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THE FAILURE OF NOKIAS CONNECTING PEOPLE

The Failure of Nokias Connecting People


Milla A. Rajasa, B. Des.
I201621261
Huazhong University of Science and Technology

THE FAILURE OF NOKIAS CONNECTING PEOPLE

Abstract
The purpose of this paper is to study the downward spiral of Nokia, the king of the
mobile technology company that once was the best in the world. In every firm, a crisis can be
expected to be on the horizon. Nokia was a pioneer in the development of mobile phones. Late
2007 may have been the last happy time for Nokia. Since then, Apple and Google (with Android)
have trampled the Finnish giant. This crisis situation may be happen to any large company. If
they can't do something such as innovation quick enough, of course they will fall behind the
others.
Keywords: Nokia, management, crisis.

THE FAILURE OF NOKIAS CONNECTING PEOPLE

Background Introduction

Photo1: Sales of major mobile and telecommunications equipment vendors (Carral &
Kajanto, 2008)

Photo2: Nokias Market Stock (Google, 2016)

THE FAILURE OF NOKIAS CONNECTING PEOPLE

In every firm, a crisis can be expected to be on the horizon. For consumer electronics
firms this is often caused by the development and combination of emerging new technologies.
One of the most significant recent changes is the convergence of internet sites that provide
content such as news, financial analysis, lectures, music and video, smart phones, and software
applications that will retrieve content from the site and provide the content to a smart phone.
(McCray, Gonzalez, & Darling, 2011)
In the early aughts, Nokia was acclaimed for its marketing, and was seen as the company
that had best figured out how to turn mobile phones into fashion accessories. Its more accurate
to say that Nokia was, at its heart, a hardware company rather than a software companythat is,
its engineers were expert at building physical devices, but not the programs that make those
devices work. Nokias development process was long dominated by hardware engineers;
software experts were marginalized. (Executives at Apple, in stark contrast, saw hardware and
software as equally important parts of a whole; they encouraged employees to work in
multidisciplinary teams to design products) (Surowiecki, 2013)
Ive never been happier with a phone than I was in late 2007, when I started using a
lovely Nokia N95. It was a little silver candy-bar phone with a black back that had a full Carl
Zeiss lens built in; flipped upside down, it looked just like a digital camera. Most importantly,
my address book synched, e-mails were easy enough to write, and the operating system,
Symbian, didnt crash. Steve Jobs had introduced the iPhone that year, and, despite stunning
sales, it still seemed a bit alien. There wasnt an app store yet, and typing on the keyboard was
slow and bewildering, like playing soccer with a balloon. (Thompson, 2012)
From 1998 until 2012, Nokia was the biggest mobile-phone maker in the world.
Its failure to adapt to the post-iPhone market led to its decline. (The New Yorker, 2013)

THE FAILURE OF NOKIAS CONNECTING PEOPLE

Late 2007 may have been the last happy time for Nokia. Since then, Apple and Google
(with Android) have trampled the Finnish giant. Both of those companies created app stores that
allowed millions of independent coders to work to improve their phones. Over the last five years,
Apple has become the most valuable company in the world, and Nokias stock price has declined
by about eighty-five per cent. (Thompson, 2012)
Although Nokia is presently the largest mobile phone manufacturer in
the world, the firm has fallen behind Apple in the development of total
capability to deliver a user experience equal to the Apple iPhone. (McCray,
Gonzalez, & Darling, 2011)

THE FAILURE OF NOKIAS CONNECTING PEOPLE

Literature Review
The Company Itself: Nokia
From its beginning in 1865 as a single paper mill operation, Nokia has found and
nurtured success in several sectors over the years, including cable, mobile devices, paper
products, rubber boots and tires, and telecommunications infrastructure equipment.
Nokias sector-by-sector success over the years has mirrored its geographical rise: from a
Finnish-focused company until the 1980s with a growing Nordic and European presence; to a
bona fide European company in the early 1990s; and onto a truly global company from the mid1990s onward. With the acquisition of Alcatel-Lucent in 2016, Nokia further deepen and widen
its global reach.
Nokia has been producing telecommunications equipment since the 1880s almost since
telephony began. When Finnish Engineer Fredrik Idestam set up his initial wood pulp mill in
Southern Finland in 1865, he took the first step in laying the foundation of Nokias capacity for
innovating and finding opportunity. Sensing growing pulp product demand, Idestam opened a
second mill a short time later on the Nokianvirta River, inspiring him to name his company
Nokia AB.
In the 1960s, Nokia became a conglomerate, comprised of rubber, cable, forestry,
electronics and power generation businesses resulting from a merger of Idestams Nokia AB, and
Finnish Cable Works Ltd, a phone and power cable producer founded in 1912, and other
businesses.
Deregulation of the European telecommunications industries in the 1980s triggered new
thinking and fresh business models.

THE FAILURE OF NOKIAS CONNECTING PEOPLE

In 1982, Nokia introduced both the first fully-digital local telephone exchange in Europe
and the worlds first car phone for the Nordic Mobile Telephone analog standard. The
breakthrough of GSM (global system for mobile communications) in the 1980s introduced more
efficient use of radio frequencies and higher-quality sound. The first GSM call was made with a
Nokia phone over the Nokia-built network of a Finnish operator called Radiolinja in 1991.
It was around this time that Nokia made the strategic decision to make
telecommunications and mobile our core business. Our other businesses, including aluminum,
cable, chemicals, paper, rubber, power plant, and television businesses were divested.
By 1998, Nokia was the world leader in mobile phones, a position it enjoyed for more
than a decade.
In 2007, Nokia combined its telecoms infrastructure operations with those of Siemens to
create the Nokia Siemens Network joint venture. Nokia later bought Siemens stake in NSN in
2013 as the business was emerging from a successful strategy shift and the reality of what Nokia
calls a Programmable World of connected devices, sensors and people was starting to take shape.
In 2011, Nokia joined forces with Microsoft to strengthen our position in the highly
competitive smartphone market. Three years later, Nokia accepted Microsofts offer to buy most
of Devices & Services, with the deal closing in April 2014. Nokia emerged from the transaction
with a firm financial footing and three strong businesses Nokia Networks, HERE maps and
Nokia Technologies focused on connecting the things and people of the Programmable World.
Nokias transformation was not done. The HERE digital mapping and location services
business, an arena Nokia entered in 2006, was a key pillar of Nokias operational performance.
But in 2015, the Nokia Board held a strategic review of the business in light of plans to purchase

THE FAILURE OF NOKIAS CONNECTING PEOPLE

Alcatel-Lucent. The result was a sale of HERE to a car company consortium in a deal that closed
in December 2015. (Nokia, 2016)
Nokia was a pioneer in the development of mobile phones. In 1992, Nokia introduced the
first global system for mobile handsets. In 1994, Nokia completed the first satellite call. By
1998, Nokia was the world leader in the manufacturing and sales of mobile phones. (McCray,
Gonzalez, & Darling, 2011)
Nokia was hardly a technological laggardon the contrary, it came up with its first
smartphone back in 1996, and built a prototype of a touch-screen, Internet-enabled phone at the
end of the nineties. It also spent enormous amounts of money on research and development.
(Surowiecki, 2013)
Another Literature
No industry is stable over time. Industries will always experience changes as they
progress, some with shorter time frames, others with longer time frames, but eventually change
will affect every industry. Many times companies do not realize future inflection points in the
industry cycles, realize them too late, or simply are not capable of action when facing the
changes. This inability of firms to take action can dramatically change their fortunes. (Carral &
Kajanto, 2008)
Knowledge is undoubtedly among any firm's most critical assets. Without it, there would
be little hope of succeeding with aims to innovate, satisfy customer needs or gain any lasting
competitive advantage. Companies must therefore put considerable emphasis on knowledge
creation and management. (Anonymous, 2013)
Firms need to understand industry cycles and their dynamics. Lead markets can play a
significant role in predicting inflection points in other global markets. Companies need to be

THE FAILURE OF NOKIAS CONNECTING PEOPLE

flexible since the market seldom develops as forecasted, even less so in high-tech. It is more
important for the firm to understand the industry cycle dynamics than focus attention and energy
on very exact forecasts. (Carral & Kajanto, 2008)
When crises occur, affecting a business firm, the environment seems to
treat them differently from the way it treats such events when they occur in
the public arena whether or not individuals are affected. (Darling, 1994)
The constant existence of manufacturing crises has taught the world
that a crisis can occur with little to no warning, anywhere, anytime. And it
can happen to any type of manufacturing firm, large or small, at every stage
of development, and operating locality or globally. (McCray, Gonzalez, & Darling,
2011)
The contemporary-based transformational development skills of
paradoxical thinking, controlled responding, intentional focusing, instinctive
knowing, inclusive behaving and purposeful trusting can be of enormous
value in effective crisis management (Gabrielsson et al., 2009)
Managers regularly use the term business model to describe the logic of a firm, the way it
does business and how it creates value for its stakeholders. (Aspara, Lamberg, Laukia, &
Tikkanen, 2011)
The advantage that a large company has over smaller, younger ones in terms of
innovation is that it can afford to take a portfolio approach to innovation. As with the venture
capitalist mentioned earlier, an approach that takes a broad range of risks on board will maximize
the chances of long-term success, so that for every sure thing that has a relatively low risk and
low return, a high risk investment in an idea can be indulged and hopefully yield a high return.

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Smaller companies, while full of innovative zeal, have a much smaller basket to put their eggs in
and often fail. The key is putting this portfolio-based strategy at the centre of a continuous,
evolving innovation program. (Anonymous, Nokia: big and clever, 2007)
What Had Happened to Nokia
What happened to Nokia is no secret: Apple and Android crushed it. But the reasons for
that failure are a bit more mysterious. For years, the company had been a conglomerate, with a
number of disparate businesses operating under the Nokia umbrella; in the early nineteennineties, anticipating the rise of cell phones, executives got rid of everything but the telecom
business. (Surowiecki, 2013)
Since the introduction of the iPhone, Apple has continued to capture market share at the
high end of the smart phone market (Borden, 2009). In 2007, the Apple iPhone was named the
information technology product of the year (Kenney, 2007) and by the end of 2009 there were
over 100,000 applications for the iPhone that would deliver music, video, news, weather, air
flight schedules and much more (Karpen, 2010).
In 2001, when Apple iTunes 1.01 was introduced to provide songs and video files for
Apple computer users by downloading them from the internet, it was apparently not clear to
Nokia that they should react. Nokia did not apparently see the approaching crisis. Nokias
principal decision at that time was to produce better and cheaper mobile phones. By 2007, the
Apple iPhone began to dominate high-end smart phone sales. A total of seven critical years
passed before Nokia developed a similar site to iTunes. (McCray, Gonzalez, & Darling, 2011).
To deal with a crisis in this stage, Nokia manufactured smarter phones (Taylor, 2008).
The road of big business is strewn with the hulking remains of large corporations who
failed to react quickly enough to changing markets and environments, did not realize when new

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products and systems were required, and failed to innovate even when they knew the writing was
on the wall. (Anonymous, Nokia: big and clever, 2007)
One way to explain this is to point out that Nokia was an engineering company that
needed more marketing savvy. But this isnt quite right; in the early aughts, Nokia was acclaimed
for its marketing, and was seen as the company that had best figured out how to turn mobile
phones into fashion accessories. Its more accurate to say that Nokia was, at its heart, a hardware
company rather than a software company. (Surowiecki, 2013)
It wasnt just that Nokia failed to recognize the increasing importance of software,
though. It also underestimated how important the transition to smartphones would be. And there
was another mistake. Nokia overestimated the strength of its brand, and believed that even if it
was late to the smartphone game it would be able to catch up quickly. (Surowiecki, 2013)
The corporate culture at Nokia and the morale of employees was stable as the firm
focused on design, manufacturing and sales of mobile phones. However, the shift to smart
phones that used an internet platform similar to iTunes that would make internet content
available was not a good fit with the traditional Nokia corporate culture. (McCray, Gonzalez, &
Darling, 2011)
Unfortunately for Nokia, the perception among individuals in the hightech community was that firms such as Apple, Google, Yahoo, and the new
internet startups provided the best opportunities (King, 1999)
Understanding the industry dynamics in lead markets before they spread and applying
that knowledge in the strategy process was very important for Nokia. (Carral & Kajanto, 2008)
Crisis management is also not just a recognition and quick-fix solution. It usually entails
forecasting, identifying, studying, and acting upon crisis issues, and establishing procedures that

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would enable an organization to prevent or cope with crises effectively. (McCray, Gonzalez, &
Darling, 2011)
Managers need to think creatively and ensure that all appropriate stakeholders of the
organization know what is happening and feel involved in the firms response to the crisis
(Shelton et al., 2003). Although management should have made plans for how to handle the
acute crisis stage, this was not done and the firm moved into the chronic crisis stage. (McCray,
Gonzalez, & Darling, 2011)
A good understanding of industry evolution can prevent such abrupt decisions. We
maintain that a sustainable strategy is based on a solid understanding of how an industry will
evolve. (Carral & Kajanto, 2008)

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Problem Statements
During the press conference to announce NOKIA being acquired by Microsoft,
Steve Ballmer (Nokia CEO) ended his speech saying this We didn't do anything wrong, but
somehow, we lost.
Is it true that they did nothing wrong? Nokia was the largest mobile phone manufacturer
in the world. The firm now has fallen behind another mobile phone companies such as Apple,
Samsung, etc. How can such a thing happen to such a big company like Nokia?
Conclusion
The advantage you had yesterday will be replaced by the trends of tomorrow. You dont
have to do anything wrong, as long as your competitors catch the wave and do it right, they
absolutely will be able take your place. What happened to Nokia was they are too busy with
them self, here I can say that Nokia was an arrogant company. They underestimated their
competitor: Apple and Android. They didnt see that the crisis was coming, and realized it 7
years later. They tried to catch up but it was too late. However, since Nokia was not successful in
dealing with the challenge from their competitors, it now finds itself locked in the chronic crisis
stage.

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References
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http://company.nokia.com/en/about-us/our-company/our-story
Google. (2016). Google Finance. Retrieved November 5, 2016, from Google:
https://www.google.com/finance?q=HEL:NOKIA
Surowiecki, J. (2013, September 23). Where Nokia Went Wrong. Retrieved November 5,
2016, from The New Yorker: http://www.newyorker.com/business/currency/where-nokia-wentwrong
The New Yorker. (2013, September 5). Nokia Hangs Up on Phones. Retrieved November
5, 2016, from The new Yorker: http://www.newyorker.com/tech/elements/nokia-hangs-up-onphones
Thompson, N. (2012, April 6). The Resurrection of Nokia. Retrieved November 5, 2016,
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