The Story of Nokia

8/3/2019 The Story of Nokia

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THE STORY OF NOKIA

In 1865, mining engineer Fredrik Idestam sets up his first wood pulp mill at the Tammerkoski Rapids in south-

western Finland. A few years later he opens a second mill on the banks of the Nokianvirta river, which inspires

him to name his company Nokia Ab in 1871.

In 1898, Eduard Poln founds Finnish Rubber Works, which later becomes Nokias rubber business, making

everything from galoshes to tyres.

Nokia rubber boots become a bona fide design classic, still on sale to this day though Nokia no longer make

them.

Electronics go boom

In 1912, Arvid Wickstrm sets up Finnish Cable Works, the foundation of Nokias cable and electronics

business.

By the 1960s, Finnish Cable Works already working closely with Nokia Ab and Finnish Rubber Works starts

branching out into electronics. In 1962, it makes its first electronic device in-house: a pulse analyser for use in

nuclear power plants.

In 1963, it starts developing radio telephones for the army and emergency services Nokias first foray into

telecommunications. In time, the companys MikroMikko becomes the best known computer brand in Finland.

And by 1987, Nokia is the third largest TV manufacturer in Europe.

Three become one

Having been jointly owned since 1922, Nokia Ab, Finnish Cable Works and Finnish Rubber Works officially

merge in 1967. The new Nokia Corporation has five businesses: rubber, cable, forestry, electronics and power

generation. But as the 1980s come into view, its an entirely new industry that makes Nokia a household name

around the world.

By the late 1970s and early 1980s it seems everything from Tom Sellecks moustache to JR Ewings list of

enemies is seriously big. And as the mobile communications revolution starts to gather momentum, the early

handsets continue the trend.

The new Nokia Corporation is ideally placed to take a pioneering role in this new industry, leading the way with

some iconic and by todays standards, very large products.

The mobile era begins

Nokia sets the ball rolling in 1979, creating radio telephone company Mobira Oy as a joint venture with leading

Finnish TV maker Salora. 1981 then sees the launch of the Nordic Mobile Telephone (NMT) service, the worldsfirst international cellular network and the first to allow international roaming.

The NMT standard catches on fast and the mobile phone industry begins to expand rapidly. In 1982, Nokia

introduces the first car phone the Mobira Senator to the network. That same year, the Nokia DX200, the

companys first digital telephone switch, goes into operation.

Good enough for Gorbachev

In 1984, Nokia launches the Mobira Talkman portable car phone. Resembling a military field telephone, its a

fairly cumbersome piece of kit but its a start.


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Then in 1987, Nokia introduces the Mobira Cityman, the first handheld mobile phone for NMT networks.

Despite weighing in at 800 grams and a price tag of 24,000 Finnish Marks (around EUR 4,560), it goes on to

become a classic. The Cityman even earns a nickname, the Gorba, after Soviet leader Mikhail Gorbachev is

pictured using one to make a call from Helsinki to his communications minister in Moscow.

In 1987, GSM (Global System for Mobile communications) is adopted as the European standard for digital

mobile technology. With its high-quality voice calls, international roaming and support for text messages, GSM

ignites a global mobile revolution.

As a key player in developing this new technology, Nokia is able to take full advantage.

A new direction

On July 1, 1991, Finnish Prime Minister Harri Holkeri makes the worlds first GSM call, using Nokia equipment.

And in 1992, Nokia launches its first digital handheld GSM phone, the Nokia 1011.

That same year, new Nokia President and CEO Jorma Ollila makes a crucial strategic decision: to focus

exclusively on manufacturing mobile phones and telecommunications systems. Nokias rubber, cable and

consumer electronics divisions are gradually sold off.

Name that tune

In 1994, Nokia launches the 2100 series, the first phones to feature the Nokia Tune ringtone. Based on Gran

Vals, a classical guitar piece composed by Francisco Tarrega in the 19th

century, it is probably one of the most

frequently played pieces of music in the world. The Nokia 2100 series goes on to sell 20 million phones

worldwide. Nokias target had been 400,000.

1994 also sees the worlds first satellite call, made using a Nokia GSM handset.

Snake bites

In 1997, everybody knows their Snake high score. An instant classic, the addictive game is launched on theNokia 6110 and by 2010 its successors are available on an estimated 350 million mobile phones.

On top of the world

By 1998, Nokia is the world leader in mobile phones. The strategic decision to focus on telecommunications,

plus early investment in GSM, has paid off. Between 1996 and 2001, Nokias turnover increases almost fivefold

from EUR 6.5 billion to EUR 31 billion.

And with the new millennium comes a host of new possibilities as the internet goes mobile

Multi-tasking mobiles

In 1999, Nokia launches the Nokia 7110, a phone capable of rudimentary web-based functions, including email.

Then in November 2001 Nokia launches its first phone with a built-in camera, the Nokia 7650, and in

September 2002 its first video capture phone, the Nokia 3650.

However, its when Nokia launches its first 3G phone (third generation), the Nokia 6650, in 2002 that things

really take off. With 3G technology, phones can now be used to browse the web, download music, watch TV on

the move, and more.

Mobiles will never be the same again.


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One billion and counting

In 2005, Nokia sells its bill ionth phone a Nokia 1100 in Nigeria, and global mobile phone subscriptions pass 2

billion. Two years later, Nokia is recognised as the 5th

most valued brand in the world.

Things have come a long way since Fredrik Idestam opened his paper mill.

Treading lightly

In contrast, Nokias position in the mobile market faces its toughest challenge to date as competitionintensifies in the burgeoning smartphone segment. Once again, the companys ability to adapt is put to the

test

By 2010, having dominated the mobile world for over a decade, Nokia no longer has things all its own way. In

the all-important smartphone market, competitors such as the iPhone and Android-based devices now pose a

serious challenge. Clearly, its time for a rethink

A fresh face at the helm

In September 2010, Nokia appoints Stephen Elop as President and CEO. Formerly head of Microsofts business

division, following roles at Juniper Networks and Adobe Systems Inc., Elop has a strong software backgroundand proven record in change management.

A meeting of minds

In February 2011, Nokia announces it is joining forces with Microsoft to strengthen its position in the

smartphone market. The strategic partnership sees Nokia smartphones adopting the new Windows 7 operating

system, with the Symbian platform gradually being sidelined. The goal is to establish a third ecosystem to rival

iOS and Android.

The industry has shifted from a battle of devices to a war of ecosystems. Stephen Elop, President and CEO,

Nokia

Let battle commence

Nokia launches its first Nokia with Windows phones, the Nokia Lumia 800 and the Nokia Lumia 710, in October

2011.

As one analyst puts it, even in the highly technical field of mobile phones and operating systems, it is wise to

remember that users are still human. A lot of times, the success of a product depends not so much on how

many cool features it has; it is simply a matter of how the product makes the user feel. If Nokia wants to

change the game to its advantage, it is no longer enough just connecting people. It should be more like

amazing people.


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ANNEXURE 1

CHART SAYS IT ALL

This chart from Asymco tells the sad story ofNokia, which is losing out on the smartphone revolution to Apple,RIM, and HTC.

As you can see, Apple's rise is almost exactly mirrored by the fall inNokia in the last three years.

This chart also makes the case for Apple being the clear winner of the

smartphone wars, despite the rapid growth of Android.

That might have been true over the last three years, but more new phonebuyers are signing up for Android than Apple. So, the next three years

might be radically different


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ANNEXURE 2

Turnaround trouble

It seems with a new CEO at its helm, Nokia is set for a turnaround. The Finnish giant has dumped its long time OS

Symbian and has tied up with Microsoft for their Windows 7 OS. Nokia is now ready to roll out its new Smartphone with

Windows 7 this fall. It has also made a deal with Mosaid-a Canadian patent licensing firm. The company launched 3

new Smartphones using their old OS Symbian with upgrades. Why cling to this OS when clearly, it has not proven to

be compatible with the Smartphone segment? Is it a surprise that this company has lost its relevance in todaysSmartphone market? This distraction aside, allow me to say that there are more problems that plague this company

that make the picture look dismal.

In North America, Nokia just hasnt created the buzz. What was the last time you remember seeing a Nokia ad

anywhere? Lets assume this new phone goes on the market and does fairly well. But is there a robust App repository

that can support this phone? Compare Nokias 50,000 apps to Apples 425,000 (June 2011). During my last trip to

India, I noticed a kind of respect that consumers have for the Nokia brand. It makes a person feel good owning a

Symbian-based Nokia feature phone in markets like these. But how long will it last? As the emerging markets move

towards Smartphones, they are attracted to Apple and Android devices- not Nokia. The challenge is also from the low

cost manufacturers in the emerging markets. Chinese manufacturers such as Huawei, ZTE, and Lenovo are rapidly

chipping away at the market share competing solely on price.

Also, Nokia tying up with Microsoft for Windows 7 makes me wonder, why not go with Android instead? If the company

puts all its bets on an outsourced OS, why not go with the most robust and tested OS on the market? I also dont

believe that Nokias troubles are due to a lack of innovations. I think it is more because of mismanagement, and

absence of single-minded focus on user experience.


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ANNEXURE 3

NOKIA SQUEEZED

Rising competition in China and Europe has forced Nokia to cut its prices, contributing to the second-

quarter sales miss, Mr. Elop said. He singled out Google's Android operating system as a major source

of Nokia's current troubles in both regions

In fact, Elop announced on May 31 that company's second quarter of 2011 will come in substantially

below expectations. The outlook is so dismal that Nokia disavowed its forecasts for the rest of the

year. We have speculated in the past that Nokia's management bureaucracy stifled innovation. The

new article in Business week (Stephen Elop's Nokia Adventure) has a lot more empirical evidence:

For a moment, Elop, 47, lays into the complacency he sees settling over the company. When he asks

how many people in the crowd use an iPhone or Android device, few hands go up. 'That upsets menot because some of you are using iPhones, but because only a small number of people are using

iPhones. I'd rather people have the intellectual curiosity to understand what we're up against.' Finally,

after emphasizing that he believes mismanagementnot a lack of innovationis what ails the

company"

From hi-fi sounds to water proof phones, interesting innovations abound at Nokia:

On his visit to Salo, Elop was shown a hi-fi speaker that encloses a phone, giving a richer sound.

Another engineer handed him a phone and asked him to toss it into a tank of water. When the


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engineer dialed its number, the device, still submerged, rang. A nanoscale coating makes electronic

parts water-resistant. "

However, few of the innovations came to market because of management:

"This kind of stuff has been sitting around people's desks, because it's too hard to get anything done

around here," Elop says. "If we can get some of this to marketthat's what gives me confidence.

Mismanagement seemed to start from senior leadership (Ex-CEO):

Recent history has hardened employees to the opportunities of a new era. "Under OPK, you could

work on something for four years" before a decision was made to halt it, says Tuomas Artman, a

former employee and Nokia contractor. OPK is Olli-Pekka Kallasvuo, the former CEO frequently

accused by ex-Nokians of running a politicized, indecisive organization.

Even in well managed organizations, it may be necessary to halt ongoing R&D projects if the market

realities or competitive pressures change. However, the leadership should be able to communicate

these changes to employees and need to be held accountable for their decisions. This was definitely

not the case at Nokia:

On Sept. 21, his first day, Elop sent an e-mail to every employee asking what they thought he should

change, what should be left alone, and what they feared he wouldn't understand. There were more

than 2,000 responses, mostly about accountability. (One of Elop's favorites: "At Nokia, everybody and

nobody is accountable for nothing.") Elop personally responded to each one, and word got around

that the new boss was serious about addressing their concerns.

An interesting side node about Elop's interesting change management style: He clearly has engaged

the employee base, shown a sense of urgency and personal commitment. Many of the traits we have

been discussing about effective organizational change. The real challenge for Elop is to instill

accountability in the organization (more on it below). Back to the R&D management, Elop quicklyrecognized that Symbian was a significant problem:

Most of these problems could be traced back to Symbian. Never beloved by users, it became

hopelessly buggy as Nokia tried to make the 10-year-old dog pull off iPhone-like tricks.

Nor did Nokia have a coherent effort to develop a developer community for Symbian:

And while Apple and Google have created software tools that help outside developers to easily create

apps, Nokia's equivalent tools gave developers fits. "Developing for Symbian," says Artman, the

former Nokian, "could make you want to slice your wrists."

The root cause of this seems to be a lack of a single driving vision (like that of Steve Jobs) to help

prioritize what features to focus on:

Until last month, the company hadn't delivered a single new smartphone on time or without major

software glitches since 2009, in part because of delays as scores of different hardware teams lobbied to

get their pet capabilitya new camera, saybuilt into Symbian.

Another root cause is the lack of focus on user experience. The amazing factory and ability to crank

out cutting edge hardware seemed to treat software as just one component. This lack of

integration allowed Apple and Google to gain market share:


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And while Apple and Google focus on making one operating system to power a wide variety of

devices, software at Nokia had been seen as just one more "component" to enable hardware teams to

craft their latest models. "The terminology shows the mindset," says Mark Wilcox, a former Nokia

engineer. "The focus was on the phone, because Nokia had this amazing factory that could crank out

100 million units a year if you got a hit."

The last root cause (at least for this post) seems to be a lack of R&D portfolio management processes.

As the link shows, the lack of results was despite large R&D investments. In fact, Nokia invested

almost 6.2B Euro in Symbian in 2010 - more than 10 times the total R&D budget at Apple. The factthat the company had no visibility into the product pipeline or the R&D portfolio is even more

shocking:

Elop drew out what he knew about the plans for MeeGo on a whiteboard, with a different color

marker for the products being developed, their target date for introduction, and the current levels of

bugs in each product. Soon the whiteboard was filled with color, and the news was not good: At its

current pace, Nokia was on track to introduce only three MeeGo-driven models before 2014far too

slow to keep the company in the game.

So, instead of having a live dashboard to look at status of the entire R&D pipeline, the CEO had tocollect information through interviews and phone call. I wonder how accurate that information was!

As if that is not enough, the chief development officer was also unaware of the development status:

When they finally spoke late on Jan. 4, "It was truly an oh-s--t momentand really, really painful to

realize where we were," says Oistm. Months later, Oistm still struggles to hold back tears.

"MeeGo had been the collective hope of the company," he says, "and we'd come to the conclusion that

the emperor had no clothes. It's not a nice thing."

I wonder who is going to be held accountable for a complete lack of R&D portfolio management!

Maybe that can be the first order of business for the new CEO. Back to R&D management: clearly,

Nokia needed to remove unprofitable projects from their portfolio and that is what they decided to

do (illustration via engadget):


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Overall, this looks like a good R&D strategy from Elop: Eliminate low-return R&D and focus on core

business of low cost phones:

Windows-based smartphones are the first stage of Elop's three-part comeback plan. One huge

incentive for dumping Symbian was to cut the company's bloated costs. With an estimated $1.4 billion

annual savings from discontinuing Symbian, he says he will invest more to protect and build Nokia's

massive low-end phone business in emerging and yet-to-emerge nations in Asia and Africa, which

brought in 33 percent of Nokia's sales in 2010.

The third priority seems to be investing in disruptive innovations by setting up skunkworks:

It's a fully sanctioned skunkworks, with teams in Helsinki and Silicon Valley, staffed by top technical

talent from the discontinued Symbian and MeeGo efforts, especially MeeGo. That initiative began

when Nokia hired a crew of inventive open source evangelists in 2009 with orders to dream up

entirely new devices. A few months later they were reassigned to develop a replacement for Symbian.

The goal, as Elop told a group of engineers in Berlin on Feb. 29, is once again to "find that next big

thing that blows away Apple, Android, and everything we're doing with Microsoft right now and

makes it irrelevantall of it. So go for it, without having to worry about saving Nokia's rear end in thenext 12 months. I've taken off the handcuffs.

The key challenge here is going to be the same - effective R&D portfolio management processes. Even

if there are disruptive innovations in skunkworks, industry's record of successfully integrating them

in developed products is weak at best. Hopefully, Elop's superpower will help him through this

challenge:

"It was classic Stephen," says Myerson, who worked for Elop at Microsoft. "His superpower isn't his

great intuitive judgment. It's his amazing ability to create a transparent, fast process that reasonable

people can feel good about."


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ANNEXURE 4

Nokia Under Siege in Global Mobile Phone Markets

From Shanghai to Johannesburg, a flood of cheap mobile phones from companies like ZTE of China and

Micromax of India is destroying Nokias top position in emerging markets.

Compounding the troubles of Nokia, the Finnish phone maker, Asian manufacturers are increasinglyturning to freeAndroid software from Google, which is popular with operators and consumers in cut-rate

markets.

Nokia is already under pressure in the high-margin smartphone sector as Apple; Research in Motion, the

maker of BlackBerry devices; and Google seize market share, leaving the basic cellphone business as

Nokias most valuable part. That is now under threat.

Three years ago Nokias position in emerging markets looked impenetrable, but low-cost chip sets and

growing scale has helped a number of Asian manufacturers to price aggressively and seize market share,

said Geoff Blaber, an analyst at the mobile communications research firm CCS Insight in London.

The lean, mean phone-making machine that used to dominate the sub-$50 space has come under huge

pressure from agile rivals, he said.

Last week, Nokia abandoned hope of meeting key targets just weeks after setting them, blaming difficult

conditions in China and Europe. Its shares slumped 18 percent in one session on skepticism about its

strategy of teaming up with Microsoft for Windows Phone software in the smartphone war.

The battle for the cheap phone market could get even tougher.

Nokia has been able to rely on its brand and distribution chain across emerging markets, home to 1.7

billion mobile phone subscribers. But ZTE and its larger Chinese rival, Huawei Technologies, which have

traditionally been in the network equipment business, are aggressively muscling in on mobile devices.

ZTE expects to ship more than 80 million mobile phones this year, up by a third from 60 million units last

year, He Shiyou, executive vice president for the companys mobile devices unit, said in April.

They are already familiar with what the operators are looking for, said Melissa Chau, research manager

for client devices at the analysis firm IDC Asia Pacific in Singapore, referring to ZTE and Huawei. At the

very low end, they offer handsets at very low prices in huge bulk shipments to operators.

Demand for low-end cellphones has surged across emerging markets since the economic crisis began to

ease.

But Nokias sales of basic cellphones have fallen for three consecutive quarters.

In the January-to-March quarter, Nokia sold 84.3 million handsets other than smartphones, 2 percent

fewer than a year earlier.


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Nokia should really have begun this fight back two years ago, and leaving it so late in the day puts the

vendor in a very tough competitive position, said Neil Mawston, an analyst at the research firm Strategy

Analytics.

Some of the Asian vendors are hardly household names. But in China, the biggest threat comes from

manufacturers that have effectively no name at all.

So-called no-brand manufacturers small Chinese companies using chip sets from Mediatek or

Spreadtrum Communications control 45 percent of the market. Nokias market share in China has

shrunk to 19 percent from 33 percent two years ago.

No-brand Chinese manufacturers have expanded into Africa, India, Latin America and Russia in the past

year, the research firm Gartner said. In total, they sell more phones than Nokia, Gartner said. Analysts

expect that those manufacturers will focus next on cheap smartphones running Android software.

In India, Nokia is in a bruising fight. The company is jostling with about 150 vendors in the worlds fastest-

growing mobile phone market, home to more than 800 million subscribers, with mass-market phones

selling for about $20 with basic features. Cheap phones and charges as low as half a cent a minute are

fueling growth.

By adapting to local tastes, manufacturers like Micromax grabbed 7.6 percent of phone sales in India last

year, according to CyberMedia Research, a local firm.


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ANNEXURE 5

Elops FablesThe story of Nokias slide from being the worlds top phone king to losing its foothold doesnt make for pretty reading.But Nokias found a friend in need

Mala Bhargava

So theres this man who was working on an oil rig. Thing is, he was kind of asleep. And the oil rig was rather on

fire. He wakes up and finds he has seconds to make a decision. Stay on board and become toast, or jump into

the unknown icy waters way down below. Obviously, its a no brainer. He jumps and lives to tell the tale. Letshope Nokia does the same, for its CEO Stephen Elop, said in a memo doing the rounds on the net (and

especially at Engadget) that Nokia is standing on a burning platform.

Finally, at long last, someone takes Nokia by the neck and shakes it out of its slumber. If you havent read

Stephen Elops shockingly frank memo do so because its a lesson in itself for any company that takes things for

granted and is sick from a long across-the-board case of the corporate flu. Whatever were they doing over at

Nokia while the whole smartphone landscape transformed? Apple ate up the top-end share and Android the

middle, and a crowd of players coming out of nowhere are now gobbling up the lower end.

So where did Nokia jump? Straight into the lap of Microsoft, which is where Elop came from in the first place.

The broad strategic partnership means pooling everything both companies have got. Software fromMicrosoft, hardware and reach from Nokia, apps, search, maps pooled from both, and more. Significantly for

smartphones though, Nokia will focus on using Windows Phone 7 on its phones.

Nokia employees are not a happy lot today. Not one bit. Some one thousand of them walked out of work to

make a point. Theyre worried, and quite rightly, about what happens to the Symbian platform -- and their jobs.

One of Nokias barriers to continued success has been that it was Velcrod at the hip to Symbian which is from a

long ago era and not designed to meet the demands of whats needed on smartphones today.

Snarky comments predictably sprouted up online, describing the partnership as being like the Titanic trying to

rescue the Lusitania. Or an aging man marrying a sick woman. Or the new definition of desperate. Be that as

it may. Theres no doubt that Nokia cant very well continue on its suicide course, so partnership it is going tobe.

Except, as they say on Facebook, its complicated.

Microsoft, hasnt done anything significant in the smartphone space yet. The Windows Phone 7 interface is

beautiful but still has problems and is also a bit of an unknown quantity, specially to the people at Nokia. Thats

not to say they cant do anything good with it, but will they really? The guy on the oil rig had seconds to decide

what to do and mostly had no choice. But Nokia has had months if not years to see that the mobile phone

market changing and it did nothing. Whatever made it do nothing could still be out there. So just how

sweeping will the changes at Nokia need to be if they are to suddenly sprout a killer instinct and meet Google


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and Apple head on? Huge, I would say. Its not just about what operating system, whose app store and which

carrier. Its about really wanting to go for the kill and letting nothing get in the way. You only have to watch

Apple to see how thats done, again and again. Nokia would have to reinvent itself and then run circles around

its swampingly huge competition and the competition would have to run scared.

Here in India, homegrown companies like Micromax and other players like G-Five are creeping up to grab

market share that would have been Nokias had it but held on by keeping pace with the times. The Nokia

Communicator may have been a bit of a pencil box and may look archaic today, but it was among the early

smartphones and had its loyal customers, as did most other Nokia phones. India, in fact, has been Nokia

country all this time and still hasnt lost its lead over other companies yet. But today, everybody is gaining

ground on Nokia. When Stephen Elop says that these are very dynamic times right now its an

understatement for Nokia in particular which finds itself not in a battle of devices but in a war of ecosystems.

Elop, who doesnt look in the least lacking in confidence in the webcast announcing the Nokia-Microsoft

partnership, said their collective leadership has a formidable plan to meet the opportunity before them and

disturb the trajectory of the smartphone scenario. That, Id like to see. What this plan happens to be, isnt clear

right now, but Elops splitting the company in two, Smart Devices and Mobile Phones is decidedly odd because

one of them, Mobile Phones, is to handle Symbian and MeeGo (another operating system Nokia was working

on but which seems to be going before it came) which are no longer to be Nokias primary focus. How this split

is supposed to strengthen a company that is weakened because of internal problems, is just not

understandable.

Nokia once had the early mover advantage and phone after phone with impressive functionality and ease of

use housed in rugged, solid hardware. It had loyal customers and tremendous reach. It was one of the most

admired companies in the world. What it has not shown in the past two years or more is the ability to keep

pace with (let alone stay ahead of the curve on) trends, changing competitive scenario, new platforms, an open

system, applications, and advanced slick design. Nokia has not only missed the Android bus, its spiraling

downward during a year theyre calling the Year of the Smartphone. Even if a partnership with Google had

worked out today, theres no guarantee that Nokia would have been able to act fast and innovatively enough

to compete in this crowded, bustling space. I hear its going to take the whole year even to come up with the

Windows 7 Nokia phones. Who knows what the landscape will be like by then.

Against this backdrop, I dont hold out much hope for the Nokia-Microsoft tie up while I still hope against hope

that theyll prove me wrong. Connect your own people, Nokia, we need you to stay awake for this.

The author is editorial director at Mindworks Global Media Services

(This story was published in Businessworld Issue Dated 28-02-2011)

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