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RUNNING A GIANT: Into the Ground

Submitted By:
Group 5 Section B

Himanshu Rathi (PGP/20/082)


K Abhishek (PGP/20/086)
Kirandeep Kaur Kamboj (PGP/20/088)
Nitin Ranka (PGP/20/092)
NNS Rohit (PGP/20/093)
Pandiri Bhagath (PGP/20/094)
Rashi Chowdhary (PGP/20/104)

OBJECTIVE
Our aim with this project is to examine the intricacies behind the fall of
the Nokia Corporation from its position as a market leader in the global
mobile phones market from 2003 to 2013. Nokias dethronement and
the downward spiral with Symbian are interesting as Nokia had been a
model for technology companies in terms of process optimization and
product cost management. We will outline how Nokia had both the time to
react to market changes and the technological capabilities to counterattack its challengers, but it failed to do so despite an organizational
architecture that was designed to prepare Nokia to respond to market
disruptions. We will explain this paradox by identifying the pitfalls related
to organizational agility and decision-making speed, particularly the
disadvantages of having a complex internal matrix structure. In
other words, we will also focus on how the organizational structure that was initially
conceived to speed up decision-making and to make Nokia more agile than its competitors,
also led Nokia to shoot itself in the foot, with coherent decision making paralysed. In this
process the traditional mobile phone market matured rapidly, and the launch of smartphones
brought a strong and immediate disruptive innovation in the upper end of the market.
Consequently, another aspect that we hope to address is the key strategic decisions taken by
Nokia that prevented the corporation from creating an iPhone killer during the opportunity
window it had between 2007 and 2009. Thereafter, it was too late for Nokia to regain the
ground that it had lost. We will try to analyse these decisions within the scope of the WeitzelJonnsons Model of Organizational Decline (Given Below).

BACKGROUND
Nokia was established in 1865 as a pulp and paper mill in Finland. During
the 1960s, they expanded into the rubber and cable industries through a
series of mergers. Continuing on this entrepreneurial streak, in 1975, they
expanded into many industries such as computers, consumer electronics,
and cell phones. In 1979, Nokia and Mobria entered into a joint venture,
which Nokia later took over to design and manufacture mobile phones.
But by the turn of the 1980s and the 1990s, Nokia Corporation faced
severe crises and was forced to make a significant corporate turnaround.
In the process, the company underwent a first major restructuring and
shifted its focus and concentrated on mobile phones and telecom
networks, and by the mid-1990s it had divested dozens of other lines of
businesses. By 1982 Nokia had introduced the worlds first car phone for
the Nordic Mobile Telephone (NMT). In 1991 the GSM standard for digital
cellular networks was adopted as the pan-European digital standard
,Nokia having had a key role in the related technology development and
standardization process. While mobile communications evolved rapidly
throughout the 1990s and the early 2000s, Nokia established itself as the
global market leader in mobile handsets with sales peaking in 2007, and
remained in that position until the second quarter of 2008.
In June 1998, Nokia, Ericsson, Motorola and Psion established Symbian

Ltd. which became the developer of the operating system Symbian OS.2
Nokia 9210 Communicator was the first Symbian OS phone released in
2000. The main strategic focus of the company during the early 2000s
was to expand to mobile voice market and consumer multimedia
business. The year 2006 brought a shift in the companys strategy. The
top management team saw that the success of the company might be
threatened by the maturing mobile device market and therefore identified
a need to diversify the companys activities. The new strategy included
expansion to consumer Internet services and network solutions, an
increase in enterprise services and in the existing mobile device market
strategies. Thus, Nokia centrally aimed to build a functioning business
ecosystem on the Symbian software platform by offering downloadable
online content.
After

the

introduction

of

Apples

iPhone

in

2007

and

Googles

announcement to form an Open Handset Alliance for developing standards


of mobile devices and, most importantly, Android OS, the situation in the
mobile phone device market quickly started to stir up. For the first time in
its recent history, in the latter half of 2008 Nokias global market share in
mobile devices started declining. In only two years, Nokias operating
profits shrunk by more than 40%, and in 2011 the corporation was in the
red.
In 2008 Nokias top management also made the key strategic decision of
acquiring the full ownership of Symbian Ltd. which still was the worlds
leading smartphone software platform (Nokia Corporation press release
December 2, 2008). Following what Google had done with its Android
software platform, Symbian OS became fully open source and available
royalty-free in February 2010. To launch its new products more rapidly,
Nokia significantly reduced the number of its smartphone models. What is
more, Nokia decided to leverage its efforts to build an attractive business
ecosystem and launched a public version of its OVI store as a direct
answer to Apples App Store and Googles Play Store in early 2009.

Despite the quickly eroded market share in the high-end smartphone


segment, Symbian OS still retained the market leader position in the lowend mobile device market. Still clinging to the Symbian platform, in 2010
Nokia launched another iPhone killer the flagship N8 which was the
first product to run on the improved Symbian3 OS. Moreover, in February
2010 Nokia and Intel officially announced joint plans to build a new
software

platform

MeeGo

that

would

support

multiple

hardware

architectures.
In the autumn of 2010 the former head of Microsoft Business Division
Stephen Elop was appointed new CEO. The strategic intent of Elops new
top management team was to quickly regain leadership in the smartphone
market and to retain the market leader position in low-end mobile phones.
Contrary to earlier strategic decision, the decision was made to adopt
Windows Phone operating system as the primary smartphone platform for
Nokia devices for (at least) three years. This meant that the TMT publicly
admitted that its extensive focus on Symbian OS and later Meego had
been major strategic mistakes. In September 2013, after two years of
close

cooperation

between

Nokia

and

Microsoft,

the

companies

announced that Microsoft would purchase Nokias Devices & Services


business, license Nokias patents, and license and use Nokias mapping
services.
Let us try to understand how and why did Nokia fail to safeguard its strong
market leadership in the global mobile communications market between
2003 and 2013?

STAGE 1: BLINDED
Organizations are unable to recognize the internal and
external threats that threaten their long-term survival

Nokia was the dominant player in mobile phones industry between 200308 ( See Table ) but it failed to anticipate underlying shifts in the
paradigms of the industry.

The shift in the industry happened when software became the dominant
order winner of the mobile device. In the 1990s and the early 2000s the
hardware designs were evolving rapidly and Nokia was the first to bring
advanced phones with integrated FM radio, color display and camera to
market. Around 2005 downloadable content became more important,
although at the time it only meant customized ringtones and screen
savers. However, those developments also marked the shift in consumer
preferences and paved a way to the rise of customized software content,
and applications. Thus, as good as the hardware designs were, they lost
their functionality if not coupled with attractive software.
The original iPhone was technologically inferior to Nokia devices it did
not have 3G, it only had a very poor camera, and a short battery life, but
it was revolutionary in the sense that it allowed a great deal of flexibility
and customizability to the consumers. But the sales of iPhone in 20072008 were not nearly as good as of Nokia devices:
[...] at Nokia when we were seeing this competitor coming to the
market, people understood that this is going to be the future, but then
they were seeing the sales figures for the first year and they were
thinking that we have the right strategy we are selling hundreds of
millions and they are selling peanuts - (Ex- Nokia Executive)

The business that Nokia was involved in, with Symbian phones being
globally sold and being extremely popular and profitable, overshadowed
the rising problems in the high-end of the market. Even though it was
apparent that the technological convergence was already occurring, the
exemplary sales numbers created an impression that Nokia was too big
to fail and was still at the forefront of the current mobile trends.

STAGE 2: INACTION
Despite

clear

signs

of

deteriorating

performance,

top

management takes little action to correct problems


Accompanying the consumer shift to the device software, was the rise of
downloadable applications. As soon as Apple introduced them to the mass
market in 2007 and when Google brought in Android, apps became an
instant hit among the consumers. With downloadable content it was not
necessary to specify the functionalities a phone should have thousands
of functionalities and applications could be downloaded from app-s
tores. Apple had a strategy of launching a single product at a time,
and therefore the company had fewer resources utilized but a strong
strategic focus, whilst Nokia was still developing a great number of
devices simultaneously. With the rise of downloadable content, the
traditional segmentation strategy of Nokia with built-in apps became
wasteful and unattractive to customers.
For Apple and Google, the external developer community was also great
source of innovation and resources. Applications developed worldwide
could respond to consumer needs in different markets. However, Nokia did
not share the Symbian source code until 2010 and even then did not do so
fully. Moreover, due to the legal procedures, delayed release dates and
uncertainty of the platform itself many developers preferred iOS or
Android to Symbian.
[...] if you look at the successes of Supercell and Rovio [Finnish mobile

game companies], they were all based on the fact that they abandoned
Symbian as a development platform and started to develop for Apple and
Android subsequently - (Industry expert)
Nokias relationship with network operators is critical in understanding its
position in the new competitive landscape. Historically, Nokia had been
heavily involved in developing and building GSM, 3G and later on 4G
networks

in

collaboration

with

network

operators.

The

operators

historically had a significant impact on the perception and sales of a


mobile phone brand. They could select which features and applications to
promote, thereby driving consumer preferences. However, this traditional
logic changed when Apple entered the US market and turned the power
relations upside-down. The Symbian ecosystem was thus driven by the
manufacturer(s) and operators, while the competing ecosystems (Apple
and Android) were dominated by the application and service providers.
Nokia continued to rely on operators as ecosystem partners, however,
network providers were unable to offer services and applications and
therefore Nokia slowly lost its dominance in the market.

STAGE 3: FAULTY ACTION


Managers may have made the wrong decisions because of
conflict in the top-management teams, or they may have
changed too little too late fearing more harm than good from
reorganization
The rise of iOS and Android meant that Symbian was quickly dethroned as
the leading software platform, and Nokia was in desperate need of a new
software platform to answer to the increased competition. Nokia had two
or three years to accomplish this, and failed.
The development of Symbian software platform was perhaps the
most crucial issue in the rise and fall of Nokia. Its development consisted
of four interlinked features. First, Nokia was locked to a strong path

dependence with the Symbian software platform; second, the Symbian


software platform was not modular and thus not feasible for technology
and app developers; third, Nokia was a captive of its major telecom
operator customers, and thus, Nokia was not able to create its own
ecosystem; and fourth, Nokia failed to develop an attractive consumer
interface on Symbian platform.
Nokias top management and technology specialists saw the challenges
with Symbian and the new ecosystem-based competition logic with early
on. All the time there were multiple options for a new technology strategy.
One option that was widely discussed in the media was whether Nokia
should have taken the open-source Android operating system to use and
dismissed the ongoing development with Symbian and in the end, not to
have allied with Microsoft at all. If Android had been selected, Nokia may
have become the quality leader, better than Samsung or HTC or any other
vendors using the same software.
Another critical issue was Nokias managerial culture, especially
since the early 2000s, which emphasized organizational flexibility and
internal competition as the key antecedents of its competitiveness.
When looking at the years from 2006 to 2010, the dominant picture is that
mildly put these ideas materialized in a near-hysterical corporate
climate. An elemental part of the Nokia agility was to react to market
changes by changing the organizational structure. The threat by Apple
and Google in 2007-2013 was not Nokias first competitive challenge. In
2003 company had several competitors, such as the slim and appealing
RAZR phone by Motorola or by cheap component producers in Asia, which
resulted in a drop of market share from 35.8% in 2002 to 30% in 2004. As
a response, Nokias top management, led by Jorma Ollila, restructured the
company and optimized its production process resulting in significantly
reduced costs and time-to-market, and also increased the spectrum of
devices produced. The new decentralized matrix structure brought about
positive changes and helped to boost Nokias sales. Because of the

requirements that the Siemens and NAVTEQ acquisition brought about, it


was logical that the response was to engage in another round of major
organizational change and restructuring. This time, however, the changes
degraded Nokias competitiveness and resulted in the fatal slowness in
Nokias counter- moves against the new competitive threats in the
smartphone market.
The first problem in Nokias habitual use of organizational restructuring as
a way to change or implement a novel strategy was the high frequency of
such changes. Between 2000 and 2013 Nokia launched three bigger
changes in its organizational structure and practically every year some
major adjustments. As a consequence, the importance of informal
organization grew exponentially as routine development ground to a halt
and was manipulated by top management. In some sense, the more
hierarchical organization structure from the 1990s continued through the
organizational changes but without centralized power:
[...] we decided to become a global company that would be open to
those new ideas and therefore we introduced this matrix organization. But
in practice it became very difficult to implement. Because people tend to
think still in terms of hierarchy, they tend to think in terms on silos and in
their own terms and agendas and its difficult. It fights against some of
the basic things how people behave - (Ex-Nokian Executive)
I would say that [organizational structure SL] wouldnt have been a
problem if there would have been enough coordination between the
different business units. So there was no sufficiently strong technological
leadership in a context where the different business units were driving
into different directions - (Ex-Nokian Executive)
Another problem in the way in which Nokias top management redesigned
the

organizational

structure

was

that

the

matrix

organization

consisted of a changing number of business units (e.g. Mobile


Phones, Multimedia, Networks ja Enterprise Solutions in the 2004
corporate architecture) on the one hand and horizontal units linking and

serving functional units on the other. While the core rationale behind this
decision may have been sound and in line with Nokias agile image, the
result was the emergence of two serious functional problems: a
cannibalistic

internal

competition

between

business

units

and

development projects, and a highly complex decision-making environment


sensitive to politicking.
Since the business units were competing internally against each other,
these functional units failed to fulfill the traditional criteria of an
independent business unit (i.e. own distinct business with its own goals,
and independence in management). Moreover, the larger and more
complex organization (after the Siemens merger, the number of Nokia
employees practically doubled) did not have a clear chain of command
and responsibilities in some key areas became blurred. It was also not

easy to see who would be the owner of all the organizational changes
that were continuously implemented (See below)

At the same time, paradoxically, Nokias originally entrepreneurial culture


had evolved into a machine bureaucracy, in which all organizational

processes and procedures were explicitly defined and monitored. All this
resulted in slow almost paralysed coherence in decision making and
implementation from 2006 onward.

Organizational changes undergone by Nokia over the years.

STAGE 4 & 5: CRISIS AND DISSOLUTION


By the time this stage arrives, only radical changes in the
structure or strategy can stop the decline. Decline can become
irreversible and then the organization cannot recover.
In the autumn of 2010 the former head of Microsoft Business Division
Stephen Elop was appointed new CEO. The strategic intent of Elops new
top management team was to quickly regain leadership in the smartphone
market and to retain the market leader position in low-end mobile phones.
The collaboration between Microsoft and Nokia was stepped up and the
companies announced plans to form a broad strategic partnership that
would use their complementary strengths and expertise to create a new

global mobile ecosystem. Contrary to earlier strategic decision, the


decision was made to adopt Windows Phone operating system as the
primary smartphone platform for Nokia devices for (at least) three years.
Consequently, Nokia released its first Windows Phone powered
smartphones in autumn 2011 under the novel Lumia brand. In September
2013, after two years of close cooperation between Nokia and Microsoft,
the companies announced that Microsoft would purchase Nokias Devices
& Services business, license Nokias patents, and license and use Nokias
mapping services.

CONCLUSION
As our preceding historical analysis demonstrates, Nokia had a two- or
three-year window of opportunity to defeat Apple and Google in the
mobile phone market and the excess technological capabilities to create
one product and the ecosystem to match its competitors offering.
Evidently, Nokia failed to use its resources in a timely manner. The
reasons for this failure originate in the organizational architecture and
strategy of Nokia and its top management. The following depicts this
failure process and the mechanisms resulting in the end of one
competitive era.

APPENDIX

Jari Ojala (2014). The Curse of Agility: Nokia Corporation and the
Loss of Market Dominance 2003-2013

Cord, D. (2014). The Decline and Fall of Nokia. Schildts &


Sderstrms, Helsinki.

Finkelstein, Sydney. 2006. "Why smart executives fail: Four case


histories of how people learn the wrong lessons from history."
Business History 48(02):153-70.

Laamanen, Tomi, Juha-Antti Lamberg, and Eero Vaara (2016).


Explanations of success and failure in management learning: What
can we learn from Nokias rise and fall? Academy of Management
Learning & Education 15:1 2-25.