Why NOKIA didn’t have a chance, and your company still has it.

The story of Nokia is really a tragic one. In Q4 2007, at its peak and at the same time the iPhone was launched, the company had a global market share of 50%.  Half of all mobile phones in the world were manufactured by Nokia. No other manufacturer has been able of breaking that remarkable record again.

Four years later, Nokia had become irrelevant, with a global market share of just under 8%. Today, the company doesn’t exist as a relevant phone manufacturer anymore.

It has become a kind of sport among innovation experts to point to possible causes of this disaster. Theories abound, specially those linked to a fear-based culture combined with management arrogance.

Few choose to remember how admired the company was in the time span 2000- 2008. Nokia had wiped out once-pioneer Ericsson and forced it into an ill-lived Joint Venture with Sony (Sony Ericsson) that never really took off. The brand had become an iconic juggernaut. Rumor had it that consumers in Southeast Asia preferred to eat a little less a day in order to afford a Nokia phone before other cheaper alternatives. A management book I have from that time called Nokia “innovator extraordinaire”.

The fact is, Nokia never had a chance from the very second Steve Jobs presented the iPhone to the world. No management in the world, irrespective of their sets of skills or company culture, could have changed the fate of the Finnish giant at that point in time. There are two main reasons for that.

First of all, the management had no time to react. 

For starters, experts and analysts disagreed in he beginning about the probable success of the iPhone. Some of them criticized it openly and predicted its early death.The iPhone had no physical keyboard, making typos frequent. The battery capacity was frighteningly poor, so that the iPhone had to be charged several times a day. It was too clunky. The screen got dirty really fast. It only came in black. And it was really expensive.

At the same time, the CEO of Microsoft laughed at it saying “There’s no chance that the iPhone is going to get any significant market share.” Some analysts even stated that the iPhone was good for Nokia, because the data revenue-sharing model between AT&T and Apple on the iPhone made other operators worried. (that part is true, but they didn’t trust Nokia either)

With these inputs on the table, to defy the current strategy was almost an impossible task for a rational CEO.

Finally, we shall remember that the market shares of the iPhone were tiny in the beginning (they still are small at a global scale) and posed no significant threat to Nokia. It wasn’t until Google gave away Android for free to any phone manufacturer in the world (strike of genius) that Nokia felt the heat. At that point, the fate of the company was sealed. As the chart above shows, in the period 2009 – 2012 the company lost a brutal 12% market share yearly.

You can imagine the picture: Tons of legacy models already in the pipeline, committed investments, entire corps of engineers trained into their native Symbian operative system, a revenue crises that dramatically worsens every quarter… Most probably, the company became impossible to manage.

The adoption of Android was neither possible nor a solution

First of all, because it went against the whole company strategy based on content and services. Android was essentially free, but there were strings attached: The Android market app store came as default with android OS. However, Nokia had its own app store, the Ovi. It was an execution disaster and it worked poorly, but the strategic conflict was obvious.

Secondly, because Nokia knew that adopting Android wouldn’t  guarantee neither market shares nor satisfactory profits for its shareholders. Nokia knew that Google would do anything in its power to elevate the Android brand and thus commoditize the manufacturers of phones, pressing down market shares and margins. It is exactly what has happened since. The most successful Android- based brand, Samsung, has only 20% global market share and is the only profitable Android-based manufacturer.

So which lessons can you as a CEO learn from the Nokia tragedy?

First of all, review your innovation strategy already now. The innovation strategy of Nokia was indeed an incremental one, introducing new products based on known technology and know business models. However, the company had capabilities and resources to disrupt the industry before Apple did. If Nokia is to be blamed for anything, it is the company’s fundamental choice of innovation strategy.

Secondly, CEOs shouldn’t listen to experts or analysts that have a stake in the game. From investments bankers to Steve Ballmer, most of those experts gave Nokia the advices they could profit most themselves.

When the crises becomes a fact, prepare and communicate to employees and shareholders a business model end game and a transformation strategy, even if this may imply a new, smaller or niche version of the company. There will be pain, and the share price will probably suffer, but the alternative is extinction or fire sale. Other companies in similar situations have survived and even thrived by doing this, like IBM or Schibsted in Norway. Amazon Web Services is another excellent example of how a company that was financially stagnating was able to use their internal resources to re-ignite both growth and profitability.

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