Losing the Signal: The Spectacular Rise and Fall of BlackBerry (25 page)

As Lazaridis and his network specialist Mark Pecen spoke, McLennan could see the Verizon team getting impatient. Lazaridis was not telling the carrier team what they wanted to hear. “You could tell by their body language,”
McLennan says. It was going to be a long hour. “We went in with the premise that we would educate them on 4G and the shortcomings of the technology,” McLennan says. “I don’t think we were aware how far down the path they were” to investing in 4G. “We went in and talked network, and our competitors went in and talked the product they were going to build for that network. That was the disconnect.”

When Lazaridis finished, Dietel told the RIM team “Respectfully, we’ve made our decision.” Verizon would indeed be launching 4G. The investment would give the carrier the equivalent of a brand-new highway to handle data traffic that was starting to clog its existing network, and which would become further congested once Verizon was able to start selling iPhones in early 2011. It would be heavily promoting 4G phones to move customers over to its upgraded network. With his talk of preserving precious network capacity, Lazaridis was peddling an old story, and it didn’t resonate as it once had. Consumers were stampeding to buy Apple and Android devices and carriers needed to give them the bandwidth space to run. Physics no longer ruled; market realities did.

As they left the meeting, McLennan and Heins knew something bad had just happened. RIM had again failed to deliver what Verizon was looking for, and this time didn’t even seem the slightest bit interested. It was one thing to try to play catchup in the smartphone race with Apple, but here, RIM was taking itself right out of the running of the industry’s next big wave. Ultimately, Lazaridis would realize his mistake. Verizon’s chief technology officer, Richard Lynch, who pushed 4G, “was right, I was wrong. He was going to put in 4G in North America come hell or high water,” says Lazaridis.

By then it would be too late. On their flight back to North America, the key discussion point for Verizon executives was, “How do we turn off BlackBerry?”
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RIM’s largest customer “put us in a corner that day,” says a RIM insider with first-hand knowledge of the carrier’s thinking. By 2011, Verizon would shift most marketing support away from RIM phones to 4G products and to the iPhone after AT&T’s four-year exclusive ran out. RIM had failed to deliver an Apple killer when its top customer needed it or a 4G phone when Verizon wanted it. The consequences would come to haunt RIM at its darkest hour.

For the first time since the options scandal, Lazaridis was feeling invigorated about RIM. He couldn’t wait to share the news. “I have seen the future,” he wrote in an e-mail to Balsillie in October 2009. Lazaridis had found what he was looking for to secure the future of the company. RIM not only had a chance to leap ahead of Apple and Google, he felt, but could set a course for a decade of groundbreaking leadership in mobile computing.

The reason for his excitement was a brilliant and outspoken programmer named Dan Dodge. Like Lazaridis, Dodge was one of the most celebrated scientist-entrepreneurs to emerge from University of Waterloo in the early 1980s. Dodge’s company, Ottawa-based QNX Software Systems, built a program known as a microkernel that acted as the nucleus of some of the most powerful systems in the world. QNX’s technology, called Neutrino, powered the Cisco routers that ran the Internet, as well as nuclear power plants, credit card authorization systems, air-traffic control systems, high-precision medical equipment, and digital entertainment systems in luxury cars. The QNX technology was famous among industrial controls experts for its reliability and its “self-healing” ability to recover from software faults on the fly. Machines based on QNX technology had operated continuously without a software glitch for over a decade: a customer once told
Fortune
“the only way to make this software malfunction is to fire a bullet into the computer running it.”
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In 2004 Dodge sold the company to Harman International Industries and stayed on to run it. Now he wanted out from under the control of the cash-strapped stereo maker; he reached out to RIM.

Lazaridis and Yach flew to Ottawa on a company jet and met Dodge at the airport, where he pitched them on QNX. Lazaridis was smitten. Dodge was a kindred spirit—a scientist by trade and hobby who spent evenings and weekends coding and held strong opinions about his field—a “geek’s geek,” as Yach describes him. “We just got excited thinking about all the possibilities” about working together, says Lazaridis. Dodge, an excitable lanky man with a high, squawky voice and a striking resemblance to Microsoft founder Bill Gates, believed that “without software, life as we know it would grind to a halt,” he wrote in a 2006 column for a computing trade publication.
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Dodge was on a mission to show developers “the true potential” software could unleash and urged them to “ramp up their efforts to ensure the products they unleash upon the world aren’t compromised by poor design, bad code or malevolent hackers.”

Not only was Dodge a genius and a successful entrepreneur, “he was somebody that was current,” says Lazaridis. Dodge had built a system that was as secure as BlackBerry “but far more advanced, far more sophisticated, far more solid,” Lazaridis says. It was written in the fast C++ computer language using open-source industry standards, unlike BlackBerry’s closed system written in slower Java. Lazaridis was particularly excited that QNX supported Adobe Flash, used to program the sophisticated video and gaming software on the Web, as well as open-source browsers like the one made by Torch, and its software worked with the most cutting-edge computer chips. By combining QNX’s technology with the latest processors and other innovations coming to market, Lazaridis believed RIM could put an elegant, sophisticated, full computer experience in the hands of users—and put RIM back into the lead of the smartphone race. “I saw a much bigger opportunity for the future of RIM than just BlackBerry,” he says. “I saw that QNX could play a huge role in that.”

RIM began negotiating with Harman and bought QNX in April 2010 for $200 million. Lazaridis was eager to get QNX working on RIM’s next generation of smartphones—but first he had to make sure Dodge’s technology could be scaled down to a palm-sized device. By early 2010, he had a secret assignment for Dodge and the QNX team. If Dodge delivered, it would herald massive changes within RIM.

As Lazaridis gazed excitedly into the future, other RIM leaders were growing anxious about the present. With Apple and Android eating into BlackBerry’s
market share, many RIM executives, impassioned by the belief they worked for one of the most innovative and exciting companies in the world, fell into despair, feeling powerless to do anything about their company’s fortunes. Bruised by the Storm experience and confused by the apparent rift between Balsillie and Lazaridis, executives feuded more frequently over turf and for the attention of their CEOs. Some turned to Don Morrison, the company’s kindly Father Time, who had long been the de facto friend-in-need for executives. Morrison in turn referred them to Donn Smith, the unorthodox personal life coach who had helped Balsillie pull himself back from the edge during the NTP crisis. Morrison had become a disciple after Balsillie sent his wife and him to see Smith when their marriage almost unraveled in the fall of 2009. After three days in British Columbia with Smith, Morrison says the marriage was saved. He was convinced he had found the antidote for RIM’s troubled management in Smith. The company wouldn’t be able to fix its problems unless its executives could reclaim their confidence and “internal perfection” through Smith’s I Am Energy program, Morrison thought. Over the next two years, Morrison would refer three dozen RIM executives to see his and Balsillie’s personal saviour, with costs covered by RIM’s leadership training budget.

It would take more than a self-help guru to fix the issues at RIM. As Lazaridis and Balsillie struggled to chart a new course for the company, its future direction became increasingly unclear and many insiders felt they lacked leadership when they most needed it. The two-headed structure exacerbated the problems. It presented challenges at the best of times: Lazaridis was a technologist who had little patience for administration, while Balsillie disdained organizational structure altogether. Many executives had overlapping roles, with multiple people doing the same jobs, some reporting to more than one boss. Both CEOs wanted to keep alive the entrepreneurial spirit that made RIM nimble when it was outsmarting giants, but that was difficult as the company’s ranks expanded to fourteen thousand employees globally by early 2010 and it trailed in the smartphone innovation race.

Making matters worse was the departure of Larry Conlee. The chief operating officer reporting to Lazaridis ran a tight operation in product engineering and manufacturing but he always wanted more. Around 2005, he made a play to become president of the company, proposing to have Morrison and his sales and marketing organization report to him instead of Balsillie. “Accountability would have been better than it was” with the two organizations
under one leader who reported jointly to the co-CEOs, Conlee says. Lazaridis was in favor but Balsillie preferred the status quo, so nothing changed. “I didn’t really worry about it” at the time, says Conlee. “Mike and Jim … had to give something up” for Conlee to get what he was asking for.

By 2009, Conlee was in his early sixties, with young grandchildren and a new pair of knees. He was a multimillionaire, thanks to his RIM stock options. He had stayed at RIM longer than expected and plateaued in a role lacking the full responsibilities he felt he should have. With no prospect of advancement, he decided to retire that June. “I had done all I could do,” Conlee says.

Conlee left on good terms, but his departure couldn’t have come at a worse time. The ex-Motorola veteran and astute corporate politician had done more than keep operations humming. He was a leveling force between the two CEOs, ensuring they were always aligned on vision and priorities. Conlee was one of the few executives who could speak the truth to Lazaridis without fear of being thrown out of his office; and he made time every week for one-on-one meetings with Balsillie. Conlee also possessed a rare gift—what he called a “pocket veto” from both CEOs. “One of [them] once said, ‘If something blows up and you can fix it on your own, I don’t need to know about it,’ “ Conlee says. With that power, Conlee had a free hand to get things done and hold people accountable, leaving his direct boss, Lazaridis, to focus on technology. When Conlee left, so did the accountability culture he had established, and nobody replaced him in the unsung role of keeping the now fraught Lazaridis-Balsillie partnership in sync. “Larry is what made the company work,” says Aaron Brown. “Things started getting loose and lazy once he left.”

Conlee’s responsibilities and title were split between handset chief Thorsten Heins and manufacturing head Jim Rowan, both of whom he had groomed, leaving Lazaridis with two chief operating officers; a third, Morrison, still reported to Balsillie. Lazaridis’s direct reports, including software head David Yach and chief information officer Robin Bienfait, met regularly with Morrison to ensure they were on the same page, “but nobody could stand up and say ‘Okay, all opinions heard, this is the decision’ “ as Conlee had done, says a former senior executive. “It slowed the company down. It was not that people didn’t perform in their roles; it was just purely the structure that was established did not lead to good, sound, and convergent decision making.”

With Conlee gone, inertia and frustration set in at the senior levels. “There wasn’t the individual accountability that we needed,” says Morrison. “It was
too splayed because it was across three different organizations. Now, all of a sudden, Mike is trying to manage something, but he doesn’t have the genetic code Larry has.”

RIM was entering a nightmarish year. By the end of 2010, it would lose its crown as the leading smartphone platform to Google’s Android. But as RIM struggled against external forces, some of the greatest battles would be fought within the company. The two organizations reporting up to each CEO became increasingly dysfunctional silos and breeding grounds for distrust, politics, and factionalism, as layers of ambiguity and uncertainty consumed the company’s top executives. Initiatives that required cooperation among groups in different units often stalled unless they had the attention of one of the top chiefs. “It turned into a goat rodeo,” says Morrison. “We became collectively ineffective at moving from the idea stage to the conversion of an idea into a commercial success for anything other than devices.”

Paradoxically, as the company’s pace of growth dwindled compared to both Apple and Android, it was still struggling with its own success, as ever-increasing sales strained the global manufacturing network. As 2010 unfolded, the greatest source of friction between the two sides of RIM was product quality. It had been a mounting problem since at least 2006, when RIM launched the Pearl. Dirt got trapped under the tiny rollerball used to navigate the screen, gumming up its performance. The USB port on BlackBerrys often detached from the circuit board and the plastic lens covering screens on some models cracked easily, says David Van Tongerloo, who managed an independent BlackBerry repair service for corporate customers in Houston from 2006 to 2009. The BlackBerry operating system was nearly a decade old and laden with so many software patches it ran slowly and was overdue for a coding cleanup.

Product issues worsened with the Storm, and customer returns increased; a 2010 release called Torch—a hybrid touch-screen keyboard device using the Torch browser—drew complaints from customers that buttons fell off within days of purchase.
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“Storm impacted the quality of everything,” says Yach. “All products took a dive because we were spread too thin.”

RIM could hardly afford another reason to alienate customers. Balsillie had always left the science and manufacturing to Lazaridis’s side of the house, but
the persistent quality issues frustrated him. He felt something had to be done, even if it meant an unwelcome incursion onto his partner’s turf.

Balsillie’s sales leaders came to RIM’s all-executive Tuesday noon meetings stocked with product complaints from carriers, saying they couldn’t make their numbers because of quality issues, and further badgered their engineering colleagues at separate cross-functional gatherings. These meetings had always been forums for openly hashing out business issues, but now they became tense sessions that turned sales and product people against one another.

Balsillie and Lazaridis never called each other out in the Tuesday meetings as relations between their organizations deteriorated. “They were mindful of how they were being perceived” and kept any disputes behind closed doors, says Patrick Spence, who by now was one of three sales vice presidents and Balsillie’s most trusted lieutenant. But tensions between the two CEOs were evident to others. Balsillie encouraged his salespeople to press on quality issues and would chime in, “Did you get that, Mike?” to which his co-CEO would tersely reply, “I got it.”

The Tuesday noon grillings rattled Lazaridis. He felt blindsided and thought the salespeople were grandstanding. He would stop meetings when they raised quality issues and ask for more information. “What is it? Can you send me details? I need to understand,” he’d say. Lazaridis would leave the meetings steaming, then walk into a meeting with his direct reports and Morrison at 1:00 p.m. where he would let loose and demand answers. By early 2010, Lazaridis’s chiefs were telling their assistants to clear their Tuesday afternoon schedules in anticipation of long, difficult meetings with their boss. “I got the worst of it,” says Yach, an assessment shared by others. “After hearing about an issue for the first time at the Tuesday noon meeting, I’d immediately e-mail folks to get me background and updates in time for the one o’clock meeting. My most common thought [during the Tuesday meetings] was, ‘I miss Larry.’ ”

Sometimes, Lazaridis says, his direct reports would tell him they were already well aware of an issue raised by Balsillie’s side of the house and dealing with it. “It bothered me that I was hearing about stuff [from salespeople] that I should have heard from the team that reports to me every week,” says Lazaridis. Morrison says, “It became evident [Lazaridis] was losing control of some of these problems and he wasn’t getting straight answers … [or] support from people he needed.”

Identifying the problems was easy enough. An internal audit in 2010 found
“significant challenges” in the company’s product development process, including general disarray and lack of consistency from program to program, while a second audit that year noted “the quality of our handheld products does not meet RIM’s expectations, or the expectations of our carriers.” Accountability for product quality was spread across several functions and executives, complicating decision making and hampering efforts to improve quality. “The functional orientation of the Quality organization structure negatively impacts the communication and collaboration between quality teams and creates situations of competition and even conflict between groups, duplication of effort, and limits information sharing,” the second audit read.