Nokia: Entrepreneurial Firm’s Growth Mismanagement

Origins

The history of Nokia, a more than century-old company, comprises a variety of spheres in which the company conducted its activities. Bouwman et al. (2014) note that, during its early history, the company worked with rubber, cable, and paper production. Afterward, the three directions merged into a conglomerate in the 1960s (Palmberg, 2002). In 1962, the company presented its first electronic device (Khedekar, 2012). In the 1990-2000s, Nokia emerged as one of the leaders of the telecommunication market. Overall, the company shifted its focus toward mobile phone production and sales, implementing state-of-the-art technology of the time, and ranked among the world’s leaders in this respect.

Industry Background

The telecommunication industry, as it is nowadays, can be considered a young one, as its emergence and global implementation only became possible through substantial technological progress. According to Lemola and Roivo (2017, para. 3), the industry comprises a variety of operations, including “digital content provision and packaging, network infrastructure, equipment manufacturing and operation, and end-user terminals and portals.” Accordingly, the market of telecommunications has seen a number of successful players and their failed counterparts.

Nowadays, the industry cannot be characterized by a high level of company diversity, as two players, Samsung and Apple, occupy more than 50% of the market (Figure 1). The majority of companies remain at the bottom of the list due to their inability to oppose such important and wealthy companies. At the same time, affordable Chinese brands, such as Xiaomi and Huawei, remain in between the two groups mentioned above, each having about 9-10% of the market share (Figure 1). Nevertheless, while Apple was already a major player in the market in 2010 with 25-30%, Nokia remained the uncontested leader in mobile phone sales with a nearly 40% share (Figure 2). The past decade in the market was characterized by the rapid development of telecommunications in terms of global Internet access. In addition, the mobile phone industry faced the necessity of in-depth transformation, as smartphones replaced their predecessors worldwide.

2019-2020 Mobile Vendor Market Share Worldwide
Figure 1. 2019-2020 Mobile Vendor Market Share Worldwide (GlobalStats, 2020a).
2010 Mobile Vendor Market Share Worldwide
Figure 2. 2010 Mobile Vendor Market Share Worldwide (GlobalStats, 2020b).

At that point, new players emerged in the sphere, while successful companies of the previous years faced significant barriers. The period in question required rapid development and implementation of mobile operating systems. While there have been many attempts, there are currently two major players, which are Android by Google and iOS by Apple. According to GlobalStats, the two operating systems mentioned above occupy over 99% of the smartphone market (Figure 3). Therefore, in the age of smartphones, Google and Apple virtually dominate the telecommunications industry leaving little or no space for other companies.

2010 Mobile Operating System Market Share Worldwide
Figure 3. 2010 Mobile Operating System Market Share Worldwide (GlobalStats, 2020c).

Nokia in Telecommunications

Nokia’s operations in the telecommunication market comprise several decades, starting from the 1990s. The company engaged in this sphere at the beginning of the 1990s, and the first GSM call ever made used Nokia’s equipment and infrastructure (Nokia, n.d.). Following the initial success, Nokia rapidly developed its operations in telecommunications and shortly grew to become a thriving company. Moreover, by 1998, Nokia became “the best-selling mobile phone brand in the world” (Nokia, n.d., para. 2).

Sulphey (2019, p. 167) states that, at the beginning of the 21st century, the company dominated the market, and its name was “synonymous with mobile phones.” In order to focus on relevant tasks, the company reorganized its structure and created four divisions: “Nokia Mobile Phones, Nokia Networks, Nokia Venture Organization and Nokia Research Centre” (Sulphey, 2019, p. 169). This way, Nokia was able to rearrange its resources in order to achieve maximum success in priority spheres.

Founders and Management

However, Nokia that is known today appeared after its transition to the telecommunication market leader. The process in question began in 1990 when Jorma Ollila was appointed the company’s CEO (Sulphey, 2019). According to Laamanen, Lamberg, and Vaara (2016), Nokia faced a risk of bankruptcy at the time, but the new management was able to reverse the unfortunate situation. The company envisioned a successful transition from a “failed conglomerate” to a prosperous telecommunications company, and Ollila’s expertise in the area of financial management was a crucial element of this plan (Laamanen, Lamberg, and Vaara, 2016, p. 10). In addition, there is a large amount of appraisal concerning Ollila’s personal traits in terms of clear innovative vision, organizational skills, and negotiations (Laamanen, Lamberg, and Vaara, 2016). Overall, the 1990s became a starting point for Nokia’s future success, and many positive aspects of that time are related to Jorma Ollila’s leadership.

The Rise

Since the beginning of the 1990s, Nokia’s reformed structure and leadership had brought. Sulphey (2019, p. 169) states that “can be credited to being the pioneer in creating a market for smartphones.” This fact is related to the structural change mentioned above, as the latter led to significant improvements in the company’s research and development activities (Sulphey, 2019). Doz and Wilson (2017) state that Nokia was better at realizing the full potential of mobile phones than its rivals, Ericson and Motorola, were.

In general, the first decade of the 21st century became the golden age of Nokia, as the company demonstrated quick growth and developed a series of popular mobile phones from affordable models to luxurious editions. Nokia’s two most popular products, 1100 and 1110, were also released in the 2000s. Following these models, the company developed more advanced mobile phones while offering good value for its customers.

As technology became more innovative, the company presented its first smartphone, N95, in 2006. At the dawn of the smartphone era, there was a larger variety of available mobile operating systems, which included Symbian used by Nokia (Sulphey, 2019). As mentioned above, Nokia dominated the mobile phone market with its share almost reaching 40% of the market, whereas the figures for the smartphone segment were about 70% (Sulphey, 2019). Overall, the company remained in the leadership position throughout two decades, dominating the market until the upsurge of new players. As a matter of fact, Nokia’s rise is surrounded by an array of corporate myths attempting to find the paradigm of its success, to which Lamberg, Laukia, and Ojala (2014, p. 249) refer as “vague.”

The Challenges

Nevertheless, later in the 21st century, the industry faced new challenges related to continuous globalization. Today’s changeable and competitive business environment requires a certain level of the companies’ preparedness and agility. Khan, Raza, and George (2017) state that constant change has become the new reality of the century. Therefore, companies are required to adapt to new alterations in order to survive. The 2010s became the decisive period for Nokia, as it failed to preserve its advantage in terms of market share and lost the battle against new giants of the industry.

The Symbian platform was unable to compete with Android and iOS, as it lacked flexibility and user convenience while failing to maintain the pace of its rivals (Khedekar, 2012). As an alternative, Nokia attempted to launch a smartphone series using the Windows Mobile operating system, which, however, did not meet the company’s expectations. Chinese Android-based devices shortly took over the low end of the market, whereas higher segments were primarily controlled by Samsung and Apple devices (Khedekar, 2012). In the end, the beginning of the 2010s marked the point of continuous decline for Nokia, as the company failed to adapt to rapid changes and did not manage to cope with the transitional period.

The Fall

The previous decade can be characterized by the rapid growth of the smartphone market, which gradually replaced traditional mobile phones. As discussed above, Nokia was one of the companies that lay the foundation for smartphone development and remained the leader in this area between 2006 and 2010. However, in 2010, the company went through a phase of leadership change when Stephen Elop was appointed the new CEO (Bouwman et al., 2014). Nokia’s Symbian platform was quickly losing its position, having been outperformed by Apple’s and Google’s newest products. In 2011, Nokia made the decision to opt for the Windows mobile operating system as the basis for their new smartphones (Bouwman et al., 2014).

Nevertheless, the transition did not bring satisfactory results, and Nokia’s sales plummeted, while its share of the market was taken by Samsung and Apple. According to Bouwman et al. (2014), Nokia had to close a range of factories and dismiss several research and development departments, as its market capitalization went down from 110 Billion to 15 billion Euros.

Notwithstanding the cuts, the company’s management had to take additional measures. Following the massive losses, Nokia was forced to sell its mobile phone division to Microsoft for less than 6 Billion Euros (Bouwman et al., 2014). Starting from that point, Nokia had only a few departments left, which worked primarily on mobile applications. Therefore, the division of mobile phone development, production, and sales, which led Nokia to glory in the 1990s and 2000s, did not exist anymore. The company remains active until nowadays and aims at improving its position in the world of innovative technology (Nokia, n.d.). Nevertheless, Nokia has lost its status as the world’s leader in telecommunications due to its inability to adjust to the new reality.

The Problems

Nokia faced many challenges of more significant magnitude in terms of leadership, research, and development. Jorma Ollila, as the company’s CEO, led Nokia to resounding success during his period, and his effective leadership translated into the brand’s leading position in the market. Nokia’s decline corresponded in time with the emergence of a new CEO, whose vision was not on par with Ollila’s (Sulphley, 2019). Elop’s leadership style did not prove to be useful in the changeable landscape of the 2010s, and, as a result, the company did not manage to adjust to the new order. Bouwman et al. (2014) also state that Nokia failed to take into account the segmentation of the market, which is why the company lacked focus on its target audience. Additionally, Nokia’s technological advancements fell behind its competitors, namely Apple and Samsung.

Discussion & Critical Evaluation

Nokia demonstrated an outstanding growth following its first attempts at entering the telecommunications sphere, and shortly became the market’s leader in production and sales. However, Nokia’s approach in relation to the new challenges of the 2010s led to the company’s stagnation and inevitable decline. First, Nokia failed to meet the demands of its customers and adjust the product accordingly. Secondly, the company lacked a strategic vision in the new era of telecommunication, which entailed poor management decisions. Finally, Nokia’s competitors managed to cope with the challenges in a better way and introduced innovative products that shortly conquered the majority of the market.

Customers’ Needs

Providing customers with the product that meets their demands has become the cornerstone of the 21st-century business. Frambach, Fiss, and Ingenbleek (2016) concluded that companies demonstrating high performance in their areas of business tend to pay much attention to their customer-oriented policies. Moreover, Wang, Zhao, and Voss (2016) state that customer orientation positively affects innovative processes in both production and service companies. Nokia showed mixed results in this respect, as it remained in the vanguard of innovation for two decades. Nevertheless, Alibage and Weber (2018) say that Nokia’s primary focus in terms of research and development was on the product itself. Such an approach often leads to the fact that the customers’ needs and requirements are ignored.

Strategic Leadership

When it comes to major companies, such as Nokia, effective leadership is crucial for continuous development in the long run. Nokia had Jorma Ollila as the leader who managed to set the right vision and led the company from the verge of bankruptcy to global success. Nevertheless, the company’s leadership in the 2010s, as it faced new challenges, was not as effective due to its inability to adapt and devise the correct strategy.

The new landscape required that the company should undergo a substantial transformation, but Nokia exhibited a certain level of resistance to change. Baldegger (2017) states that this phenomenon is found on both personal and organizational levels. Leaders of large successful companies are often reluctant to implement major changes due to worries that it may negatively affect their positions. Vuori and Huy (2016) say that the company’s internal fears also impeded effective communication and problem resolution. On the other hand, Nokia’s experience shows the detrimental effect of a lack of change.

In addition, organizational ambidexterity is an approach that gains importance in the 21st century. According to O’Reilly III and Tushman (2011), this theory suggests that successful companies should be able to utilize existing resources while looking for new opportunities. Nokia failed to meet the second requirement, as it exclusively aimed at developing their familiar product instead of looking for new opportunities through customer-oriented research of the market.

Competition

Unlike Nokia in the 2010s, its competitors managed to overcome the difficulties of the time and won over the smartphone market. Nokia’s old rivals, such as Ericson and Motorola, were not perceived as threats anymore, which was utilized by new players. Mobile operating systems by Google and Apple were regularly updated and tailored to the customers’ feedback, while Symbian lacked this advantage. Moreover, Samsung products and iPhone introduced a range of technological advancements that met the public’s requirements and overshadowed Nokia’s attempts. Overall, the company may have been too assured of its unquestionable leadership, which led to it losing its competitive advantage.

Conclusion

Nokia had a great start in telecommunications, which, however, ended in the company’s economic collapse in the 2010s. While Nokia was among the pioneers of the smartphone industry, it picked the wrong development direction later. The company demonstrated a series of mistakes in terms of management strategy, customer orientation, and competitiveness. New players that entered the smartphone market in the 2010s opted for better strategies, which allowed them to win over Nokia’s share of the industry. As a result, Nokia had to sell its mobile phone division to Microsoft, and its past glory in this area faded away.

Recommendations

Nokia had an opportunity to avert the crisis, as it demonstrated significant advantages at the start of the 2010s, having been the industry’s uncontested leader. First of all, the company should have opted for a better CEO candidate, as effective leadership is proved to be beneficial in the modern business environment. Baldegger (2017) states that the leader’s role in the period of major changes consists of uniting employees around a common goal and motivating them to achieve success, which was not the case for Nokia.

In addition, Kodama (2017) highlights Steve Jobs’ crucial role in Apple’s success as an innovative leader with the correct vision. Besides, Nokia’s research development was centered around the company’s internal processes, whereas it should have been aimed outward and pay more attention to the customers’ preferences. The best solution would be to reorganize the division’s structure toward customer orientation while analyzing and implementing successful methods used by competitors.

Implementation

In the case of Nokia in the 2010s, immediate actions would comprise terminating Stephen Elop’s contract and replacing him with a more flexible CEO. Following, the company would have to take drastic measures in terms of its organization and personnel change. It would mainly concern leadership positions, as Nokia would need to have them occupied by people with a revolutionary vision. In the course of several months, Nokia would finish reorganizing its research and development activities, conducting comprehensive research of its existing and potential customers. Finally, it would be necessary to cancel the Nokia products’ transition to Windows Mobile. Refining Symbian or creating a new platform would take substantial resources, which is why opting for Android, as a more flexible and accessible system, would be a better choice in the short term.

Reference List

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Baldegger, R. G. (2017) Firm growth and innovation. New York: Growth Publisher.

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Wang, Q., Zhao, X., and Voss, C. (2016) ‘Customer orientation and innovation: A comparative study of manufacturing and service firms’. International Journal of Production Economics, 171(2), pp. 221–230. Web.

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