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.

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