated (only 39%). However, with China, one runs into the key problem of government interference. The Chinese government is very controlling, especially when it comes to information and encrypted data, both of which are very important to RIM. One of RIM’s distinguishing factors is that they are differentiated based on security and if they were to move into China, RIM would very likely have to give up some of this security to appease the government. This would be inconsistent with their strategy, so this route is not advisable.
The situation in South America and Europe is quite different. There is no close control of the telecommunications industry and more freedom is given to operators and companies entering the market. This creates a more favourable environment for RIM because it means they do not have to sacrifice their security in order to establish themselves in the market. These regions are also favourable because they too have large populations and thus many potential customers and employees. We therefore recommend that RIM pursue R&D expansion into South America and Europe. As part of this expansion, we recommend that RIM build new partnerships with universities in the areas that they expand into.
Within South America and Europe, we believe that the most favourable locations for RIM to expand into are Brazil and Russia. The ideal locations in these countries will need to meet the criteria that RIM outlined for selecting new expansion locations including having an already established pool of potential candidates with a mature skill set, having a strong technical university in the area and having an existing base of technology companies.
The location in Russia that best fits these criteria is Moscow. It is home to both Moscow State University and the Moscow Institute of Physics and Technology. They both offer high calibre IT programs, with Moscow State University being considered the best scientific and educational institution in Russia (Knowledge Exchange Institute, 2010). These schools offer the RIM management team selection of up to 40,000 applicants for jobs (Lomonosov Moscow State University, 2010). This is a huge University market, and it is on par with Waterloo enrolment. With this large market, Moscow is a prime location to establish a branch of R&D in Russia alongside heavy recruitment practices. The barriers to starting a business are similar to that of starting a foreign business in Canada and Russia is looking for foreign investment to help their economy grow (Legal and Tax Overview, 2005; Ogutcu, 2002). Both these factors make Russia a strong choice for RIM to expand its R&D into. Although it’s population does not rival that of China, it does give a market of approximately 142 million citizens (World Bank, 2008). Also, the amount of censorship by the government is significantly lower than in places like China and India, so RIM can feel secure in maintaining the secrecy of its current Blackberry code. With limited barriers to entry this project can potentially be implemented in the short-run. An additional benefit of choosing Russia as an R&D base is that because of its closer location to China and India (compared to Waterloo), RIM will have an easier time tapping into the vast consumer and employee markets in these countries without actually having to establish facilities there. So overall, with its strong universities, large employee pool, favourable market conditions, and location, Moscow makes a good choice for a new R&D facility.
In Brazil, the location best fitting RIM’s criteria is Sao Paulo. The University of Sao Paulo enrols over 88,000 students, with 65% being in undergrads in multiple engineering and information technology programs (University of Sao Paulo, 2009). This area could increase RIM’s global share in the market place substantially. Developing countries are often subject to the phenomena of ‘brain drain’ (the idea that skilled and knowledgeable individuals leave the country and move to more economically and professionally appealing countries) so setting up operations in Brazil would help reduce this trend in Brazil by keeping Brazilian people in Brazil (Carrington & Detragiache, 1999; Merriam-Webster, 2010). This is beneficial for Brazil but also for RIM because it can help create goodwill within the country and possibly improve their position in that market. The diversification of lifestyle and culture in Brazil could also lead to promising new innovative ideas on the current Blackberry product. By setting up R&D in Brazil RIM would be making a positive commitment to the economy of Brazil. This also provides the benefit to RIM of an untapped mobile market of approximately 194 million citizens (World Bank, 2009). Censorship is an issue in Brazil, although not to the extent of China or India, but it is still a hurdle that RIM would need to address. Thus, given Brazil’s vast population and potential work force, Sao Paulo would be a sound location for RIM to establish future research and development facilities.
In both of these markets, we recommend that RIM implement the R&D expansion by relocating current managers and employees to help build the new R&D facilities. These employees will be responsible for transferring the core-competencies and culture of RIM’s current operations into these new and exciting markets. This is, in our opinion, the most effective way and the way that has the best chances to succeed in transferring both their unique culture and their proven practices. Another key to the success of the expansion will be the ability for RIM to attract new grads from the aforementioned universities. Possible techniques for attracting these new grads could involve paid internships, on-campus recruitment, workshops, and the like. Although setting up physical presence in these two markets will be more capital intensive than hiring employees cross-border, the benefits that they provide in terms of market share and access to potential employees outweighs these costs. Also, based on expected revenues and projected net income for 2008 ($6 billion and $1.3 billion, respectively), it is evident that RIM has the financial resources necessary to tackle this scale of global expansion.
In order to remain competitive in the industry and effectively maintain their growth, RIM needs to take a more aggressive stance on global expansion. We recommend they do this by establishing R&D facilities in Moscow, Russia and Sao Paulo, Brazil and building recruiting relationships with the universities in each city. Both of these locations have the population, the universities, and the space needed to solve RIM’s problems of insufficient R&D expenditures, workforce shortages, and limited physical space. Choosing to expand into these locations also solves RIM’s main problem of being unwilling to make significant changes to adapt to the environment because it shows commitment to moving beyond their historical practices while still staying true to their culture, vision, and strategy. In an industry like the telecommunication industry, which is constantly changing and very competitive, it is vital that a company stays on top of the competition and keeps pace with their company’s growth and our recommendation will allow RIM to do both.Order Now