Houston, what decision should I make?

While businesses ultimately exist to make money, I believe that they also have the responsibility to do the right thing. Unfortunately though, managers sometimes get so caught up in releasing a new product or turning a profit that they make very poor decisions. And sometimes those decisions cost people their lives. In my final blog post, I will attempt to shed light on why managers may succumb to poor decisions, and in doing so, I hope to provide a framework that helps limit mistakes. In reaching my conclusions, I analyzed NASA’s 1986 Challenger disaster.

At the heart of the Challenger disaster was a management failure. The simple truth is that the accident could have been avoided. Investigations after the accident have identified four main reasons why NASA made the fatal decision to launch the space shuttle. It’s important to note that the issues below are not unique to NASA. Countless corporations face the same set of problems and continue to make the same mistakes that NASA did back in ’86:

1) Power Issues:A 2011 CBS News article highlighted the fact that the Morton Thiokol engineers who manufactured the shuttle’s O-Rings weren’t present at critical NASA meetings because NASA didn’t directly employ them. When NASA executives wanted to launch the shuttle, the engineers were not able to easily raise a red flag. “As mere subcontractors, they had no leverage; after all NASA was their customer.”

In class, we learned that firms should take responsibility for primary activities and outsource secondary activities. One of NASA’s primary activities is operations, which includes maintenance and testing. NASA therefore should not have outsourced the O Rings supervision to Morton Thiokol. Instead, NASA should have hired top Morton Thiokol engineers and kept them in house so that they could ensure that safety concerns were voiced.

2) Complacency:Human beings are wired to become complacent after a period of time. One of the reasons why our brains use heuristics such as stereotypes is because they are a way to save energy and reach quick conclusions. Sometimes, however, our conclusions cost people their lives. After the disaster, Kutyna, a Veteran Air Force crash investigator, determined that complacency lead to the shuttle crash. For a while, NASA was “supremely vigilant for lurking hazards. [That] vigilance didn’t last.” Indeed, “saying everything is rosy can lead to disaster,” Kutyna said. People cannot take shortcuts when it comes to safety. Just because it was convenient to believe that the O-rings could operate in freezing temperatures because NASA wanted to launch the shuttle, it needed to be tested.

Relationship between temperature and O-Ring Failures

In class, we learned that one reason for Toyota’s slip in quality was due to complacency. Denise Harrison, the VP at the Center of Simplified Strategic Planning, wrote that Toyota executives no longer had its senior engineers mentor new hires so that the company could reach its ambitious growth targets. This resulted in poorer quality cars that sometimes accelerated without stopping.

3) Pressure to Launch: NASA officials were under great pressure to launch the shuttle so that it could be in space when Reagan gave his State of the Union address and so that thousands of children could watch it on television. Sometimes, the pressure to release a product can cause executives to make the rash decision to launch a new device even though there may be errors.

President Reagan and his aides observing the Challenger disaster

Similarly, RIM executives released the unfinished Blackberry Storm in 2008 so that it could ship before the holiday season. In an anonymous e-mail to David Pogue, a Blackberry team member wrote:

When you wrote that this product was released prematurely, you were absolutely right, and everybody here knew it… Internally, many of us argued that we would be hurting ourselves by rushing it out the door. Obviously, our managers disagreed.

4) Psychological Barriers: In the Challenger’s case, the engineer who described the strong likelihood for an O-Ring Failure was “silenced by the group norm of consensus to launch.” As I learned in Management 300, groupthink is when the “norm for consensus overrides realistic appraisals of alternative courses of action.” The day before the Challenger’s scheduled launch Roger Boisjoly, an American engineer, raised the objection that low temperatures increased the rate of failure. He described that he “received cold stares…with looks as if to say, “Go away and don’t bother us with the facts.”

One strategy to avoid groupthink is to assign a person to play the devil’s advocate. Another strategy is to actively encourage dissenting opinions.

In class, we learned that one key component of successful teams is when “people bring forth grim facts…And leaders never criticize those who bring forth harsh realities.”

Promoting Good Decisions

After analyzing the Challenger disaster and examining companies that have made similar mistakes, it is time to formulate a framework that promotes good decision-making. My framework revolves around specific questions that employees should ask themselves before making a major decision:

1. Does the decision that I’m about to make follow the law?
2. Is my decision consistent with my company’s values and processes? Is it consistent with my own personal values?
3. Can I openly discuss my decision with my peers? Have I taken the opportunity to discuss the possible implications with my colleagues?
4. Can I look my mom/dad/significant other in the eyes and smile after making my decision? In other words, am I doing the right thing?
5. What’s the worst possible consequence of my decision and what are the risks? Take time to evaluate your options.
6. Has a similar decision been made in the past? How did that decision turn out?
7. If I feel particularly emotional about making a specific decision, have I waited at least 24 hours to calm down before actually deciding?
8. Am I making my decision because I think it is the right decision or because I am being forced/pressured to make the decision?
9. Will my decision tarnish my reputation or my company’s reputation?
10. How would I feel if somebody else made the same decision?

I wish you the best of luck in all of your future decisions—big and small alike.

Sources consulted

• CBS News
• USA Today
• Gazette
• MSNBC
• Freakonomics blog
• A Profile of Toyota’s Production System by Scott Moore
• How the Mighty Fall by Jim Collins
• Management 300 Lecture, Lesson 17 by Lloyd Sandelands
• Note on the Value Propositon and Business Models by Robert Dolan

After Another Loss, Will RIM Ever Recover?

As reported in an article by Reuters yesterday, RIM will be forced to cut their Blackberry carrier fees (fees that corporate clients pay by using Blackberry servers for their mobile communication). Last year the revenue generated from the sale of and service fees from these servers accounted for 20% of their total sales. However, RIM lost another U.S. government client (the ATF) because the Blackberry servers which they supplied to the ATF were too slow and inflexible. 2,400 ATF employees will switch from Blackberrys to iPhones, while another 1,400 will continue to use Blackberrys, but on servers provided by AirWatch, which is currently $2 cheaper per user per month than Blackberry servers and would allow employees to use their own phones. Blackberry servers are compatible only with Blackberry mobile devices. Additionally, Halliburton has announced that it plans to switch its 4,500 employees from Blackberrys to iPhones.

To state the obvious, this is not the only bad report about RIM in the past year. RIM, once the be-all-end-all of the smartphone market with its signature Blackberry, has lost a huge part of its market share in the smartphone market to the iPhone and various Android-supported phones. Co-CEO's Mike Lazaridis and Jim Balsillie were fired in favor of Thorsten Heins in late January of this year. Two weeks prior to this change in upper management, it was reported that RIM hired Goldman Sachs to help entertain buyout offers. So the question is, why is the once-dominant RIM collapsing? There appear to be two main reasons underneath everything else.

Major Blackberry evolution from 1998-2008

The first of these reasons is complacency. At the beginning of their reign as the dominant smartphone maker, RIM was making major innovations almost every year. In 1998, the first Blackberry was a high-tech pager. Two years later is was a mobile email, internet, messaging device. By 2002, Blackberrys were officially smartphones, supporting messaging, internet, and phone calls. In 2003, Blackberrys were reinvented aesthetically, adding a sleek design and a color screen. Since then, Blackberrys have constantly changed their appearance, but functionally remain the same for the most part. Today, just as almost a decade ago, Blackberrys have email, messaging, and internet capabilities (albeit these features operate much faster today). RIM has done little to nothing in the last decade to functionally reinvent the Blackberry in order to compete with what new smartphones (namely the iPhone and Android phones) offer.

In the mid 2000's the lack of innovation did not affect RIM, as there was no real competitor to the Blackberry and RIM's corporate and governmental clients were extremely loyal. The Blackberry was a highly functional, highly reliable smartphone that was easy to use. It was the perfect phone for businesses to issue to their employees because Blackberrys did everything necessary to operate on the go (at the time), most importantly supporting mobile email. These corporate clients were happy to pay RIM to use RIM's ultra-secure Blackberry servers to operate their Blackberrys on because no server was faster or more secure, and there was no other smartphone that would need to be supported by the servers other than Blackberrys. At this point, RIM likely felt as though there was no reason for major innovations to the Blackberry. The smartphone did what its users wanted, and no other phone did it as well as the Blackberry. Instead of striving to continually reinvent the smartphone market (as Apple currently does with the iPhone), RIM became satisfied with its dominant position in the smartphone and mobile communication service markets, as well as its seemingly undying corporate customer loyalty. RIM failed to anticipate competitors entering the market and stealing market share away from the Blackberry and Blackberry servers. RIM saw no reason to change a product that was selling at tremendous levels. Yet, once the iPhone and Android phones hit the market, Blackberrys were immediately less advanced functionally. This arrogance and subsequent failure to continually improve the functionality of Blackberrys and Blackberry servers is a great example of Jim Collins' first stage of decline.

The second underlying reason that RIM is spiraling towards a collapse is that they have lost touch with their customers. Prahalad and Krishnan argue that the "N=1" pillar (delivering value to one customer at a time) is becoming increasingly important in how businesses create value for their customers. The iPhone and Android-supported smartphones address this focus on the individual consumer. Both platforms are highly customizable; almost no two iPhones or Android phones look the same after their users have had a few days to adjust the phones to their own tastes. Both phones offer an endless number of apps that customers can purchase to best suit their needs and wants.

The same cannot be said about Blackberrys. RIM offers a very limited list of apps for Blackberrys, meaning that a Blackberry is a Blackberry; what you see is essentially what you get. There is very little flexibility for a consumer to customize a Blackberry to their specific needs. Blackberrys were so dominant in the smartphone market that RIM believed they knew exactly what their customers wanted; the CVP of Blackberrys has not changed in over a decade. RIM more or less ignored the initial threat of the iPhone and Android phones, thinking that their highly functional, easy-to-use Blackberrys would weather the competition. RIM believed that the majority of their clients were looking for exactly what they were selling in the Blackberry, and that iPhones and Android phones would not appeal to corporate clients who were not concerned with a high degree of phone customization or apps and add-ons for Blackberrys. Needless to say, RIM has been proven incorrect. The N=1 focus was ignored by RIM for so long that just as they are now beginning to recognize the need for a higher degree of customization (namely by introducing more apps), software developers are reluctant to make apps for a platform that isn't selling well. By failing to recognize the need to focus on the individual customer, RIM has put themselves in a position where innovation may no longer even be possible for Blackberrys.

A leaked photo of the Blackberry 10 home screen.

As for their Blackberry servers, RIM is set to introduce Mobile Fusion later this month. Mobile Fusion is a server software component that will allow Blackberry servers to handle rival devices, a feature currently lacking from Blackberry servers. RIM needs Mobile Fusion to be the answer to its services business woes if it is to ever recover.

RIM's stock is down $51.73 (or just under 80%) from one year ago. Its total debt ratio increased 5% from 2010 to 2011. Analysts are predicting that things will not get any better for RIM, even as they are expected to release Blackberry 10 software and smartphones later this year. Some RIM investors are calling for the company to sell its handset business (its unit that produces Blackberrys) and focus on the mobile communication services market. Can RIM ever recover enough of its smartphone market share with the Blackberry, or will RIM eventually have to discontinue producing Blackberrys? Can RIM rediscover itself through innovation and become a tech powerhouse again?