Nokia reinvented: Decline, resurrection, and how CEOs get trapped

Although the Nokia brand is iconic and well-known, most people are unaware of the disruption story behind that name.

In 2007, Nokia held 50 percent market share in mobile phone handsets. The company was considered a national pride for Finland, having been founded 150 years ago in 1865.

By 2013, Nokia’s handset market share decreased to less than 5 percent with 40,000 employees reported in 2012. At that time, the company also faced the near-certain likelihood of bankruptcy. In 2013, Microsoft bought Nokia in an ill-fated deal to save the Windows phone. By 2014, Nokia revenue had dropped to $6.3 billion. Eventually, Microsoft restructured its smartphone business and took a write-down of more than $8 billion.

The following chart shows Nokia’s handset market share from 2007-2012:

In sharp contrast to this history, Nokia today has 103,000 employees with revenue of $29 billion. Interestingly, less than one percent of current employees worked for the old Nokia and the company’s primary business today is supplying network infrastructure around the world. For example, the company recently announced a €2 billion deal with Chinese telecom carriers.

Nokia presents a classic case in market disruption that can be summed up in one word: Apple. In 2007, Apple introduced the iPhone, starting the modern smartphone era.

The following graph shows the growth of Apple market share compared to that of Nokia. Once the iPhone picked up traction in the market, Nokia’s handset business was doomed:

The decline and resurrection of Nokia is a classic story of corporate disruption. The story is complex, involving factors such as:

• Corporate leadership did not respond sufficiently rapidly to changing consumer demands
• Legacy distribution and business model, selling handsets through telecom carriers, which forced Nokia technology to remain cumbersome and difficult to use, even as the iPhone created a new form of user experience
• Outmoded leadership culture that slowed decision-making

The survival and re-shaping of Nokia — from dominant handset maker to near-bankruptcy to successful supplier of network infrastructure to the telecom industry — is a story of strategy and transformation.

To learn what happened and uncover management lessons, I spoke with Nokia’s chairman, Risto Siilasmaa, on episode 314 of the CXOTalk series of conversations of the world’s most innovative leaders in business and technology.

Risto wrote a book describing his tenure at Nokia. In it he’s reflective and does not hesitate to point fingers at both himself and other leaders at Nokia. He also describes the inner workings of Nokia’s negotiations with Steve Ballmer at Microsoft. It’s also interesting to note that a third party, HMD Global, is bringing new Nokia phones to market under a licensing agreement.

Siilasmaa has taken a hands-on approach toward ensuring that Nokia remains on top of important technology trends such as machine learning. After decades away from programming, he put on his old developer hat to understand machine learning. His popular machine learning video is now standard fare for Nokia technologists.

You can watch the entire conversation with Risto Siilasmaa, which is embedded above, and read edited excerpts below. The complete transcript is also available on the CXOTalk page for episode 314.

What was Nokia’s market position when you joined the Nokia board in 2008?

Risto Siilasmaa: I joined the Nokia board at the time when Nokia was on the top of the world, but iPhone had been launched the previous year, and Android would be launched the same year that I joined the board. The financial crisis hit that fall. So, the air was so full of debris from these different sources that it was really difficult in the boardroom to understand what was the root cause of what and what was happening.

In 2008, Nokia did well. A few years earlier, Nokia was about 40+ percent of the world’s handset market. At its best, the Symbian platform, which was the Nokia smartphone operating system, had over 70 percent market share in the world until iPhone and Android devices came from behind and bypassed the Nokia platforms. That started the decline of the Nokia business so that, come 2012, the situation was dark, and the press was speculating on the timing of Nokia’s bankruptcy. It was not if; it was when.

Between 2008 and 2012, Nokia went from being the national pride of Finland to facing bankruptcy. Why?

Risto Siilasmaa: It tends to happen in multiple industries. Even in hindsight, there are only a few moments and only a few things that one could say with some degree of confidence that would have kept Nokia in the handset business. Even that is unsure because when you have built the whole company around a particular way of operations, a particular offering delivered in a particular way, and then those basic structures are shifting, it is really, really hard to adapt to that.

Just as an example, our core customers, operators, they were used to working in a particular way. For example, they wanted to warn their users when the smartphone might incur data charges. The Symbian platform was forced by the operators to display all these warning signs, which meant that sometimes when you launched an application, you had to click on, “Yes,” eight times before the application launched.

Apple couldn’t care less. They just wanted to make it as easy to use as possible. They told operators that if you don’t like the iPhone, then we’ll just sell it to your competitor. They all accepted, but they didn’t want to accept similar changes from Nokia. There are powerful forces aligned against you when you want to disrupt yourself.

You talk about the “toxicity of success.” What is that?

Risto Siilasmaa: When a company is hugely successful in its own business, people change their behavior. It is very, very hard to resist. You may see that as sort of complacency, which doesn’t mean that you wouldn’t work hard. You shift your attention to different things, which may not challenge your thinking as much.

That’s natural. It happens to the best of companies. Also, your customers are used to dealing with you the way that you have always dealt with them, and they will resist any change.

When a new player comes into the market, they don’t have any existing contracts. They don’t have any legacy baggage that they carry with them. Their code is all new. They don’t have what we call development debt, which means that sort of old code and old structures that accumulate. You need to rewrite your code in a fairly frequent way to get rid of that debt.

Is there a trap that CEOs can fall into?

Risto Siilasmaa: Of course, there are many different answers. There are many different types of CEOs as well.

I think one way of looking at that is the way we look at CEOs. They are on a pedestal. They are demigods. And, we assume that they know everything, and we force them to pretend that they know everything.

We make it very difficult for them to ask stupid questions, and we make it very difficult for them to admit that there’s something that people assume they know, but they actually don’t. That can create a culture where people don’t go to tell the CEO bad news because they assume that they already know. Also, why would I hurt that demigod’s feelings or why would I go and make his day a bad one?

Why did you learn to program machine learning yourself?

Risto Siilasmaa: I was one of those CEOs or chairmen who became trapped by the role I have. The role I have is one where things are explained to me. I don’t need to dig for explanations myself. There is a team that does a ten-page presentation. Then I read that. Maybe I memorize ten different slogans. Then I can confidently speak to large audiences about difficult topics. I just repeat those slogans that I have heard others say, but I don’t actually understand the topic.

I realized that I was approaching this the wrong way. I was a captive of my role. I had forgotten that I, myself, can study. Then, maybe I can explain to others in a way that I would have wanted somebody to explain to me how machine learning works.

In Nokia, we decided that every single one of our 100,000-plus employees will have to do a course on machine learning; not a complicated one. They just have to understand the essence of it so that they can ask the right questions. When they bump into a business problem, they can have the intuitive feeling that, hey, maybe this problem could be solved using machine learning. Then they can go and talk to experts. But, you have to have that initiation first and, for that, you need to learn. It’s like a code of conduct training for Nokia employees.