Lessons from BlackBerry’s turnaround on saving a struggling company: Control Shift

Lessons from BlackBerry’s turnaround on saving a struggling company: Control Shift

A year ago, the situation for smartphone pioneer BlackBerry looked dire. Most tech commentators and experts were predicting the company would be out of business by now.

A year later and, while the company certainly isn’t out of the woods, the situation is nowhere near as dire as it once was.

A lot of that is thanks to a series of management decisions put in place by the company’s new chief executive, turnaround expert and former Sybase chief executive John Chen.

If your business is struggling, there are a number of important lessons to take from the experience.

A dire situation

Last year, BlackBerry lost a massive $US965 million in just one financial quarter alone. Its revenues nosedived a massive 45% year-on-year to just $US1.6 billion. But worse still was the manner in which BlackBerry lost the money.

For years, the company failed to respond as Apple and others grabbed a growing share of the smartphone market. In 2013, it finally responded by releasing an iPhone-like smartphone without a keyboard, known as the BlackBerry Z10.

The Z10 was launched in Australia at a gala event hosted by Adam Spencer. It was the first smartphone to run the company’s completely rewritten BlackBerry 10 operating system, which was designed to compete head-on with the iPhone.

Unfortunately, when its release finally came in 2013, it was far too late to capture the mass smartphone market from the likes of Apple and Samsung. The device failed to sell in anything like the numbers BlackBerry had hoped, and the company took a massive $US934 million writedown against the unsold inventory of the very device that was supposed to save the company.

BlackBerry responded by slashing 250 employees manufacturing and R&D support teams – on top of the 2000 it culled in May 2012 and the further 3000 it let go in August of that same year.

While the pioneering tech company was haemorrhaging money, then chief executive Thorsten Heins decided to spend around $US25 million on a new Bombardier Global Express jet. Bombardier marketed those planes as allowing “most sophisticated and demanding business travellers” to fly “without compromise”.

A consortium led by Canadian investment guru Prem Watsa launched a $US4.7 billion takeover bid for the company, but failed to raise the necessary finance from the banks. Canadian government interference is believed to have blocked a rival bid from Lenovo.

Suffice to say, by the time Heins left the company with a reported $US22 million golden parachute in November of last year, many doubted the company would survive another year.

The turnaround

The company appointed Chen as Heins’ replacement in November last year. It was quite possibly the most thankless task in the tech industry at the time.

Chen quickly implemented strict new inventory controls on the company’s smartphones to prevent the sorts of issues the company had with the Z10. The aim was to get a smaller number of devices to the company’s loyal customers profitably and risk shortages, rather than creating mass orders for users who might never come.

Chen also signed a partnership with Foxconn to manufacture and distribute the company’s devices, outsourcing some of the risk to a third party. Around the same time, he announced a major management shakeout.

Aside from dealing with the inventory problem, the core of Chen’s strategy was to shift focus on to growth opportunities that built on the company’s core strengths, rather than continuing to chase after missed opportunities.

For example, BlackBerry’s app store had long suffered a shortage of apps, especially when compared to Apple’s App Store or Google Play.

Chen shut down the underperforming app and download store, switching to Amazon’s Kindle store instead. The move saw over 200,000 Android apps (such as Groupon, Netflix, Pinterest, Candy Crush Saga and Minecraft), along with ebooks, movies and music, become available to BlackBerry users.

Chen redirected those resources to new products focused on the company’s strengths in secure mobile device management (MDM) and messaging products. For example, Blackberry recently released its MDM platform as a cloud-based service in Australia.

The company also split its high-growth Internet of Things, cryptography and embedded software assets into new division.

Finally, BlackBerry released a quirky new square-screen smartphone called the Passport, designed to appeal to the company’s work-focused niche. More importantly, the smaller volumes and tougher inventory controls prevented the massive writedowns on unsold inventories the company saw with the Z10.

For struggling businesses, there are some simple lessons from the experience: Be conservative with your inventory management, don’t waste your focus on non-core businesses, and look for new opportunities to grow off your key strengths.

And for the small business owners who still loyally clutch their BlackBerries, there’s at least a little Christmas cheer (and perhaps even a Passport in their Christmas stockings) this year.

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