The Extraordinary Rise

and Rather Undistinguished

Decline of

REVISED DRAFT VERSION

February 2014
Solely for distribution to:
Critical Perspectives on Management

A Briefing by Rolf Strom-Olsen and Serena Mujtaba

Do not redistribute without permission
2

The Rise & Decline of Nokia

The Finnish Company
that built a Global
Brand
In 1990, Nokia was a storied, but fairly obscure
firm known to few outside of Europe. By the end
of the decade, it had become the dominant global
brand in mobile telephony, an example of how a
company could transform itself in the
Information Revolution. After the architect of
this remarkable transformation, Jorma Ollila,
stepped down in 2005, his successor, Olli-Pekka
Kallasvuo, at first seem poised to build on this
success. But in 2010, with its market share, stock
price, and earnings all in sharp decline,
Kallasvuo abruptly departed the company. In
short order, the new CEO, Stephen Elop,
announced a major and dramatic shift in focus
to renew Nokia’s presence in the market amidst
widespread sentiment that the company was in
major decline. The strategy failed, and in 2013
the company sold its mobile device business to
Microsoft at a fraction of its former value.

What happened?

1865-1920 1980-Today
The Forestry 1920-1980 Mobile
Global Focus
Era Information

Let’s wait for the Revised Edition…

Nokia’s Success
Strategy
Throughout its existence, Nokia has
established itself as a key competitor
in a diverse range of industries,
whilst still maintaining its founding
values. Nokia’s success was based
upon developing strategic
capabilities gained from competitive
advantages in its previous business
endeavors and applying them to new
fields: adaptability, strategic
flexibility and customer focus.
“As Nokia’s success indicates, it is vital to embrace change and
adapt to the future, even when it requires a thorough
transformation. … When CEO Jorma Ollila and CFO Olli-
Pekka Kallasvuo opted for Nokia’s global focus strategy in
1992, they bet the future on new emerging industries and
markets and began to divest all noncore properties. Most bold
strategic decisions encompass both constructive creation and
creative destruction. The lesson? Acknowledge the facts and
never shun bold strategic decisions. The bolder the decision is,
the greater are the potential rewards. Risk comes with the
territory.
- Dan Steinbock, Winning across global markets: how Nokia creates strategic
advantage in a fast-changing world (San Francisco: Jossey-Bass, 2010), p. 36.
3

1865-1920 – The Forestry Era

During the 1860s Finland experienced a tremendous boom in the lumber industry. In 1865, Fredrik
Idestram, an engineer, and Leo Mechelin, a leading parliamentarian, seeking to exploit its
commercial potential, established a small forestry company. Funded by private investors, the
company took its name from the local Nokia River, close to where the first lumber mill was built.
Over the next 30 years, Nokia expanded to include a large lumber mill, a pulp factory, a large paper
factory, an electrical power generator as well as multiple other facilities. Nokia’s diversification
strategy dates back to the very origins of the company.

1920s-1960s – Global Focus
Nokia evolved from a family-owned business into a
public company after the end of World War One.
This development allowed Nokia to focus both on
opening new markets and the expansion of old ones.
One of these expansions was in its electrical power
generation line.
Nokia merged with two independent companies, ‘The
Finnish Rubber Works’ and ‘The Finnish Cable
Works’ in 1967 to form the Nokia Corporation, ‘Oy
Nokia Ab’. This merger was both practical and
strategic and allowed for the new corporation to
focus on four major business divisions: forestry,
rubber, cable and electronics.
Balanced Market
Expansion
A trade agreement was established between
Finland and the Soviet Union in the 1960’s.
This agreement encouraged Nokia to export
much of its product line to the Soviet Union,
and enjoy benefits against competing
companies. The acting managing directing
of the time, Bjorn Westerland, stated that it
would be an unwise move and strategic
mistake to depend on the Soviet Union
being their sole customer. Hence, Nokia
insisted that any sales made to the Soviet
Union had to be balanced by the sales of
goods seen across Europe, Asia, and Africa,
as well as the domestic market.

1970s-1980s – Acquisition Spree

Finland was gaining a reputation of being the “Nordic Japan”, aided by its rapidly developing
telecommunications industry, including Nokia. During this period, Nokia appointed a new managing
director, Kari Kairamo, who had a new idea’s about how to transform Nokia: rapid expansion. Nokia had
yet to reach broadly into international markets, and Kairamo believed that mobilizing Nokia’s key strategic
assets – its technologies, accumulated customer information, brand name, reputation and culture – would
be the way forward.

Nokia decided to increase its research into electronics as well as acquire operations across Europe, which
resulted in a revenue base of $2.7 billion with 27,600 employees and a market capitalization of more than
$1 billion. Amongst the companies acquired were Scandinavia’s largest television manufacturer Salora Oy,
Ericsson Group’s Data Division and Finland’s largest electrical wholesaler. Nokia also became the third
largest television manufacturer in Europe.

At this point in the history of Nokia, the corporation had become large enough to gain international
recognition, but not strong enough to dominate its competitors. Nokia refocused its efforts to develop the
strength of its brand image through the different market niches in which it enjoyed significant presence.
This was to be the start of “its willingness to listen to the customer – a great competitive asset that would
become legendary a decade later.” (Dan Steinbock, 2010).
4

1980s to today – Mobile

The Nokia Insight

Information Nokia is widely credited for having

been the first company to recognize
that cellular telephony was becoming a
The rapid expansion of Nokia led to a 65% debt-to-equity ratio and staple consumer good, and to adjust its
position towards each domestic market
an internally sprawling organisation. By the mid-1980s the
accordingly.
company consisted of eleven industrial groups, each with its own
vision for the future. By 1986, Nokia owed $2.6 billion of debt, and
was in need of a major restructuring. A new CEO was appointed -
Simo Vuorilehto. Vuorilehto deemed it imperative to maintain Strategy for
Nokia’s core focus; his primary step was to divest all of Nokia’s
non-strategic businesses. Despite its earlier growth, the later Success in 2000
1980s were a challenging period for Nokia. It witnessed sharp falls 1. Concentrate on fewer business
in its revenues and share price after a national recession and the areas, but expand worldwide.
collapse of the Soviet Union, which had been an important market.
2. Encourage managers to act locally
In 1992, Vuorilehto stepped down as CEO and was replaced by in foreign markets, and to develop
Jorma Ollila, previously the head of the company’s fledgling understanding of local needs and
mobile phones division. Shortly after his appointment, Ollila made consumer preferences.
a critical decision that would end up transforming Nokia from a
diverse industrial European conglomerate into the main global 3. Learn how to best market products
and establish brand image in small
player in the fast-growing mobile telephony market. Helped by the
and fragmented niche markets.
early adoption of cellular infrastructure in Finland, which was
leading to rapid penetration of mobile telephony in the local 4. Focus exclusively on the wireless
consumer market, Ollila saw that mobile telephony was on the marketplace, particularly in high-
threshold of a major shift, moving from a high-end good to mass- growth areas of terminals
consumer item, much like, for instance, the automotive market in (handsets) and infrastructures
the 1920s or the television market in the 1950s. (base stations and switches).

Ollila decided to refocus Nokia around its mobile handset division 5. Leverage financial and managerial
and over several years the company divested itself of most of the resources to gain a foothold in key
emerging markets, such as China.
assets that did not correspond to this new ‘core.’ Ollila stressed
three attributes he considered key to Nokia’s success: product
innovation, flexibility and rapid responsiveness. At the same time
(the mid 1990s), he divested Nokia of almost all its remaining non-
core assets to focus on building value behind the ‘Nokia’ brand in A Deregulated Market:
order to establish itself as a leading player in the burgeoning
consumer wireless handset industry. This important - and risky - • During the late 1990s, the
Telecommunications market was
strategic decision coincided with the worldwide deregulation of the
deregulated worldwide.
telecommunications industry.
• Nokia make a quick and key
strategic decision to establish
business relations with
telecommunication start-ups
internationally.
The Vision of
Nokia to • This strategic move was in
2000 keeping with the Company’s
entrepreneurial mindset of
placing its shareholders interests
at the forefront of future
Wireless Telecom - High Value expansion opportunities.
Focus Global Brand Oriented Added
• This allowed for a significant, but
also destabilising growth.
5
Nokia’s Restructuring:
As early as 1997, Nokia realized that the future of mobile
Nokia Networks
telephony would lie in its integration with the Internet. Ollila’s
Nokia 2000
vision for Nokia was that of becoming a pioneer in Internet-
enabled telephony, whilst maintaining Nokia’s current position
Nokia Mobile Phones as the growing global giant of mobile handsets. Ollila’s move
was seen as bold, and one that could jeopardize Nokia’s stance
as a global leader in cellular communications. Nonetheless,
Ollila believed the company’s goal of expanding global market
Nokia Communication share was dependent on manufacturing what he felt consumers
Porducts would increasingly demand: a mobile phone combined with
Internet capability. This made the move into an unpredictable
and increasingly competitive technological market
Nokia Ventures unavoidable. It would also make Nokia the early dominant
Organization player in a market segment that would come to be called
“Smartphones”.

Nokia Research Centre Pre 1997, Nokia’s business strategy was one that focused upon
globalisation, which proved successful in the creation of a
strong brand name, recognizable in both international and
domestic markets. Nokia had become a household name from
the US and Germany to China and Brazil. Nonetheless, a growth model based upon
establishing a brand name rather than the development of new technology was unsustainable.
Nokia recognised this and restructured its growth plan accordingly, centering its future
strategy around two fundamental features of the information revolution: the internet, and
consumer demand for greater levels of mobility.

Nokia’s New Business Framework: 1997 onwards

A move into the mobile digital economy would be no easy task for the cellular communications leaders; it called for a
cash-rich company willing to increase significantly their R&D expenditures to service a market that was constantly and
rapidly changing, and one that was becoming increasingly more competitive. Nokia decided to concentrate on two key
areas’ that they believed to be the most crucial advances of the Internet age:
1. The development of a 3G Cellular System
2. The mainstream implementation of the wireless applications protocol (WAP)

A 3G Cellular System: Wireless Applications Protocol:

3G was intended to be a harmonized
worldwide frequency spectrum allowing for
cellular devices to handle not only voice data
and telecommunications, but also the transfer
of information and computing through the
internet, from mobile or fixed locations. In
essence this cellular system was to be the 3rd
generation of a mobile phone. If successful,
analysts’ forecasts showed 3G having more
than 2 billion users worldwide by 2010.
Nokia’s intent was to establish a first-mover
advantage by establishing strategic coalitions
and alliances in an industry, which had yet to
really exist. Given the extensive delays in
rolling out 3G networks, this did not prove to
be a successful strategy in the long run.
Nokia was one of the founding members of the wireless
applications protocol (WAP), an open standard that allowed for
Internet-based services to be used by mobile phones and other
wireless terminals. WAP coincided with the introduction of
Bluetooth; an open standard for short-range communications
amongst equipped electronic devices. These features both featured
into, what was at the time, Nokia’s most high-tech Internet-
enabled phone: the Communicator. With a best-of-industry device,
worldwide brand recognition and a 33% market dominance,
technological companies were keen to develop strategic coalitions
with Nokia.
The business potential of the technological industry was reflected
in the rapid rise of Nokia’s share price: in late 1999, Nokia’s
market capitalization was $160 billion. By July 2000, it has almost
doubled in value to more than $250 billion.
6
Nokia share price, 1995-2000
The Rise to Market Dominance $35
By 1999 the strategic vision of Nokia’s CEO was $30
producing extraordinary results. Ollila was widely
hailed as a visionary of the information revolution and $25
Nokia entered the business lexicon as an outstanding
$20
example of how a company could undertake
successfully to re-engineer itself. $15
In less than a decade, Nokia had become the global $10
leader in mobile telephony. Between 1995 and 1999, as
the market for mobile handsets grew exponentially, $5
Nokia enjoyed an outsized growth in both sales and
$0
profits. It was expanding rapidly from its European Apr-91 Apr-92 Apr-93 Apr-94 Apr-95
market base into both North American and developing
markets.
As the company prepared to cross Nokia’s balance sheet, 1995 - 1999
the threshold into the 2000s,
Nokia overwhelmed its
nearest competitors and
seemed poised for continued,
unimpeded expansion.
Looking to the new
millennium, top executives at
Nokia started to articulate a
vision for the company, which
only a few years before would
have seemed unimaginable: a
40% global market share.

Global market share of

mobile handsets, on the
eve of the new millennium

Investors had reason to cheer:

a US$10,000 investment in
Nokia in mid-1995 would have
been worth over $160,000 US
by 1999. Unlike many darlings
of the tech boom, Nokia’s rising share price was buttressed by substantial increases in their bottom line.
With its substantial investment in R&D and new manufacturing facilities, the pattern of growth seemed

“The key challenge of technology companies today is how we renew ourselves. The technological
cycles are shorter. We must build on our discontinuities and turn them into our favour.”
-Nokia CEO, Jorma Ollila, talking at Stanford Graduate School of Business, 2001.
7
Nokia in the New Millennium –
unsustainable expectations?
Between 2000 and 2007, Nokia
continued its ascendancy as the world’s
dominant mobile handset manufacturer,
but not without some bumps along the
way. By 2002, 1 out of every 3 phones
sold around the globe was a Nokia
handset. Its traditional dominance in the
Western European market had now gone
global; despite intensifying competitive
pressures from Asian manufacturers, it
had become the number one brand in
every major market. By 2002, the
architect of Nokia success, Ollila,
predicted that within a year, Nokia would
cross the 40% threshold of global market
share.
Even as Ollila was predicting greater
dominance for his company, Nokia was
showing signs of strain. First, its rapid
growth had challenged its traditional
corporate structure clouding the
effectiveness of its internal decision
making, and creating problems of
internal organization. Up until 2002 its
massive US$21 billion mobile telephone
business was a single unit in the
company. Second, despite considerable
investment in R&D, Nokia was being
increasingly pressured by growing
competitive forces in the market place.
Companies like Sony Ericsson, Motorola
and Samsung were squeezing Nokia both
in terms of market share and profit
margins through innovations such as
colour screens, CDMA Technology and
cameras. Mobile telephones were
becoming ‘feature-rich’ and more costly
to make, even as prices were falling.
Furthermore, Nokia’s investment in 3G
Technology was stymied by its slow
adoption by major carriers in the USA
and Europe.
“We have gained global
handset market share in
2002, bringing us even
closer to our target of 40 %.”
– Jorma Ollilia
Nokia - Global Handset Market Share
40%
35%
30%
25%
20%
15%
10%
5%
0%
1998 1999 2000 2001 2002 2003 2004 2005
In August 2005, Nokia announced a change in
leadership. Although the company was poised to post
strong sales and earnings numbers, there were clearly
challenges. The share price had been languishing for
almost four years and, in 2004, the company had
stumbled as a result of the internal restructuring, an
increasingly competitive marketplace, and a slumping
telecom industry in general.
“Nokia’s market share went from roughly 38% worldwide in
2003 to 30% in the first nine months of [2004]. In Europe… the
deterioration was even more dramatic, with market share
plunging from 51% in 2002 to 32.6% in 2004. … Its stock has
dropped 14% over the past 18 months … [and] Wall Street is
now deeply divided about Nokia's future, and some analysts
are convinced the company will share Motorola's fate as
another faded tech star.”
Has Nokia Lost It?”, Fortune, January 24, 2005
With Olilla’s target of a 40% global market share now
more elusive than ever, the architect of Nokia’s
extraordinary rise to global prominence gave up the top
spot.
8

2006: A new CEO

Olli-Pekka
Kallasvuo
In keeping with the tradition of promoting Finns steeped in the corporate culture, Nokia named Olli-Pekka
Kallasvuo as the new President and (in 2006) CEO. As Nokia’s CFO, Kallasvuo had worked at Ollila’s side
from the beginning, and had gone on to help boost the company’s presence in the North American market.
With deep knowledge of both the company’s internal operations and the larger handset market, he seemed
the perfect choice to help the company reinvigorate itself and get back on track.

Early results were promising. A number of operational improvements and better market focus, helped
propel Nokia forward after its 2004 stumble. Through the first half of 2006, Nokia’s global market share
rebounded to more than 35%. The bottom line (already robust) grew impressively and the company
handed out generous bonuses to its burgeoning workforce, almost one in three of whom worked in
research and development.

When Nokia released its final year results for 2006, it could show (and boast about) sales up 20%, net
profit up 19% and earnings per share up 28%. Lurking behind the figures, however, were some signs of the
future for Nokia. Sales increased most significantly in developing markets: China (Nokia’s largest market),
India, Indonesia and Brazil. In Western Europe, and especially America, sales were largely flat. The
lucrative North American market constituted just 8% of sales; Europe, always Nokia’s biggest market, fell
from 42% to 38%. The shift could be seen in the profit margins from the company’s handset division. As
high as 23% at the end of the 1990s, margins had fallen in 2005 to 17. 3%. In 2006, they fell again, to
16.6%. The developing market was rich ground for Nokia, but there was not as much money to be made.

Nokia results, 2006

Nokia markets, 2006

9
A Sudden Market Shift
The landscape for mobile telephony shifted literally
overnight in January 2007 when Steve Jobs unveiled
the first iPhone at the Macworld Expo.
“Every once in a while a revolutionary product comes
along that changes everything… we are calling it
iPhone… a leapfrog product that is way smarter than
any mobile device has ever been.” – Steve Jobs
At these words, the partisan crowd cheered loudly.
Nokia executives did not share their enthusiasm. When
it launched in June 2007, more than a quarter of a
million iPhones were sold in two days and Steve Jobs’
lofty rhetoric from January was about to become a
reality; this was a revolution. But at Nokia, the new
product seemed barely to register:
“A mobile executive who visited Nokia
late in 2007 … suggested that the
iPhone was doing something
remarkable to the market. “Look,” he
said, “I can even give it to my three-
year-old and he knows how to use it.”
“We don’t make smart phones for
three-year-olds,” Kallasvuo shot back
contemptuously. [Microsoft was
similarly unperturbed, Steve Ballmer
dismissively calling the iPhone “the
most expensive phone in the world!
And it doesn’t appeal to business
customers, because it doesn’t have a
keyboard”] The visitor left convinced
that Nokia now had a serious problem:
not only was its rival grabbing its
potential market, but it didn’t realize
how dangerous that rival was.”*
*Arthur, Charles. 2012. Digital wars: Apple, Google, Microsoft and
the battle for the Internet. London: Kogan Page., pp. 163, 171)
As the iPhone continued to gain momentum, Nokia’s
response was “been there, done that, bought the t-
shirt”. Many of the novelties introduced by Apple were
already, in fact, part of the Nokia stable. As early as
2004, the company had rolled out platforms to support
online music and gaming through its phones. In early
2007, these were consolidated into Ovi, Nokia’s own
online environment (equivalent to the App Store); it
acquired the digital map provider Navteq a few months
later to offer location-based services.
As for the ballyhooed “multi-touch” technology, which
allowed the iPhone to dispense with everything but a
screen, Kallasvuo sounded a note of particular ennui:
“The touch screen as such is of course not owned by
anybody. We brought it to market five to seven years
ago, and we will have touch screens on our S60
[Symbian] phones next year."*
Yawn.
*“Olli-Pekka Kallasvuo: Nokia: The most global company there is.”
The Independent, September 9, 2007.
One Nokia engineer, Horace Dediu, did see the iPhone
as a threat and worried that Nokia would be caught flat-
footed. After watching Jobs’ Macworld presentation, he
jotted down a remarkably prescient timeline of Nokia’s
response to what he saw as a competitive threat. Not
until 2014, Dediu predicted, would Nokia have a
response to the iPhone.
Horace Dediu’s Timeline: Nokia’s response to the iPhone
•  No response … no perceived threat of any kind. Apple is not
considered a competitor.
2007
•  Plans made to respond with press releases… Apple
considered a competitor only in high end multimedia.
2008
•  Product development teams asked to begin roadmapping
some of the hardware features that would keep Nokia
ostensibly competitive. Apple not considered a competitor
2009 except in high end converged devices.
•  Realization that iPhone is a threat from new dimensions (user
experience). Planning begins on reshaping the software base
as a market-driven (not technology-driven) asset. Apple
2010 begins to be evaluated as a competitor in devices and services.
•  Realization that the iPhone competes as a platform. Planning
begins on repositioning Symbian/Ovi. [In fact, Nokia
2011 abandons Symbian altogether.]
-Source: www.asymco.com
10

The Smartphone Revolution

Meanwhile, the Smartphone revolution Composition of R&D Spending on Devices

predicted by Steve Jobs intensified,
especially after the introduction of
and Services – Nokia 2010
Google’s Android OS, which rapidly
became the market leader. With
smartphones now being driven by
operating systems as much, or more,
than the hardware, the pressure to
improve Nokia’s internal OS, Symbian,
increased. The company dumped huge
amounts of money into updating its OS.
In 2010, the company committed more
than €1 billion to Symbian, an effort
that involved over 6,000 developers.
Yet despite these efforts to improve its
native OS to launch a compelling
alternative top-tier device, Nokia - Source: Bernstein Estimates & Analysis
proved unable to penetrate the
smartphone market. The din from
analysts, commentators, journalists and Symbian’s declining dominance: 2009-2014
even Nokia insiders grew deafening.

Yet even as Nokia was trying to find the

right formula for a compelling top-tier
Smartphone, its continued expansion
was larger drawn from developing
markets, which centred on mass volume
and low price points. This allowed the
company to maintain its leading market
share of the worldwide mobile
operating system (OS). Measured by
market share, Nokia continued to
increase its presence through 2008.

By the end of 2010, Nokia had

experienced an important shift. For the
first time in its history, the largest
concentration of employees was found
outside of Finland – in India and China.
Moreover, sales to those two markets
accounted for almost a quarter of the
company’s total revenues. But the
highly competitive market environment
meant that margins were being
squeezed.
“ The Worldwide mobile OS market is
dominated by four players: Symbian,
Android Research In Motion and – Roberta Cozza,
IOS…Launches of updated operating principal research
systems – such as Apple iOS 4, analyst, Gartner
Blackberry OS 6, Symbian 3 and
Symbian 4, and Windows Phone 7 – will
help maintain strong growth in
smartphone in 2010 and 2011 and spur
innovation.”
11
“Accelerated Innovation”: Nokia’s
response to iPhone & Android
In 2005, coming out of a difficult year, Nokia had
reported operating profit of €4,64 billion on net
sales of €34,2 billion and its largest markets (by
sales) were China, the US and the UK. By 2010, it
eked out an operating profit of €2,07 billion on
revenue of €42,4 billion, and its largest markets were
now China, India and Germany. The message for
Nokia’s (unhappy) investors, employees, and the
Board of Directors was clear: the company’s sales
were increasingly concentrating in markets where
handsets had been commoditised. A major internal
restructuring of the company announced in early
2010 was intended to help the company move a rival
Smartphone more quickly to market, or as Kallasvuo
put it: “speed up execution and accelerate
innovation.”
It didn’t work. The result of the company’s
“accelerated innovation” was the N8, its flagship
product for 2010. Built around its newly revamped
Symbian 3 OS, the device brimmed with the kind of
high-end features that a company like Nokia could
afford to introduce, but it lacked much of the new
functionality that were now standard in top-tier
Smartphones. Where Apple and Google had fostered
a development network to offer consumers a host of
third party applications, Nokia was contending with
forward-compatibility from its legacy Symbian
environment. In the words of one exhaustive (and
largely sympathetic) review, “to call Symbian's third-
party app ecosystem ‘primitive’ would be an
understatement.” Consumers were demanding a
high-end functionality that was simply not in Nokia’s
development stable. Even before the product had
launched, Kallasvuo had stepped down after losing
the confidence of Nokia’s Board. The N8 was to be
his last failure.
To replace Kallasvuo the board tapped Canadian-born
Stephen Elop, the first non-Finn to be appointed to the
top job at the decidedly Finnish company. A Nokia
outsider, Elop had spent the most recent part of his
career as a member of Microsoft’s senior leadership
team, and headed the business division responsible for
the release of Microsoft Office 2010. Olli Pekka-Kallasvi,
right hand man of Ollila, longtime Nokia insider and
ardent company loyalist, had held the job for only 4
years.
The burning platform:
Microsoft
Stephen Elop, his successor, moved quickly to
reposition Nokia. In February of 2011, he sent a
memo around to all Nokia employees:
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 decide how we are going to change our
behaviour.
This, it turned out, was part of a one-two punch.
Two days later, Nokia announced that it had
signed a strategic agreement with Microsoft to
license exclusively that company’s mobile
platform. Symbian and Meego, the platform that
had absorbed billions of euros of R&D
investment, were to be phased out of the
company’s smartphones and Nokia would instead
become the hardware provider for what was, in
essence, a Microsoft-driven ecosystem. Reaction
was swift and severe. Nokia’s shares dropped 14%
the same day and upwards of a 1,000 Nokia
employees registered their dismay through an
impromptu wildcat strike.
12
A closer look: Nokia 2011
The argument
After the sudden and dramatic events of February
2011, Nokia’s fall from grace was much discussed. In
media and analyst reports, it was often remarked that
Nokia was blindsided by Apple and the meteoric rise
of feature-rich Smartphones at the top end of the
market. Under this reading of the company’s fate,
Nokia was either unable or unwilling to recognise the
threat posed by Apple (and later Google) to the
Smartphone market. As a result, the company was
forced into desperate measures to compete in the new
ecology triggered by the iPhone and Android.
Does this argument hold up?
Note the quotation above from Charles Arthur’s
Digital Wars: “not only was [Apple] grabbing its
potential market, but it didn’t realize how dangerous
that rival was.” The key word here is potential. The
widespread impression that Nokia ended up bleeding
market share as a result of Apple’s dramatic intrusion
into the top-tier segment is simply wrong. Nokia had
never had much of a presence in this market. By the
time the Apple and Android had started to take hold of
the US market in 2008, Nokia’s North American sales
were already in steep decline. So neither Apple nor
Android handsets usurped Nokia’s market, as much as
they made it yet more difficult for the company to
expand into this lucrative space.
Lost investment?
MeeGo & Symbian
MeeGo:
Under the new strategy, MeeGo becomes an open-source,
mobile operating system project. MeeGo will place
increased emphasis on longer-term market exploration of
next-generation devices, platforms and user experiences.
Symbian:
With Nokia’s planned move to Windows Phone as its
primary smartphone platform, Symbian becomes a
franchise platform, leveraging previous investments to
harvest additional value. This strategy recognizes the
opportunity to retain and transition the installed base of
200 million Symbian owners. Nokia expects to sell
approximately 150 million more Symbian devices in the
years to come.
Source: Nokia Press Release February 2011
Second, Nokia may have been blindsided by
Apple, but it is worth looking at how the
company was trying to position itself with respect
to the segment before the Apple announcement.
As early as 2006, Nokia had recognised that its
strategy going forward would require the
company to meet head-on the challenges from
competitors like Apple. “Comparison with our
own industry is not adequate any more,”
Kallasvuo told the Economist in the spring of
2006, more than a year before the launch of the
first iPhone. “We need to look at this in a much
wider way. The convergence of Internet and
media content is happening in the way everyone
predicted four or five years ago. We are more and
more competing against other people, against
new types of competitors. We are all
converging.” [Emphasis added.] As the
Economist put it, “rather than just comparing
itself with rival handset-makers such as Motorola
or Samsung, Nokia now considers its competitors
to be Apple, Sony, Canon and other consumer-
electronics firms.”
-“More, more, more: Nokia's new chief wants to lead the mobile-
phone giant into new markets,” The Economist, May 25th 2006
The company had reacted to the rise of consumer
interest in Smartphones by introducing a range
of top-tier handsets designed for the European
and North American markets. The company’s N-
series, launched in 2006, included a feature-rich
operating environment. The N73 allowed users
easily to upload pictures taken from their phone
to the Internet. The N91 was essentially a music-
player combined with a phone. And the company
even brought out the now largely forgotten N770,
one of the first Internet tablets. However, despite
this raft of high-end products, Nokia continued
to struggle in the top-tier segment (best
measured by US sales where adoption rates were
the highest).
Nokia, North American sales,
2003-2008
5000
4500
4000
3500
€m
3000
2500
2000
1500
2003 2004 2005 2006 2007 2008
13
So even before the introduction of the
iPhone, the Smartphone market was
Not just a nice phone! proving infertile ground for the pioneer.
Business customers were flocking in
Blackberry Subscribers (global), 2003-2008 increasing numbers to the Blackberry
device, with its secure push-email platform.
30
And in the personal consumer market,
25
25
there were more choices than ever. Nokia
made nice phones, but they were never a
Subscribers (m)

20 dominant player in the top-tier Smartphone

market after 2003. Although the company
14 recognised the need to compete in this
15
segment, they were looking increasingly
10 8 like a mass-market OEM. As the Economist
5 noted: “Nokia may strive to emulate Apple
5 2.51 [i.e. iPod] with its most expensive phones,
0 but the core of its business, with its efficient
0 logistics and huge volumes, has more in
2003 2004 2005 2006 2007 2008 common with Dell.” Ouch.

As Nokia was slipping further down the top- Nokia Workforce (yearly average)
tier ladder, it intensified its efforts to gain a
significant foothold in the segment by
investing heavily in R&D. Between 2006 and 140000
2010, Nokia doubled its workforce, including 120000
a large number of software engineers and
developers charged with devising new 100000
products and services for the top market
80000
segment. Products like the N-series (e.g. N95
released in 2006) brought a raft of top 60000
services to the Smartphone environment,
including GPS-aided navigation and 40000
increasingly high-resolution cameras. But as 20000
the market for Smartphones was expanding
in its former core markets, the Nokia brand 0
appeared to be holding increasingly smaller
traction for the top-tier consumer.

In 2008, Nokia finally achieved the long-sought goal of Jorma Ollila: it ended up the year holding an almost
40% global market share. But it was a pyrrhic achievement; while revenues that year held stable, the
company’s profits plunged by (a poetically ironic) 40%. The trend was never reversed. In 2011, Nokia’s
revenues and share price were both depressed; it essentially abandoned its Symbian OS; and it reached
outside its corporate culture in the hope of finding someone who could engineer a turnaround.
14
Questions, past & future Nokia, Global Handset
Market Share
So the story that Nokia fell from grace because it failed to
anticipate changes in the top-tier Smartphone ecosystem does not 40%
appear to be supported by the facts. Well before the arrival of
Apple and Android, Nokia was losing share in both US and 30%
European markets. And even though the company was criticised
20%
for failing to deliver what the consumer wanted, it was not for
want of recognition. It was a pioneer in developing third party 10%
applications for its phones, location-based services and satellite
navigation, and a feature rich environment that combined music, 0%
video, internet and voice in a single device. Even before the iPhone 2006 2007 2008 2009 2010 2011
was announced, Nokia had identified the strong brands in
consumer electronic devices as its principal competitors, including Apple. And it committed heavily to R&D
in its efforts to bring a line of top-tier Smartphones to market. Yet for all of these efforts, Nokia never
managed to turn that potential market into a real one. Instead, the company’s sales became more and more
driven by developing markets like China and India.

The challenges facing Nokia is made vivid in a quick review of the mobile market at the close of 2011. The
profit landscape has shifted dramatically: Apple, with less than 10% market share in 2011, managed to
capture almost half of the revenues and a staggering 80% of the profits generated by the mobile industry.
Nokia may still be the leader in terms of global market penetration, but it has not been able to maintain the
profitability of that position.

What can we learn from this? Here are the

key questions to ask:

• When did Nokia’s decline begin?

• What were the problems it faced?
• How effective was it in recognising and
reacting to those problems?
• Had it made provision for changes to
the marketplace?
• Could it have known?

Nielsen estimates of global top-tier smartphone

sales by OS in 2011 (January 2012)

Rolf Strom-Olsen is Professor of Humanities at IE Business School in Madrid.

Serena Mujtaba is pursuing a Bachelors in Business Administration of IE University