Who Killed Nokia? Nokia Did
Despite being an
exemplar of strategic agility, the fearful emotional climate prevailing at
Nokia during the rise of the iPhone froze coordination between top and middle
managers terrified of losing status and resources from management. The company
was wounded before the battle began.
Nokia’s fall from the
top of the smartphone pyramid is typically put down to three factors by
executives who attempt to explain it: 1) that Nokia was technically inferior to
Apple, 2) that the company was complacent and 3) that its leaders didn’t see
the disruptive iPhone coming.
We argue that it was
none of the above. Nokia lost the smartphone battle because of
divergent shared fears among the company’s middle and top managers led to
company-wide inertia that left it powerless to respond to Apple’s game changing
device.
In a recent paper, we dug deeper into why such fear was so
prevalent. Based on the findings of an in-depth investigation and 76 interviews
with top and middle managers, engineers and external experts, we find that this
organisational fear was grounded in a culture of temperamental leaders and
frightened middle managers, scared of telling the truth.
Deer in the headlights
The fear that froze the
company came from two places. First, the company’s top managers had a
terrifying reputation, which was widely shared by middle managers—individuals
who typically had titles of Vice President or Director in Nokia. We were struck
by the descriptions of some members of Nokia’s board and top management as
“extremely temperamental” who regularly shouted at people “at the top of their
lungs”. One consultant told us it was thus very difficult to tell them things they
didn’t want to hear. Threats of firings or demotions were commonplace.
Secondly, top managers
were afraid of the external environment and not meeting their quarterly
targets, given Nokia’s high task and performance focus, which also impacted how
they treated middle managers. Although they realised that Nokia needed a better
operating system for its phones to match Apple’s iOS, they knew it would take
several years to develop, but were afraid to publicly acknowledge the
inferiority of Symbian, their operating system at the time, for fear of
appearing defeatist to external investors, suppliers, and customers and thus
losing them quickly. “It takes years to make a new operating system. That’s why
we had to keep the faith with Symbian,” said one top manager. Nobody wanted to
be the bearer of bad news. However, top managers also invested in developing
new technological platforms that they believe could match the iPhone platform
in the medium term.
“Top management was
directly lied to”
Top managers thus made middle
managers afraid of disappointing them—by intimating that they were not
ambitious enough to meet top managers’ stretched goals. One middle manager
suggested to a colleague that he challenged a top manager’s decision, but his
colleague said “that he didn’t have the courage; he had a family and small
children”.
Fearing the reactions of
top managers, middle managers remained silent or provided optimistic, filtered
information. One middle manager told us “the information did not flow upwards.
Top management was directly lied to…I remember examples when you had a chart
and the supervisor told you to move the data points to the right [to give a
better impression]. Then your supervisor went to present it to the higher-level
executives. There were situations where everybody knew things were going wrong,
but we were thinking, “Why tell top managers about this? It won’t make things
any better.” We discussed this kind of choice openly.”
This shared fear was
exacerbated by a culture of status inside Nokia that made everyone want to hold
onto power for fear of resources being allocated elsewhere or being demoted and
cast aside if they delivered bad news or showing that they were not bold or
ambitious enough to undertake challenging assignments.
Innovation impotence
The high external fear
among top managers and high internal fear among middle managers led to a
decoupling of perceptions between the two groups of top and middle managers
about how quickly Nokia could launch a new smartphone and develop advanced
software to match the iPhone. Given the optimistic signals coming from the
middle managers, top managers had no qualms about pushing them harder to catch
up with Apple—after all, top managers were only stretching targets. Fearful
that Nokia would lose its world dominance and post weak financial results, top
managers exerted pressure on middle managers to deliver a touchscreen phone
quickly. They acknowledged this in interviews with us. “The pressure we put on
the Symbian software organisation was insane, because the commercial realities
were so pressing. You must have something to sell” said one top manager.
A leader from the MeeGo
organisation, which was set to be the successor technological platform to
Symbian said, “we spoke of a delay of at least six months, if not a year. But
top managers said ‘let’s go, you have to run faster.’”
Beyond verbal pressure,
top managers also applied pressure for faster performance in personnel
selection. They later admitted to us that they favoured new blood who displayed
a “can do” attitude.
This led middle managers
to over promise and under deliver. One middle manager told us that “you can get
resources by promising something earlier, or promising a lot. It’s sales work.”
This was made worse by the lack of technical competence among top managers,
which influenced how they could assess technological limitations during goal
setting.
As one middle manager
pointed out to us, at Apple the top managers are engineers. “We make everything
into a business case and use figures to prove what’s good, whereas Apple is
engineer-driven.” Top managers acknowledged to us that “there was no real
software competence in the top management team”.
The final blow
Nokia therefore ended up
allocating disproportionate attention and resources to the development of new
phone devices for short-term market demands at the expense of developing the
operating system required to compete with Apple.
The quality of Nokia’s
high-end phones thus gradually declined. In 2007, Nokia launched the N95
smartphone, which had full music features, GPS navigation, a large screen
(albeit not a touch screen) and full internet browsing capability. Software
compromises were accepted to get it ready on time. It was a success, but
serious quality problems soon emerged.
In 2008, Nokia launched
its first touchscreen phone, the 5800, at a lower price point than the iPhone.
It was a commercial success but it was about “one and a half years late”
because of software development problems. In 2009, the N97 was launched to
overthrow the iPhone, but one top manager admitted the phone was “a total
fiasco in terms of the quality of the product.”
In 2010 came the
purported “iPhone killer” with a touchscreen, one year later than planned, but
it underperformed in usability and failed to match up to the sleek competition
of iOS and Android. A new CEO—Stephen Elop--hired later that year decided that
Nokia would be better off buying software from elsewhere and formed an alliance
with Microsoft in 2011. As we know, this move accelerated the company’s decline
and Microsoft went on to acquire Nokia’s phone business in 2013. The market
value of Nokia declined by about 90% in just six years, hovering around 100
billion US dollars.
Despite its enormous
R&D firepower, its technical prowess and foresight — Nokia’s patents still
generated about US$600 million a year paid by its thriving rivals like Apple
and Samsung — Nokia’s ultimate fall can be put down to internal politics. In
short, Nokia people weakened Nokia people and thus made the company
increasingly vulnerable to competitive forces. When fear permeated all levels,
the lower rungs of the organisation turned inward to protect resources,
themselves and their units, giving little away, fearing harm to their personal
careers. Top managers failed to motivate the middle managers with their
heavy-handed approaches and they were in the dark with what was really going
on.
While modest fear might be healthy for
motivation, using it indiscriminately can be like overusing a drug, which risks
generating harmful side effects. To reduce this risk, leaders should be attuned
to the varied emotions of the collective. As Huy pointed out in other research, those able to identify varied collective
emotions are seen as effective transformational leaders. Leaders can develop a
collective emotional capability in their organsations. Fear can only be a
useful motivator if management can provide workers with the means to address
these fears. Nokia’s top managers should have encouraged and role modeled more
authentic and psychologically safe dialogue, internal coordination and feedback
mechanisms to understand the true emotional picture in the organisation. They
might then have been able to better gauge what was possible and what was not,
and most importantly, what to do about it
Quy Huy, INSEAD Professor of Strategy and Timo Vuori, Assistant Professor of Strategy, Aalto University | September 22, 2015
Read
more at http://knowledge.insead.edu/strategy/who-killed-nokia-nokia-did-4268?utm_source=INSEAD+Knowledge&utm_campaign=aa392e7a2f-24_Sept_mailer9_23_2015&utm_medium=email&utm_term=0_e079141ebb-aa39
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