Elop’s critics underestimate the problems he inherited, not to mention the rapid industry changes Nokia faced
Nokia has billed its decision to sell most of its handset and services business to Microsoft as the “next chapter”. But for many critics, it is the final episode in a Helsinki whodunit. To them, the perpetrator of this offence against national industrial pride is obvious. It is the Canadian with the smoking gun standing next to the still-twitching corpse of Finland’s best-known company: Nokia chief executive Stephen Elop.
He was accused in online comments on Tuesday of being, variously, a Microsoft “spy”, guilty of “sabotage”, having carried out an “inside job” to deliver Nokia to the US company where he once worked and to which he will now return.
Tips that he could succeed Steve Ballmer as Microsoft chief executive look improbable given his lack of success at Nokia – but the critics are unjust, for two reasons. First, Mr Elop was attempting an extraordinary feat of corporate strategy: to effect a radical turnround of a historic company for the second time in less than two decades. Second, Nokia is far from extinct.
The first rescue job, under Jorma Ollila, transformed Nokia from a timber-to-tyres conglomerate into a mobile phone company in the mid-1990s. This was probably even more ambitious than the task Mr Elop was set in 2010. But Mr Elop’s critics underestimate the problems he inherited – outlined in his “burning platform” memo in early 2011 – not to mention the rapid industry changes Nokia faced. The mobile telecoms environment has altered so dramatically since Mr Elop took charge that it has unmanned established rivals such as BlackBerry and Motorola and relative newcomers such as Taiwan’s HTC.
In this living lesson in corporate creative destruction, the evolution of the sector itself outstripped even companies such as Nokia that managed to increase their rate of change.
Mr Elop undoubtedly selected Nokia’s new strategy – linking with Microsoft to develop Windows software for its smartphones, while ditching homegrown alternatives. He was also responsible for its execution. There is also no question that he failed to turn the company round as his plan envisaged. Nokia Windows handsets have not grabbed a meaningful share of the market, as Mr Elop and his team forecast, lagging behind phones using operating systems from Apple and Google’s Android. Meanwhile, sales of the more basic mobile phones – seen by Nokia in 2011 as the solid basis for its smartphone turnround – have also plummeted in fast-growing emerging markets such as China.
But earlier leaders – including Mr Elop’s predecessor Olli-Pekka Kallasvuo and Mr Ollila himself – must bear the blame for failing to spot the iPhone threat, not Mr Elop. Even after Mr Elop bet on Microsoft, its takeover of the phones business was not inevitable. A combination of factors made it a foregone conclusion.
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One was the growing realisation that the split between hardware designed by Nokia and software created by Microsoft made no sense, particularly as the US company realised it needed to invest more in mobile. To ease co-operation, Nokia had already built parallel teams with job titles similar to those of their Microsoft counterparts. So why not remove the division altogether?
Another factor was the increasing imbalance between the finances of the two partners. Microsoft’s abundant cash could be more usefully deployed in direct support of Nokia’s Windows phones.
Finally, NSN, Nokia’s telecoms equipment business, has enjoyed a strong recovery. When Mr Elop agreed to buy out Siemens, Nokia’s joint venture partner, in July, he laid the foundation for a different future for the Finnish company.
Nokia’s mobile phone brand could disappear once Microsoft’s 10-year licence to use it on current models expires. As has been said in relation to BlackBerry’s decline, nobody should assume historic corporate names will live for ever. But Nokia itself seems likely to survive through NSN. Many of its stepchildren – Finnish gaming, software and other technology companies founded by ex-Nokians – are also thriving.
Future management studies may yet focus on this Microsoft deal as the start of another transformation for Nokia. It would be neither as dramatic as the one Mr Ollila achieved in the 1990s, nor as glorious as the revival Mr Elop heralded two and a half years ago. But remember that, when Nokia was the darling of business academics in the early 2000s, Apple – its eventual nemesis in smartphones – was under fire for misinterpreting the market.
Nokia managers’ error at the time was believing the world’s diagnosis of its rude health was permanent. They allowed sclerosis, organisational and technological, to blight its future in mobile phones. Mr Elop belatedly tried to revitalise the group. He failed. But letting go of the handset business that has defined Nokia could now turn out to be the best thing for it.
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This article has been amended to reflect the fact that Jorma Ollila was not part of the nomination process that led to Olli-Pekka Kallasvuo becoming chief executive in 2006
Copyright The Financial Times Limited 2013. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.
Nokia has billed its decision to sell most of its handset and services business to Microsoft as the “next chapter”. But for many critics, it is the final episode in a Helsinki whodunit. To them, the perpetrator of this offence against national industrial pride is obvious. It is the Canadian with the smoking gun standing next to the still-twitching corpse of Finland’s best-known company: Nokia chief executive Stephen Elop.
He was accused in online comments on Tuesday of being, variously, a Microsoft “spy”, guilty of “sabotage”, having carried out an “inside job” to deliver Nokia to the US company where he once worked and to which he will now return.
Tips that he could succeed Steve Ballmer as Microsoft chief executive look improbable given his lack of success at Nokia – but the critics are unjust, for two reasons. First, Mr Elop was attempting an extraordinary feat of corporate strategy: to effect a radical turnround of a historic company for the second time in less than two decades. Second, Nokia is far from extinct.
The first rescue job, under Jorma Ollila, transformed Nokia from a timber-to-tyres conglomerate into a mobile phone company in the mid-1990s. This was probably even more ambitious than the task Mr Elop was set in 2010. But Mr Elop’s critics underestimate the problems he inherited – outlined in his “burning platform” memo in early 2011 – not to mention the rapid industry changes Nokia faced. The mobile telecoms environment has altered so dramatically since Mr Elop took charge that it has unmanned established rivals such as BlackBerry and Motorola and relative newcomers such as Taiwan’s HTC.
In this living lesson in corporate creative destruction, the evolution of the sector itself outstripped even companies such as Nokia that managed to increase their rate of change.
Mr Elop undoubtedly selected Nokia’s new strategy – linking with Microsoft to develop Windows software for its smartphones, while ditching homegrown alternatives. He was also responsible for its execution. There is also no question that he failed to turn the company round as his plan envisaged. Nokia Windows handsets have not grabbed a meaningful share of the market, as Mr Elop and his team forecast, lagging behind phones using operating systems from Apple and Google’s Android. Meanwhile, sales of the more basic mobile phones – seen by Nokia in 2011 as the solid basis for its smartphone turnround – have also plummeted in fast-growing emerging markets such as China.
But earlier leaders – including Mr Elop’s predecessor Olli-Pekka Kallasvuo and Mr Ollila himself – must bear the blame for failing to spot the iPhone threat, not Mr Elop. Even after Mr Elop bet on Microsoft, its takeover of the phones business was not inevitable. A combination of factors made it a foregone conclusion.
You need JavaScript active on your browser in order to see this video.
One was the growing realisation that the split between hardware designed by Nokia and software created by Microsoft made no sense, particularly as the US company realised it needed to invest more in mobile. To ease co-operation, Nokia had already built parallel teams with job titles similar to those of their Microsoft counterparts. So why not remove the division altogether?
Another factor was the increasing imbalance between the finances of the two partners. Microsoft’s abundant cash could be more usefully deployed in direct support of Nokia’s Windows phones.
Finally, NSN, Nokia’s telecoms equipment business, has enjoyed a strong recovery. When Mr Elop agreed to buy out Siemens, Nokia’s joint venture partner, in July, he laid the foundation for a different future for the Finnish company.
Nokia’s mobile phone brand could disappear once Microsoft’s 10-year licence to use it on current models expires. As has been said in relation to BlackBerry’s decline, nobody should assume historic corporate names will live for ever. But Nokia itself seems likely to survive through NSN. Many of its stepchildren – Finnish gaming, software and other technology companies founded by ex-Nokians – are also thriving.
Future management studies may yet focus on this Microsoft deal as the start of another transformation for Nokia. It would be neither as dramatic as the one Mr Ollila achieved in the 1990s, nor as glorious as the revival Mr Elop heralded two and a half years ago. But remember that, when Nokia was the darling of business academics in the early 2000s, Apple – its eventual nemesis in smartphones – was under fire for misinterpreting the market.
Nokia managers’ error at the time was believing the world’s diagnosis of its rude health was permanent. They allowed sclerosis, organisational and technological, to blight its future in mobile phones. Mr Elop belatedly tried to revitalise the group. He failed. But letting go of the handset business that has defined Nokia could now turn out to be the best thing for it.
[email protected]
This article has been amended to reflect the fact that Jorma Ollila was not part of the nomination process that led to Olli-Pekka Kallasvuo becoming chief executive in 2006
Copyright The Financial Times Limited 2013. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.