Cultural complacency kills corporates.
Kodak is the example that most change management specialists quote − myself included. Its new CEO, George Fisher, was simply too late to save Kodak from itself. In more recent times, Nokia suffered an almost identical fate. Faced with falling sales and collapsing profits, it charged Stephen Elop with the responsibility of turning the company around. Eventually, a large slug of the company’s business was sold to Microsoft in a deal that former executive Anssi Vanjoki said was inevitable because of Elop’s failed strategy. Here I look at whether Vanjoki’s accusation was correct.
Nokia: a flourishing company in the 1990s
The Finnish conglomerate became something of an investor’s darling in the mid-1990s, when (like Kodak, previously in the photographic world) Nokia had become the dominant force in mobile telephony. With an emphasis on providing products its customers wanted, it steamrollered other mobile phone producers such as Motorola. This part of the business became so important and lucrative that its manufacturing and sales efforts were almost entirely concentrated in mobile. It was a leading force in developing global GM standards. A decade later, it ‘did a Kodak’.
Nokia’s strategy stopped being smart, enter cultural complacency
Nokia had done so much for the mobile market that it seems difficult to understand where it went wrong and how far and fast it fell. History, however, has a tendency to repeat itself. In exactly the same way that Kodak’s management had become complacent about its market dominance and loyal customer base, so, too, did Nokia – different industry, same result.
Nokia felt its products were strong enough to retain its customers. It failed to realise that in the modern world the market drives product, not the other way around.
Nokia failed to do what an innovative upstart called Apple managed to do with more than a little aplomb. Apple reached out to customers, both existing and potential, to discover what they really wanted. In 2007, the iPhone was born.
Nokia’s Symbian platform was unmatched by its mobiles phones. Apple stole a lead. Androids followed. By 2010, Nokia’s dominant position had been decimated.
Enter Elop and his energy
In the third quarter of 2010, Nokia’s board employed Stephen Elop to re-energise the company. It took him five months to conduct a strategic review, and in February 2011 he issued his famous “burning platform” memo in which he stated that Nokia needed:
- a substantial change
- a complete organisational change
- decentralisation of decision making process
- to refocus from hardware to software
In particular, Elop blamed cultural complacency for Nokia’s issues. It missed the smartphone revolution because it relied on its non-smartphone success. It also failed to realise that cheap products from the Far East would cut into its market. Its decision-making process had become product-led instead of customer-led. This cultural complacency spread like a virus through the organisation: the decision-making process became overly consensual, and innovation became non-existent in a bureaucratic environment.
Elop’s burning platform
On his first day, Elop sent a memo to all staff asking three questions:
- What do you think I need to change?
- What do you think I need not or should not change?
- What are you afraid I’m going to miss?
After receiving thousands of responses, he realised that Nokia’s lines of corporate communication had failed, and that employees were frustrated with management.
In his burning platform memo, he touched on all the issues he had identified. He told staff that Nokia was now years behind its competitors and that Apple had managed to build a huge loyal customer base supported by its new ecosystem. China was producing new mobile phones more cheaply and more quickly than Nokia could imagine. He told employees that Nokia had lacked accountability and leadership, and that its innovation simply wasn’t good enough. A more damning verdict could not have been given.
Organisational change the Elop way
Having already made it plain that a complete overhaul was needed, Elop signed a strategic partnership with Microsoft. Together, the company would develop smartphones using the Windows mobile platform: Symbian was officially dead.
He delayered Nokia’s management structure, creating a flatter organisation.
He refocused on leadership and markets, away from bureaucracy and products.
Despite all his efforts, sales continued to decline. A year after his burning platform memo, Nokia laid off 4,000 employees. By June 2012, a further 12,000 jobs had gone and the company had shed around $90 billion in market value. In September 2013, Microsoft announced it was to buy Nokia’s mobile phone business. Elop went with it.
So, did Elop fail?
It could be argued that Elop’s failure to turn the company around amounts to a failure. But much of what he did followed the great change management practices of luminaries such as Lou Gerstner and Jack Welch. He asked his people what they thought, and based many decisions upon his acquired knowledge. He cut back years of Scandinavian bureaucracy and created a far more agile company. This company has begun to perform as a specialist in large-scale telecoms infrastructure, technology development, and online mapping services. Its share price has doubled since the sale of the mobile phone business and its retrenchment.
Meanwhile, Elop’s sale of the mobile business saved thousands of jobs. It also gave those staff that survived a subsequent cull under the Microsoft umbrella a new challenge within an environment that may just deliver the new way of working that Elop envisaged when he wrote his burning platform memo.
Vanjoki was certainly right about one thing: the sale to Microsoft was inevitable. But I believe it was inevitable because of the years of complacency and failure to change sooner, not because of Elop’s strategic change management plans.