Shareholder Wealth Maximisation

Management of an organisation are faced with a number of objectives they can pursue, for example sales maximisation, profit maximisation, market share dominance and social responsibility. But which is the most appropriate? It is argued, for publicly listed companies, that management should focus on making investment and finance decisions that maximise shareholder wealth. Doing so is believed to encourage goal congruence throughout the organisation and create a competitive market as everyone fights for investment opportunities, as well as encouraging potential investors and discouraging existing shareholders from using an exiting strategy. But is shareholder wealth maximisation as simple as the concept seems?

Research in Motion (RIM), the company behind BlackBerry, recently announced the long awaited arrival of the BlackBerry 10 operating system and two new handsets (the Z10 and Q10). After a difficult few years, in which BlackBerry’s market share dropped from 19% in 2010 to 4% in 2012, the new operating system and handsets are aimed to rival it’s major competitors (the iPhone and Android phones), saving the company and maximising shareholder wealth at the same time. But how effective is BlackBerry’s strategy?

BlackBerry rose to success by providing a phone suitable for corporate business workers who needed to keep in touch with colleagues and clients on the move. The original products had a QWERTY keyboard that made replying to emails quicker and simpler, whilst providing a secure network in which messages can be sent via. It’s safe to say at the height of it’s popularity; BlackBerry understood the needs of the corporate market and met them almost perfectly.

Young consumers looking for a cheap way to communicate with their friends soon caught on to BlackBerry’s free instant-messenger service, known as BBM, and the company’s popularity began to grow within a new market segment. This diversifying consumer base meant that BlackBerry now had to consider the needs of young consumers as well as those of their corporate customers.

The Q10 and Z10 are aimed to compete with the iPhone and Android phones, allowing BlackBerry to become a significant player in the smart phone market once again. However, although the capabilities of these phones are a significant improvement for BlackBerry, they are still playing catch-up with their rivals. So, was this the right move for BlackBerry?

Upon the release of BlackBerry 10, the organisation’s shares fell by more than 6%, suggesting the market does not fully believe that this will be BlackBerry’s saviour, and I have to agree. The new BlackBerry Q10 is designed with corporate consumers in mind as it provides a traditional QWERTY keyboard BlackBerry was originally known for.  Whilst the Z10 is aimed with individual consumers in mind by providing a simple touch-screen phone many of its rival’s process. Producing two different handsets with two different consumer bases in mind seems a sensible strategy in principle, but I believe this may lead to BlackBerry’s downfall.

In my opinion, BlackBerry have spent too long and too much capital on developing a handset and an operating system that can meet the needs of two different consumer demands, which has resulted in a price equal to that of the iPhone 5 but a product that is still playing catch-up in it’s capabilities. In order to maximise shareholder wealth, and ensure it’s survival, BlackBerry needed to release a product that would outshine all others on the market and neither the Z10 nor the Q10 have done so. Although the phones may prove popular amongst loyal BlackBerry fans that have been awaiting this release with anticipation, I do not feel that the products will attract new or previous BlackBerry fans to the brand, and the organisation cannot rely on their existing market base to drive them into the future.

BlackBerry should have focused solely on producing a phone tailored exactly to the needs of the corporate customers and worked on successfully re-building their market base before trying to diversify to meet the needs of other consumers. The strength of the BlackBerry has always been their networks and security, and it feels as though the organisation has forgotten this fact and tried too hard to be like every other product on the market.

The future of BlackBerry is uncertain and I think only time will tell the extent to which this investment succeeded, but at present it doesn’t look positive. If I were a shareholder, after seeing the reaction to the product, I would be seriously reconsidering my position within the organisation, as I cannot see anyway in which this investment will provide good returns.