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Nokia change management strategy

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Nokia was a pioneer in the smartphone market, literally introducing consumers to the smartphone with its initial Symbian Series 60 devices in 2002. For the next five years, Symbian phones had little trouble maintaining a leadership position in the smartphone pack. ‪

"They didn’t make the leap of faith onto Windows Phone until 2011. Now they are suffering from their slow response." – Wayne Lam‪But in 2007, Apple introduced its iPhone. With its full touchscreen and app-based operating system, the iPhone changed the very definition of what a smartphone should be.

Yet Nokia failed to respond to the iPhone and the shifting consumer demand that came with it. As the years passed, the Symbian platform aged, and that age really showed when compared to iOS and, later, Android. Simultaneously, the smartphone market exploded – more and more consumers opted for pocket-sized mini-computers instead of "feature" phones with tedious WAP browsers.

"When Apple came out with the iPhone, it showed the industry how the smartphone could be done right," Wayne Lam, IHS senior analyst, told Wired. "In hindsight, Nokia should have responded to the iPhone more quickly. They didn't make the leap of faith onto Windows Phone until 2011. Now they are suffering from their slow response."

Samsung, on the other hand, moved quickly into the smartphone market. Granted, Samsung had the advantage of working from the ground up, whereas Nokia had a relatively successful smartphone platform that it just didn't want to give up. (The same can be said of RIM's Blackberry OS.)

"If you look at Samsung a few years ago, they were nowhere to be found in the smartphone market, whereas Nokia and RIM were leaders in the smartphone market," Alex Spektor, Strategy Analytics analyst, told Wired. "It's a lot more difficult to be nimble and react to the changes in the market if you're already a leading player."

Not only was Samsung speedy, it also bet on multiple platforms, including Android and Windows Phone – and it even had its own homegrown OS, Bada, just in case none of the others worked out. But in the end, Android paid off. And it paid off handsomely.

"Samsung chose Android at the right time, and it benefited from the maturation of that platform," Spektor said. "Because Samsung has been the dominant player in the Android space, they've been able to ride the coattails of that platform."

Nokia, on the other hand, spent its time focusing on Symbian until the company's recent partnership with Microsoft. But Nokia's flagship Lumia Windows Phones haven't paid off yet, as evidenced by Nokia's Q1 earnings.

"It was a good partnership on paper, but it was too late – over two years after the introduction of the iPhone and Android picked up market steam," Lam said.

Not only did Nokia move too slowly in the smartphone market, it didn't anticipate competition in the lower end of the market, either. Other manufacturers like HTC, Huawei and ZTE have attacked Nokia from the low-end in developing markets like China.

Despite clinging on far too long to Symbian — and not having the quicksilver thinking of a native web company — you can’t accuse Nokia of lacking ideas. Nokia has a history of coming up with new stuff. The company started life as a paper mill in 1865 but it didn’t stick with pulp forever, turning its hand to cranking out rubber boots, tyres and cables, among other things, before moving on to electronics and finally mobile phones.

In mobile too Nokia has not been short of new ideas. The company pioneered various key mobile concepts that are now absolutely mainstream — from cameraphones and music mobiles to apps and tablets. But despite getting its futuregazing right in one sense – by coming up with the ideas in the first place, often years before others got there — Nokia the company was still stuck in the past, mired in its phone-first mindset, which meant it failed to recognise and deliver on the true potential of its creations.

Nokia’s R&D held the key to unlocking the future success of its business – but the corporate culture of the company failed to turn futuregazing into an agile strategy to advance its business by breaking with the lucrative present. Without visionary leadership and exceptional execution good ideas are just a series of disconnected dreams. There’s no doubt Nokia had plenty of dreamers within its walls but it desperately needed a visionary CEO capable of turning its ideas into the future of the business. Nokia had done it with paper and boots and even mobile phones, but the leap to mobile data proved a leap too far.

Nokia’s cardinal sin was not as many would suspect lack of foresight about the development of the market such as touchscreens, large displays and tablets. Nokia had the scale, the connections with manufacturers, the relationships with operators and the brand strength to ‘out iPhone the iPhone if it had reacted fast enough. Samsung’s success has shown that being a ‘fast follower’ is a viable strategy for a market leader to avoid being usurped by early movers.

The lack of innovation is a dynamic constraint that affects the company. So as to solve the menace it would be important to first ask ourselves the question where does the problem lie? The company and its employees must understand the underlying problems that are leading to lack of innovation.

Employees at Nokia also lack motivation and morale to develop any new products. Motivation is described as the mental push or pull that stimulates the company's workers towards a certain desired action that will lead towards the achievement of innovation goals. Employee enthusiasm directly affects an employees work input and output of an employee. Innovation requires a lot of employee effort and Nokia is facing the challenge of ensuring that it constantly motivates its employees so as to allow the company to operate at optimum efficiency. As discussed innovation is a direct effect of work output and input and it is greatly influenced and affected by motivation. Especially in the kind of volatile global market that companies like Nokia are dealing with. It is important for the employees to be well motivated so as to make sure they are innovative. Nokia needs also to look at building a team that works because it is important for employees to work together so as to ensure that they are innovative as well as productive.

The change management strategy

Nokia’s strategy of switching from its legacy smartphone platform, Symbian, to Microsoft’s Windows Phone OS — a strategy it outed  in February 2011 — ends up being relatively successful, in terms of profitability and device shipments, the company will never hold sway over the industry as it once did. Now it’s just a passenger on Microsoft’s train. However many fancy apps Nokia adds to Windows Phone, the underlying platform is directed in Redmond, not Espoo.

Fogg believes Nokia’s current set of problems with Windows Phones are not explained by a failure of execution; now it’s their strategy that’s the problem. While Elop “rightly saw” that mobile was becoming a “war of ecosystems,” choosing Windows Phone to fight the dominant players of Android and iOS has simply dragged Nokia down, he argues. “Now it’s Windows Phone that is holding Nokia back. Windows Phone is proving a hard sell because of the success of Android and iOS.”

Adopting Windows Phone also means Nokia is now reliant on Microsoft’s execution — and Redmond continues to lag behind the pace of development on the dominant smartphone platforms. “Microsoft has been slow to innovate with Windows Phone, which has held Nokia back,” says Fogg. “The current version, Windows Phone 8, is little different in consumer features to Windows Phone 7 of two years ago. In the meantime, Apple and Google have piled on numerous more features to iOS and Android.”

“Elop chose Windows Phone also because he could reduce costs by lowering the number of Nokia staff working on content and services. Ironically, Nokia is having to stimulate the Windows Phone ecosystem by content deals to attempt to get the platform moving,” Fogg adds.

Choosing Windows Phone was of course not the only option open to Nokia: There is one more lost opportunity to add to Nokia’s case file. With the benefit of hindsight, Leach believes it’s possible to say that Nokia should have adopted Android — and that by not doing so it missed the opportunity to be the company Samsung is now. Ironically that is also the company Nokia used to be: the dominant force in the mobile industry.

Also ironic: Google’s Android could have saved Nokia, instead of helping to bleed the company of its blue blood. Nokia was mobile royalty – now it’s just Microsoft’s foot soldier.

“Samsung has been the victor over Nokia more than Apple has,” Leach argues. “Success for Nokia now would be being Samsung – if, at that key point in 2008, 2009, they’d made that step to adopt Android. It wasn’t really clear at the time that was the right thing for them to do — at that time they really needed to be on their next-gen platform; that was clear. They needed to have MeeGo ready and in the market. But, if we put on our hindsight vision, we could say that rather than MeeGo, probably the best thing to have done would have been Android… With hindsight it’s a lot clearer.”

Fogg hammers this point home by arguing that differentiating its smartphones on Windows Phone has actually been harder for Nokia than it has been for its rivals to make a success of adopting Android. “Elop argued that Windows Phone would make it easier for Nokia to innovate and differentiate its phones than if Nokia had adopted Android. Ironically, Microsoft’s UI rules have made it hard for Nokia to do this while Sony, Samsung and HTC have successfully built custom user interfaces and applications on top of Android.”

Current status of change management project

The Nokia of today is a very different, much diminished company compared to the giant of the mid 2000s. If not a spent force, then certainly a much reduced one: smaller, less profitable, with fewer assets, and resources at its command – and dwindling cash reserves (net cash fell to €3.6 billion by the end of Nokia’s Q3 2012, down from €4.2 billion in its Q2). It doesn’t even own its own headquarters any more: earlier this month it agreed to sell and lease back the building to raise €170 million. Rumours of Nokia being an acquisition target continue to swirl – helped by the company’s historically low share price (currently around $3-$4, it has dropped as low as $1.33 this year) – with Microsoft and even Apple named as potential buyers.

Since Nokia’s first non-Finnish CEO, Stephen Elop, was appointed in 2010, job cuts have been a regular headline story for the company. Nokia now has 44,630 employees in its mobile and location division – down from 60,995 in Q3 last year. The company’s changing shape is the result of Elop ‘realigning’ the business to fit the new strategy of using Microsoft’s OS, rather than developing smartphone platforms in house – leading to various in-house software efforts to be discontinued from Qt, to Meltemi, to Maemo/MeeGo. But Nokia’s CEO has also had to slash costs as profitability plunged.

“Overall if you look at the dominant market position that Nokia had – 40 percent marketshare, if you go back a couple of years – there is no way even with a successful Windows Phone 8 story, and even with the strategy they laid out, that they’re ever going to return to that kind of marketshare, that kind of dominance,” says Adam Leach, principal analyst at Ovum.

The cause of the company’s decline looks very simple with hindsight: Nokia should have moved off its smartphone platform Symbian and onto its next-generation platform, MeeGo, much sooner than it did. Years sooner.

It’s hard to beat Nokia up for not predicting how successful Android was going to be; few would have predicted how swiftly Google would take over the smartphone space. But it’s easy to accuse Nokia of complacency at a time when there were plenty of warning signs the winds of technology change were whipping up a storm. Nokia even saw what was coming — what smartphones were becoming — sooner than most, but they failed to realise how quickly they needed to change, or that the time they had to prepare for their next business leap was shrinking exponentially.

And, finally, when they did realise they needed to turn their business upside down, choosing Windows Phone over Android was a flawed strategy that kicked the company into the long grass. No matter how well they executed, Windows Phone could not turn their business around because the race for smartphone dominance was being run by Android OEMs and Nokia wasn’t even in the running (leaving the field clear for Samsung to rise and rise).

It’s not too surprising that a company that started life as a paper mill, way back in the 1800s, might be more comfortable with physical, tangible things, than digital stuff. But the problem for Nokia wasn’t just that it was slow in the update where software was concerned, it was also now competing with companies born and bred in the digital era – with bits and bytes in their blood.

It’s clear that Nokia’s Elop understands the importance of a having a vibrant ecosystem surrounding your products in order to ensure success. He describes an ecosystem as having “not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things…” What Elop doesn’t say (and may not realize) is that creating a vibrant ecosystem also requires that it be a customer-centric ecosystem. A customer-centric ecosystem delivers a consistent, seamless and enjoyable customer experience. It feels like a single environment, not a group of separate entities. The ecosystem partners aren’t just providing applications that work together; they’re also intent on providing a cohesive end-to-end experience for customers. A customer-centric ecosystem self-organizes to deliver both the experience and the results that customers need and want. That’s why Apple’s ecosystem has worked. It’s not just because there are hundreds of thousands of apps in Apple’s App Store, but also because customers love the iPhone experience—the combination of features and functions that makes it an iconic Apple experience. In fact, the weakest player in the iPhone ecosystem in the US has been AT&T—because of that carrier’s network congestion issues for customers in major metropolitan areas. In short, if the ecosystem can’t deliver a great experience to the end-customers who are at its core, then it’s not viable, and it won’t grow. Or, if there are partners who can’t meet the “whole is greater than the sum of its parts” customer experience, those partners will be marginalized. 

Right now, the Apple iPhone ecosystem is winning because it is well-aligned to support the things that customers want and need to do. It fulfills customers’ needs while surrounding us with a high quality, easy-to-use customer experience. The Android ecosystem is not doing as well, in my opinion, because it provides a less compelling and a more difficult-to-use end-user experience, and it is less unified: there are many different versions of Android being promulgated by each of the different carriers/device maker combos. Windows Phone 7 will have to prove itself to be both well-loved by customers and really attractive to developers.

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