Nokia Company’s Changes in Corporate Strategy

Introduction

It is not easy to find a person without a smartphone in 2019. However, just a few decades ago, this was hardly the case: most of the world used wired phones. When precisely the change came around is difficult to say. IBM introduced the first device characterized as a smartphone in 1992, yet it was not until 2002 when BlackBerry released their RIM 850 and 857 that the world saw a distinct shift in the concept of a “mobile phone” (Connely, 2014, BlackBerry, n.d.). The early BlackBerry pagers still relied on a physical keyboard for input and looked very different from the perceived starter of the Smart Phone Era: Apple Computer’s iPhone, introduced in 2007 (Arrington, 2007). Apple’s device has been revolutionary and succeeded in reshaping the whole industry of mobile communications, displacing giants like Nokia and Sony. For clarity and historical referencing, this paper will use 2007 as the beginning of the Smart Phone Era and will base its analysis of Nokia’s performance from 2007 until 2019.

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Since the introduction of the iPhone, the incumbents like Sony and Nokia shifted their lines of business away from mobile devices as the agile new entrants made it challenging to compete with their products and prices. The downfall of such potent companies like Nokia happened due to the challenges they faced in changing their corporate structure. This paper aims to evaluate what potential changes in corporate strategy could have saved Nokia from losing its mobile devices business.

Nokia’s History and Performance

Nokia started as a wooden mill in 1865 by Fredrik Idestam. The company ventured in the rubber business and eventually established the electrical engineering department by the time its founder retired. A hundred years later, it became the Nokia Corporation and shifted its line of business into telecommunications equipment. By 1982, the company introduced their first digital telephone, and in 1992, they acquired a state-owned Telefenno and changed their name to Nokia Telecommunications (Borhanuddin & Iqbal, 2016).

Following the development of the Global System for Mobile Communications (GSM), Nokia became the world’s largest mobile phone manufacturer, and by 1998, overtook its competitors as a best-selling brand. The competitive advantage of the company then was in the flexibility of design choice of its devices as compared to Ericsson and Motorola. Nokia was a pioneer in phone cameras following their partnership with the optics maker Carl Zeiss AG and in mobile gaming as Snake exploded the demand for their products (Borhanuddin & Iqbal, 2016).

In 2007, when Apple Computer unveiled its revolutionary iPhone, Nokia was focused on the development of Ovi, the company’s new Internet services platform that competed with Apple’s App Store the next year. At the same time, the telecommunications giant introduced their first touch-screen phone Nokia 5800 XpressMusic, but the device failed on the market due to the subpar quality of the new technology. Since 2008, the company’s market share started dropping due to falling sales, and by 2010, it reached its record lowest of 28% globally and 14% in the US (as compared to 30.6% and more than 40%, respectively) (Borhanuddin & Iqbal, 2016).

After 2011, Nokia tried to rebuild its market presence by introducing its Lumia series, made in partnership with Microsoft (MarketLine, 2019). Although the model became best-selling on Amazon due to high build quality and excellent camera, many users resold their devices because the phone lacked support systems for third-party apps, was too bulky and overheated frequently. In 2013, the company sold its mobile devices business to Microsoft completely to avoid a cash crisis. In the meantime, Nokia narrowed its focus on network equipment and made a few acquisitions to expand its subsidiary Nokia Networks (Nokia, 2013).

Three years later, Microsoft sold the division to HMD Global, a company headed by a former Nokia executive, who signed an agreement with the telecommunications company to be the only manufacturer of the brand. Since then, the company returned some of its lost market share by introducing a 5G network and signing a contract with Xiaomi to develop mobile devices (Nokia, 2017). From 2016 onwards, the company mainly focused on developing network technologies and investing in technological start-ups (Auchard, 2018).

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Applying the Organizational Models for Timely Change

Many researchers tried to analyze the reasons behind Nokia’s downfall. While some believe that it happened because the company decided to abandon their operating system in favor of Windows, many point towards the management issues as a possible cause. A former company executive Jorma Ollila noted the following in his book: “In…2009… the company was not managed consistently. Issues started to stack up, decision-making was slow, and discussion had been transferred to large committees in which the focus was lost” (Laamanen, Lamberg, & Vaara, 2016: 15). Analysts also note that there was a deep internal rivalry of the management and bureaucracy, in the words of Apple’s Tim Cook, “inhibited efficient software development” (Laamanen et al., 2016: 15). The company needed a different organizational approach to deal with growing competition and changing market demands.

Laamanen et al. (2016) draw a table outlining the challenges in the corporate structure that Nokia faced at the time of much-needed change. Amongst them are the “personification of company”, “scapegoating”, “reinterpretation of capabilities reframed as insufficient”, and “environment seen as a major explanation of failure, thus reducing managerial responsibility” (p. 17). Surrounded by stiff competition, Nokia was pushed to modernize its organizational structure but failed to recognize it as a valid course of action, focusing instead on partnerships and increased investment in R&D. At this crucial time, the company needed collaboration to foster innovation.

Nokia’s CEO would be responsible for addressing the issue. As many bright minds have already analyzed what makes companies successful, the chief might find it useful to refer to existing models of change, such as the Lewin’s (1947) three-step “unfreezing-changing-refreezing” approach. The author suggests that in times of crisis, it is crucial to recognize the need to reshape the status quo and “unfreeze” the existing state of things. In this step, the employees should be made aware that change is about to occur and be mentally ready to reconsider their processes.

Next, in the “change” phase, current methods need to be reshaped or abandoned altogether. Members of the firm should accept new changes, adopting new ways of executing tasks. In the case of Nokia, the leadership and the CEO should implement a strategy that would motivate the mid-to-senior managers to seek upward mobility through cooperation rather than competition, therefore exercising synergy. This could be done in a variety of ways: one, the Nokia CEO can follow the example of the former chief of The Walt Disney Company, Michael Eisner, and organize team-building activities for high-ranked supervisors (Rukstad & Collis, 2009). Another approach is to provide salary incentives to managers who effectively liaised with different departments of the firm.

Conversely, since Nokia’s marketing team was not performing as well as those of the competitors, hiring consultants to help would be wise. The latter would redevelop the firm’s unique voice and brand positioning. Recognizing the need for change and tackling different issues at once could help save Nokia from an imminent crisis.

The third step assumes that the adjustments made in the previous phase require solidification. In essence, “refreeze” is straightforward: form a new status quo that allows the employees to assimilate into the new environment. Effectively, the CEO of Nokia should make it clear that the current order of operations would be in use long-term by setting clear targets for growth and employee compensation. Thus, by executing Lewin’s approach to organizational change, the CEO would make a step toward a more ambitious future for their company.

Although the previous model is straightforward, it also has limitations. One of them is its overall vagueness as few pointers allow to understand whether the changes put the company on the right track. Thus, it might be useful to refer to other frameworks, such as the Kotter’s Eight-Step Plan, who built on Lewin’s theory to form a more detailed approach. Kotter emphasized that change needs to carry a “sense of urgency” (Robbins & Judge, 2017, p. 612) and therefore have an apparent, compelling reason for it to happen. Thus, in the first phase of execution, the CEO needs to meet with the board of directors and establish that the company is underperforming due to stiff competition and that new strategy is needed if Nokia wanted to maintain its relevance.

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In the second and third phases, the C-suite and the managing directors need to form a coalition to implement the change and develop a precise plan. The plan would follow the above recommendations and focus on changing the incentives for all employees, thus driving their performance. Having communicated the new ideas to the whole organization in step 4, the coalition would continue to encourage employees to follow it, to take risks and foster creativity. Phase 6 is crucial, as it requires the setting of realistic short-term goals that would stimulate further performance. In the case of Nokia, it can be the development of a new product or the volume of sales in North America as well as internal promotion and department synergy that would have an attainable numerical goal. For instance, cutting the cost of manufacturing by using existing R&D techniques or focusing on developing the operating system without partnering with Microsoft.

Furthermore, these changes need to be consolidated and reassessed to keep current goals realistic and the vision fresh. Finally, Nokia should host many internal briefs on the company performance and emphasize that the new organizational strategy played a strategic role in the successes. For instance, if a quarter-term sales target has been hit, a CEO should send a message to the whole organization complimenting their effort and allow for team-specific celebratory gatherings. Thus, the implemented changes would leave a noticeable impact on the conscience of employees and encourage further performance.

In conclusion, as seen from the example of Nokia, organizational behavior is a crucial part of a company’s long-term success. Even incumbents with as large a market share as Nokia in 2008 can fail in the face of stiff competition from young firms if their structure is not agile enough to survive in the rapidly changing environment. Therefore, contemporary companies that similarly face technological disruption should learn from Nokia and be vigilant to address all performance metrics to ensure not only the survival but also the long-term success of their business.

References

Arrington, M. (2007). Apple announced iPhone, stock soars. TechCrunch. Web.

Auchard, E. (2018). Nokia acquires U.S. software supplier SpaceTime Insight. Reuters. Web.

BlackBerry. (n.d.). A short history of the BlackBerry. BlackBerry Smartphones. Web.

Borhanuddin, B. & Iqbal, A. (2016). Nokia: An historical case study. Electronic Journal of Computer Science & Information Technology, 6(1), 1–14. Web.

Connely, C. (2014). Worlds’s first ‘smartphone’ celebrates 20 years. BBC News. Web.

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Laamanen, T., Lamberg, J.-A., & Vaara, E. (2016). Explanations of success and failure in management learning: What can we learn from Nokia’s rise and fall? Academy of Management Learning & Education, 15(1), 2–25. Web.

Lewin, K. (1947). Frontiers in group dynamics: Concept, method and reality in social science; social equilibria and social change. Human Relations, 1(1), 5–41. Web.

MarketLine company profile: Nokia Corporation. (2019). Nokia Corporation MarketLine Company Profile (pp. 1–89). Web.

Nokia. (2017). Nokia and Xiaomi sign business cooperation and patent agreements [Press release]. Web.

Rukstad, M. G. & Collis, D. (2009). The Walt Disney Company: The entertainment king. Harvard Business Review. 1-27.

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