Nokia Rise and Fall

EMSE 6005.10 Organizational Behavior For The Engineering

Managers
Professor Andy Sakka
Abhishek Thakur
Akshat Amrut Oswal

Nokia history:
Nokia was founded by Fredrik Idestam, a mining engineer in 1865.
The name Nokia was decided in 1871 when he opened his second paper
mill on the bank of Nokianvirta river. Nokia started out with making
paper which incidentally was one of the very first technologies used
for communications. Fredrik Idestam was the chairman of the company
till 1896 when he retired, and Leo Mechelin took over as the chairman.
Under Mechelin, Nokia started a new business unit of electricity
generation. In 1898, Eduard Polon founded the Finnish Rubber Works,
which later became Nokias rubber business. They were making
everything from galoshes to tires. In 1912, Finnish Cable Works was
established by Arvid Wickstrom, which later became Nokias cable and
electronic business.
In 1967, all three of these jointly owned companies came together
to form the Nokia corporation. Nokias first thrust in
telecommunications came when they began developing radio telephones
for the army and emergency services. During this period, the company
was involved in many businesses including paper products, tire
manufacturing, footwears, communication cables, televisions ,
electricity generation machinery, robotics , chemicals, plastics and
many more. By 1987,, Nokia became one of the leading manufacturers of

TV in Europe. By 1990, Nokia decided to concentrate its efforts on the

fastest growing business of telecommunications & leave all other
companies behind. They sold out all other business divisions.

An Era of Communication
Nokia was not a new player in telecommunication field when they
started concentrating on it in 1990s. Instead, they had the ball
rolling from 1979 when they created a radio telephone company Mobira
Oy as a joint venture with one of the leading TV maker Salora in
Finland. They started with the Nokia DX 200 which was a digital switch

for telephone exchanges. They worked on the development of a version

of exchange & Nordic Mobile Telephony network was born.

Source: http://www.Nokiamusuem.info
In 1987, GSM (Global System for Mobile communications) is adopted
as the European standard for digital mobile technology. This new
technology revolutionized the telecommunication industry with its
high-quality voice calls, international roaming and support for text
messages.

The Growth of a Mobile Giant

Nokia truly entered a new age GSM cell phone time with their
Nokia 1011 model which was launched in 1992. During this time, Finland
was undergoing a severe economic meltdown and Nokia was also in a
severely crunched economic situation.

In 1994, Nokia launched their

2100 series phones which were the first phones with the now famous
Nokia ringtone in them. Nokia had planned a target to sell 400,000 of
these phones which was a big number at that time, but they got lucky
and it turned out to be such a huge success that they sold over 20
million devices worldwide. This was truly the start of the ride for
Nokia atop the cellphone business.

Source: ETLA The Research Institute of the Finnish Economy

As the graph, clearly depicts, Nokia was the clear the gorilla in
the cellphone market in 1990s, with almost 100% market share. As the
time, moved towards the next century competition for Nokia grew but
still they were able to hold onto their market leader position. From
1996 to 2001, Nokias turnover increased almost fivefold from EUR 6.5
billion to EUR 31 billion.
With the start of the next century Nokia just kept on growing
bigger & bigger becoming the leader in the mobile technology. In 1999,
Nokia launched the Nokia 7110 which was the first phone capable of
rudimentary web-based functions including emails. Within 2 years Nokia
launched its first phone with a built-in camera and again in September
2002 they came out with a phone capable of capturing videos i.e. the
Nokia 3650. During this time, there was a huge number new patented
technology coming out from the Research and Development division of
Nokia, which was helping their share prices soar to the sky.

source:http://envisionip.com/blog/2012/07/19/530/
Nokia launched the 6650 with 3G technology in 2002 and by 2005
Nokia had sold its billionth phone which was a Nokia 1100 in
Nigeria.In 2007, Nokia was recognized as the 5th most valued brand in
the world.

The Stumbling Giant

Originally in 2007 after the release of iPhone, Nokia smartphones
like Nokia N95 with Symbian OS outsold the iPhone and had a dominating
62.5% market share in Q4 of 2007 ahead of Microsofts Windows mobile

OS and RIMs BlackBerry. As the competition grew fierce in 2008,

Apples iPhone 3G hit the market which started the rise of the new
kind of smartphone within the cellphone space. As Nokia felt
intimidated, Olli-Pekka Kallasvuo, CEO of Nokia, tried everything in
his power to tackle this new threat but Nokias pie was being snatched
away slowly. The graph below shows how Nokia was affected when Apple
started manufacturing iPhones in 2008. But when the iPhone 3rd
Generation phones hit the market with the new refined iOS operating
system it quickly doubled the market share for Apple and reduced the
Nokias share along with others. Nokia was still the market leader
with a 40.8% market share in Q4 2008 with its new smartphone like
Nokia 5800 Xpress music and Nokia E71 but was declining.
In 2008, Nokia bought the Symbian operating system and the
following year made it open source so that more & more apps could be
developed for Symbian operating system. But this step couldnt turn
the fortunes of Nokia as in 2009 their market share of Symbian fell to
46.1% in Q4 2009 from 52.4% in Q4 2008. But in 2010 everything started
to fall apart for Nokia as Google with its Android operating system
along with Apple with the iOS started to eat into Nokias business,
and the other Symbian makers including Samsung and Sony Ericsson
decided to take up Android as their new operating system.

In mid-2010, Nokia was the only OEM to manufacture devices with

the Symbian OS while they were contemplating to adapt to newer
Operating Systems.

WHAT WENT WRONG?

We will take use the 3 primary lenses which enable the process to
analyze where Nokia possibly went wrong. Nokia made choices, we feel,
it shouldnt have and will note these in our analysis below.

I) Strategy
Symbian OS was created by Symbian Ltd., which was a joint venture
between Psion, and phone manufacturers Ericsson, Motorola and Nokia.
Symbion was the most popular smartphone OS on a global average till Q4
2010 with Nokia having Symbian as the OS in its all flagship phones.
In June 2008, Nokia acquired Symbian Ltd. under a decision to make the
Symbian OS open-source platform so that more developers can use it to
develop their mobile apps. In February 2010, it was officially made
available as open source code. But it was a little too late as
Android, which was already open-source and freely available, and iOS
has already started to eat into Symbian market pie with their advanced
platforms & a huge number of support applications on the smartphones.

On February 11, 2011 Nokia announced partnership with Microsoft and

carry their OS i.e. Windows OS in their smartphones. A study in June
2011 showed that over 39% of the mobile developers using Symbian had
planned to abandon the platform for either Android or IOS. By June
2011,, Nokia had made a deal with Accenture for Symbian based software
development and support services through 2016 which also saw 2800 of
Nokia employees moving base to Accenture.

II) Technology
Nokia was a pioneer of technology in mobiles and cellphones.
Nokia came a long way to reach that state, but only due to aging staff
and technology could not stand to the new wave of competition. Nokia.
Nokia had the Mobira series from 1982-1990 which were very popular
during its times. From 1990- 1999, Nokia sold the Original series of
phones, which also saw the inclusion of a newly developed GSM
technology. Nokia later went forward to production colour screen
phones, digital camera featured phones and even music capable phones.
Nokia also had a gaming series of phones which were selling like hot
pancakes amongst teenagers. They indirectly took over Sonys walkman,
Apples iPod and other related products market share. Nokia later had
business series phones with push email and other corporate benefitting
features.

Later on they used to Symbian OS and were literally on top

of the world with their remarkably smart featured phones. But by this
time, Nokia had reached the peak of its research and development
cycles. What they needed to do was to usher in a revolutionary new
technology to continue dominating the market after 2007. But this was
brought in by a new breed of engineers working at Apple and Google,
who came up with iOS and Android Operating Systems. Nokia still
believed that it's Symbian OS was capable of fighting this decision
but eventually realized it were not worth the fight and started
looking for new OS partners. In 2009, Nokia developed MaeMo OS, which
was later terminated in favor of Maemo OS. These OS was developed inhouse and then handed over to a contractor for developing apps for
them. Although initially it attracted developers, it lacked the charm
iOS and Android had to offer. This was when Nokia decided to go out in
the market to look for a partner for their amazing hardware devices.
After their tie-up with Microsoft for its Mobile Platform OS Windows
7.5 Mango, Nokia launched the Lumia series, which featured
revolutionary hardware advancements. The Nokia Lumia 1020 had a
staggering 41 MP Carl Zeiss camera. Lumia 610 featured NFC which is
the top of the class wireless transfer technology. But by then Nokia
was all stripped down of its glory. Nokia also launched the Asha set
in India and other developing nations, which once were its
strongholds, but they performed averagely.

It wasnt until January 25th, 2013 that Nokia announced it

would stop shipping Symbian phones. By then Nokia was shipping only
Windows OS based phones. Nokia had to train an entire division of
people for the task such as writing Operating system level code to
developing apps for it. In September, 2013, Microsoft announced it
will be buying Nokias mobile business for $7.2 billion. This
signifies the buyout of a failed company by a giant which caused it to
fail in the first case.

III) People
We have mentioned above the various CEOs of Nokia and their
valuable contribution to the company. In September 2010, it was
announced that Elop would take Nokia's CEO position, replacing OlliPekka Kallasvuo, and becoming the first non-Finnish director in
Nokia's history. On 11 March 2011 Nokia announced that it had paid
Elop a $6 million signing bonus, compensation for lost income from
his prior employer," on top of his $1.4 million annual salary. As soon
as Stephen Elop took over he sent an internal memo to his employees
which got leaked to the press. The memo dubbed as Burning platform
was one of its kind and regarded as one of the most ridiculous
corporate memo. Below is a glimpse of its content.
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 platforms
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 determine how we are
going to change our behaviour.
Over the past few months, Ive shared with you what Ive heard from our
shareholders, operators, developers, suppliers andyou. Now, Im going to share what
Ive learned and what I have come to believe.
I have learned that we are standing on a burning platform.
And, we have more than one explosion we have multiple points of scorching
heat that are fuelling a blazing fire around us.
For example, there is intense heat coming from our competitors, more rapidly
than we ever expected. Apple disrupted the market by redefining the smartphone and
attracting developers to a closed, but very powerful ecosystem.

In 2008, Apples market share in the $300+ price range was 25 percent; by 2010
it escalated to 61 percent. They are enjoying a tremendous growth trajectory with a
78 percent earnings growth year over year in Q4 2010. Apple demonstrated that if
designed well, consumers would buy a high-priced phone with a great experience and
developers would build applications. They changed the game, and today, Apple owns the
high-end range.
And then, there is Android. In about two years, Android created a platform
that attracts application developers, service providers and hardware manufacturers.
Android came in at the high-end, they are now winning the mid-range, and quickly they
are going downstream to phones under 100. Google has become a gravitational force,
drawing much of the industrys innovation to its core.
Lets not forget about the low-end price range. In 2008, MediaTek supplied
complete reference designs for phone chipsets, which enabled manufacturers in the
Shenzhen region of China to produce phones at an unbelievable pace. By some accounts,
this ecosystem now produces more than one third of the phones sold globally taking
share from us in emerging markets.
While competitors poured flames on our market share, what happened at Nokia?
We fell behind, we missed big trends, and we lost time. At that time, we thought we
were making the right decisions; but, with the benefit of hindsight, we now find
ourselves years behind.
The first iPhone shipped in 2007, and we still dont have a product that is
close to their experience. Android came on the scene just over 2 years ago, and this
week they took our leadership position in smartphone volumes. Unbelievable.
We have some brilliant sources of innovation inside Nokia, but we are not
bringing it to market fast enough. We thought MeeGo would be a platform for winning

high-end smartphones. However, at this rate, by the end of 2011, we might have only
one MeeGo product in the market.
At the midrange, we have Symbian. It has proven to be non-competitive in
leading markets like North America. Additionally, Symbian is proving to be an
increasingly difficult environment in which to develop to meet the continuously
expanding consumer requirements, leading to slowness in product development and also
creating a disadvantage when we seek to take advantage of new hardware platforms. As
a result, if we continue like before, we will get further and further behind, while
our competitors advance further and further ahead.
At the lower-end price range, Chinese OEMs are cranking out a device much
faster than, as one Nokia employee said only partially in jest, the time that it
takes us to polish a PowerPoint presentation. They are fast, they are cheap, and
they are challenging us.
And the truly perplexing aspect is that were not even fighting with the right
weapons. We are still too often trying to approach each price range on a device-todevice basis.
The battle of devices has now become a war of ecosystems, where ecosystems
include not only the hardware and software of the device, but developers,
applications, e-commerce, advertising, search, social applications, location-based
services, unified communications and many other things. Our competitors arent taking
our market share with devices; they are taking our market share with an entire
ecosystem. This means were going to have to decide how we either build, catalyse or
join an ecosystem.
This is one of the decisions we need to make. In the meantime, weve lost
market share, weve lost mind share and weve lost time.

On Tuesday, Standard & Poors informed that they will put our A long term
and A-1 short term ratings on negative credit watch. This is a similar rating
action to the one that Moodys took last week. Basically it means that during the
next few weeks they will make an analysis of Nokia, and decide on a possible credit
rating downgrade. Why are these credit agencies contemplating these changes? Because
they are concerned about our competitiveness.
Consumer preference for Nokia declined worldwide. In the UK, our brand
preference has slipped to 20 percent, which is 8 percent lower than last year. That
means only 1 out of 5 people in the UK prefer Nokia to other brands. Its also down
in the other markets, which are traditionally our strongholds: Russia, Germany,
Indonesia, UAE, and on and on and on.
How did we get to this point? Why did we fall behind when the world around us
evolved?
This is what I have been trying to understand. I believe at least some of it
has been due to our attitude inside Nokia. We poured gasoline on our own burning
platform. I believe we have lacked accountability and leadership to align and direct
the company through these disruptive times. We had a series of misses. We havent
been delivering innovation fast enough. Were not collaborating internally.
Nokia, our platform is burning.
We are working on a path forward a path to rebuild our market leadership.
When we share the new strategy on February 11, it will be a huge effort to transform
our company. But, I believe that together, we can face the challenges ahead of us.
Together, we can choose to define our future.

The burning platform, upon which the man found himself, caused the man to
shift his behavior, and take a bold and brave step into an uncertain future. He was
able to tell his story. Now, we have a great opportunity to do the same.
Stephen.

This memo though honest, demoralized many employees. It made them

believe they are the reason why the company is where it is now. But
this memo nowhere made it clear what the exact strategy would be. This
memo also shows how irresponsible as a CEO Stephen Elop was and its
effect on the company.

Conspiracy Theory:
Stephen Elops career has a reputation of either leaving soon
enough or a takeover of the company he works in. He was CEO for Elop
was a director of consulting for Lotus Development Corporation before
becoming CIO for Boston Chicken in 1992,which filed for Chapter 11
bankruptcy in 1998. In the same year, he joined Macromedia's Web/IT
department holding senior positions, like being CEO from January 2005
for three months before they were brought by Adobe Systems in April
2005.
He was the president of worldwide field operations at Adobe, and
resigned in June 2006, after which he became the COO of Juniper
Networks from January 2007 2008. From Jan 2008 - Sep 2010, Stephen
Elop was employed at Microsoft and was heading the Business Division.

His work domain included Microsoft Office and Microsoft Dynamics line
of products.
He left Microsoft in September 2010 and joined Nokia, becoming
the first non-Finnish CEO in its entire history. He made decisions of
moving towards Microsofts Mobile platform and led the company into
the abyss. During Elop's tenure, Nokia annual revenues fell 40% from
41.7 Billion Euros per year to 25.3 Billion Euros per year. Nokia
profits fell 92% from 2.4 Billion Euros per year to 188 Million Euros
per year. Nokia handset sales fell 40% from 456 million units per year
to 274 million units per year. Nokia's A ranking among all three
ratings agencies was downgraded repeatedly all through his tenure with
no upgrades, and when he left office all three ratings agencies rated
Nokia as junk. Nokia's Fortune Global 500 ranking was 120th largest
business on the planet when Elop started and by the time he left Nokia
it was at 274th position. The sale of the handset unit to Microsoft
which was later approved by Nokia shareholders and the remaining
revenues will mean that Nokia would be kicked out of the Fortune
Global 500. Nokias share prices which were 7.12 Euros on the day Elop
was hired and dropped to 1.44 Euros, down by 81%. They rose by a small
margin once rumors of Microsofts acquisition plans reached the
market.

Elops Decisions
In February 2011, Elop showcased a new approach for Nokia,
shifting its smartphone policy to Microsoft's Windows Phone, which
also included the discontinuation of both of their in-house mobile
operating systems. The phase-out of Symbian was to be carried out
during the next years, expecting it to be finalized by 2013. All
programs for others devices were terminated immediately. The first
Nokia Windows Phone smartphone was sold in Nov 2011, the Nokia Lumia
800, was made in the form of a device design identically similar to

the Nokia N9, the first MeeGo mobile.

Elop stated the reason for switching to Windows instead of

Android: "the single most important word is 'differentiation'.
Entering the Android environment late, we knew we would have a hard
time differentiating."
During his tenure, Elop faced vocal criticism from both industry
specialists and employees. In 2011, Elop announced that some 11,000
employees would have to be laid off as part of a plan to "restructure"
Nokia's business, and in June 2012 it was announced that further
10,000 layoffs were in order and that many services would have to be
closed down due to budget cuts. Experts started to speculate that Elop
could be a rouge agent, whose mission was to prepare Nokia for a
future acquisition by Microsoft. When confronted with this theory by
an anonymous attendee at the 2011 Mobile World Congress, Elop denied
the speculation stating, "The obvious answer is, no. But, however, I
am very sensitive to the perception and awkwardness of that situation.
We made sure that the entire management team was involved in the
process; everyone on the management team believed this was the best
decision," referring to Nokia's adoption of Microsoft's Windows Phone
operating system.
Speculators say that Elop indirectly prepared Nokia for
Microsofts acquisition and intentionally devalued the companys
assets and image. More fuel was added to the fire, when Microsoft

announced a signing bonus of 18.8 million. Ironically, both the deals

were signed on the same day which further made investors furious.
Process Failure:
After analyzing through the 3 lenses, we feel Nokia failed as a
whole and not due to an individual aspect. Life is a cycle, and only
thing that is permanent is change. Nokia had reached the peak of its
glory and the only way from there seemed to be downward unless they
changed their processes. Change did come but was late and futile.
Nokia had its ups and downs and now soon enough we hope it will
recapture its glory. Another outcome of this entire debacle was some
of the Nokia employees leaving the company to create another which
would produce the quality of devices with more popular operating
systems. Although this is just the beginning only time can tell us
what lays ahead for Nokia.

Conclusion
The research in this paper digs into the role of Stephen Elop as
a contributing factor in the failure of Nokia as a company. The
conspiracy theory states that even though Stephen Elop came from
Microsoft to Nokia but against all the ethical rules of
professionalism but he continued to make decisions which were
beneficial for Microsoft. The argument is supported by the facts and
statistical data given in the paper on how Nokia went on a downward
spiral after Stephen Elop joined as the CEO. His decisions of only
carrying the Windows operating system in all of their phones &
abandoning all other operating systems did no good for the companys
performance in the business. His decision of not going for the Android
OS after Symbian while the other mobile carriers such as Samsung, Sony
Ericson did, eventually led to Nokia losing a major market share. The
sales of Nokia dropped over the period of his tenure which eventually
led Nokia being sold to Microsoft. Our research in this paper digs
deeper into the role of Stephen Elop in the downfall of Nokia. We
wonder what would have been if Nokia would have embraced Android as it
is the biggest smartphone operating system in the world by far. Soon
after being sold to Microsoft, ousted employees are on the look for
investors to manufacture same quality hardware devices with a variety
of Operating Systems other than Windows.

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