An Ex-Nokian’s Perspective On The Fall Of Nokia, And How Other Companies Can Avoid That Fate

A friend of mine forwarded me an interview that former Nokia CEO Olli-Pekka Kallasvuo gave in March of last year in which he explained the company’s fall from dominance that happened on his watch. I took an interest for two reasons.

I worked for Nokia, coincidentally for nearly all of Kallasvuo’s years at the helm.

I, too, have an explanation for why Nokia lost its leadership and wanted to see if his analysis matched mine.

Based only on this article, I believe we see things differently, so I’m going to share what I think happened. I think it illuminates a few things that companies can do to avoid a fate like Nokia’s.

I base my observations on the time I worked in Nokia’s North American headquarters. At one point, four members of the company’s C-suite called that office home. I was not privy to board or leadership team meetings, but I did get the chance to observe some of the company’s most highly-placed talent up close.

Nokia failed because the likes of Apple and Google fundamentally changed what consumers wanted most from their phones and relegated to table stakes the things that had enabled Nokia to dominate.

Kallasvuo, or OPK, as we all called him, struck me as a decent man. He was not a charismatic leader, but that’s a good thing in my book. I recall him prefacing his all-hands meetings by standing outside the room to shake hands with as many people as possible. He hosted small group employee sessions, where no questions were off-limits. He knew his business, which operated in more countries than the United Nations recognizes. He surrounded himself with some of the best talent I had ever seen.

In spite of this, Nokia failed because the likes of Apple and Google fundamentally changed what consumers wanted most from their phones and relegated to table stakes the things that had enabled Nokia to dominate. They opened a fertile and symbiotic marketplace of content, matching developers, musicians, movie makers and more with consumers, whom they persuaded to covet this content on the go. They celebrated the wealth they created for developers, knowing that successful developers would create more content for consumers to snatch up, making their devices all the more attractive.

Nokia’s supremacy was primarily a product of its hardware. The company made seemingly indestructible phones. Born of a prideful Finnish industrial design, they were sleek and stylish, too. Nokia’s supply chain enabled the company to build and distribute these phones at massive scale, driving costs down.

Apple and Google made a bet that consumers would care more about the content they could access on their phones than the fit and finish of the device itself. That’s not to say that they neglected their hardware. They just gambled that with a smorgasbord of music, video, and apps, most consumers would conclude that Apple and Android hardware, while not as good as Nokia’s, was good enough.

Still, Nokia continued to prioritize its hardware in its marketing. After all, it was that approach that created billions in shareholder wealth. In the process, though, it neglected the content market Google and Apple were building. Ironically, Nokia had been among the first companies to foster a developer ecosystem, offering the tools and resources developers need to make and publish apps and giving consumers an on-device app store to discover and download them. It just did not optimize conditions developers require to make their magic: a massive installed base of devices featuring a homogenous software platform, and easy-to-use, powerful development tools. It also deprioritized marketing apps to consumers.

In other words, both the supply of and demand for apps suffered at exactly the time when Apple’s and Google’s bet on apps started to pay off.

I believe Nokia could have foreseen this outcome by studying the PC market, in which hardware has become exceedingly difficult to differentiate. For much of the last decade, manufacturers have instead positioned their laptops and desktops as vehicles for content creation and consumption. Nokia seemed to recognize some of this; for a time executives referred to Nokia’s high end smartphones as “mobile computers.” Nokia committed a critical error, though: fragmenting its Symbian smartphone software platform to meet operator requirements. The result: developers often had to change their apps to work on all these mobile computers/smartphones, creating extra work that strained their ROI.

Making it difficult to build and distribute apps, not encouraging consumers to discover and acquire those apps, all in favor of marketing hardware that consumers didn’t value as much, resulted in Nokia’s decline.

Every company and market is unique, but other companies can learn from Nokia’s experience.

  1. Relentlessly focus on solving customer problems, even if it means cannibalizing parts of your own business. If you don’t, your competitors will.
  2. Look to neighboring industries or markets for trends that may illuminate where yours is headed.
  3. If you operate in a two-sided market, e.g. catering to developers who make apps and consumers who download them, cultivate the conditions that create a symbiotic relationship between all participants. The more successful you make them, the more successful they’ll make you.

Business schools will continue to dissect what happened to Nokia, probing its strategy, execution, and leadership. When a company declines as Nokia did, all three in some way contribute to the fall. In my view, though, the fundamental cause lies in a neglected ecosystem.

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4 comments

  1. Great post Matt, and as an ex-Nokia I agree with the main points. Apps won the battle for Apple, but what is seldom mentioned is that they were able to win because they had an existing billing relationship with customers through the global success of iTunes. This allowed them (and developers) to bypass the mobile carriers stranglehold on both billing and merchandising. Nokia on the other hand were almost completely at carriers mercy, having made a strategic decision to make themselves the operators supplier of choice.
    In this, and in many other ways (e.g. HW exclusivity deals), Apple completely changed the power dynamic in the phone industry, shifting the balance away from the carriers for good.

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    1. Great point, Gavin. Apple and, soon after Google, didn’t gain their apps lead just because they wanted it that way. Direct billing via iTunes was a powerful enabler. Thanks for reading and for your comments.

      Like

  2. Very astute observations, I’ve always thought that the very bottom reason, when you strip away everything else – is Groupthink. http://en.wikipedia.org/wiki/Groupthink
    For the last 10 years, what drove better margins, market dominance was logistical superpower – so the executives who made magic happen in logistics got promoted. It happened for a long enough period of time that the executive ranks got filled with like minds. Then nobody had the competence or ability to think outside of the box.

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    1. I agree. World class logistics are necessary to achieve and sustain global hardware leadership, but they are not sufficient.

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