By Pekka Nykänen and Merina Salminen
HELSINKI – It seems to be a law in the technology industry that leading companies eventually lose their positions – often quickly and brutally. Mobile-phone champion Nokia, one of Europe’s biggest technology success stories, was no exception, losing its market share in the space of just a few years. Can the industry’s new champions, Apple and Google – not to mention titans in other tech sectors – avoid Nokia’s fate?
In 2007, Nokia accounted for more than 40% of mobile-phone sales worldwide. But consumers’ preferences were already shifting toward touch-screen smartphones. With the introduction of Apple’s iPhone in the middle of that year, Nokia’s market share shrunk rapidly and revenue plummeted. By the end of 2013, Nokia had sold its phone business to Microsoft.
What sealed Nokia’s fate was a series of decisions made by Stephen Elop in his position as CEO, which he assumed in October 2010. Each day that Elop spent at Nokia’s helm, the company’s market value declined by €18 million ($23 million) – making him, by the numbers, one of the worst CEOs in history.
Elop’s biggest mistake was choosing Microsoft’s Windows Phone as the only platform for Nokia’s smartphones. In his “burning platform” memo, Elop compared Nokia to a man on a burning offshore oilrig, facing a fiery death or an uncertain leap into the frigid sea. He was right that business as usual meant certain death for Nokia; he was wrong to choose Microsoft as the company’s life raft.
But Elop was not the only person at fault. Nokia’s board resisted change, making it impossible for the company to adapt to rapid shifts in the industry. Most notably, Jorma Ollila, who had led Nokia’s transition from an industrial conglomerate to a technology giant, was too enamored with the company’s previous success to recognize the change that was needed to sustain its competitiveness.
The company also embarked on a desperate cost-cutting program, which included the elimination of thousands of jobs. This contributed to the deterioration of the company’s once-spirited culture, which had motivated employees to take risks and make miracles. Good leaders left the company, taking Nokia’s sense of vision and direction with them. Not surprising, much of Nokia’s most valuable design and programming talent left as well.
But the largest impediment to Nokia’s ability to create the kind of intuitive, user-friendly smartphone experiences that iPhones and Android devices offered was its refusal to move beyond the solutions that had driven its past success. For example, Nokia initially claimed that it could not use the Android operating system without including Google applications on its phones. But, just before its takeover by Microsoft, Nokia actually built a line of Android-based phones called Nokia X, which did not include Google apps, but instead used Nokia maps and Microsoft search.
Why didn’t Nokia choose Android earlier? The short answer is money. Microsoft promised to pay billions of dollars for Nokia to use Windows Phone exclusively. Given that Google gives away its Android software, it could not match this offer. But Microsoft’s money could not save Nokia; it is not possible to build an industrial ecosystem with money alone.
Elop’s previous experience at Microsoft was undoubtedly also a factor. After all, in difficult situations, people often turn to what is familiar. In Elop’s case, the familiar just happened to be another sinking company. After hearing that Nokia had chosen Windows, Google director Vic Gundotra tweeted: “Two turkeys do not make an eagle.”
Apple and Google should not rest easy. Like Nokia in the mobile-phone industry – not to mention Microsoft and IBM in the computing industry – one day they will lose their leading position. But there are steps they can take to prolong their success.
First, companies must continue to innovate, in order to improve the chances that disruptive technologies emerge from within. If market leaders implement a system for discovering and nurturing new ideas – and create a culture in which employees are not afraid to make mistakes – they can remain on their industry’s cutting edge.
Second, major firms should keep track of emerging innovators. Instead of forming partnerships with smaller companies that suit their current business model, major firms should work with inventive startups with disruptive potential.
Finally, though successful companies must constantly innovate, they should not be afraid to imitate. If Nokia had immediately begun to develop products modeled after the iPhone, while addressing related patent issues effectively, the mobile-device business would look very different today.
Nokia’s experience also carries an important lesson for regulators, particularly in the European Union. Attempting to quell disruptive technologies and protect existing companies through, for example, antitrust crusades, is not an option. Indeed, that approach would ultimately hurt the consumer, both by impeding technological progress and eliminating price competition – like that from Samsung’s Android devices, which forced Apple to lower iPhone prices.
Herein lies the most important lesson in Nokia’s fall. Technology companies cannot achieve success simply by pleasing their board of directors or even striking multi-million-dollar deals with partners. Whichever company makes the consumer happy – whether a well-established multinational or a dynamic startup – will win. Companies that lose sight of that are doomed.
Pekka Nykänen and Merina Salminen are co-authors of the book Operaatio Elop, about Nokia’s rise and decline, which was published in Finland last week.
Copyright: Project Syndicate, 2014.