Hey there, time traveller!
This article was published 24/9/2013 (1010 days ago), so information in it may no longer be current.
EDMONTON -- As a Canadian, I feel a disheartening sense of déjà vu watching BlackBerry's death spiral. Canadian insecurities are in full flood at the moment and blood lust is running hot. There seems to be an unquenchable desire to sacrifice another national champion.
Canadian media are saturating the airwaves with a fatalistic message. BlackBerry is finished; it must be broken up and sold for scrap. Seems to me the media have convicted BlackBerry of that most heinous crime: flying too close to the sun.
Let's not underestimate BlackBerry's difficulties. The company is hemorrhaging; it has chopped 4,500 jobs, written off a billion dollars worth of inventory and abandoned large parts of its market. Its stock has shed a further 16 per cent of value and analyst sentiment is universally negative. There is no doubt the company is facing an existential crisis; the next few moves will be critical.
The smartphone maker said Monday it had struck a deal to be bought for $4.7 billion by a consortium led by Fairfax Financial Holdings Ltd. BlackBerry's board approved the terms subject to numerous conditions.
Setback is the kindest word to describe the appalling situation at BlackBerry. But strategic setbacks can (and do) happen to companies everywhere. In fact IBM, Apple and Sony all suffered much greater strategic setbacks in the past than BlackBerry is suffering today. Apple had to be rescued from certain bankruptcy by Microsoft in the late 1990s and Sony has had decades of failed products and declining market share. The advantage these companies had was they didn't have to suffer a national neurosis. Canadian pessimism is creating a cruel fait accompli for BlackBerry and its investors.
Louis V. Gerstner, Jr., former CEO of IBM, knew a thing or two about salvaging iconic companies. He inherited the CEO role in IBM in the early '90s with a mandate to (basically) wind it up. In the case of IBM, its mainframe computer sales had fallen off a cliff and it had fumbled the personal computer revolution. By 1993, IBM was headed for the corporate boneyard. Like BlackBerry today, Wall Street analysts were convinced the company should be sold for parts.
Turnarounds are expensive and they're risky: but that's exactly what Gerstner did. He analyzed the company's assets (traditional and nontraditional), he took particular note of IBM's global brand and vast store of human capital. After taking stock he realized: "any other company would give their eyeteeth for our position and capabilities -- we're not giving up; we're going to control our own destiny." The IBM turnaround was completed in a few years and the company is back among the giants of global business.
Gerstner had a famous saying in those days: "In real estate it's location, location, location but in business it's differentiate, differentiate, differentiate." In other words taking aggressive risks, leading business to a new place and doing so in ways that separate the company from its competitors is the key to corporate success.
Unfortunately, those are not typical Canadian values. Canadians tend to avoid risk -- we're nervous if we're too visible. We like going with proven methodologies -- let others take the early risks. It would be very Canadian to blow up BlackBerry, cut and run, simply because we lacked the courage to take risks and withstand what could be a very public failure.
The survival strategy being employed by BlackBerry is predicated on the numbers. Earnings are way down and CEO Thorsten Heins plans to cut operating expenses by 50 per cent in order to make the numbers look better. Regrettably, nobody's ever cut their way to the kind of turnaround BlackBerry needs. But then again Heins's golden parachute means he has 55 million reasons not to make the effort; it's far more profitable for him to break up the company and sell it off for scrap.
Today BlackBerry has significant assets; it remains one of the world's most iconic technology brands, it has a strong core following and competitive advantages in key emerging markets. In fact BlackBerry already has a significant differentiation in the security of its network: If you want the NSA or possibly your competitors listening to your phone calls, use the other guy's devices.
The fact is, the company's treasury is full, and although its human capital is being flushed down the drain to save money it still remains world class. More importantly the company has nothing to lose. This is not a time to let Canadian insecurities overwhelm common sense, it's time to seize the initiative, for BlackBerry, its investors and for Canadians' pride of place in the competitive world.
Robert McGarvey is an economist and co-founder of Genuine Wealth.