Managing Explosive Growth Essay Sample
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Managing Explosive Growth Essay Sample
Over the past couple of years, Research in Motion (RIM) experienced explosive growth in both its own entity and from competitors in the Smartphone industry. The key areas of RIM’s focus are its research and development (R&D) sector and its ability to keep producing state of the art mobile devices. As RIM plans for expansion to keep its significant market share on data devices, management needs to be concerned about the approach taken to protect its cryptographic and software source code, as this is a key reason that RIM enjoys a competitive advantage. There are four alternatives to consider in managing RIM’s explosive growth:
1. Do what we do now, only more of it
2. Grow and expand existing geographic locations
3. Increase acquisitions
4. Go global
In choosing the best alternative, certain criteria had to be met which included:
* Increase recruitment of talent
* Increase research and development capabilities
* Maintain current unique organization culture
* Protection of intellectual property ie: source codes
* Financially viable
* Maintain competitive advantage
Going global is recommended to best address the labour shortfall experienced as a result of RIM’s explosive growth. This alternative allows RIM to expand R&D and maintain a competitive advantage by creating opportunities to increase its recruitment of talent and protect intellectual property (IP). Past performance has provided the financial leverage for this expansion.
In the event the recommended strategy is not proving to be successful, RIM should focus on increasing acquisitions. This option is still financially viable, although more expensive than global expansion, but it will provide RIM access to talent pools to address its staffing issues and R&D concerns.
RIM is faced with a number of critical issues that must be addressed immediately. Research & Development
In comparison with the industry standard in 2007, RIM’s R&D expenditures as a percentage of revenue are less than its key competitors:
* Nokia (12.41% of the Revenue)
* Microsoft (20.49%)
* RIM (10.59%)
This is of concern, as the Smartphone market requires constant innovation by way of R&D to remain competitive.
Apple’s innovation in its mobile phone user interface has prompted a lot of design activity among competitors. As such, RIM requires a considerable R&D budget to compete. Retaining customers
The Smartphone industry is very competitive. RIM has traditionally targeted business users looking for a secure mobile device. With new entrants to the market, RIM’s focused appeal may be insufficient to maintain a competitive advantage. Staffing Issues
RIM faces recruitment difficulties, which they attribute to a shortage of talent available in Waterloo. Attracting talent outside of Waterloo is difficult given the competitive software development industry. Growing demand from R&D is the greatest issue facing RIM. Without sufficient talent to keep innovation at a competitive level, RIM will lose its competitive advantage. Analysis and evaluation
Worldwide, the mobile phone industry is moving from a traditional telephone communication tool to a fully integrated e-mail, web browser, and organizer application in a Smartphone. With the launch of Apple’s iPhone in June 2007, the Smartphone segment of the mobile phone industry experienced increased competition. Worldwide demand for Smartphones was robust as a result of the availability of high-speed wireless networks, mobile access to corporate intranets, and the broad acceptance of e-mail and text messaging for both business and personal communications. The Smartphone industry was projected to grow from 10 percent of the global mobile market to 30 percent over five years. The growth is clear when considering in 2007 that the US enjoyed a 100% increase in user numbers with a 53% increase worldwide. Sales of units are predicted to be 500 million for 2008 and 2009 globally. The number of wireless subscriber connections worldwide reached 3 billion at the end of 2007.
China led with the most subscribers followed by US. The emerging mobile market in Asia Pacific is very attractive with a lower penetration and higher growth rate compared to mature markets such as North America. Western Europe’s mobile market was highly nationalistic with most users preferring home-grown mobile companies. Innovation and R&D spending are signals of rivals’ competitive position. The key competitors in the Smartphone industry as of 2007 were RIM, Palm, Sony Ericsson, Nokia, Motorola, and Apple. Each company holds a patent on its own operating system (OS) or a system based on Microsoft’s Window Mobile OS. Safe and secure voice and data transmission is critical to building a good reputation among consumers. The appearance, design and convenience were also considered important factors. PESTE analysis
The following PESTE (Political and legal, Economic, Social and cultural, Technological and Environmental) analysis assists in understanding the Smartphone market, its position and potential direction for strategic management decisions. Political and legal environment
Outsourcing R&D functions to developing countries raised legal issues, as source code loss, software piracy, and product imitations were noted concerns. This knowledge leakage poses a potential threat to companies relying on high technology innovation for growth. Most governments including Canada, the US, Russia and China regulated the import and export of encryption products due to national security issues. Economic environment
2008’s financial crisis in the United States lent uncertainty to the growth of the Smartphone industry. With the market downturn, investment capital for start-up firms was difficult to obtain. Less disposable income in the consumer market may result in revenue erosion. Social and cultural environment
The commercial availability of high-speed wireless networks allows the users of mobile devices access to corporate intranet, personal e-mail, and internet at any time anywhere. This has caused a change in the way people communicate with family, work, and friends. More and more people cannot live without a Smartphone as it satisfies the needs for constant social connection. Technological environment
In light of the dynamic market situation, no technological platform had become the industry standard. In order to ensure a competitive position in R&D, the competitors had to keep up with the pace of industry change. Environmental concern
A concerning environmental issues is the cluttering of landfills with obsolete devices. The innovation of new designs and materials for Smartphone production could create an opportunity for the industry. Industry Key Success Factors
The Key Success Factors (KSF) of the Smartphone industry are most notably:
1. Strong product innovation capabilities
2. First to market
3. Expertise in the changing technologies of the industry 4. Access and appeal to skilled labour pools
5. The ability to maintain the security of copy written/patented technology and source code As of 2008, RIM had developed cryptographic and software code which became the backbone of the demand for its products in the marketplace. Such innovation was built on R&D and engineering functions being the heart of the company’s operations. Of the 2,100 individuals employed in the R&D field at RIM, a vast array of specialties were represented; from radio frequency engineering to hardware and software design. As the Smartphone industry was rapidly growing and fiercely competitive, being the first product to reach the market often meant gaining remarkable market share from late arrivals. RIM had successfully differentiated its product by appealing to users seeking the security of the device’s system and had thus been first to market with a Smartphone designed for business users.
RIM is strong in KSF #1, 2 and 3; however, closely tied to these measures is the ability to access and appeal to skilled labour pools. Located in the Canadian town of Waterloo, RIM had developed co-operative programs with the local university to provide a source of skilled labour to meet its engineering demands. This has, unfortunately, produced strain on RIM’s ability to expand its R&D function to meet the exponential growth occurring from worldwide sales. Although voted one of Canada’s 10 most admired corporate cultures, it did not have recruiting systems suitable for outside of Canada. Additionally, RIM’s headquarters were insufficient to contain its growing workforce and RIM’s ability to staff its senior positions and deliver its corporate culture out of Waterloo was becoming increasing difficult. With RIM’s exponential growth, it is no longer strong in KSF#4. As a means to protect its source code, it employs a geographic security strategy whereby all R&D activities take place in Canada, thus providing quite a strong success rate on KSF#5, but with this strategy, RIM is further stymied in regards to KSF#4. Five Forces Analysis
The Smartphone industry was relatively new in 2008 and quite distinct from the existing cellular phone industry. As such, it bears a unique profile when considering the five force model of competition. The profile of the forces on the industry is similar to the profile of the forces on RIM See Appendix A for an analysis of ratings and the overall industry rating. Threat of Substitute Products
Smartphones themselves became a substitute product for existing cellular phone users and continue to gain popularity in that segment. As of 2008, there were no existing substitute products in other industries that would effectively compete with users’ needs of a Smartphone. The industry threat for this force is moderately low and that holds true for RIM as well. Within the industry, the threat of a competitor producing a substitute for RIM’s blackberry is quite high, as evidenced by the immediate demand for the Apple iPhone launched in June 2007 and the lower costs of switching Smartphone providers. This also translates into increased rivalry as discussed below. Rivalry among Competing Sellers
The Smartphone market is marked by strong competition among a number of large competitors jockeying for market share. With the explosive growth in the market, each company is attempting to launch the latest technology that will appeal to users. As such, fierce competition is seen in the R&D function, including the competition to attract the best and brightest software engineers. Companies quickly lose market share if a competitor comes out with a better product. This is the strongest of the five forces affecting the industry Threat of New Entrants
Due to the high investment in R&D required to produce a marketable device and the ability of existing competitors to launch initiatives to block the entrance of new competitors, the entrance barriers to the market are relatively high. Large companies competing in other industries which have the resource strength to overcome these entrance barriers do pose a threat, especially considering the attractiveness of the booming market. This can be seen in the recent entrance of Apple and Microsoft into the mobile phone market. Although there is some brand preference in the market, consumer loyalty is fairly weak and ultimately falls to the best design in the industry. The threat of this force is strong due to the attractiveness of the market to large outside industry competitors. Supplier Bargaining Power and Supplier Seller Collaboration
The input components of Smartphones are plentiful and are available from a wide number of suppliers around the world, many focused in East Asia. As intellectual property theft was a concern, much of the product development and chip development occurred in house (RIM’s activities occurred in Waterloo). Additionally, given the small number of very large competitors, the negotiating power in the supplier relationship lied with the purchasers. This force exerts a low threat on the industry as suppliers do not have significant bargaining power. Buyer Bargaining Power and Seller-Buyer Collaboration
A few large sellers sell to a huge number of small purchasers in the Smartphone industry, who purchase the item infrequently and in small quantities. Additionally, brand reputation is important to the buyer. Thus this force is considered a low threat for the industry Implications
RIM has expertise and is a world leader in the mobile communications market. RIM’s cryptographic and software source codes played a key role in the success of the company, delivering safe and secure voice and data transmission on which the Blackberry reputation was built. However, legal source code loss, software piracy, and product imitations are more common in developing countries. Risks to RIM’s intellectual property must be mitigated prior to taking advantage of the opportunities for growth in those countries. To match growing demand for wireless handheld and Smartphones globally, RIM should keep up with the changing competitive environment in the marketplace. Innovation and strategic arrangement to cope with new entrants, rivals, suppliers, and customers should be carefully plotted. The fierce competitive pressure from rivals could be eased by the weak bargaining power of the suppliers as a result of cost efficiency in scale economies production.
Since 2004, RIM’s annual revenue has grown from $595 million to over $6 billion in 2008. See Appendix B Revenue in fiscal 2008 nearly doubled to $6.01 billion as compared to $3.04 billion in 2007. However, throughout this period, the company’s net profit margin has only increased from 8.72% to 21.53% of revenue. Despite the increase in net income, RIM’s gross profit margin has dropped. See Appendix C The BlackBerry subscribers account base grew substantially from 500,000 people to over 14 million. RIM continued to expand in popularity with strong growth in both North American and international markets.
It had more than 100,000 enterprise customers and an estimated 42% market share in North America. Since R&D and engineering were the heart and soul of RIM, it focused efforts on R&D activities related to product development, manufacturing engineering, IT design and staffing. As a result, R & D expenditures increased by $124 million to $360 million or 5.99% of revenue in 2008 compare to $236 million or 7.77% of revenue in 2007. See Appendix D Although RIM’s R&D spending was only 30% of Apple’s in fiscal 2007, Apple’s revenue was about eight times the revenue of RIM. This indicates that Apple smartly invested and employed its R&D to keep its business growing and profitable. This is a good indication that RIM needs to develop a new strategy to grow its revenue rapidly to balance the emphasis on the R&D function. SWOT Analysis
RIM, as a world leader in the mobile communications market, needs to make strategic changes in order to keep up in this rapidly evolving industry. A SWOT analysis of the company has shown the following: Strengths:
* Company engineers continually delivering award-winning products * 270 carrier partnerships in more than 110 countries and there are over 14 million subscribers worldwide * RIM’s products attract both consumers and business professionals * Sales of BlackBerry units doubled in 2007,
* Significant increase in research and development (R & D) * One of Canada’s largest companies with market capitalization of $69.4 billion and enjoys healthy earnings per share * Cryptographic and software source code deliver safe and secure data transmission * Organizations that rely on sensitive information are early and loyal adopters of BlackBerry * First to market with “push” e-mail architecture which enhances security * Connect licensing programs enable other manufacturers to equip their handsets with BlackBerry functionality * Strong corporate culture with low employee turnover
* Talent and space are becoming increasingly scarce and attracting outside talent to Waterloo is becoming difficult * Reliance on organic growth causing a strain on engineers at the company * RIM needs to catch up with Apple’s innovation with mobile phone user interface design * Reliance of principles of “we can do it better ourselves” and use of vertical integration of technology restricts possibilities of geographic expansion and outsourcing of software development. * Core work on chip sets, software and source code and product design occurring primarily in Waterloo. * Inadequate recruitment strategies and management of applicants could be limiting prospects Opportunities:
* Potential growth demand from younger consumers, not just professionals * Partnerships with software developers
* Consumer demand shifting to smartphones with projected growth to reach over 30% market share within five years * Wireless subscriber connections worldwide reached 3 billion * Growth opportunities in China, India
* Acquisition of small start-up high tech companies to improve talent and gain core competencies * Acquisition of struggling competitors
* Analysts and technophiles eagerly awaiting next generation of BlackBerry products External Threats
* Apple iPhone setting a new standard for usability and offering substitute product * Competition in the labour market making it difficult to find qualified engineers; competition scooping up top developers in the technology sector * Cost of talent in other locations often higher than in Waterloo * Key competitors have long history of global expansion of their R & D activities, * Risk to intellectual property such as source codes in some countries outside of North America due to inadequate legal protection laws * Encryption data restrictions from certain global markets conflicts with RIM’s secure network structure
RIM’s position as a world leader is at risk as a result of internal weaknesses and external threats. The current company strengths have been significant contributors to the company’s current success. However, if the current strategy does not evolve, the company will find it difficult to keep up with competitors. Competition is fierce with the frequent introduction of new and improved products. R&D expansion and improvements will be critical to the ongoing success for RIM. Their current inability to recruit sufficient talent stands in the way of retaining their market share. Corporate and Functional strategies
RIM’s current vision conveys the message to its stakeholders that they are placing R&D costs as a number one priority to continue providing secure, fast, high quality handheld devices. However, the vision statement should be directional, showing the course that management should be taking. The statement is lacking in focus and is not entirely feasible. Management knows that R&D is a key issue in the success of RIM but is unsure on how to use it effectively. Spending X amount of dollars will not always produce the results they need in a certain time period. The overall corporate strategy carries through to the three functional areas of R&D, Human Resources (HR) and Finance. R&D is generally aligned with the corporate strategy; however it currently cannot keep up with the demand. This is directly related to HR’s inability to recruit enough new software engineers. The R&D spending dramatically increased, revenue increased approximately 98 percent from the year before but the number of software engineers essentially stayed the same. This indicates that there is a lack of communication between the finance department, R&D and HR.
The finance department needs to work in closely with all departments in order to come up with congruent strategies to meet current demands. RIM currently has a competitive advantage with the wireless platform offered to its users. The BlackBerry line of handhelds could integrate a variety of applications in one wireless solution that was dubbed “always on, always connected.” Even though competitors could easily integrate these options in their products, RIM was able to hold onto a competitive advantage by making security a number one issue where customer’s e-mail and Instant Messages are transmitted through RIM’s firewalls, encrypted and redirected to the final destination. Organizations such as the U.S. government and large financial institutions were some of the early and loyal customers. Their faith and trust in the BlackBerry has transferred into demand from everyday consumers.
RIM’s competitive advantage allowed them to position themselves strongly in the business sector. As a result, in North America, RIM had an estimated 42 percent market share of converged devices and significantly higher market share of data-only devices. At present, the difficulties in expanding its competitive position to new customers and market globally could pose a great opportunity for RIM for further growth. A strategic plan for functional-area should be in line with what customers are looking for. Once it collects sufficient information in the new market, RIM can develop a new corporate strategy and decide whether there is a necessity to diversify its product category. Discussion of alternatives and key decision criteria
In 2008, RIM had explosive growth and was one of Canada’s largest companies with a market capitalization of $69.4 billion. However, RIM needs a comparable increase in R&D expenditures to maintain its lead in the wireless communication industry. In order to compete with its largest competitors such as Nokia, Apple and Microsoft, RIM needs to hire 1400 software engineers to manage their expansion. To achieve this goal, RIM has several options that aid in the recommendation of an alternative. The key decision criteria that the chosen alternative must meet to be considered as viable for RIM are: * Increase recruitment of talent
* Increase R&D capabilities
* Maintain current unique organization culture
* Protection of IP ie: source codes
* Financial viability
* Maintain competitive advantage
Alternatives| Pros| Cons| Evaluation|
Do what we do now, only more of it| * RIM is able to maintain their unique culture. * RIM can expand co-op programs to other universities as well as increase the frequency and intensity of its new graduate recruitment efforts. * RIM can form a global scouting group dedicated to finding the best talent in the world * RIM can install a formal hiring and onboarding procedure for computer scientists by hiring in “Waves” * Stronger dollar makes Canada more attractive | * RIM has already employed the most of talented people in Waterloo. * It’s difficult for RIM to attract outside talent to Waterloo. * RIM has excellent relationship with the University of Waterloo, but it hasn’t implemented a recruiting strategy for this purpose. * It won’t allow RIM to explore a broader global expansion.| This option would be financial viable for the company. Global scouting and hiring in waves would require a smaller scale financial investment with minimal risk. It also allows RIM to maintain the current organizational culture and protect intellectual property, However, it could only be the short term solution because of the following reasons: * It would likely result in limited gains in recruitment.
* This less aggressive option may limit RIM’s ability to retain its competitive advantage. Competitors are gaining advantage with their more aggressive strategies with respect to recruitment and technological innovation.| Grow and expand existing geographic locations| * RIM has criteria for selecting new locations which have a pool of talent and universities with strong technical programs which will allow RIM to expand on its successful co-op programs and graduate recruitment initiative. * There is the availability of talented software engineers in Ottawa area because of Nortel’s massive layoffs. | * The costs of talent in various locations need to be considered. * There will be some internal resistance to expand R&D to locations outside of Waterloo. * Satellite development sites need to be set up. * There is an issue how to transfer RIM’s culture to these locations.| This option would possibly provide more opportunities to attract new talents and allow RIM to increase its R&D capabilities and retain the developers they need.
However, it will be challenging for RIM to retain its competitive advantage if it’s constantly competing with other companies in the area for local employees.Also, the corporate culture could be affected as control over product developments may no longer be centralized in Waterloo. Costs of expansion can be significant as wages tend to be higher outside of Waterloo and costs of new facilities would require a significant capital outlay. The more locations, the higher the risk of IP vulnerability.| Increase acquisitions| * RIM can bring talented people on board through acquisition and increase intellectual property. * It allows RIM to gain faster access to the growing smart phone market (R&D growth). * RIM has potential opportunities to acquire some technology and software engineering talents. * The economic slowdown has provided an opportunity to acquire struggling or start-up companies for discount prices.| * The cost of acquisition will be an issue. * It needs a huge effort to gain market shares.
* Growth by acquisition is very competitive * Foreign exchange rates could affect viability of acquisition| RIM is in a good financial position to take advantage of these opportunities. Acquiring small companies could help RIM gain market share in overseas markets and retain competitive advantage. Also, this is a good option for acquiring talent and increasing intellectual property. R&D capabilities will expand with new competencies now a part of the company. However, the existing company culture might be sacrificed and it poses higher risk of IP vulnerability.| Go global| * The demand for wireless handhelds is a global trend. * RIM can focus on R&D in countries with rapid growth such as China or India. * The labour costs are lower than Canada. * Opportunities to partner with major research institutes around the world to source top talent * Potential subscribers in China and India could grow substantially * North American growth market is levelling off where growth around the world is rapidly expanding
* Protection from foreign exchange fluctuations| * RIM wants to keep R&D closer to home. * RIM’s competitors have a long history of expansion of their R&D activities in foreign countries * There is a concern about the security of RIM’s BlackBerry source code. * Encrypted data in china should provide the Chinese government with the ability to access the keys. * There could be internal resistance from current staff at RIM. * RIM not currently set up to manage a multi-country research consortium| RIM is in a good position to make the financial investment in new global facilities that will allow them to keep up with the rapid advancements being made by their key competitors. Broader global expansion will give RIM access to significant opportunities for growth in R&D. It will provide access to talented software engineers in areas such as China and India which are gaining recognition as centres for innovation. Although organizational culture might shift with this initiative And protection of IP could be challenging, it can be resolved by drafting and executing a successful strategy. | Recommendations
Our recommended course of action for RIM is Option 4-to globalize its business by way of establishing R&D centres outside of Canada. This alternative most effectively opens new markets for talented labour and will address the issue of talent shortages experienced in RIM’s exponential growth. Also, this alternative allows RIM to establish its unique culture in the branch offices it founded, rather than risking a culture incompatibility in an acquisition or merger. Additionally, the establishment of site offices allows RIM to expand with less capital up front than by acquiring an existing company. Of concern with this alternative is the expansion of the company into territories where IP security may be at risk, such as China and India. Although both China and India have great potential for future growth and have a huge pool of trained professionals, we suggest that RIM begins its expansion in secure countries, such as the US or EU, where copyright and patent legislation is strictly enforced and governments less inclined to interfere in operations, until it can effectively devise a strategy for maintaining the security of its IP in East Asia.
Further, to protect IP security, key engineering functions should remain in Waterloo, where there is an existing geographic segregation. Other extraneous R&D functions can be farmed out internationally to the newly established site offices. In this way, should one office’s work become compromised, the segregation of Canadian and international work will protect RIM from a complete loss of all IP and thus function as a form of risk management. When determining the location of branch offices, we recommend that care be taken to select a location near a desirable metropolis with access to post-secondary institutions, thus becoming an attractive location for employees and allowing RIM to compete with other employers in international recruitment. Ultimately, with competitors better positioned to tap into the global labour market and attract top talent, RIM can no longer afford to focus its operations solely in Canada with little presence internationally. Action Plan
To implement Option four, we recommend the following actions and timeline be undertaken: What| Time Frame|
Scout locations in the US/EU which would be acceptable branch locations (tech centres such as silicon valley are recommended)| Immediately, to conclude in 3 months| Establish site office #1 – transfer non-key R&D functions to this location| 4 months| Begin recruitment for site office #1| 3 months|
Begin strategic planning for long-term expansion into East Asia – focus on security | Immediately| After the establishment of site office #1 in attractive metropolitan area, begin expansion of HR recruitment practices to target local and international talent| 6 months| Evaluate the effectiveness of site office #1 and determine if a second location is required| 1 year| Establish strategic plan for East Asia expansion and begin scouting for locations| 18 months| Establish first East Asian site office to take advantage of large, low-cost talent pool| 2 years| Contingency Plan
In the event that the strategy of “going global” is not proving to be successful, we recommend RIM looks to increasing acquisitions of other companies. This will address the talent shortage and allow the company to potentially establish a presence in other countries. Acquisitions of either technology or software engineering talent will allow RIM to address the issues they are having in these crucial areas of operation and gain competitive capabilities to bypass a time-consuming and expensive R&D effort. Growth by acquisition could be more financially viable as many small firms and technology start-ups are struggling financially and could be acquired at a discount. Appendices