Who Killed Nokia? Nokia Did

Despite being an exemplar of strategic agility, the fearful emotional climate prevailing at Nokia during the rise of the iPhone froze coordination between top and middle managers terrified of losing status and resources from management. The company was wounded before the battle began.

who killed nokia

Nokia’s fall from the top of the smartphone pyramid is typically put down to three factors by executives who attempt to explain it: 1) that Nokia was technically inferior to Apple, 2) that the company was complacent and 3) that its leaders didn’t see the disruptive iPhone coming.

We argue that it was none of the above. As we have previously asserted, Nokia lost the smartphone battle because of divergent shared fears among the company’s middle and top managers led to company-wide inertia that left it powerless to respond to Apple’s game changing device.

In a recent paper, we dug deeper into why such fear was so prevalent. Based on the findings of an in-depth investigation and 76 interviews with top and middle managers, engineers and external experts, we find that this organisational fear was grounded in a culture of temperamental leaders and frightened middle managers, scared of telling the truth.

Deer in the headlights
The fear that froze the company came from two places. First, the company’s top managers had a terrifying reputation, which was widely shared by middle managers—individuals who typically had titles of Vice President or Director in Nokia. We were struck by the descriptions of some members of Nokia’s board and top management as “extremely temperamental” who regularly shouted at people “at the top of their lungs”. One consultant told us it was thus very difficult to tell them things they didn’t want to hear. Threats of firings or demotions were commonplace.

Secondly, top managers were afraid of the external environment and not meeting their quarterly targets, given Nokia’s high task and performance focus, which also impacted how they treated middle managers. Although they realised that Nokia needed a better operating system for its phones to match Apple’s iOS, they knew it would take several years to develop, but were afraid to publicly acknowledge the inferiority of Symbian, their operating system at the time, for fear of appearing defeatist to external investors, suppliers, and customers and thus losing them quickly. “It takes years to make a new operating system. That’s why we had to keep the faith with Symbian,” said one top manager. Nobody wanted to be the bearer of bad news. However, top managers also invested in developing new technological platforms that they believe could match the iPhone platform in the medium term.

“Top management was directly lied to”
Top managers thus made middle managers afraid of disappointing them—by intimating that they were not ambitious enough to meet top managers’ stretched goals. One middle manager suggested to a colleague that he challenged a top manager’s decision, but his colleague said “that he didn’t have the courage; he had a family and small children”.

Fearing the reactions of top managers, middle managers remained silent or provided optimistic, filtered information. One middle manager told us “the information did not flow upwards. Top management was directly lied to…I remember examples when you had a chart and the supervisor told you to move the data points to the right [to give a better impression]. Then your supervisor went to present it to the higher-level executives. There were situations where everybody knew things were going wrong, but we were thinking, “Why tell top managers about this? It won’t make things any better.” We discussed this kind of choice openly.”

This shared fear was exacerbated by a culture of status inside Nokia that made everyone want to hold onto power for fear of resources being allocated elsewhere or being demoted and cast aside if they delivered bad news or showing that they were not bold or ambitious enough to undertake challenging assignments.

Innovation impotence
The high external fear among top managers and high internal fear among middle managers led to a decoupling of perceptions between the two groups of top and middle managers about how quickly Nokia could launch a new smartphone and develop advanced software to match the iPhone. Given the optimistic signals coming from the middle managers, top managers had no qualms about pushing them harder to catch up with Apple—after all, top managers were only stretching targets. Fearful that Nokia would lose its world dominance and post weak financial results, top managers exerted pressure on middle managers to deliver a touchscreen phone quickly. They acknowledged this in interviews with us. “The pressure we put on the Symbian software organisation was insane, because the commercial realities were so pressing. You must have something to sell” said one top manager.

A leader from the MeeGo organisation, which was set to be the successor technological platform to Symbian said, “we spoke of a delay of at least six months, if not a year. But top managers said ‘let’s go, you have to run faster.’”

Beyond verbal pressure, top managers also applied pressure for faster performance in personnel selection. They later admitted to us that they favoured new blood who displayed a “can do” attitude.

This led middle managers to over promise and under deliver. One middle manager told us that “you can get resources by promising something earlier, or promising a lot. It’s sales work.” This was made worse by the lack of technical competence among top managers, which influenced how they could assess technological limitations during goal setting.

As one middle manager pointed out to us, at Apple the top managers are engineers. “We make everything into a business case and use figures to prove what’s good, whereas Apple is engineer-driven.” Top managers acknowledged to us that “there was no real software competence in the top management team”.

The final blow
Nokia therefore ended up allocating disproportionate attention and resources to the development of new phone devices for short-term market demands at the expense of developing the operating system required to compete with Apple.

The quality of Nokia’s high-end phones thus gradually declined. In 2007, Nokia launched the N95 smartphone, which had full music features, GPS navigation, a large screen (albeit not a touch screen) and full internet browsing capability. Software compromises were accepted to get it ready on time. It was a success, but serious quality problems soon emerged.

In 2008, Nokia launched its first touchscreen phone, the 5800, at a lower price point than the iPhone. It was a commercial success but it was about “one and a half years late” because of software development problems. In 2009, the N97 was launched to overthrow the iPhone, but one top manager admitted the phone was “a total fiasco in terms of the quality of the product.”

In 2010 came the purported “iPhone killer” with a touchscreen, one year later than planned, but it underperformed in usability and failed to match up to the sleek competition of iOS and Android. A new CEO—Stephen Elop–hired later that year decided that Nokia would be better off buying software from elsewhere and formed an alliance with Microsoft in 2011. As we know, this move accelerated the company’s decline and Microsoft went on to acquire Nokia’s phone business in 2013. The market value of Nokia declined by about 90% in just six years, hovering around 100 billion US dollars.

Despite its enormous R&D firepower, its technical prowess and foresight — Nokia’s patents still generated about US$600 million a year paid by its thriving rivals like Apple and Samsung — Nokia’s ultimate fall can be put down to internal politics. In short, Nokia people weakened Nokia people and thus made the company increasingly vulnerable to competitive forces. When fear permeated all levels, the lower rungs of the organisation turned inward to protect resources, themselves and their units, giving little away, fearing harm to their personal careers. Top managers failed to motivate the middle managers with their heavy-handed approaches and they were in the dark with what was really going on.

While modest fear might be healthy for motivation, using it indiscriminately can be like overusing a drug, which risks generating harmful side effects. To reduce this risk, leaders should be attuned to the varied emotions of the collective. As Huy pointed out in other research, those able to identify varied collective emotions are seen as effective transformational leaders. Leaders can develop a collective emotional capability in their organsations. Fear can only be a useful motivator if management can provide workers with the means to address these fears. Nokia’s top managers should have encouraged and role modeled more authentic and psychologically safe dialogue, internal coordination and feedback mechanisms to understand the true emotional picture in the organisation. They might then have been able to better gauge what was possible and what was not, and most importantly, what to do about it.

Quy Huy is Professor of Strategy at INSEAD. He is also Programme Director of the Strategy Execution Programme, part of INSEAD’s suite of Executive Development Programmes.
Timo Vuori is an assistant professor in strategic management at Aalto University, Finland.

This article was first published on INSEAD Knowledge. Subscribe to INSEAD Knowledge and get the latest research and insights from world-class INSEAD faculty and subject experts!

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21 Comments

  • Mohammed Khurram says:

    Extremely Business Schools MBAish point of view.. Too many assumptions.. I was not in NOKIA then BUT in NOKIA now.. One of the finest companies I’ve worked for.. Great leadership, good perks, awareness of market trends and competition. Finally a company where people can unlock their full potential.. What else do you want.. I love it..

  • Worked there too says:

    I applaud you Professor Huy – far too little is written about the role of fear and intimidation in the failures of the Corporate world. Nokia is but one of many examples.

    Nokia’s problems started well before the iPhone. Probably as early as the year 2000, two years into their ascent, and surprise overthrow of Motorola. Success for Nokia literally happened overnight and management wasn’t ready for how fast the company would grow.

    I arrived at Nokia US, just about the time that US President was sent back to Finland after his rotation to the Americas. I was young at the time, but remember thinking that was exceptionally cool to require senior executives to do serious international assignments. A few years later that bubble burst – I was later told that the person who replaced him was sent to the US “because we didn’t want to deal with him in Finland any longer.”

    A couple of points to your points:

    “Nokia was technically inferior to Apple” – that I don’t believe was entirely true, at least not initially. Some of the finest wireless engineers in the word worked for Nokia at one time or another. What was true is that the Finns isolated themselves from the rest of the world – they’d politely listen, then go back to doing things the way they wanted in the first place. Finnish engineers spent an inordinate amount of time participating in various standardization bodies as key technologies were being debated – it was the same with each effort – Finns, as was their culture, politely insisted their way or the highway. They could have easily found a software partner had they wanted to. (Symbian was a mess from the word go, and just became even more so.)

    True, somewhat, eventually: “the company was complacent” – Certain individuals who included a lot of decision makers became complacent. These executives and senior managers, as well as the investors, made a lot of money in the heydays. The kind of money that makes a man feel invincible and act immature in professional settings. Even in the US, a lot of pretty mediocre people did well if they sold their stock at the right time. They became complacent because for a long time things went really well for them.

    “that its leaders didn’t see the disruptive iPhone coming.” That’s ridiculous. Nokia leadership knew full well the iPhone was coming – you’d have to had lived under a rock not to know. They just didn’t think a US company with no track record in wireless, that was planning to outsource its manufacturing and supply chain could do it. Pekka Ala Pietella (#2 at the company) was a brilliant man and a pure pleasure to work with – he led the team that learned a lot of hard lessons when their supply chain melted down – as a result they knew a lot about low cost manufacturing and managing lean supply chains. Nothing about it was easy. They didn’t know, or bother to get to know anything about Mr. Jobs.

    The four other reasons Nokia failed:

    1) Inexperience in managing a truly global entity
    2) Arrogance of certain senior leaders mostly based in Finland. This of course trickles down …
    3) Poor processes for identifying and training leadership and an HR organization that was a joke.
    — Senior executives were hired from the likes of McKinsey and similar organizations and generally speaking were more talk than action. Several of the top US brass hired during my tenure were quickly shown to be truly despicable people.
    — The larger problem however was the legions of early employees or people in the right place at the right time who were put into roles for which they were not only professionally unqualified, but also had little to zero managerial experience and couldn’t lead and/or motivate a team if their life depended on it. They were allowed to run rough shod over anyone they choose with little regard for the truth.
    — By the time they realized Nokia realized it had a people problem, they tried hiring “new blood” with a “can do” attitude, but it was too late – these people were still working in an environment where it was political suicide to tell the truth.
    4) It became increasingly hard for European handset manufacturers to make money in the US market. 50% of the US market is/was CDMA. By the time Nokia got serious about trying again, it was too little, too late.
    5) PowerPoint. What irony that Nokia was bought by Microsoft. The hours wasted on producing useless PowerPoints probably cannot be calculated.

    Nokia is a sad story for sure – sad especially for many wonderful Finnish people who had zero to do with the demise of the company. Fear and intimidation are present at most corporate entities … Nokia is but one example, and we should remember a strong Nokia, full of many good, hardworking middle managers, with terrific ideas.

  • Michael Elling says:

    Sorry, it’s not the 3 accepted reasons, nor the one put forth by the authors. Instead it has simply to do with the fact that Apple stood up to the carriers and built a way for information to become un-siloed and generative. That’s the outcome of the smartphone revolution. Unfortunately few understand this equal access model (interconnection at the edge) and kowtow to the vertically integrated and balkanized carrier mind-set at the edge of the interwebs.

    Get over it. OTT has won. Core players have complete and holistic view of demand. Ex ante determines success; not ex post supply (upon which Telric and other government mandated wholesale and interconnection rates are based). Value in networks always gravitates to the core and top of networks. We need to understand this (in addition to why iOS and Android won) before we have discussions around moving interconnection out to the edge (either LTE-D or C-RAN). At the same time we need to understand that settlements are necessary to clear supply north-south (between actors) and east-west (between actors) ex ante. In the process ecosystem network effect is better shared and distributed making the process sustainable and generative by upgrading endpoints rapidly and making access universally inexpensive. Today’s internet doesn’t accomplish these goals.

  • 4 years at Nokia says:

    I am an ex Nokia middle level manager. Left Nokia in 2009. Couldn’t agree more with the author.

  • mquesnell says:

    I’d have to say I experienced the opposite at Nokia. I frequently spoke to top level management and never felt disregarded, that was one of the strengths of the company. In terms of denial, I was in the all hands meeting in NY in 2010 when the CFO said we’re in a “death spiral” (at which point I said, “Well, shit!”) so I wouldn’t say everyone at the top was ignorant of what was happening.

    From my viewpoint I’d say pathetically slow time to market (2 years), ignorance about the Apple disruption (it wasn’t the junk phone, it was the app ecosystem that was the killer), disinterest and underestimation of the US market (Nokia had almost no devices slotted with any vendor, all of our attention was on emerging markets), and an overwhelming self-delusion that affects all front runners.

  • Tampere-Salo-San Diego says:

    Jo Harlow and her lack of leadership. Her and the LT warm response drove us to the ground

  • Tampere-Salo-San Diego says:

    Jo Harlow was a failure as a leader. When the time came to fight, her and her LT warm response drove us to the ground

  • Quy Huy says:

    Thank you for all of your comments, which I read with interest.

    Big companies are complex systems. There are many things happening and outcomes are never caused by a single factor only. Our research focused on showing how the fear dynamic influenced Nokia’s failure to respond to the iPhone threat. Many of the commentators have described additional important aspects of this process. They all worked together causing the outcome. We focused on describing the fear dynamic because it is the least well understood area of organisational failure by both managers and academics.

    Not all people pay attention to or notice emotional dynamics in organizations. Experimental research has shown that people vary to a great extent in how accurately they recognize others’ emotions and in how well they are able to consider things from others’ points of view. Hence, it is natural that not all people inside Nokia were aware of the fear dynamics that we described – and that’s the reason why emotions are often difficult to manage and lead to unexpected consequences.

    There are of course differences between units in organizations. We did not investigate the emotional climate in Nokia’s marketing department, for example.

    The ultimate purpose of our research is to help other companies avoid harmful emotional dynamics. When I taught the case of Nokia to hundreds of senior executives at INSEAD, many of them privately told me that the same harmful fear climate we described at Nokia also existed in their companies and was harming their companies’ performance. After hearing the extreme story of Nokia, they are able to do something about the climate in their companies and therefore perform better.

    Quy Huy

  • talha says:

    Lack of technological adaptability is the main reason behind Nokia’s failure albeit they had strong cash flows at that time , pursued half hearted approach towards blue ocean with tentative goals in mind ,this is the reason they start loosing it’s competitive brand image globally

  • FROM SYMBIAN & NOKIA says:

    I worked at Symbian and later joined Nokia at a very senior technical position for the Symbian/S60/Qt software development team, so I can tell you the story from both sides. I left Nokia finally in 2011. In fact, I wrote a paper on this for my Technology Strategy module during my MBA at INSEAD.

    When I was at Symbian, we were extremely frustrated with Nokia. Symbian was a platform licensed by many licensees. The technology roadmap for Symbian was determined by the then CTO, but also by feature requests from the licensees (which is why Symbian was forked so many times). But Nokia being the largest licensee had disproportionate power over how the platform developed, and this is where the problem first appeared. The view at Symbian was that Nokia was too risk averse and scared to make technology leaps with Symbian, only too happy to continue making incremental changes in order to maintain their >60% smartphone market share with >40% margins. As a result, the Symbian roadmap took 2nd priority to Nokia’s feature requests, and many of the then new graphics and network features we saw on the new iPhone for example, never got implemented on Symbian. Symbian was in need of a generational change, both with the platform capabilities as well as the SDK, and that just wasn’t allowed to happen.

    When I got to Nokia, I saw first hand what many at Symbian thought were the underlying issues with Nokia. Far too many middle managers, complex hierarchy, bloated organisation, and little or no bottom-up ideas flow. I saw many technologies and ideas that we saw in the first iPhone at Nokia much before the iPhone was launched. App store being one of them (as Nokia smartphones already had the capability to install 3rd party apps). However, as this article mentions, these ideas were not allowed to get implemented due to pressure of maintaining Nokia’s dominant position by risk-averse top managers, who were clearly wrongly incentivised. Any new idea from the bottom had to traverse a complex structure of middle and top level managers, and usually got killed before it could reach any decision maker, as someone in the middle prioritised other, less risky ideas over truly innovative ones.

    All this was happening before the iPhone was launched, so when the iPhone was finally launched, it was a matter of too little too late to react. First, the reaction of top-level managers was of indifference, or even condescending towards Apple. “We’ve been making mobile phones for years. What do Apple know about making phones. They will fail”. What they didn’t realise is that knowledge and people with knowledge can be acquired, and by the time the market reality set in with Nokia’s top level managers, panic mode set in, and the rest is history.

    If I were to summarise Nokia’s issues that led to it failing in innovation way before the iPhone was launched, it would be complex and bloated management organisation coupled with terrible top-management incentives that led it to focus on market share and profits rather than innovation.

  • Chris says:

    I worked for a small company that licensed software to Nokia, among others. I was continuously impressed with how well Nokia was run as a company.

    I was also depressed at how dismissive they were about the iPhone. Amongst the managers and engineers I interfaced with, the iPhone was laughed at, and summarily dismissed as no possible threat.

    In my opinion, they were too wedded to Symbian, which seemed over designed for the task at hand. The clean sheet MeeGo approach was probably the right idea, it was just too late, and there seemed to be internal turf wars between MeeGo and Symbian.

  • Aleem B says:

    So if the management was competent and the company innovated, they could have done okay for themselves?

    Just like the other three (MSFT, GOOG, AAPL), they could have built a competing operating system, and an SDK, and an IDE and their own programming language to go with it? Maybe even a develop ecosystem by dozens of developer conferences and rallying them to build apps?

    Highly unlikely. Nokia lost out because it’s not a software company. Have a look at your smart phone, or anyone else’s for that matter. They are all slick hard-shell casings with similar specs–the key differentiator is the software driving it. As Bill Gates put it: Microsoft, Google and Apple are three companies that have the software DNA.

    Nokia could never have won. It got an awesome price from the acquisition, so much so that Ballmer came under heavy fire from the board and this was considered his last big mistake and burden he left upon Nadela.

    • heto says:

      Nokia had an operating system (or several, depending on how you count), SDKs for their platforms, and even the Carbide Eclipse-based IDEs. They didn’t have their own programming language, but speaking of mobile development, Google hasn’t really got one either: Google Go does not seem that significant for Android development. I don’t see how having their own programming language would have been an asset anyway.

      Nokia isn’t a software company, but had it not been for the issues in the article, perhaps it could have pivoted to become one. After all, Nokia has pivoted numerous times during its history already, the latest being pivoting from a mainly mobile phone manufacturer to a mainly mobile network manufacturer.

  • Martin C says:

    Very interesting. I believe there was another critical point that contributed during the time I was there (2000 until 2007).

    In early 2005 whilst in Helsinki I argued to the NMP R&D team that a fundamental shift in thinking was required. At the time the Mobile Phones product managers were phone hardware product managers with software embedded. I argued that we needed to become software product managers with hardware as our realisation medium.

    Whilst I was not part of the product management team so I cannot speak for what happened in 2007 when the iPhone launched the outward evidence was that we (Nokia) continued to function with a phone hardware product mindset.

  • L Chandler says:

    I was there from 98 to 03
    I cannot believe what they describe is the same company as the one i worked in. The companies flat reporting structure, strong commitment to shuffling entrenched middle and senior managers out of their empires, plus the empowerment to take risk from the bottom up is what made it an incredible company to work for.

    No mention is made of the shift of mobile phone production from Finland and the UK to China (to sweeten mass 3G rollout there ) which lead to serious quality issues for the business phone market and Nokia’s quality image amongst a very loyal customer base in Europea.

    Nor is it mentioned how the network operators bidding the equivalent of a small countries GDP for the priveleqdge to use airwaves crippled the revenues and profits of the operators which drove down supplier revenues and margins, not in the phones but the network infrastructure which Nokia had invested so much to develop the technology at a time when revenues from 2G were saturating. Market forces maybe.

    Yes Symbian became a white elephant and perhaps that is where the fateful turn was made, to “take on” not only Apple but Microsoft too for O.S. supremacy.

    Yes, these problems can be laid at the feet of Nokia strategy makers, but not for fear of speaking out. That was not the culture so important and fundamental to Nokia’s meteoric rise.

    Senior management must take the blame, that is their job and what they are paid for but its too simplistic to lay blame on just one factor.

  • 12 years at Nokia says:

    Interesting analysis, but based on interpretation of those interviewed which looks a small and select sample size, hence the insight is wrong. The real failure came due to lack of empathy ( inability to identify market signals through customers); poor communication between teams;key people left the company ( e.g.Pekka Ala -Pietila) and finally the inability of leaders to lead a successful transformational change- but that will take a book to explain.

    • UNIX-admin says:

      Wow, that sounds a lot like corporate management speak, and the reason it sounds like that is because that is precisely what it is.

      The hierarchical model has clearly demonstrated that it does not work. Every time information flows upwards, 80% of it is lost, a lot of the time because the middle and upper management is non-technical. What, then, if they are non-technical, are they managing? Every engineer anf scientist worth their salt can also look at numbers in Excel, and can put together Powerpoint presentations. If the most revolutionary products are scientist and engineer driven, what do we need managers for?

      I can tell from experience, that I do not need a manager. Never did, and never will. Managers need to go away, because they are parasites of society.

  • I was there says:

    Typical academic person view: A very simplistic view from people who were not there, are no experts on the subject matter, do not understand the drivers of the industry and repot back based on he-said-she-said.

    • UX-admin says:

      I can say from 20 years of experience with all levels of management, that the article is correct. The current model is severly corrupt and busted.

      We tried the hierarchichal approach, it cleary does not work for most, if not all companies. Now we should go back to private companies with a single owner, himself an engineer, and engineers reporting directly to that one person.

      This, in effect, is what Apple was. Now that it too has all levels of management, it is in decline. Have you noticed how now that Steve is dead, Apple has not released anything revolutionary? It is all just either a fine tuned, or rehashed vision of Steve, repackaged. “He’s dead Jim.”

      The entire public corporation model needs to go away; I know that people who bought their Ferraris, Maseratis and Lamborghinis would be against that, but it needs done. The current state of affairs cannot go on like this.

  • Tej Bhan says:

    Nokia was sick, no doubt, as you indicate in this article. But one man killed it by committing suicide. And we know who that is.

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