Reasons for Nokia’s failure

The reasons why Nokia failed after enjoying unrivalled dominance in the mobile segment for several years. The ferocious and mighty telecom giant Nokia was well known for its products’ hardware and battery life.

For years, it was the talk of the town. User satisfaction with Nokia’s mobiles was globally recognized. The company launched the first internet-enabled phone in 1996 and by the start of the millennium, Nokia also released a touch-screen mobile prototype.

This was the start of a revolution in the mobile phone industry. The Finnish giant was the largest cell phone maker in 1998. Nokia overtook Motorola, a move that was hard to predict. So what led to the downfall of Nokia? It wasn’t a single factor but a myriad of reasons, most of which resulted from Nokia’s resistance to change. We present to you the 6 main reasons behind Nokia’s failure.

Reasons for Nokia Failure

1. The Resistance To Smartphone Evolution
2. The Deal With Microsoft
3. Nokia’s Failed Marketing Strategies
4. Moving Too Slow With The Industry
5. Overestimation Of Strength
6. Lack Of Innovation In Products

The Resistance To Smartphone Evolution

Nokia failed to take advantage of the Android bandwagon. When mobile phone manufacturers were busy improving and working on their smartphones, Nokia remained stubborn. Samsung soon launched its Android-based range of phones that were cost-effective and user-friendly.

Nokia’s management was under the impression that people wouldn’t accept touch screen phones and would continue with the QWERTY keypad layout. This misapprehension was the start of its downfall. Nokia never considered Android as an advancement and neither wanted to adopt the Android operating system.

After realizing the market trends, Nokia introduced its Symbian operating system. However, it was too late by then with Apple and Samsung having cemented their positions. It was difficult for the Symbian operating system to make any inroads. This is the biggest reason behind Nokia’s downfall.

The Deal With Microsoft

Another reason for Nokia’s failure was the ill-timed deal with the tech giant, Microsoft. The company sold itself to Microsoft at a time when the software behemoth was fraught with losses.

Nokia’s sales screamed the mobile phone maker’s inability to survive on its own. At the same time, Apple and Samsung were making significant strides in innovation and technological developments.

It was too late for Nokia to adapt to the dynamic and rigorous changes in the market. Microsoft’s acquisition of Nokia is considered to be one of the biggest blunders and wasn’t fruitful for either side.

Nokia’s Failed Marketing Strategies

Generally, a startup fails because of a bad marketing strategy, and the same happened with Nokia. The company followed an unsuccessful strategy of umbrella branding. Apple was the first company to apply the umbrella branding model with the iPhone at the top. It kept adding new models to this umbrella year after year. Samsung followed the same route by launching the Samsung Galaxy series but Nokia failed to take cues.

The user trust Nokia built over the years was gradually waning. The company was inefficient in its selling and distribution methods. Seeing the mess, Nokia decided to come up with some fascinating hardware and software innovations. However, these were already released by Nokia’s rivals and lacked uniqueness. Failure in Nokia’s marketing and distribution strategies played a significant role in its elimination from the mobile industry market.

Moving Too Slow With The Industry

Nokia never kept pace with changing technology and trends. Nokia was always famous for its hardware and didn’t pay much attention to its software line-up. Initially, the company overlooked technical advancements to avoid the risks associated with bringing innovation to phones.

The business needed diversion but it was too late by the time Nokia realized this. Instead of being amongst the early initiators, Nokia transitioned when almost every major brand had already started producing awesome phones.

Overestimation Of Strength

Nokia overestimated its brand value. The company believed that even after the late launch of its smartphones, people would still flock to stores and purchase Nokia-manufactured phones. A misconception! People still make predictions of Nokia retaining the market leadership if it uses better software at its core. However, this is far from the truth as seen today.

The company got stuck with its software system which is known to have several bugs and clunks. Nokia felt its previous glory would help alleviate any sort of trouble. Unfortunately, things didn’t play out that way.

Lack Of Innovation In Products

The lack of innovation in its products only added to Nokia’s woes. While brands like Samsung and Apple came up with advanced phones every year, Nokia simply launched the Windows phone with basic features.

The Nokia Lumia series was a jump-start measure, but even that collapsed due to a lack of innovation. The unattractive and dull features didn’t help. In the era of 4G, Nokia didn’t even have 3G-enabled phones. Nokia also came up with the Asha series but it was game over by then.

Wrong decisions and risk aversion brought the decline of the mobile giant. Nokia refrained from adopting the latest tech. Nokia’s failure became a case study that made organizations realize the importance of continuous evolution and enhancements. The journey of what was once the world’s best mobile phone company to losing it all by 2013 is quite tragic. Nokia also strongly lacked leadership and guidance.

Bounce back of Nokia

How Nokia Bounced Back (With the Help of the Board)

To help the former mobile giant find a radically new strategic direction, Nokia’s board assumed a unique role.

Nokia’s mobile-phone downfall – from a 40 percent market share to near bankruptcy in just a few years – has become a familiar cautionary parable on the perils of industry disruption. Less well-known is the equally instructive tale of how Nokia clawed its way back from the edge of destruction. Indeed, since touching bottom in 2012, its market capitalisation, while not at the level of its pre-smartphone heyday, has increased more than five-fold.

Nokia’s recovery was due to a wholesale strategic shift towards telecommunications networks, culminating in the US$16.6 billion acquisition of Alcatel-Lucent, a deal completed in 2016. Rarely has any large company reinvented itself so quickly and radically. But before the strategic redirection could be accomplished, the company needed to repair deep-seated cultural problems. Nokia’s revamped board of directors (a new chairman was appointed in 2012) proved integral to this effort. The emotion-regulating processes used by Nokia’s board to counter internal dysfunction are the subject of our recent article, which won the 2018 Best Paper Award of the Academy of Management’s Strategizing Activities and Practices Interest Group.

A culture of fear

From 2012-2017, we conducted in-depth interviews with 120 Nokia personnel, ranging in rank from upper-middle managers to board members and C-suite leaders.

Interviewees who experienced Nokia’s decline first-hand described to us how negative emotional dynamics at the very top harmed communication and strategic decision making. An authoritarian culture of fear pervaded multiple levels of management, producing a shoot-the-messenger mentality and rampant defensiveness. Fearing for their jobs, managers stayed quiet when top leaders latched onto losing strategic options – such as sticking with the Symbian operating system despite serious technical issues. The company remained paralysed as plummeting performance led to the CEO’s exit in 2010.

With the new CEO installed, Nokia had to choose an external operating system to replace Symbian. Windows and Android were the front-runners. Two emotional obstacles contributed to the ill-fated decision in favour of Windows (contrary to the advice of McKinsey consultants). First was the fear factor: Since the CEO had previously worked at Microsoft, some managers assumed the only mind that mattered had already been made up, and dissenters would be targeted for termination. Second, top managers were able to avoid coping with the enormity of the decision by framing it internally as a temporary measure to stop the bleeding. Of course, the haemorrhage only worsened after the alliance with Microsoft was announced; market capitalisation declined by 50 percent between January 2011 and January 2012.

Good strategy starts with emotional safety

In 2012, Nokia replaced its chairman along with three board directors. Right from the start, the chairman focused on radically improving the emotional relationship between the board and management. He recognised that Nokia’s strategic stasis was linked to a lack of openness. “If the board is a place where the management comes with knees trembling, a single solution in their mind, that they need to sell to the board, there is no way for the board to contribute,” he told us.

The board coaxed hyper-cautious and self-protective managers out of their shells with principles such as “No news is bad news, bad news is good news, and good news is no news.” Consequently, conversations between directors and managers took on newfound candor and depth.

Disengaging from past strategy

The new board also perceived that managers’ emotional attachment to the existing Windows strategy – about which warning signs were already flashing – could prevent them from considering other options. Rather than thoroughly re-evaluating the situation and creating new options, they were at risk of behaving defensively and avoiding the whole issue.

Directors, then, sought to dispel the dread by explicitly raising the prospect of failure in open conversations. They also pre-empted managers’ defensiveness by establishing agreed-upon courses of action should the Windows Phone continue to underperform. By pegging future actions to objective performance data rather than making them subject to later discussion, directors reduced the biasing role of emotions in planning the next strategic steps.

This approach also forced managers to begin making contingency plans. Directors insisted on seeing a range of prospective scenarios according to a systematic process. The board’s guidance helped managers balance out their appraisal of the various options and achieve a more nuanced emotional standpoint. As a result, they were able not only to conceive of radically new strategic possibilities but also to anticipate outcomes – both good and bad.

The idea of exiting the mobile phone business presented itself when leaders realised that a continuation of Nokia’s current strategy would require large additional investments from its partner Microsoft. But what value could Microsoft possibly derive from rescuing Nokia? It became clearer and clearer that the Windows strategy was untenable. A more likely scenario was that Microsoft would offer to buy Nokia’s mobile phone division – which would lead Nokia into truly uncharted territory. Here again the board’s efforts to root out emotional investment in the status quo enabled managers to envision a post-phone future for the firm. The deal with Microsoft was pursued and, in September 2013, completed for US$7.2 billion.

Concurrently, Nokia jumped into networks with both feet by buying back the joint venture Nokia Siemens Networks (NSN). The purchase of NSN was made possible by a hefty financing package that was negotiated as part of the larger Microsoft-Nokia deal. “So in a funny way, we got Microsoft to fund the new Nokia and help [rebuild] it”, the chairman told us.

Even though the divestment of the phone business shattered Nokia’s old identity, top managers’ emotions transformed during the strategy formulation process and eventually supported the new strategy. Out of the tumultuous anxiety of competing perspectives arose a shared enthusiasm for the course the company had chosen. A top manager credits his own embrace of the strategic direction to the “crazy amount of groundwork”, i.e. the extensive scenario analyses and number-crunching, necessitated by deep and frequent dialogues with the board.

We all are Nokia

Nokia’s comeback story is unique: Where else have we seen an iconic company fail utterly at what it’s famous for, then promptly pivot to find success in a vastly different area? This was not a turnaround akin to IBM’s, where the company learnt to leverage existing core strengths (i.e. mainframes) in a new way.

But in our fast-changing world, we may be seeing more and more cases like Nokia’s. As disruption accelerates, companies will increasingly have to reckon with the unravelling of entire business models, if not entire industries. Rather than defensively clinging to the mast of their sinking ship, managers will need to take to the lifeboats and never look back.

But it isn’t easy to be stoic when you’ve worked tirelessly for years to make the obsolete strategy work. Inevitably, managers will feel emotionally invested in the status quo, with their egos bound up in the company’s past successes. Confronting the reality of radical strategic change raises fears and vulnerabilities that few of us are comfortable with, least of all the high-flying overachievers in the C-suite.

Day-to-day business in most organisations offers scant opportunity for senior managers to work out their negative emotions about radical change. According to the mainstream professional mindset, emotions have no place at work. So managers learn to cloak their emotional biases in supposedly “rational” objections. They often convince themselves that these rationalisations constitute sound arguments and will staunchly defend them. Under such conditions, it is almost impossible to devise a thoughtful and creative strategy for dealing with radical change.

The board, therefore, is uniquely positioned to perform interventions designed to regulate top managers’ emotions, thus ensuring the quality and integrity of the strategy-formulation process. Why the board? Directors ideally reside above the fray, only provisionally committing to a particular strategic direction. Relative to outsiders such as management consultants, directors are also more context-savvy and share with top managers the common goal of seeing the firm succeed in the long term. While the mandate of the board does not traditionally encompass emotional regulation, such a role is well within the board’s central duty to oversee organisational strategy.