How bad calls led to Nokia's demise

Strangled by a dysfunctional corporate culture and its slowness to adapt to a changing marketplace, Nokia's demise is a cautionary tale for businesses everywhere.

The news of Microsoft’s $US8 billion ($A8.86 billion) bid to buy Nokia’s mobile phone business is as symbolic as it is embarrassing.

A far cry from its glory days as the world’s dominant mobile phone brand, Nokia has spent recent years desperately searching for a path back to prominence and relevance.

Nokia’s road to irrelevance is far from unique. Like so many corporate behemoths before them, the Finnish phone giant grew dangerously intoxicated on its own success during the late 1990s and early 2000s. Having ridden so high for so long, it is perhaps no surprise that a degree of complacency and arrogance crept in just as had happened at Kodak and Motorola. Such success intoxication left Nokia highly vulnerable to disruption, which soon came in the form of the smartphone.

Added to this, Nokia was a company who fell prey to geographic isolation. While the rest of the technology world flocked to the innovation mecca of Silicon Valley, Nokia’s American operations stayed put on the east coast in Harrison, New York. It was only in mid-2011 that the company relocated its US head office to Sunnyvale, California – a move designed to "instill a start-up mentality and re-energize the company’s enthusiasm and commitment", according to Nokia’s head of retail and sales operations Matt Rothschild.

Curiously, a third causal factor in Nokia’s demise was its stifling levels of bureaucracy. What is perhaps most tragic about the demise of Nokia is how needless it has been. As recently as the mid 2000s, Nokia was way ahead of the curve and the competition.

For instance, seven years before the iPhone’s release, the company’s research team developed mobile phones with color touch screens, mapping software and e-commerce functionality. A few years later, Nokia designed a wireless-enabled tablet computer long before the iPad was even imagined. And yet, according to former Nokia chief designer Frank Nuovo, many cutting-edge innovations like these never made it to market due to a dysfunctional corporate culture. Nuovo describes how, in addition to being fragmented by internal rivalries, Nokia’s research efforts were disconnected from the company’s operations departments who were responsible for bringing devices to market, resulting in missed opportunities that it’s more nimble rivals Apple and Samsung readily exploited.

In examining such a textbook case of business demise, are there lessons the rest of us can learn from Nokia? I believe so. In fact, there are three things Nokia should have to done to avoid the predicament they now find themselves in:

Firstly, they should have cannibalised. Despite their huge and enduring success (or perhaps because of it), Nokia should have been willing to sacrifice even their most successful and profitable cash cows in order to make way for the future. Reflecting on the critical importance of this in the technology space, Steve Jobs once observe “If you aren't willing to cannibalise your own business, someone else will do it for you." How true that is.

Secondly, they should have pruned. Bearing in mind the level of red tape and bureaucracy choking Nokia’s innovative spirit from the inside out, nothing short of a ruthless prune was required years ago. Interestingly, the very same could be said of the company’s new suitor Microsoft. As Vanity Fair’s Kurt Eichenwald put it, Microsoft has evolved from “a lean machine led by young visionaries of unparalleled talent mutated into something bloated and laden, with an internal culture that unintentionally rewarded managers who strangled ideas that might threaten the established order of things”.

They should have anticipated. Nokia's example is a case in point of how critical it is to anticipate shifts in the marketplace and adapt before your hand is forced. As every experienced surfer knows, catching the perfect wave requires a keen eye on the horizon. While a wave is still forming a long way off in the distance, surfers know that this is the time to move — to paddle out and get in position. Move too late or not at all and you’ll simply get washed up as the wave crashes over you. It is much the same in business; the right time to change is before you are forced to. Wait too long and it will be too late.

While elements of Nokia’s business are far from dead and buried, there are few who would argue that Nokia is a brand on the edge. Despite relatively strong sales of its Lumia smartphone product (54 million units sold in the second quarter of 2013), Nokia has a long road ahead as it battles to survive — much less thrive — in the years to come. Whether they will prevail waits to be seen.

Michael McQueen is a a leading social commentator and three-time bestselling author, and author of new book, Winning the Battle for Relevance

Read more on the Nokia and Microsoft deal here and here.