RIM: Time to grow up

RIM still has some hard lessons to learn.

Listening to the two companies play out their patent dispute in the court of public opinion was a bit like hearing two little kids engage in a spirited war of “did not,” “did too” after being sent to the principal's office to get their comeuppance. That's to be expected from NTP Inc., a Virginia-based patent-holding business consisting of lawyers and a few pieces of paper, but not from Research In Motion Ltd., which has become the de facto representative for Canadian innovation of the past decade. If the patent dispute has taught RIM's management anything, hopefully it is that it's time for the company to grow up.

“Clearly, RIM is a more mature, more grizzled, more battle-ready company than it was five or six years ago,” says Carmi Levy, a senior research analyst with Info-Tech Research Group in London, Ont. “This was one of the highest-profile patent fights we've seen in some time, and you can't help but emerge from that process without having learned some very hard-won lessons.”

Those lessons can't come too soon for RIM, maker of the popular BlackBerry wireless device. While the US$612.5-million settlement with NTP hurts–although not too much, as RIM had already set aside US$450 million just in case–cracks are beginning to show in the company's once invincible armour. Preliminary Q4 results show RIM won't make its revenue or subscriber numbers for the quarter ending March 4. Estimated sales are likely to be off by as much as US$60 million and subscriber numbers will be around 625,000, well off the 700,000-750,000 the firm was predicting. The reason? “Uncertainty surrounding the NTP litigation caused corporate and retail customers in the United States to defer BlackBerry purchase commitments.”

Yet RIM must recognize that future sales will be won on marketing and pricing, not just technology–a key indication of a maturing industry. And that's a tougher playground than Virginia district court. RIM, based in Waterloo, Ont., must also recognize that the BlackBerry is a corporate ecosystem of more than 4,500 employees and 4.9 million subscribers that needs to be properly managed and held accountable by its board. The current board doesn't have a single non-Canadian sitting on it–surprising given RIM's foreign expansions. “Their largest market is the States, so you would think they'd have one American director,” says Richard Powers, assistant dean at the University of Toronto's Joseph L. Rotman School of Management. “Obviously, they've done pretty well there. But in terms of compliance issues, case law, in the end it's a bunch of Canadians sitting around making those decisions.”

RIM should also consider dropping the co-CEO status of Jim Balsillie and Mike Lazaridis, giving customers and investors a cleaner management structure. During the more than six-year patent dispute, Balsillie emerged as the business face of RIM. Lazaridis is reportedly leading the firm's next technology wave, heading up a team of 1,000 engineers designing software applications such as music players and cameras to enhance the BlackBerry's capabilities. So cut the cord and make Lazaridis chief technology officer. Analyst Levy, for one, thinks RIM will finally address its management structure. “I would be very surprised if this entire case didn't lead to some redefinition of both CEOs' roles.”

If RIM wants an example to follow, it need look no further than Microsoft, now one of its chief rivals in the corporate e-mail space. Co-founder Bill Gates handed over the CEO role to Steve Ballmer in 2000 to focus on the overall technical direction of the company as chief software architect. If it's good enough for Gates and Microsoft, it should be good enough for RIM.