I'm looking forward eagerly to Nokia's strategy announcement this week. Although Nokia is not highly esteemed in the US, most of the rest of the world recognizes it as an enormously important company: a brilliant manufacturer, a symbol of status and affluence in the developing world, and a source of great pride to its many fans in Europe and elsewhere. If Nokia could combine its strengths with better execution in software and smartphones, it could be a formidable force in the computing industry as a whole, not just in mobile.
In anticipation of the new strategy, I wanted to share a few thoughts on why Nokia has struggled with the intersection of phones and computing, and what it might do to fix the problems.
A couple of disclosures first:
--Several years ago I did a consulting project for Nokia. I've also met with them, I have had a lot of briefings from them, and I know several people who work there. No inside information from any of those sources has gone into this note.
--Before someone posts a comment saying so, yes my views are colored by the place I live, Silicon Valley. Your paradigm may vary.
As is often the case for big successful companies, I think Nokia's strengths are also its weaknesses:
Strength 1: Nokia focuses very well...which can lead to denial of reality
Nokia has a very intense, delivery-focused culture that has enabled it to pursue strategies with awesome focus and determination. Over the years, the company has transformed itself from a paper mill to a rubber boots company to a video monitor company, etc, etc. I can think of very few modern firms that are capable of that sort of huge transformation.
But I think that same determination has also sometimes enabled Nokia to live in denial of reality. As an outsider who has dealt with Nokia a lot over the years, the company often comes across to me as the opposite of a learning organization. Rather than getting inquiry and questions, when you discuss an issue with Nokia you tend to find that there is already an official Nokia answer to it: self-assured, hermetically sealed, and often sounding slightly condescending.
When Nokia was on a roll and executing beautifully, that self-assurance was entirely justified. As somebody once said, "it's not arrogance if you can do it." But as the company faltered, I think its belief in its own specialness and power led it to resist making changes that would have happened at most other companies several years ago. This deepened Nokia's problems.
A quick look at the company's financials tells the story. In 2006, Nokia was on a roll. Its revenue was growing nicely, and it had operating profits of about 12% before taxes. But starting in 2007, Nokia hit a wall. Its revenue flattened and then fell. Despite the revenue problem, Nokia held its R&D, marketing, and administrative spending almost steady in Euro terms, increasing them as a percent of revenue. It's as if Nokia believed four years of revenue stagnation were just a temporary glitch to be endured rather than a fundamental problem that had to be fixed.