Post on 09-May-2015
Nokia Rise and Fall
EMSE 6005.10 – Organizational Behavior For The
Engineering Managers
Professor Andy Sakka
Abhishek Thakur
Akshat Amrut Oswal
Nokia history:
Nokia was founded by Fredrik Idestam, a mining engineer in
1865. The name Nokia was decided in 1871 when he opened his
second paper mill on the bank of Nokianvirta river. Nokia
started out with making paper which incidentally was one of the
very first technologies used for communications. Fredrik Idestam
was the chairman of the company till 1896 when he retired, and
Leo Mechelin took over as the chairman.
Under Mechelin, Nokia started a new business unit of
electricity generation. In 1898, Eduard Polon founded the
Finnish Rubber Works, which later became Nokia’s rubber
business. They were making everything from galoshes to tires. In
1912, Finnish Cable Works was established by Arvid Wickstrom,
which later became Nokia’s cable and electronic business.
In 1967, all three of these jointly owned companies came
together to form the Nokia corporation. Nokia’s first thrust in
telecommunications came when they began developing radio
telephones for the army and emergency services. During this
period, the company was involved in many businesses including
paper products, tire manufacturing, footwears, communication
cables, televisions , electricity generation machinery, robotics
, chemicals, plastics and many more. By 1987,, Nokia became one
of the leading manufacturers of TV in Europe. By 1990, Nokia
decided to concentrate its efforts on the fastest growing
business of telecommunications & leave all other companies
behind. They sold out all other business divisions.
An Era of Communication
Nokia was not a new player in telecommunication field when
they started concentrating on it in 1990’s. Instead, they had
the ball rolling from 1979 when they created a radio telephone
company Mobira Oy as a joint venture with one of the leading TV
maker Salora in Finland. They started with the Nokia DX 200
which was a digital switch for telephone exchanges. They worked
on the development of a version of exchange & Nordic Mobile
Telephony network was born.
Source: http://www.Nokiamusuem.info
In 1987, GSM (Global System for Mobile communications) is
adopted as the European standard for digital mobile technology.
This new technology revolutionized the telecommunication
industry with its high-quality voice calls, international
roaming and support for text messages.
The Growth of a Mobile Giant
Nokia truly entered a new age GSM cell phone time with
their Nokia 1011 model which was launched in 1992. During this
time, Finland was undergoing a severe economic meltdown and
Nokia was also in a severely crunched economic situation. In
1994, Nokia launched their 2100 series phones which were the
first phones with the now famous Nokia ringtone in them. Nokia
had planned a target to sell 400,000 of these phones which was a
big number at that time, but they got lucky and it turned out to
be such a huge success that they sold over 20 million devices
worldwide. This was truly the start of the ride for Nokia atop
the cellphone business.
Source: ETLA – The Research Institute of the Finnish Economy
As the graph, clearly depicts, Nokia was the clear the
gorilla in the cellphone market in 1990’s, with almost 100%
market share. As the time, moved towards the next century
competition for Nokia grew but still they were able to hold onto
their market leader position. From 1996 to 2001, Nokia’s
turnover increased almost fivefold from EUR 6.5 billion to EUR
31 billion.
With the start of the next century Nokia just kept on
growing bigger & bigger becoming the leader in the mobile
technology. In 1999, Nokia launched the Nokia 7110 which was the
first phone capable of rudimentary web-based functions including
emails. Within 2 years Nokia launched its first phone with a
built-in camera and again in September 2002 they came out with a
phone capable of capturing videos i.e. the Nokia 3650. During
this time, there was a huge number new patented technology
coming out from the Research and Development division of Nokia,
which was helping their share prices soar to the sky.
source:http://envisionip.com/blog/2012/07/19/530/
Nokia launched the 6650 with 3G technology in 2002 and by
2005 Nokia had sold its billionth phone which was a Nokia 1100
in Nigeria.In 2007, Nokia was recognized as the 5th most valued
brand in the world.
The Stumbling Giant
Originally in 2007 after the release of iPhone, Nokia
smartphones like Nokia N95 with Symbian OS outsold the iPhone
and had a dominating 62.5% market share in Q4 of 2007 ahead of
Microsoft’s Windows mobile OS and RIM’s BlackBerry. As the
competition grew fierce in 2008, Apple’s iPhone 3G hit the
market which started the rise of the new kind of smartphone
within the cellphone space. As Nokia felt intimidated, Olli-
Pekka Kallasvuo, CEO of Nokia, tried everything in his power to
tackle this new threat but Nokia’s pie was being snatched away
slowly. The graph below shows how Nokia was affected when Apple
started manufacturing iPhones in 2008. But when the iPhone 3rd
Generation phones hit the market with the new refined iOS
operating system it quickly doubled the market share for Apple
and reduced the Nokia’s share along with others. Nokia was still
the market leader with a 40.8% market share in Q4 2008 with its
new smartphone like Nokia 5800 Xpress music and Nokia E71 but
was declining.
In 2008, Nokia bought the Symbian operating system and the
following year made it open source so that more & more apps
could be developed for Symbian operating system. But this step
couldn’t turn the fortunes of Nokia as in 2009 their market
share of Symbian fell to 46.1% in Q4 2009 from 52.4% in Q4 2008.
But in 2010 everything started to fall apart for Nokia as Google
with its Android operating system along with Apple with the iOS
started to eat into Nokia’s business, and the other Symbian
makers including Samsung and Sony Ericsson decided to take up
Android as their new operating system.
In mid-2010, Nokia was the only OEM to manufacture devices
with the Symbian OS while they were contemplating to adapt to
newer Operating Systems.
WHAT WENT WRONG?
We will take use the 3 primary lenses which enable the
process to analyze where Nokia possibly went wrong. Nokia made
choices, we feel, it shouldn’t have and will note these in our
analysis below.
I) Strategy
Symbian OS was created by Symbian Ltd., which was a joint
venture between Psion, and phone manufacturers Ericsson,
Motorola and Nokia. Symbion was the most popular smartphone OS
on a global average till Q4 2010 with Nokia having Symbian as
the OS in its all flagship phones. In June 2008, Nokia acquired
Symbian Ltd. under a decision to make the Symbian OS open-source
platform so that more developers can use it to develop their
mobile apps. In February 2010, it was officially made available
as open source code. But it was a little too late as Android,
which was already open-source and freely available, and iOS has
already started to eat into Symbian market pie with their
advanced platforms & a huge number of support applications on
the smartphones. On February 11, 2011 Nokia announced
partnership with Microsoft and carry their OS i.e. Windows OS in
their smartphones. A study in June 2011 showed that over 39% of
the mobile developers using Symbian had planned to abandon the
platform for either Android or IOS. By June 2011,, Nokia had
made a deal with Accenture for Symbian based software
development and support services through 2016 which also saw
2800 of Nokia employees moving base to Accenture.
II) Technology
Nokia was a pioneer of technology in mobiles and
cellphones. Nokia came a long way to reach that state, but only
due to aging staff and technology could not stand to the new
wave of competition. Nokia. Nokia had the Mobira series from
1982-1990 which were very popular during its times. From 1990-
1999, Nokia sold the Original series of phones, which also saw
the inclusion of a newly developed GSM technology. Nokia later
went forward to production colour screen phones, digital camera
featured phones and even music capable phones. Nokia also had a
gaming series of phones which were selling like hot pancakes
amongst teenagers. They indirectly took over Sony’s walkman,
Apple’s iPod and other related product’s market share. Nokia
later had business series phones with push email and other
corporate benefitting features.
Later on they used to Symbian OS and were literally on
top of the world with their remarkably smart featured phones.
But by this time, Nokia had reached the peak of its research and
development cycles. What they needed to do was to usher in a
revolutionary new technology to continue dominating the market
after 2007. But this was brought in by a new breed of engineers
working at Apple and Google, who came up with iOS and Android
Operating Systems. Nokia still believed that it's Symbian OS was
capable of fighting this decision but eventually realized it
were not worth the fight and started looking for new OS
partners. In 2009, Nokia developed MaeMo OS, which was later
terminated in favor of Maemo OS. These OS was developed in-house
and then handed over to a contractor for developing apps for
them. Although initially it attracted developers, it lacked the
charm iOS and Android had to offer. This was when Nokia decided
to go out in the market to look for a partner for their amazing
hardware devices. After their tie-up with Microsoft for its
Mobile Platform OS Windows 7.5 Mango, Nokia launched the Lumia
series, which featured revolutionary hardware advancements. The
Nokia Lumia 1020 had a staggering 41 MP Carl Zeiss camera. Lumia
610 featured NFC which is the top of the class wireless transfer
technology. But by then Nokia was all stripped down of its
glory. Nokia also launched the Asha set in India and other
developing nations, which once were its strongholds, but they
performed averagely.
It wasn’t until January 25th, 2013 that Nokia
announced it would stop shipping Symbian phones. By then Nokia
was shipping only Windows OS based phones. Nokia had to train an
entire division of people for the task such as writing Operating
system level code to developing apps for it. In September, 2013,
Microsoft announced it will be buying Nokia’s mobile business
for $7.2 billion. This signifies the buyout of a failed company
by a giant which caused it to fail in the first case.
III) People
We have mentioned above the various CEOs of Nokia and
their valuable contribution to the company. In September 2010,
it was announced that Elop would take Nokia's CEO position,
replacing Olli-Pekka Kallasvuo, and becoming the first non-
Finnish director in Nokia's history. On 11 March 2011 Nokia
announced that it had paid Elop a $6 million signing bonus,
“compensation for lost income from his prior employer," on top
of his $1.4 million annual salary. As soon as Stephen Elop took
over he sent an internal memo to his employees which got leaked
to the press. The memo dubbed as ‘Burning platform’ was one of
its kind and regarded as one of the most ridiculous corporate
memo. Below is a glimpse of its content.
There is a pertinent story about a man who was working on an oil
platform in the North Sea. He woke up one night from a loud explosion, which
suddenly set his entire oil platform on fire. In mere moments, he was
surrounded by flames. Through the smoke and heat, he barely made his way out
of the chaos to the platform’s edge. When he looked down over the edge, all
he could see were the dark, cold, foreboding Atlantic waters.
As the fire approached him, the man had mere seconds to react. He could
stand on the platform, and inevitably be consumed by the burning flames. Or,
he could plunge 30 meters in to the freezing waters. The man was standing
upon a “burning platform,” and he needed to make a choice.
He decided to jump. It was unexpected. In ordinary circumstances, the
man would never consider plunging into icy waters. But these were not
ordinary times – his platform was on fire. The man survived the fall and the
waters. After he was rescued, he noted that a “burning platform” caused a
radical change in his behaviour.
We too, are standing on a “burning platform,” and we must determine how
we are going to change our behaviour.
Over the past few months, I’ve shared with you what I’ve heard from our
shareholders, operators, developers, suppliers andyou. Now, I’m going to
share what I’ve learned and what I have come to believe.
I have learned that we are standing on a burning platform.
And, we have more than one explosion – we have multiple points of
scorching heat that are fuelling a blazing fire around us.
For example, there is intense heat coming from our competitors, more
rapidly than we ever expected. Apple disrupted the market by redefining the
smartphone and attracting developers to a closed, but very powerful
ecosystem.
In 2008, Apple’s market share in the $300+ price range was 25 percent;
by 2010 it escalated to 61 percent. They are enjoying a tremendous growth
trajectory with a 78 percent earnings growth year over year in Q4 2010. Apple
demonstrated that if designed well, consumers would buy a high-priced phone
with a great experience and developers would build applications. They changed
the game, and today, Apple owns the high-end range.
And then, there is Android. In about two years, Android created a
platform that attracts application developers, service providers and hardware
manufacturers. Android came in at the high-end, they are now winning the mid-
range, and quickly they are going downstream to phones under €100. Google has
become a gravitational force, drawing much of the industry’s innovation to
its core.
Let’s not forget about the low-end price range. In 2008, MediaTek
supplied complete reference designs for phone chipsets, which enabled
manufacturers in the Shenzhen region of China to produce phones at an
unbelievable pace. By some accounts, this ecosystem now produces more than
one third of the phones sold globally – taking share from us in emerging
markets.
While competitors poured flames on our market share, what happened at
Nokia? We fell behind, we missed big trends, and we lost time. At that time,
we thought we were making the right decisions; but, with the benefit of
hindsight, we now find ourselves years behind.
The first iPhone shipped in 2007, and we still don’t have a product
that is close to their experience. Android came on the scene just over 2
years ago, and this week they took our leadership position in smartphone
volumes. Unbelievable.
We have some brilliant sources of innovation inside Nokia, but we are
not bringing it to market fast enough. We thought MeeGo would be a platform
for winning high-end smartphones. However, at this rate, by the end of 2011,
we might have only one MeeGo product in the market.
At the midrange, we have Symbian. It has proven to be non-competitive
in leading markets like North America. Additionally, Symbian is proving to be
an increasingly difficult environment in which to develop to meet the
continuously expanding consumer requirements, leading to slowness in product
development and also creating a disadvantage when we seek to take advantage
of new hardware platforms. As a result, if we continue like before, we will
get further and further behind, while our competitors advance further and
further ahead.
At the lower-end price range, Chinese OEMs are cranking out a device
much faster than, as one Nokia employee said only partially in jest, “the
time that it takes us to polish a PowerPoint presentation.” They are fast,
they are cheap, and they are challenging us.
And the truly perplexing aspect is that we’re not even fighting with
the right weapons. We are still too often trying to approach each price range
on a device-to-device basis.
The battle of devices has now become a war of ecosystems, where
ecosystems include not only the hardware and software of the device, but
developers, applications, e-commerce, advertising, search, social
applications, location-based services, unified communications and many other
things. Our competitors aren’t taking our market share with devices; they are
taking our market share with an entire ecosystem. This means we’re going to
have to decide how we either build, catalyse or join an ecosystem.
This is one of the decisions we need to make. In the meantime, we’ve
lost market share, we’ve lost mind share and we’ve lost time.
On Tuesday, Standard & Poor’s informed that they will put our ‘A’ long
term and ‘A-1’ short term ratings on negative credit watch. This is a similar
rating action to the one that Moody’s took last week. Basically it means that
during the next few weeks they will make an analysis of Nokia, and decide on
a possible credit rating downgrade. Why are these credit agencies
contemplating these changes? Because they are concerned about our
competitiveness.
Consumer preference for Nokia declined worldwide. In the UK, our brand
preference has slipped to 20 percent, which is 8 percent lower than last
year. That means only 1 out of 5 people in the UK prefer Nokia to other
brands. It’s also down in the other markets, which are traditionally our
strongholds: Russia, Germany, Indonesia, UAE, and on and on and on.
How did we get to this point? Why did we fall behind when the world
around us evolved?
This is what I have been trying to understand. I believe at least some
of it has been due to our attitude inside Nokia. We poured gasoline on our
own burning platform. I believe we have lacked accountability and leadership
to align and direct the company through these disruptive times. We had a
series of misses. We haven’t been delivering innovation fast enough. We’re
not collaborating internally.
Nokia, our platform is burning.
We are working on a path forward — a path to rebuild our market
leadership. When we share the new strategy on February 11, it will be a huge
effort to transform our company. But, I believe that together, we can face
the challenges ahead of us. Together, we can choose to define our future.
The burning platform, upon which the man found himself, caused the man
to shift his behavior, and take a bold and brave step into an uncertain
future. He was able to tell his story. Now, we have a great opportunity to do
the same.
Stephen.
This memo though honest, demoralized many employees. It
made them believe they are the reason why the company is where
it is now. But this memo nowhere made it clear what the exact
strategy would be. This memo also shows how irresponsible as a
CEO Stephen Elop was and its effect on the company.
Conspiracy Theory:
Stephen Elop’s career has a reputation of either leaving
soon enough or a takeover of the company he works in. He was CEO
for Elop was a director of consulting for Lotus Development
Corporation before becoming CIO for Boston Chicken in 1992,which
filed for Chapter 11 bankruptcy in 1998. In the same year, he
joined Macromedia's Web/IT department holding senior positions,
like being CEO from January 2005 for three months before they
were brought by Adobe Systems in April 2005.
He was the president of worldwide field operations at
Adobe, and resigned in June 2006, after which he became the COO
of Juniper Networks from January 2007 – 2008. From Jan 2008 -
Sep 2010, Stephen Elop was employed at Microsoft and was heading
the Business Division. His work domain included Microsoft Office
and Microsoft Dynamics line of products.
He left Microsoft in September 2010 and joined Nokia,
becoming the first non-Finnish CEO in its entire history. He
made decisions of moving towards Microsoft’s Mobile platform and
led the company into the abyss. During Elop's tenure, Nokia
annual revenues fell 40% from 41.7 Billion Euros per year to
25.3 Billion Euros per year. Nokia profits fell 92% from 2.4
Billion Euros per year to 188 Million Euros per year. Nokia
handset sales fell 40% from 456 million units per year to 274
million units per year. Nokia's A ranking among all three
ratings agencies was downgraded repeatedly all through his
tenure with no upgrades, and when he left office all three
ratings agencies rated Nokia as junk. Nokia's Fortune Global 500
ranking was 120th largest business on the planet when Elop
started and by the time he left Nokia it was at 274th position.
The sale of the handset unit to Microsoft which was later
approved by Nokia shareholders and the remaining revenues will
mean that Nokia would be kicked out of the Fortune Global 500.
Nokia’s share prices which were 7.12 Euros on the day Elop was
hired and dropped to 1.44 Euros, down by 81%. They rose by a
small margin once rumors of Microsoft’s acquisition plans
reached the market.
Elop’s Decisions
In February 2011, Elop showcased a new approach for Nokia,
shifting its smartphone policy to Microsoft's Windows Phone,
which also included the discontinuation of both of their in-
house mobile operating systems. The phase-out of Symbian was to
be carried out during the next years, expecting it to be
finalized by 2013. All programs for others devices were
terminated immediately. The first Nokia Windows Phone smartphone
was sold in Nov 2011, the Nokia Lumia 800, was made in the form
of a device design identically similar to the Nokia N9, the
first MeeGo mobile.
Elop stated the reason for switching to Windows instead of
Android: "the single most important word is 'differentiation'.
Entering the Android environment late, we knew we would have a
hard time differentiating."
During his tenure, Elop faced vocal criticism from both
industry specialists and employees. In 2011, Elop announced that
some 11,000 employees would have to be laid off as part of a
plan to "restructure" Nokia's business, and in June 2012 it was
announced that further 10,000 layoffs were in order and that
many services would have to be closed down due to budget cuts.
Experts started to speculate that Elop could be a rouge agent,
whose mission was to prepare Nokia for a future acquisition by
Microsoft. When confronted with this theory by an anonymous
attendee at the 2011 Mobile World Congress, Elop denied the
speculation stating, "The obvious answer is, no. But, however, I
am very sensitive to the perception and awkwardness of that
situation. We made sure that the entire management team was
involved in the process; everyone on the management team
believed this was the best decision," referring to Nokia's
adoption of Microsoft's Windows Phone operating system.
Speculators say that Elop indirectly prepared Nokia for
Microsoft’s acquisition and intentionally devalued the company’s
assets and image. More fuel was added to the fire, when
Microsoft announced a signing bonus of €18.8 million.
Ironically, both the deals were signed on the same day which
further made investors furious.
Process Failure:
After analyzing through the 3 lenses, we feel Nokia failed
as a whole and not due to an individual aspect. Life is a cycle,
and only thing that is permanent is change. Nokia had reached
the peak of its glory and the only way from there seemed to be
downward unless they changed their processes. Change did come
but was late and futile. Nokia had its ups and downs and now
soon enough we hope it will recapture its glory. Another outcome
of this entire debacle was some of the Nokia employees leaving
the company to create another which would produce the quality of
devices with more popular operating systems. Although this is
just the beginning only time can tell us what lays ahead for
Nokia.
Conclusion
The research in this paper digs into the role of Stephen
Elop as a contributing factor in the failure of Nokia as a
company. The conspiracy theory states that even though Stephen
Elop came from Microsoft to Nokia but against all the ethical
rules of professionalism but he continued to make decisions
which were beneficial for Microsoft. The argument is supported
by the facts and statistical data given in the paper on how
Nokia went on a downward spiral after Stephen Elop joined as the
CEO. His decisions of only carrying the Windows operating system
in all of their phones & abandoning all other operating systems
did no good for the company’s performance in the business. His
decision of not going for the Android OS after Symbian while the
other mobile carriers such as Samsung, Sony Ericson did,
eventually led to Nokia losing a major market share. The sales
of Nokia dropped over the period of his tenure which eventually
led Nokia being sold to Microsoft. Our research in this paper
digs deeper into the role of Stephen Elop in the downfall of
Nokia. We wonder what would have been if Nokia would have
embraced Android as it is the biggest smartphone operating
system in the world by far. Soon after being sold to Microsoft,
ousted employees are on the look for investors to manufacture
same quality hardware devices with a variety of Operating
Systems other than Windows.
References
http://i.nokia.com/blob/view/-/262836/data/1/-/Nokia-Articles-of-
Association.pdf Retrieved 27 October,2013
http://www.bbc.co.uk/news/business-17865117 Retrieved 27october ,
2013
http://www.scmp.com/business/companies/article/1305766/nokia-
chief-becomes-front-runner-top-job-microsoft Retrieved 27
October,2013
http://www.scmp.com/business/companies/article/1305766/nokia-
chief-becomes-front-runner-top-job-microsoft Retrieved 3
November, 2013
http://www.gartner.com/newsroom/id/2482816 Retrieved 3 November,
2013
http://www.asymco.com/2013/04/18/lumia-is-the-light-visible/
Retrieved 3 November 2013
http://www.nokia.com/global/about-nokia/about-us/story/the-nokia-
story/ retrieved 3 November 2013
http://online.wsj.com/news/articles/
SB10001424127887324432404579051931273019224 Retrieved 6 November
2013
http://www.nokia.com/global/about-nokia/about-us/story/the-nokia-
story/ Retrieved 6 November 2013
http://news.biharprabha.com/2013/09/nokia-the-journey-of-a-
company-from-paper-pulp-to-mobile-phones/ Retrieved 11 November
2013
http://www.forbes.com/sites/chuckjones/2013/09/03/the-market-
essentially-forced-microsoft-to-buy-nokia/ Retrieved 11 November
2013
http://yle.fi/uutiset/nokia_share_price_in_nose_dive_to_2_euros/
6094843 Retrieved 11 November 2013
http://tonemapping.wordpress.com/_truncated Retrieved 11 November
http://en.wikipedia.org/wiki/Stephen_Elop?idioma=galego_truncated
Retrieved 11 November 2013