Who killed the Nokia phone?

Financial Mirror (Cyprus) - - FRONT PAGE -

It seems to be a law in the tech­nol­ogy in­dus­try that lead­ing com­pa­nies even­tu­ally lose their po­si­tions – of­ten quickly and bru­tally. Mo­bile-phone cham­pion Nokia, one of Europe’s big­gest tech­nol­ogy suc­cess sto­ries, was no ex­cep­tion, los­ing its mar­ket share in the space of just a few years. Can the in­dus­try’s new cham­pi­ons, Ap­ple and Google – not to men­tion titans in other tech sec­tors – avoid Nokia’s fate?

In 2007, Nokia ac­counted for more than 40% of mo­bile­phone sales world­wide. But con­sumers’ pref­er­ences were al­ready shift­ing to­ward touch-screen smart­phones. With the in­tro­duc­tion of Ap­ple’s iPhone in the mid­dle of that year, Nokia’s mar­ket share shrunk rapidly and rev­enue plum­meted. By the end of 2013, Nokia had sold its phone business to Mi­crosoft.

What sealed Nokia’s fate was a se­ries of de­ci­sions made by Stephen Elop in his po­si­tion as CEO, which he as­sumed in Oc­to­ber 2010. Each day that Elop spent at Nokia’s helm, the company’s mar­ket value de­clined by 18 mln euros – mak­ing him, by the num­bers, one of the worst CEOs in his­tory.

Elop’s big­gest mis­take was choos­ing Mi­crosoft’s Win­dows Phone as the only plat­form for Nokia’s smart­phones. In his “burn­ing plat­form” memo, Elop com­pared Nokia to a man on a burn­ing off­shore oil­rig, fac­ing a fiery death or an un­cer­tain leap into the frigid sea. He was right that business as usual meant cer­tain death for Nokia; he was wrong to choose Mi­crosoft as the company’s life raft.

But Elop was not the only per­son at fault. Nokia’s board re­sisted change, mak­ing it im­pos­si­ble for the company to adapt to rapid shifts in the in­dus­try. Most no­tably, Jorma Ollila, who had led Nokia’s tran­si­tion from an in­dus­trial con­glom­er­ate to a tech­nol­ogy gi­ant, was too en­am­oured with the company’s pre­vi­ous suc­cess to recog­nise the change that was needed to sus­tain its com­pet­i­tive­ness.

The company also em­barked on a des­per­ate cost-cut­ting pro­gramme, which in­cluded the elim­i­na­tion of thou­sands of jobs. This con­trib­uted to the de­te­ri­o­ra­tion of the company’s once-spir­ited cul­ture, which had mo­ti­vated em­ploy­ees to take risks and make mir­a­cles. Good lead­ers left the company, tak­ing Nokia’s sense of vi­sion and di­rec­tion with them. Not sur­pris­ing, much of Nokia’s most valu­able de­sign and pro­gram­ming tal­ent left as well.

But the largest im­ped­i­ment to Nokia’s abil­ity to cre­ate the kind of in­tu­itive, user-friendly smart­phone ex­pe­ri­ences that iPhones and An­droid de­vices of­fered was its re­fusal to move beyond the so­lu­tions that had driven its past suc­cess. For ex­am­ple, Nokia ini­tially claimed that it could not use the An­droid op­er­at­ing sys­tem with­out in­clud­ing Google ap­pli­ca­tions on its phones. But, just be­fore its takeover by Mi­crosoft, Nokia ac­tu­ally built a line of An­droid-based phones called Nokia X, which did not in­clude Google apps, but in­stead used Nokia maps and Mi­crosoft search.

Why didn’t Nokia choose An­droid ear­lier? The short an­swer is money. Mi­crosoft promised to pay bil­lions of dol­lars for Nokia to use Win­dows Phone ex­clu­sively. Given that Google gives away its An­droid soft­ware, it could not match this of­fer. But Mi­crosoft’s money could not save Nokia; it is not pos­si­ble to build an in­dus­trial ecosys­tem with money alone.

Elop’s pre­vi­ous ex­pe­ri­ence at Mi­crosoft was un­doubt­edly also a fac­tor. After all, in dif­fi­cult sit­u­a­tions, peo­ple of­ten turn to what is fa­mil­iar. In Elop’s case, the fa­mil­iar just hap­pened to be another sink­ing company. After hear­ing that Nokia had cho­sen Win­dows, Google di­rec­tor Vic Gun­do­tra tweeted: “Two tur­keys do not make an ea­gle.”

Ap­ple and Google should not rest easy. Like Nokia in the mo­bile-phone in­dus­try – not to men­tion Mi­crosoft and IBM in the com­put­ing in­dus­try – one day they will lose their lead­ing po­si­tion. But there are steps they can take to pro­long their suc­cess.

First, com­pa­nies must con­tinue to in­no­vate, in or­der to im­prove the chances that dis­rup­tive tech­nolo­gies emerge from within. If mar­ket lead­ers im­ple­ment a sys­tem for dis­cov­er­ing and nur­tur­ing new ideas – and cre­ate a cul­ture in which em­ploy­ees are not afraid to make mis­takes – they can re­main on their in­dus­try’s cut­ting edge.

Sec­ond, ma­jor firms should keep track of emerg­ing in­no­va­tors. In­stead of form­ing part­ner­ships with smaller com­pa­nies that suit their cur­rent business model, ma­jor firms should work with in­ven­tive startups with dis­rup­tive po­ten­tial.

Fi­nally, though suc­cess­ful com­pa­nies must con­stantly in­no­vate, they should not be afraid to im­i­tate. If Nokia had im­me­di­ately be­gun to de­velop prod­ucts mod­eled after the iPhone, while ad­dress­ing re­lated patent is­sues ef­fec­tively, the mo­bile-de­vice business would look very dif­fer­ent to­day.

Nokia’s ex­pe­ri­ence also car­ries an im­por­tant les­son for reg­u­la­tors, par­tic­u­larly in the Euro­pean Union. At­tempt­ing to quell dis­rup­tive tech­nolo­gies and pro­tect ex­ist­ing com­pa­nies through, for ex­am­ple, an­titrust cru­sades, is not an op­tion. In­deed, that ap­proach would ul­ti­mately hurt the con­sumer, both by im­ped­ing tech­no­log­i­cal progress and elim­i­nat­ing price com­pe­ti­tion – like that from Sam­sung’s An­droid de­vices, which forced Ap­ple to lower iPhone prices.

Herein lies the most im­por­tant les­son in Nokia’s fall. Tech­nol­ogy com­pa­nies can­not achieve suc­cess sim­ply by pleas­ing their board of direc­tors or even strik­ing mul­ti­mil­lion-dol­lar deals with part­ners. Which­ever company makes the con­sumer happy – whether a well-es­tab­lished multi­na­tional or a dy­namic startup – will win. Com­pa­nies that lose sight of that are doomed.

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