Losing the Signal: The Spectacular Rise and Fall of BlackBerry (26 page)

Figuring how to fix quality proved more daunting. Part of the problem, says Yach, was that the company had millions of stockpiled units and parts that had been made when quality problems were at their worst. Yach figured the best way to improve customer perceptions was to stop selling the older devices, but “as a management team we didn’t make that decision.”

When Balsillie raised quality issues in private with Lazaridis, “I don’t recall a heated conversation, but I do recall Mike saying, ‘This stuff is really, really hard,’ “ says Balsillie. “Mike refused to acknowledge that we had any material technical issues, to the point that he would miss meetings so that he didn’t hear the negative feedback and hoping that we would not discuss it in his absence. That was wishful thinking, and I personally didn’t think we had any way around it. If anything, everyone was counting on Mike to see the flaws first and fix them as soon as possible.”

Lazaridis says he recognizes the company had challenges but largely dismisses the issue, saying it would be common to any company that was growing as fast as RIM, juggling multiple versions of products for hundreds of carriers. “Yes, we had legitimate business quality execution problems,” he says. “Anybody does, with a complex product.”

Lazaridis’s chiefs, pressured by their boss, Morrison, and, indirectly, Balsillie, realized they had to do something. They struck a task force to root out the causes of quality issues and fix them. But Morrison grew frustrated by the lack of progress. “You could never find someone who would stand up and take accountability,” he says.
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“I wanted to know who was responsible for product introduction. I wanted to see attribution lists [detailing specific reasons for product returns], understand the most egregious problems, who was dealing with them.” Where Morrison expected straight answers and action plans, he says the task force instead delivered complex slide presentations without a
clear path to fixing the problems. “I don’t think the task force was a very effective group,” he says.

By mid-2010, Balsillie was losing patience. He decided to bring the quality issue to a head, exposing the board to the extent of the growing rift between the two CEOs. That June, Balsillie, Morrison, and his sales vice presidents—Craig McLennan, Rick Costanzo, and Spence—took over a board meeting, held at Langdon Hall, a luxury resort-spa located in a nineteenth-century estate mansion near Waterloo. The retreat was supposed to be about the company’s global operations and led by director and strategy expert Roger Martin. Instead, Morrison and the sales VPs forced their own agenda on the meeting, detailing quality issues they felt weren’t being addressed. Balsillie cued them along and pressed Heins to respond. For the most part, Heins sat silently, getting redder, according to observers. Lazaridis walked in late—he claims not to have been invited—and immediately became defensive. When Heins said he was confident the company could turn around its fortunes in the United States, Balsillie shot back: “Would you bet your house on it?” Heins said no.

Balsillie and his team were troubled by the reaction of directors, who were reluctant to take sides or challenge either of the company’s builders. “Jim was always complaining about something,” says one person close to the board. Other than Antonio Viana-Baptista, a former telecom CEO who Balsillie had recruited to the board, the directors asked no questions, according to Balsillie, Spence, and McLennan. “I was so disappointed by that,” says Spence, who Balsillie by then had earmarked to the board as a potential successor. “You expect a higher level of engagement, passion, excitement, and interest” from the board—particularly “if I was identified as a high potential person and somebody that was important to the organization.”

Concerned by the apparent disinterest among directors, Balsillie brought the quality issue to a second board meeting that summer. At that encounter, “Mike dismissed the severity of the quality issues” and said everything was “under control,” says Balsillie. “The board accepted Mike’s representation almost on faith, and I wasn’t going to seek a pointless showdown with him then and there, so they just moved on. I don’t think the board quite ever accepted” the depth of the problem, Balsillie says. “Everybody is going, ‘Our stuff is great,’ and I’m going, ‘We’re going to get killed.’ I said to the board, ‘We can halve the size of the company as easily as double it…. We’re deluding ourselves here.’ ”

To those insiders who witnessed the quality debate but weren’t aware of the prior tensions between the CEOs, it was alarmingly clear the relationship between Balsillie and Lazaridis had gone cold. “It was a shock to Mike that [they] would be so vocal about quality in front of the board, and Mike was blindsided,” says Yach. “Absolutely” it was an affront to Lazaridis and his team, says another person at the Langdon Hall meeting. “From my perspective, that was as much of an affront as I’d seen at any point. You could see the tension between the two sides of the company.”

“You’re looking at the company and saying, ‘It’s dissonant and you guys stopped getting along,’ “ says Balsillie. “Yeah, well, it had to do with this infestation of cockroaches, okay? We all got irritable when there were eight billion cockroaches in the house. Before there were cockroaches, all was fine. When the structure changes, everybody struggles.”

As the quality debate raged, Balsillie turned his attention to another dilemma: how to protect and build RIM’s nondevice revenues. RIM’s supremacy in wireless e-mail had left carriers beholden to paying for access to its complex data traffic system. RIM increasingly relied on those fees; they accounted for $2.2 billion of revenue, or 14 percent of the total, in the year ended February 27, 2010. But because the fees had significantly higher profit margins than handsets, they accounted for most of the company’s $2.5 billion net income.

That left RIM in an awkward position against Apple and Google. Apple made money selling songs, movies, e-books, and apps to iPhone customers—content that consumers willingly bought. Google wanted Android on as many smartphones as possible to increase the reach of its powerful and popular advertising-supported search service. RIM’s dominant source of extra revenue, by contrast, was fees extracted from reluctant carriers, who despised paying them.

Balsillie and Lazaridis knew these digital revenues were under increasing threat. Carriers for years had pressed RIM to lower the fees. iPhones and Android devices were drawing market share from RIM, and they didn’t charge fees, as the carriers constantly reminded the RIM bosses. Furthermore, Google incentivized the carriers to push Android devices by giving them its 30 percent cut from each app sale. Microsoft had also weakened one of RIM’s longstanding competitive advantages. RIM built the BlackBerry system around
a program that extracted e-mail from Microsoft Exchange servers and “pushed” it to devices through its network. RIM’s lead in push e-mail was untouchable until Microsoft changed its e-mail software in 2006, enabling other smartphones, including Apple and Android products, to send and receive messages over the Internet without having to go through RIM’s expensive Relay system. The smartphone e-mail service provided by Apple and Google wasn’t as secure or instantaneous as RIM and used more data and battery power, but for most consumers it was good enough. Carriers were locked into contracts with RIM to continue paying the service access fees, but that wouldn’t last forever—particularly since RIM engineers knew Microsoft would eventually force RIM to use its new program, called ActiveSync, to deliver e-mail the same way as Apple and Android.

To Balsillie, it was vital to grab greater control of RIM’s digital platform and install an experienced leader to expand its offerings of apps, games, media, and new digital services such as electronic payments. He thought he found the answer after RIM director Roger Martin reintroduced him in January 2010 to Jim Tobin, a Harvard Business School classmate who worked at a variety of telecommunications and technology companies. Balsillie hired Tobin that month as a senior vice president, thinking he was getting an experienced executive who would add critical content and services to RIM products to keep up with competitors. Instead, Tobin’s arrival exacerbated divisions at the top levels of the company. By the time Tobin left eighteen months later, his name would be one of those linked with dysfunction at RIM’s highest levels at the time.

Tobin came to RIM with an impressive pedigree. A classmate of Balsillie’s at Harvard, Tobin had worked as a consultant at McKinsey before moving to vice president posts at Bell Canada, AOL, and Comcast Cable. He was intelligent and polished, speaking in abstract, big-picture terms “at a higher plane of existence than a lot of people,” says Jeff McDowell, a senior vice president who reported to Tobin. But in a company where small-town values still defined the culture, Tobin rubbed many people the wrong way—especially Lazaridis. “RIM had never had anybody like him before,” says McDowell. “He was the first guy to come in and talk vision and strategy” other than the co-CEOs. It didn’t help that Tobin regularly cited his credentials and the famous CEOs he’d encountered and constantly dropped Balsillie’s name, saying he was carrying out some agenda or other on behalf of the CEO. Tobin would liberally invoke their relationship at Harvard, leaving the mistaken impression
they were still close. Once he casually mentioned he’d recently had dinner at Balsillie’s house, a story that spread rapidly throughout the company and left a bad taste with many people denied such an intimate audience. “It was insecurity coming in at a senior level in a company where most of the guys had worked together for years,” says Tobin. “It was amateurish for me” to cite credentials “in a place where nobody really cared about anything other than what you were doing for them, for RIM or for RIM’s customers.”

If Lazaridis chafed at an executive seen as “Jim’s guy,” Balsillie also didn’t think much of a senior executive that Lazaridis had recruited, his old friend David Neale. The long-time Rogers executive who had helped steer Lazaridis to wireless data in the 1980s joined RIM in April 2010 as a vice president, advising the founder on strategy and marketing. Neale and Balsillie disliked each other. Balsillie viewed Neale as an unquestioning yes man at a time Balsillie believed his partner needed to confront hard truths about the business. Neale in turn didn’t think highly of Balsillie’s behavior and brusque manner. “He and I did not enjoy an easy relationship,” says Neale. To other senior executives, Tobin and Neale seemed like two more wedges distancing the CEOs from each other. “The seeds [of division] I think were sown by the kind of people they were bringing on the team,” says Spence. “You see the distance because of the people they’re hiring; they’re not aligned on who is the right person for the organization.”

Personality and style notwithstanding, Tobin was thrust into a difficult situation in his new job. Tobin didn’t meet Lazaridis until he started; at their first encounter, the founder grilled Tobin on his high-tech experience and declared that Tobin should really be working for him and not Balsillie if he expected to oversee a software business.
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“I realized every single meeting I had with Mike I had this awkward position of being a direct report to Jim in a meeting where Jim wasn’t there and I didn’t really know the status of their relationship at any given moment,” says Tobin. “I spent a lot of time with [Lazaridis] going, ‘So what exactly are you supposed to do?”

Complicating matters was the fact that the job Balsillie gave Tobin was occupied by someone else: Alan Brenner, a veteran Silicon Valley software engineer and executive who had run part of the Java business for Sun Microsystems before joining RIM in 2007. Brenner created the BlackBerry app store and was responsible for the business performance of the platform division—until Balsillie convinced Lazaridis to let his side of the business take over that responsibility. Under Balsillie’s direction, Tobin was to assume bottom-line accountability
and leave Brenner in charge of product development. Brenner continued to report indirectly up to Lazaridis; Tobin reported directly to Balsillie.

It was the kind of split that may have made sense in the past, emulating the division that defined the company from the co-CEOs down. But the state of relations within the company and mix of personalities doomed the arrangement from the start. “These were very challenging competitive moments for RIM,” says Brenner, who credits Balsillie for identifying value-added services as the correct strategy to counter Apple and Android. “Regrettably, his [Balsillie’s] instructions were somewhat vague and Jim Tobin and I ended up with different interpretations of what was to be done.”

Brenner was unwilling to give up part of his responsibilities and didn’t get along with Tobin. It took them months to negotiate the transfer of responsibilities and executives; Tobin wanted to control project management and set the road map for what services and apps would be developed, but the two never reached an agreement and that role largely stayed with Brenner. “I think Alan assumed that my job was to market and sell whatever [apps and services] he wanted to build, and my instructions were that he needed to build to what I required,” says Tobin. “Because the roles and responsibilities weren’t clear, it created some conflict. Alan felt he was capable of handling the business side as well as the technology side.” Balsillie didn’t agree—he felt Brenner should stick to technology—and Lazaridis didn’t care; when Tobin tried to escalate the issue to both Balsillie and Martin, he was redirected to Yach, Brenner’s boss, who sent him back to work things out with Brenner.

To many it made no sense to split the responsibilities between two people; it just caused confusion and gridlock. “Those two jobs aren’t really separate,” said McDowell. “Tobin wasn’t looking for Brenner to tell him what to do, and Brenner wasn’t looking for Tobin to tell him what to do…. The net result is a stalemate.”

As Lazaridis began speaking to a conference hall full of customers, developers, and carriers in Orlando on April 27, 2010, he betrayed none of the turmoil and conflict that was opening fault lines throughout RIM. “At BlackBerry, we love what we do, and what we do comes down to one thing: making the BlackBerry experience more useful and accessible to as many people as possible
for both work and play,” Lazaridis said in his keynote address to the company’s annual Wireless Enterprise Symposium. He ended his presentation by inviting will.i.am of the pop group Black Eyed Peas, BlackBerry ambassadors who had several other corporate sponsorship deals, onstage to extol the virtues of the company’s devices.