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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