THE FAILURE OF NOKIA’S CONNECTING PEOPLE 1

The Failure of Nokia’s Connecting People

Milla A. Rajasa, B. Des.

I201621261

Huazhong University of Science and Technology

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Abstract

The purpose of this paper is to study the downward spiral of Nokia, the king of the

mobile technology company that once was the best in the world. In every firm, a crisis can be

expected to be on the horizon. Nokia was a pioneer in the development of mobile phones. Late

2007 may have been the last happy time for Nokia. Since then, Apple and Google (with Android)

have trampled the Finnish giant. This crisis situation may be happen to any large company. If

they can't do something such as innovation quick enough, of course they will fall behind the

others.

Keywords: Nokia, management, crisis.

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Background Introduction

Photo1: Sales of major mobile and telecommunications equipment vendors (Carral &

Kajanto, 2008)

Photo2: Nokia’s Market Stock (Google, 2016)

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In every firm, a crisis can be expected to be on the horizon. For consumer electronics

firms this is often caused by the development and combination of emerging new technologies.

One of the most significant recent changes is the convergence of internet sites that provide

content such as news, financial analysis, lectures, music and video, smart phones, and software

applications that will retrieve content from the site and provide the content to a smart phone.

(McCray, Gonzalez, & Darling, 2011)

In the early aughts, Nokia was acclaimed for its marketing, and was seen as the company

that had best figured out how to turn mobile phones into fashion accessories. It’s more accurate

to say that Nokia was, at its heart, a hardware company rather than a software company—that is,

its engineers were expert at building physical devices, but not the programs that make those

devices work. Nokia’s development process was long dominated by hardware engineers;

software experts were marginalized. (Executives at Apple, in stark contrast, saw hardware and

software as equally important parts of a whole; they encouraged employees to work in

multidisciplinary teams to design products) (Surowiecki, 2013)

I’ve never been happier with a phone than I was in late 2007, when I started using a

lovely Nokia N95. It was a little silver candy-bar phone with a black back that had a full Carl

Zeiss lens built in; flipped upside down, it looked just like a digital camera. Most importantly,

my address book synched, e-mails were easy enough to write, and the operating system,

Symbian, didn’t crash. Steve Jobs had introduced the iPhone that year, and, despite stunning

sales, it still seemed a bit alien. There wasn’t an app store yet, and typing on the keyboard was

slow and bewildering, like playing soccer with a balloon. (Thompson, 2012)

From 1998 until 2012, Nokia was the biggest mobile-phone maker in the world.

Its failure to adapt to the post-iPhone market led to its decline. (The New Yorker, 2013)
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Late 2007 may have been the last happy time for Nokia. Since then, Apple and Google

(with Android) have trampled the Finnish giant. Both of those companies created app stores that

allowed millions of independent coders to work to improve their phones. Over the last five years,

Apple has become the most valuable company in the world, and Nokia’s stock price has declined

by about eighty-five per cent. (Thompson, 2012)

Although Nokia is presently the largest mobile phone manufacturer in

the world, the firm has fallen behind Apple in the development of total

capability to deliver a user experience equal to the Apple iPhone. (McCray,

Gonzalez, & Darling, 2011)

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Literature Review

The Company Itself: Nokia

From its beginning in 1865 as a single paper mill operation, Nokia has found and

nurtured success in several sectors over the years, including cable, mobile devices, paper

products, rubber boots and tires, and telecommunications infrastructure equipment.

Nokia’s sector-by-sector success over the years has mirrored its geographical rise: from a

Finnish-focused company until the 1980s with a growing Nordic and European presence; to a

bona fide European company in the early 1990s; and onto a truly global company from the mid-

1990s onward. With the acquisition of Alcatel-Lucent in 2016, Nokia further deepen and widen

its global reach.

Nokia has been producing telecommunications equipment since the 1880s – almost since

telephony began. When Finnish Engineer Fredrik Idestam set up his initial wood pulp mill in

Southern Finland in 1865, he took the first step in laying the foundation of Nokia’s capacity for

innovating and finding opportunity. Sensing growing pulp product demand, Idestam opened a

second mill a short time later on the Nokianvirta River, inspiring him to name his company

Nokia AB.

In the 1960s, Nokia became a conglomerate, comprised of rubber, cable, forestry,

electronics and power generation businesses resulting from a merger of Idestam’s Nokia AB, and

Finnish Cable Works Ltd, a phone and power cable producer founded in 1912, and other

businesses.

Deregulation of the European telecommunications industries in the 1980s triggered new

thinking and fresh business models.

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In 1982, Nokia introduced both the first fully-digital local telephone exchange in Europe

and the world’s first car phone for the Nordic Mobile Telephone analog standard. The

breakthrough of GSM (global system for mobile communications) in the 1980s introduced more

efficient use of radio frequencies and higher-quality sound. The first GSM call was made with a

Nokia phone over the Nokia-built network of a Finnish operator called Radiolinja in 1991.

It was around this time that Nokia made the strategic decision to make

telecommunications and mobile our core business. Our other businesses, including aluminum,

cable, chemicals, paper, rubber, power plant, and television businesses were divested.

By 1998, Nokia was the world leader in mobile phones, a position it enjoyed for more

than a decade.

In 2007, Nokia combined its telecoms infrastructure operations with those of Siemens to

create the Nokia Siemens Network joint venture. Nokia later bought Siemens’ stake in NSN in

2013 as the business was emerging from a successful strategy shift and the reality of what Nokia

calls a Programmable World of connected devices, sensors and people was starting to take shape.

In 2011, Nokia joined forces with Microsoft to strengthen our position in the highly

competitive smartphone market. Three years later, Nokia accepted Microsoft’s offer to buy most

of Devices & Services, with the deal closing in April 2014. Nokia emerged from the transaction

with a firm financial footing and three strong businesses – Nokia Networks, HERE maps and

Nokia Technologies – focused on connecting the things and people of the Programmable World.

Nokia’s transformation was not done. The HERE digital mapping and location services

business, an arena Nokia entered in 2006, was a key pillar of Nokia’s operational performance.

But in 2015, the Nokia Board held a strategic review of the business in light of plans to purchase
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Alcatel-Lucent. The result was a sale of HERE to a car company consortium in a deal that closed

in December 2015. (Nokia, 2016)

Nokia was a pioneer in the development of mobile phones. In 1992, Nokia introduced the

first global system for mobile handsets. In 1994, Nokia completed the first satellite call. By

1998, Nokia was the world leader in the manufacturing and sales of mobile phones. (McCray,

Gonzalez, & Darling, 2011)

Nokia was hardly a technological laggard—on the contrary, it came up with its first

smartphone back in 1996, and built a prototype of a touch-screen, Internet-enabled phone at the

end of the nineties. It also spent enormous amounts of money on research and development.

(Surowiecki, 2013)

Another Literature

No industry is stable over time. Industries will always experience changes as they

progress, some with shorter time frames, others with longer time frames, but eventually change

will affect every industry. Many times companies do not realize future inflection points in the

industry cycles, realize them too late, or simply are not capable of action when facing the

changes. This inability of firms to take action can dramatically change their fortunes. (Carral &

Kajanto, 2008)

Knowledge is undoubtedly among any firm's most critical assets. Without it, there would

be little hope of succeeding with aims to innovate, satisfy customer needs or gain any lasting

competitive advantage. Companies must therefore put considerable emphasis on knowledge

creation and management. (Anonymous, 2013)

Firms need to understand industry cycles and their dynamics. Lead markets can play a

significant role in predicting inflection points in other global markets. Companies need to be
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flexible since the market seldom develops as forecasted, even less so in high-tech. It is more

important for the firm to understand the industry cycle dynamics than focus attention and energy

on very exact forecasts. (Carral & Kajanto, 2008)

When crises occur, affecting a business firm, the environment seems to

treat them differently from the way it treats such events when they occur in

the public arena – whether or not individuals are affected. (Darling, 1994)

The constant existence of manufacturing crises has taught the world

that a crisis can occur with little to no warning, anywhere, anytime. And it

can happen to any type of manufacturing firm, large or small, at every stage

of development, and operating locality or globally. (McCray, Gonzalez, & Darling,

2011)

The contemporary-based transformational development skills of

paradoxical thinking, controlled responding, intentional focusing, instinctive

knowing, inclusive behaving and purposeful trusting can be of enormous

value in effective crisis management (Gabrielsson et al., 2009)

Managers regularly use the term business model to describe the logic of a firm, the way it

does business and how it creates value for its stakeholders. (Aspara, Lamberg, Laukia, &

Tikkanen, 2011)

The advantage that a large company has over smaller, younger ones in terms of

innovation is that it can afford to take a portfolio approach to innovation. As with the venture

capitalist mentioned earlier, an approach that takes a broad range of risks on board will maximize

the chances of long-term success, so that for every ‘‘sure thing’’ that has a relatively low risk and

low return, a high risk investment in an idea can be indulged and hopefully yield a high return.
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Smaller companies, while full of innovative zeal, have a much smaller basket to put their eggs in

and often fail. The key is putting this portfolio-based strategy at the centre of a continuous,

evolving innovation program. (Anonymous, Nokia: big and clever, 2007)

What Had Happened to Nokia

What happened to Nokia is no secret: Apple and Android crushed it. But the reasons for

that failure are a bit more mysterious. For years, the company had been a conglomerate, with a

number of disparate businesses operating under the Nokia umbrella; in the early nineteen-

nineties, anticipating the rise of cell phones, executives got rid of everything but the telecom

business. (Surowiecki, 2013)

Since the introduction of the iPhone, Apple has continued to capture market share at the

high end of the smart phone market (Borden, 2009). In 2007, the Apple iPhone was named the

information technology product of the year (Kenney, 2007) and by the end of 2009 there were

over 100,000 applications for the iPhone that would deliver music, video, news, weather, air

flight schedules and much more (Karpen, 2010).

In 2001, when Apple iTunes 1.01 was introduced to provide songs and video files for

Apple computer users by downloading them from the internet, it was apparently not clear to

Nokia that they should react. Nokia did not apparently see the approaching crisis. Nokia’s

principal decision at that time was to produce better and cheaper mobile phones. By 2007, the

Apple iPhone began to dominate high-end smart phone sales. A total of seven critical years

passed before Nokia developed a similar site to iTunes. (McCray, Gonzalez, & Darling, 2011).

To deal with a crisis in this stage, Nokia manufactured smarter phones (Taylor, 2008).

The road of big business is strewn with the hulking remains of large corporations who

failed to react quickly enough to changing markets and environments, did not realize when new
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products and systems were required, and failed to innovate even when they knew the writing was

on the wall. (Anonymous, Nokia: big and clever, 2007)

One way to explain this is to point out that Nokia was an engineering company that

needed more marketing savvy. But this isn’t quite right; in the early aughts, Nokia was acclaimed

for its marketing, and was seen as the company that had best figured out how to turn mobile

phones into fashion accessories. It’s more accurate to say that Nokia was, at its heart, a hardware

company rather than a software company. (Surowiecki, 2013)

It wasn’t just that Nokia failed to recognize the increasing importance of software,

though. It also underestimated how important the transition to smartphones would be. And there

was another mistake. Nokia overestimated the strength of its brand, and believed that even if it

was late to the smartphone game it would be able to catch up quickly. (Surowiecki, 2013)

The corporate culture at Nokia and the morale of employees was stable as the firm

focused on design, manufacturing and sales of mobile phones. However, the shift to smart

phones that used an internet platform similar to iTunes that would make internet content

available was not a good fit with the traditional Nokia corporate culture. (McCray, Gonzalez, &

Darling, 2011)

Unfortunately for Nokia, the perception among individuals in the high-

tech community was that firms such as Apple, Google, Yahoo, and the new

internet startups provided the best opportunities (King, 1999)

Understanding the industry dynamics in lead markets before they spread and applying

that knowledge in the strategy process was very important for Nokia. (Carral & Kajanto, 2008)

Crisis management is also not just a recognition and quick-fix solution. It usually entails

forecasting, identifying, studying, and acting upon crisis issues, and establishing procedures that
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would enable an organization to prevent or cope with crises effectively. (McCray, Gonzalez, &

Darling, 2011)

Managers need to think creatively and ensure that all appropriate stakeholders of the

organization know what is happening and feel involved in the firm’s response to the crisis

(Shelton et al., 2003). Although management should have made plans for how to handle the

acute crisis stage, this was not done and the firm moved into the chronic crisis stage. (McCray,

Gonzalez, & Darling, 2011)

A good understanding of industry evolution can prevent such abrupt decisions. We

maintain that a sustainable strategy is based on a solid understanding of how an industry will

evolve. (Carral & Kajanto, 2008)

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Problem Statements

During the press conference to announce NOKIA being acquired by Microsoft,

Steve Ballmer (Nokia CEO) ended his speech saying this “We didn't do anything wrong, but

somehow, we lost”.

Is it true that they did nothing wrong? Nokia was the largest mobile phone manufacturer

in the world. The firm now has fallen behind another mobile phone companies such as Apple,

Samsung, etc. How can such a thing happen to such a big company like Nokia?

Conclusion

The advantage you had yesterday will be replaced by the trends of tomorrow. You don’t

have to do anything wrong, as long as your competitors catch the wave and do it right, they

absolutely will be able take your place. What happened to Nokia was they are too busy with

them self, here I can say that Nokia was an arrogant company. They underestimated their

competitor: Apple and Android. They didn’t see that the crisis was coming, and realized it 7

years later. They tried to catch up but it was too late. However, since Nokia was not successful in

dealing with the challenge from their competitors, it now finds itself locked in the chronic crisis

stage.
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References

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Surowiecki, J. (2013, September 23). Where Nokia Went Wrong. Retrieved November 5,

2016, from The New Yorker: http://www.newyorker.com/business/currency/where-nokia-went-

wrong

The New Yorker. (2013, September 5). Nokia Hangs Up on Phones. Retrieved November

5, 2016, from The new Yorker: http://www.newyorker.com/tech/elements/nokia-hangs-up-on-

phones

Thompson, N. (2012, April 6). The Resurrection of Nokia. Retrieved November 5, 2016,

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