• About Us
  • Subscribe
  • Contact us
Strategy

What Could Have Saved Nokia, and What Can Other Companies Learn?

Quy Huy, INSEAD Associate Professor of Strategy and Timo Vuori, Assistant Professor of Strategic Management, Aalto University |

Nokia lost the smartphone battle despite having half of the global market share in 2007. Some argue that it was down to software, others that it was complacency. We argue that collective emotions within the company were a big part of the story.

Leaders who are able to identify and manage patterns of emotions in a collective are better able to make their ambitious strategies a reality.  Our argument centres around the idea that the emotions felt by a large number of people within an organisation can determine the success of strategy implementation even when these feelings go unexpressed.

We recently had the opportunity to speak with Olli-Pekka Kallasvuo, former CEO of Nokia, when he was keynote speaker at an INSEAD conference investigating why Nokia lost the smartphone battle.

When we asked him to describe what it was like to face the competitive market of the mobile telecommunications industry during his tenure from 2006-2010, he responded that nowhere in business history has a competitive environment changed so much as it did with the converging of several industries – to the point that no-one knows what to call the industry anymore.  Mobile telephony converged with the mobile computer, the internet industry, the media industry and the applications industry - to mention a few… and today they’re all rolled into one. 

In such a fast-paced changing environment, it was unsurprising that Nokia’s top executives drew on the best practices of strategy implementation and Nokia’s famed strategic agility was certainly impressive in terms of acquisitions and mobile device development, but with the benefit of hindsight he would now acknowledge that the emotional climate within the organisation was overlooked during this turbulent period.

Pluralistic Silence Within

Kallasvuo, who had been with Nokia since 1980 in various functions such as CFO and Executive Vice President and General Manager of Mobile Phones, replaced Jorma Ollila as CEO in 2006.  Although a more integrative company was to be created to develop integrated software, hardware, and applications for the advanced smart phone, the keen entrepreneurial spirit for which Nokia had long been known, strongly prevailed and the key business units continued to compete for resources to develop products that would address various market needs.  Kallasvuo now sees that the company did not pay sufficient attention to the emotional undercurrents caused by internal competition for resources to develop a vast array of phone models for various market segments worldwide. Optimising the interests of one department, when repeated across many different departments, inadvertently hurt the overall welfare of the company. The problem of Nokia, after all, seems frustratingly similar to those of many large companies such as Microsoft or Sony who could not develop high quality innovative products fast enough to match their rising competitors. As the companies grew larger and richer, each department became its own kingdom, each executive a little emperor, and people were more concerned about their status and internal promotion than cooperating actively with other departments to produce innovative products rapidly. This phenomenon is also known as silo politics, and spread naturally and quickly like bad weeds in the garden. In other words, the whole became less than the sum of the parts.

Kallasvuo’s opinion corroborates with the qualitative research that we have conducted where we spoke with over 50 key Nokia managers [including Kallasvuo] multiple times to get their inside stories on what it was like working for the company during his management.  Essentially, the overriding emotion felt by top managers and middle managers within the organisation was one of fear.  And yet, it wasn’t necessarily a fear of being fired which pervaded; it was more about fear of losing social status in the organisation. Together, these fears shaped a collective emotional climate which influenced what information was shared [or rather not shared] in meetings. Middle managers were happy to allow senior managers to believe that deadlines, which were unrealistic, would be met for developing the Symbian software platform – and they did this because of a fear of losing social status. It was simply a case of them not wanting to upset others for fear of social retaliation and not wanting to show they had limitations or weaknesses both on a personal level and also at a company level with the product they were all investing their energies in.

As a result, a kind of pluralistic silence endured where no-one would speak up about the limitations of the Symbian platform and the slow progress of development of other more advanced software platforms. As a result of optimistic reporting, Nokia top managers kept believing the company was progressing well in matching Apple’s iPhone while it was not.  

Reporting What You Think Your Boss Wants To Hear

Of course, Nokia senior management had their own fears which came from what other companies like Apple and Google were planning to do—disrupt the industries – and they most certainly felt the pressure from shareholders to grow their quarterly earnings and sales revenues.  Even though the top managers sometimes acknowledged the threats publicly, fear of losing internal momentum and external sales in the short term prompted them to emphasise the quality of Nokia’s products and internal developments and, thus, downplay somewhat, at least in relative terms, the competitive threats to larger internal and external audiences. As a consequence, middle managers’ fears toward the competitors and concern over Nokia’s future were reduced. However, to ensure that Nokia would both match the short-term financial goals and succeed in the long-term against the rising competitors, top managers tended to put heavy pressure on subordinates to deliver more and faster, not accepting “no” for an answer, thereby increasing their subordinates’ fears of reporting honest feedback. The top managers also subconsciously alleviated their own fears of losing to rising competitors by accepting optimistic reports by middle managers and not questioning the validity of the good news. 

As a result, managers of various departments focused more on internal competition for resources and higher social status and were less fearful of competitors. CEO Kallasvuo noted that complacency had crept into the organisation and not enough importance was attached to what external competitors were doing; somehow the sense of urgency to innovate had waned and managers of the successful company were more intent on defending and preserving existing successes than attacking competitors by developing radically new products and incurring the risk of failure. He admits that the culture of “Not Invented Here” had become entrenched and no-one can assume a leading market position if a company is risk-averse.

He spoke of being present at a panel in New York in 2007 when Google announced the launch of their Android operating system and he realised immediately the significance of Google’s strategy that made what used to be called “smartphone” a mere “window to the cloud.” He realised that Nokia’s Symbian software platform would be outmatched if he did not take fast and urgent actions.  But by increasing pressures to work faster and harder among various departments, he inadvertently created an unhealthy emotional climate of fear that led to optimistic reporting by managers of various departments, ultimately causing the fast decline of Nokia high end smartphones that relied on an increasingly constrained and underdeveloped platform.

Strategy is 5 percent thinking, 95 percent execution. Strategy execution is 5 percent technical, 95 percent people-related.

With the benefit of hindsight, what could Nokia have done differently? We believe that more careful management of emotional processes would have allowed top managers to get more accurate information of Nokia’s software capabilities and development speed. Elements of better management of emotional processes might have included top managers sharing honestly their fear of losing against the new competitors to a limited set of key middle managers, and engaging these middle managers to work with top managers to counter the rising threats might have created healthy external fear and reduced maladaptive internal fears, which made telling unpleasant things to one’s superior difficult. Another way of amplifying healthy external fear might have been to require middle managers to use the new competitors’ products extensively, like Samsung did, to ensure that the middle managers developed a sufficiently deep understanding of their strengths over Nokia’s products along specific dimensions, such as usability. Top managers could also have been more mindful of their own fears and how the fears influenced both the way they set demands for R&D and interpreted the embellished reports that followed.

We would argue that adopting a culture where “telling bad news is a good thing” would have overcome the collective fear that so seriously affected Nokia’s perception of their ability to develop new, leading products fast.  Perhaps nowhere in the history of recent powerful business stories, has the lesson of the Emperor’s new clothes been more applicable.  Just telling the truth could have saved Nokia’s fortunes. Nokia’s unfortunate decline again validates our affirmation that companies grew to greatness because they did something better than others. But they declined because they forgot to do common sense things, such as managing collective emotions and building organisational emotional capital during disruptive times (see Huy’s forthcoming book in Harvard Business Press). Managing a large business can be humbling because increasing complexity crowds out simplicity in action; to keep things from deteriorating, one needs to maintain a culture of honesty, humility, and cooperation inside the organisation.

The lesson of Nokia applies to many successful and less successful organisations. The most important job for CEOs of successful firms is to inspire and mobilise various groups to honestly and genuinely cooperate with one another to do valuable and innovative things for their customers. Large and successful organisations tend to have many new ideas and resources, and can even afford to get cutting edge consulting advice and market intelligence. Oftentimes, the strategic goal is clear, but how to make it happen is much more complex. It is often said that strategy is 5 percent thinking, 95 percent execution. We extend this by suggesting that strategy execution is 5 percent technical, and 95 percent people-related. And managing collective emotions is a critical success factor in strategy execution.

Quy Huy is an Associate Professor of Strategy at INSEAD. He is also Programme Director of the Strategy Execution Programme, part of INSEAD’s suite of Executive Development Programmes.

 

 

 

Timo Vuori is an Assistant Professor of Strategic Management at Aalto University.

Prof. Huy and Prof. Vuori welcome your comments via email.

Follow INSEAD Knowledge on Twitter and Facebook

Comments
Naveen Khajanchi,

It's a brilliant article and so deeply true observations . I always say that lets not water the wrong weeds to ensure that the collective wholesomeness is not compromised on knowingly or unknowingly .

TS Kee,

Interview Olli-Pekka is like asking John Sculley why Apple wittered and failed. It is a typical market lifecycle that faced by many once-great company such as Motorola, Kodak, Sony, Intel. The reasons for their failures can be attributed to a combination of complacency, underestimate the disruptive nature of new technologies, lack of vision, bad leadership and etc. To simply blame it on bad emotional management is way too simplistic.

Dick,

60 years ago when the Dead Sea was still alive when I was in management school this phenomenon was called "suboptimization", meaning the promotion of the well being of components of the organization rather than that of the larger organization. Obviously there are emotional components in the dynamics of suboptimization but is it not true that the main problem is that the components are not working toward the well being of the whole?

Gary,

I could not agree more with you. Today I call this being trapped by legacy. Great companies are reluctant to disrupt themselves before others do and then it's normally too late. Today in the technology sector we are seeing massive waves of technology change that is enabling entire business model shifts and this has could many companies flat footed although these trends have been making progress for nearly five years. Solid article though.

K. Lewis,

What other companies should take away from Nokia’s decline is not just “don’t be complacent,” but try to compete instead. For Nokia, this means knowing what kinds of innovations competitors are investing in to compete better. Like Nokia, BlackBerry also stumbled recently. This is a good look at what companies can learn from their mistakes - http://www.competing.com/2013/10/blackberry-company-b-and-forensic-strategy/

Rajesh,

Great article.

Monique Jansen,

merci à Nathalie pour le partage de cet article intelligent car il donne à comprendre, et son premier mérite est de susciter réflexion & émotions... actions pourquoi pas?

seefar,

In my humble opinion there are 4 wheels that lead many companies into limbo, let me describe
as you know all car to move need wheels(4), the car represents the company, the wheels represent necessary tools to move the car ahead from any point to any other one.
First wheel: Vision
Second wheel: Flexibility
Third: Capacity to adapt to new environment
Fourth: Strategy
Nokia has missed 2 of the 4 wheels
1:Flexibility
2:Capacity to adapt itself to new environment
The leadership is compared to a driver, ask yourself who can move his ahead to a good direction with broken wheels?

Mila,

Dearest Seefar, I share your vision about companies success. I would love to add one more point - A Passion. It's like fuel, it's like fire. All big companies have 4 wheels running well. all GREAT companies have a passioned person who put the authentic inspired passion for the smoothest drive. Steve Jobs, Richard Branson, Walt Disney, etc. No person - no more fuel. This is a human factor WHY we do what we do. What drives us? What drives the Leader to be the Leader?
With deepest passion to all of us in co-creation of our personal experiences of mastering our brilliancy,
Mila

Auditor,

One of the aspect could be incorrect estimation of perceived risks to the individual and organisation. Extraordinary use of rewards & recognition, which as a medium, sometimes scuttles the need to elevate individual as well as team performance. How much of R&R is enough is not yet known hence we see examples of prosperity of individual parts and not the whole of it. Conviction and Clarity of thought drive Confidence which inturn attracts Capital. The article quite aptly describes how all of it can be lost in a short span of time.

Walter,

Both the CEO Professor Huy seem to find new words for old problems.What they call "emotional processes" is another moniker for a management that is unwilling to reorganize and change its capital allocation process. Allied Chemical faced a similar issue in the 1970's when 800 lb. gorillas in established SBU's that were becoming commodity businesses stomped down the new ventures inspite of the obvious need. One new VP was given a chunk of capital "ex cathedra" and told to feed the best candidates in the new ventures. The French saying that you can't make an omelette without breaking eggs applies here. As for not spotting the convergence of several separate industries, that was the genius of Steve Jobs in the year 2000; where was Nokia management when foresight was available? I knew the woman responsible for screen monitors at HP in the 1980's; she said she was looking 5 years ahead, e.g. to plasma ( which she did not name.) That's called environmental scanning in my book.

Alan,

I worked for Nokia in Senior Corporate Strategy roles. While I respect former CEO Olli-Pekka for many good things he did while at Nokia, I think his explanation for Nokia's demise is simplistic if not evasive. Issues OPK has raised happens in many organisations.

A big reason for failure of Nokia was lack of courage in the top management to act decisively. The writing was on the wall, presentation after presentation internal futurists and external Management consultants had shown the top leadership since 2003 that industry convergence would create huge disruption and shift comparative advantages to new players from internet and PC space. Top management agreed with the assessments multiple times but always went for the "compromise solutions".

Firstly, it was clear that Symbian Operating System couldn't do the job, hence Nokia started an initiative called Meego/ Maemo with Intel that was promising to be superior to Android at the time. However, most of the resources within the company were still employed at churning Symbian OS phones and that created a huge resource crunch and denied any realistic chance for a new product line. You can call it classic innovator dilemma - from inside it appeared to be many satraps and a weak top leadership who couldn't call shots despite knowing what was needed.

Secondly, during 2003-2010 Nokia was aware of the external threats. Instead of facing them, it kept reorganising itself. As if, musical chairs will solve the problem.

Thirdly, Nokia sought to go on offensive against internet players by going into apps and services business e.g. Maps. It was a reasonable move. However, it went on to acquire number 2 players in respective industries a little bit cheaper. "Two turkeys don't make an eagle". Hence, it ended up being an also ran in many industries and profit share was creamed by other players.

Finally, After Olli-Pekka was replaced in 2010, the slide became even worse. Olli-Pekka was at least trying to stem the rot. The new guy, Elop came with his inclination to sell the business to Microsoft. At that point, Nokia had a choice to adopt a multi-os strategy like Samsung and produce some Android phones. It had strong brand and channel presence in emerging markets where it could made strong profit and bought time for turnaround. Due to vested interests , Mr Elop the new CEO chose to go with his former employer Microsoft. Microsoft was an also ran and he effectively hit the death nail for Nokia.

What killed Nokia? During OPK's leadership it was indecisive management that failed to take bold calls internally or externally. During Elop's leadership, it was vested interest.







clib,

the real truth is that Nokia was lucky : first one in a new market has all the power to execute and grow....no competition there. When competition came they struggle to keep their supremacy (with Motorola and Blackberry). Finally she the time came for a game changer they were simply not able to deal with it. OPK and Ollila before him were just lucky at the beginning and when the game became harder they show their true color : poor management, arrogance and bureaucracy....this is the real lesson to learn.

KhawarSher,

The thing of vital importance here is the fact that emotions can't be put on a piece of paper, or on a chart or show impact of the bottom line! It is imperative for the organization as a whole to be like a permeable-membrane, that is let emotions and feelings flow freely from the outside world to the employees and vice versa. I think Nokia shut itself in, it should have embraced the new players, tried to strike up strategic alliances, being permeable letting information flow, and along with it emotions !

Prem,

An excellent article. I ignore management talks. I know that is a bad thing, but this article made me to read 3 times in a stretch. Some things you can shout, talk but somethings we don't know to express. This article exactly nails that. BTW, I was an ex-Nokia group employee too... Life moves on. Hopefully I remember this lesson in the coming days.

Bli medlem i facket,

Great article. It's always nice when you can not only be informed, but also entertained!

Satheesh,

Truly a wonderful article ,which should be taken seriously by all corporates,will give an insight view and prevent cases like Nokia in future

Arun,

Well, Nokia has sunk. It is hard to see or prove but Nokia failed because of their arrogance, executives underestimated Apple and Google. Nokia was leader in the market place for many years and they took this for granted, they thought they were invincible. If you don't make a change someone else will.

Glenn,

In order to succeed a company should have genuinely cooperate with one another to do valuable and innovative things for their customers.

odi,

they knew everything, they had everything, and yet they let it all slip away...

WALTER,

I was intrigued by the avoidance by Mr. K to talk about the role of Finnish culture, and especially the corporate culture within Nokia. There is a set of cases in the Harvard Business School collection that relates what happened to NORTON Abrasives over some 20 years. They kept promoting the same people, the same path, without ever asking themselves if those were the kind of people needed for the "next" era. In my estimation, only GE's Board and senior executives had the nerve to choose individuals who were radically different one from the other. Jack Welch was vastly different from his predecessor, and Jeffrey Imelt likewise. For a signal lesson in what NOT to do look at the company I worked for: AT&T. By promoting people only from within, by maintaining a culture of "we're different: we have to have a monopoly because of end-to-end service", they failed to understand the shift from 99.99% technology to a demonopolization, from the winners being lawyers (e.g. MCI) and not the very conservative engineers and finance pros. It was handwriting on the wall that every other regulated industry was being forced into competition: surface and air transport, natural gas and financial services, etc.When Bill Ellinghaus,, president of NY Telkephone had the temerity to say that and to advocate allowing terminal equipment to be sold, not leased by AT&T, JohndeButts and the senior team rejected his ideas in 1973, some 5 years after the FCC made it plain they wanted comnpetition in the industry. Michael Porter was already writing about Compertitive Strategy in the '70's. In 1974, AT&T was sued by the U.S.Justice Department for monopoly behavior. They fought a losing battle for 8 years, before facing "execution" by a judge, or "voluntary" splitting up into separate companies. No one ever asked whether the policy of promoting only "insiders" (e.g. people recruited from university graduates) kept a culture going where dissent, vigorous discussion, new ideas (e.g. cellular phones, despite the fact that the technology was a Bell Labs invention) and leadership as a strict insiders club was the right policy. I came in from the U.S. Government and small business at age 31, and was told ten years later as the developer of corporate planning that "We're glad to have a guy like you in the company, but thank God, there's only one of you." After becoming one of three Directors of Strategic Planning, I took early retirement when it became obvious that the company was going down the tubes. Was Nokia unaware of what Steve Jobs was doing with the iPad as the "mooshing" of totally separate industries? Of the iPhone likewise ? Perhaps we should teach the Book of Daniel instead of abstruse Finance in Business Schools!

Add a comment Already a member?