NOKIA: Dilemmas and the fall!

Case Analysis Technology and Innovation Management Course

(Fall 2012)

Professor: Christopher Tucci

Group 7
Aikaterini Bakatselou Fady Fadel Markus Niermann Ramesh Roshan Das Guru Wenlong Xu

1. How did the once-dominant company Nokia, fell apart despite seeing the future well in advance? Nokia had been a tremendous success story, a company from Scandinavia which came to light only in the beginning of late 1980s as mobile phone manufacturer was all of sudden ruling the mobile world by redefining and breaking its standards every now and then. Nokia swept away the incumbent experts Motorola and Ericssons, who were taken off guard and could not react to new market dynamics meanwhile Nokia kept growing and kept on writing its own success story. (Weissmann) Fast forward 20 years, and we see the mobile market getting redefined again and for the first time in last 20 years this time it was not Nokia who did it, instead the new rule of games were set by a new entrant Apple (a company famous for its niche laptops, PCs and only recently a mass product albeit a famous mass product i.e. iPod). With the iPhone, Apple managed to steal all the limelight from Nokia by offering a touchscreen user interface to consumers even when it had features far less than the Nokia N95, the then market leading product from Nokia!! Keeping the continuation of its strategy against new threats, Nokia rejected the touchscreen interface, just as they rejected flip design of Razr! In case of flip design, decision didnt turned out to be a bad, since as expected mobile world did not went mad after it, and users continued to value Nokias candy bar products and maintained their loyalty. (Ahonen) The case of iPhone was different, the incremental feature was not all about touchscreen introduction, it was about a complete redefinition of mobile world, it was about how a phone can be very user friendly, how it can be a personalized, and above all how it managed to make software applications as the most important feature for any mobile phone. Nokia which had been very much tech and feature oriented continued to rely those aspects and chose to ignore the new trend in market. (Ahonen) So what made Nokia fall? From the lessons learnt in the course on Radical Innovations, we could see that Nokia which completely redefined the phone market during the late 1990s during its rise when it was marginalizing the incumbents with radical products and innovations failed to rethink the fundamentals of business when it was on the receiving ends and met a new challenger in form of Apple. It ended up doing the same mistake which Motorola and Ericssons did and in fact seems never learnt any lesson from its rise. (Denning) There are many reasons behind this fall, like the fact that Nokia reached the top early and was unchallenged for the initial few years managing a huge brand loyalty amongst the users seems to have made it complacent and lazy, and being lazy in this fast changing industry was certainly not the right thing. Their success in mobile market propelled the idea of diversifying in everything wireless, which also made sure that Nokia, lost focus from its competency, which ended up hitting them hard later, especially when the management which was busy investing too much on its R&D, choose to ignore the exciting innovative products they came up with (e.g. touchscreen phones/tablets). Nokia management was busy playing safe and instead of exciting customers with innovations chose to churn out well defined products which consumers were expecting from them. (Lynn, 2010)

From our analysis we could also see that, Nokia was keeping a good watch on the competition from all its known competitors and was reacting fast to any move from them as visible in case of Razr and music phones from Motorola and Sony Eriksson respectively. Nokia instantly launched N Series phones and gave befitting reply to competitions from them by regaining all the hypes and accolades. But from the lessons learnt in this course on Disruptive Technologies, we could also see that incumbent firm Nokia did not keep a watch over radical innovation coming from other possible related industries and was continued to focus on itself and its immediate circle of competitors. Apple which launched iPhone was not a mobile maker till that time, and that is why Nokia never bothered about any disruption coming to their business model from them, which was indeed a mistake from Nokia. (Denning) It may not be right to quote iPhone as disruptive in a product sense, but certainly, it was disruptive and radicalizing for the mobile market with its over emphasis on software and applications, which made the whole mobile-ecosystem much more important than the mobile hardware itself. Nokia even took its eye off the ball in this aspect, and chose to ignore the new system was busy churning out products with enhanced hardware features at the high end smartphones which were no more appealing to users because of the lacking eco-system. (Nokia's Bad Call on Smartphones, 2012) It is also argued that, Nokia should have moved to Silicon Valley during its peak and being around this fast changing software market could have helped Nokia evolve strongly. This argument does not really hold strong especially when we could see that the most famous application for iTunes/Android market in recent years (Angry Birds) was actually developed by a company in Finland itself! Certainly it was not location but the conservativeness and inflexibility of Nokia management which needs to be blamed for this fall, the fact that Nokia had too much of internal fiction affected the decision making process, which meant important decisions over products were either too delayed or ignored outright. (Lynn, 2010) Nokia never faced aggressive completion during its initial year of dominance, and with entry of marketing juggernaut Steve Jobs Apple in the mobile market, it was very difficult for Nokia to strike back with low innovations caused by various internal and external factors. Instead of increasing their innovation standards and coming up with some flagship product to compete with iPhone, Nokia opted for a very confusing product portfolio in which they kept on launching new models every now and then, and thus decreasing the life cycle of their own product and cannibalizing their own market. Another important lesson they did not bother to learn from their competitors was naming of their products, in an era of iPhone, Galaxy and Xperia, it was really hard for users to fall in love with numbers like 6610 or E76 etc.! (Konsta) We conclude from our analysis that the fall of Nokia was a result of Nokias stubbornness when it refused to change and react to disruptions, the same ability which in fact made Nokia successful during its rise earlier. The fact that Nokia took too much time in accepting their mistakes in recognizing market demands and competitors proved fatal to them and the fact that instead of reacting with some innovation and exciting products, Nokia reacted in over-cautious ways which were direct results of wrong strategic decisions and of stubbornness. (Lynn, 2010)

2.Despite of a highly skilled technical team and equally good sales and marketing force at its disposal, what is holding Nokia from coming up with a product which can directly compete with its present competitors who seem to have appeared from nowhere and taken control of market? In 2012, after 14 years of dominating the mobile phone market Nokia finally lost the position of market leaders to Samsung. It had already lost the leadership in smartphones to Android phones way back in 2010. The fall of Nokia and rise of Samsung clears the distinction they made regarding their future strategies some years back, when Nokia decided to focus on the volume centric feature phone market and Samsung decided to shift more in the fast evolving smartphone market. The Nokia strategy was based on the belief that there will be enough market for the low end feature phones, what they chose to ignore was the technological advancement would only lead to cheaper smartphones in which case sticking to feature phone portfolio would be suicidal! For competitors like Samsung and LG, with the help of Android, it was easy to increase the share of smartphones in their portfolio and thus making it easier for them to gain more market shares. But even in the lower end of the market, Nokia seems to have failed completely in anticipating the competition. Rising Chinese mobile manufacturers seem to flood the lower end market with much more feature rich phones at much less price than a Nokia phone. The decisions on future strategies made by Nokia in the late 2000s when it first faced the competition and witnessed the changed in dynamics of mobile market in all possibilities is going to haunt them for long in the coming years. (Dediu) Nokia went through some difficult time especially after accepting the competition it was facing from the likes of iPhones and Android phones in the smartphones. The alternatives Nokia came up with to match up were sometimes far better than products of Apple and Samsung available to customers, but what Nokia missed in its alternatives was the fact that post iPhone, market was not about just product innovation but platform innovation, and customer was no more getting excited by the high megapixels of camera or screen size of phones, rather they were more thrilled with the kind of applications phone would run and how easy it can utilize the power of mobile internet! And this is where Nokia failed miserably without a good platform and user interface in their smartphones, whereas competitors like Apple and Samsung were able to do so very easily because of their developed support for mobile-ecosystem. (Ahonen) During the last few years, Nokia tried hard to come up with an operating system capable of challenging the iOS and Android, and was heavily banking on Symbian, maybe because of their attachments and linkage. Also at the same time Nokia joined hands with Intel in development of an open source Linux based operating system called Meego, which created a strong buzz because of the brand names of two companies. But this operating system development, ended up highlighting the fiction inside Nokia clearly to the outside world, where it was clear that there is a huge lobbying going on inside Nokia for both these operating systems, and this internal rift meant a huge advantage for its competitors in the smartphone market in terms of time, which they utilized completely by making accustoming users with their technologies and features. (Kurri) (Ahonen)

Losing on time with delayed response in releasing their Meego phones and then abandoning the same platform thereafter, destroyed the image of Nokia, and if it was not enough Nokia even decided to abandon their in house operating system Symbian, denting its image further. Another main issue which hampered Nokia was its difficulty to create and sustain the value of its products. Nokia smartphones lost bits and pieces of their values due to the failure (or success) of the features that werent directly incorporated by the company, for example Ovi that provided Nokia smartphones with apps, maps, media, and mails and actually was a great success as downloads reached a record of 5 million per day in 2011. Ovi was created and owned by Nokia; however it was adding more value to the name Ovi than to Nokia. Nokia became aware of this issue and discontinued the service in May 2011. All these strange decisions on development and abandoning of operating system and services, presented Nokia as unreliable and unstable to customer, which only meant a further decline in their sales and loss of market share. (Albert) Finally with Stephen Elop on board, Nokia decided to go ahead with a third party in form of Microsoft to develop a new global mobile-ecosystem. This decision had its drawbacks right from start and can be described in three steps: Apple was the first to produce the newest trend of high-value smartphones. By this, we mean a new market of touch-screen smartphones with cutting edge technologies was put in place and thus, and from the lessons learnt in Attackers advantage we could see that Apple managed to take the biggest part of the cake shaking the incumbent Nokia which was not able to react because of its large installed base. Then, Android Smartphone manufacturers were fast enough to understand this new emerging market and reacted with a very competitive response allowing them to overtake Apple in the last couple of years. Considering this distribution of the market, there was not much place left for others such as Nokia to cut their way through until and unless they came up with something really disruptive, being a third mover in super saturated and rapidly changing phone market with a not so differentiating product also harmed Nokias plan of bouncing back. (Albert) Despite of one of the best smartphones made by Nokia being Communicator, Nokia itself could never communicate as a smartphone leader, they had been a huge failure recently not just in terms of their technical assets, but equally in terms of their marketing and complementary assets. Users across the world have been flooded with marketing campaigns and wars of Apple and Samsung promoting their products, and we could rarely see Nokia trying to connect with the users through a hit and huge media campaign. Result of this lack of communication was that most of the casual consumers think of Apple as inventors of smartphones and most of the usual consumer associate Google with internet and thus consider Android as good phone to connect with internet!! (Ahonen) To conclude we can say that right from their failed future strategy in terms of profile distribution of featured and smartphone in the early stage of competition, allowing the internal competition to ruin the chances of better product development, collaborating with not so successful partner and their lack of communication with users hindered Nokias competitive bounce back in this amazingly fast changing phone market where they used to be the leader just few years ago. (Ahonen)

3. Will the latest innovations proposed in the new line of Lumia series phone in association with Microsoft will be able to save Nokia from its downward spiral?
Nokia decided to abandon all its in-house operating system development in favor of a partnership with Microsoft so as to create a challenging eco-system which can compete with Android and iOS. This particular decision of current CEO Stefen Elop has been criticized by many tech analysts, but then even they know that there is a huge potential for both the partners if this decision clicks. (Nok1) In this highly competitive industry, decisions like abandoning a platform developed for so long(Symbian) and another with huge potential(Meego) for a platform which has a not so exciting history (Windows Phone), certainly sounds more like a big gamble Nokia had gone for. Nokia was indeed lacking the growth in eco-system aspects of smartphones with the existing Symbian OS, but the latest version of Symbian had been a appreciated a lot for its improvements and Meego, an open source OS was already considered a big challenge for Android, and certainly a push from Nokia in this stage could have helped both of them to actually emerge as winner. Even Nokia could have had option of OS and eco system for different genre of smartphones, but instead of opting for this push Nokia decided to go for a third party OS which was quite surprising for everyone. (Kurri) (Ahonen) Decision of going with Microsoft and not the preferred choice of other OEMs i.e. Android, was mostly because of the fact that Android provides no patent protections and also meant abandoning the Nokia Maps in favor of existing Google Maps. Considering the investments and efforts they put in developing Nokia HERE (navigation product from Nokia), which is itself a ground breaking innovation in itself when combined with PureView cameras, it was not a good decision to align with Android and abandon it. Other factors that reinforced Nokias choice probably were the $1billion per annum support offered by Microsoft to help with the transition and technology sharing and the close relationship of Nokias current CEO, Stephen Elop, with his erstwhile employer Microsoft. (Warman) (Quora) Considering the fact that both Nokia and Microsoft has been affected by the fundamental shift in the mobile industry, and strength of both firms are complementary with expertise of MS in software development and Nokia is phone manufacturing, this decision sure has potential, if both firms manage some striking innovation to offer for the customer market. Both the partners have enough resources and talents to manage something like that, and add to this Nokias might in distribution, one single product from Nokia still holds enough capability to take over the mobile world! But all this is certainly not so easy, especially when we consider the amount of mistrust is prevalent in Helsinki over the decision to kill Symbian/Meego, which means there is an innate difficulty existing in learning and working together. The fact that both Microsoft and Nokia are huge, is also not so helpful since both have a history of reacting very slowly to situation and market trends. (Vakulenko) With this partnership Nokia has also exposed itself to a huge amount of risk, and they already faced the music with loss of goodwill amongst the consumers when Microsoft announced its inability to update the Nokia phone launched as early as this year in 2012 to their latest update Windows Phone 8. This particular inability meant many of Nokia phone launched in the late

2011 and early 2012 could never become a success despite of their good features and ability, and caused a heavy dent to Nokias profit and image. Of course Microsoft did manage to create a buzz over their latest offering Windows Phone 8, but then again it was launched with HTC and not their so called preferred partner Nokia, and this non exclusiveness of Microsoft means Nokia has much more to lose if this deal goes sour when compared to Microsoft, since as of now Nokia is completely dependent on Microsoft for the OS and eco-system. (Nok2) The series of Lumia phones, product of the collaboration between Nokia and Microsoft, have not sold as per the expectations of this strategy, in fact they have performed much below that and caused heavy losses in the last few quarters. Although the Lumia devices have attractive and differentiated industrial design as per the demands of this highly competitive and fast evolving market and Nokia even managed to launch them on time and at attractive prices, obstacle for success seems that Microsoft appears to have stood still, and the gap in features between Windows Phone and Android or the iPhone has widened not shrunk as Nokia needed it to. Microsofts inability to procure updates along with the steep decline of Android phones prices in this rapidly changing market made sure that Android phones with their frequent updates would emerge as much more attractive options to buyers. Even their latest flagship Windows Phone 8 device Lumia 920 has not created necessary buzz despite of it being an amazing high end device with the best possible innovative features like its screen and high definition camera. It would be hard to expect existing Android and iPhone users will switch for Nokia Lumia 920, especially when Nokia is not going out of the way to promote their flagship phone and present it to consumer as a better alternative with a proper marketing and advertisement campaign, also timing of the release of the phone and the promotion made no sense, as it came 2 months after the launch of iPhone 5 and the buzz of its launch was there since early 2012, which only meant Nokia ended up losing many potential consumers to iPhone 5 and other Android phones. (Staska) Nokia and Microsoft need Windows Phone to ship in large volumes. Smartphones are a scale business. Without sufficient consumer adoption, Windows Phone will not prove attractive to App developers and without large numbers of quality apps, a smartphone will struggle to deliver on the promise of smart capabilities and Nokia knows this fact already with their previous failures, and it would be pure foolishness on part of Nokia to repeat the same mistake with so much on stake this time. (Fogg) When Nokias CEO Stephen Elop made the brave move to embrace Windows Phone, he said there was no plan B. Given the results to date, we believe that now is the time for Nokia to create a backup strategy to the current Windows Phone endeavor, and not regret later. A move like reviving Symbian /Meego and having a balanced product portfolio, with higher concentration of low end smartphones operating on in-house Symbian/Meego and high ends on WP8 could prove to be a much better future strategy considering the expected huge shift of users towards smartphones in developing economies like India and China where Nokia already enjoys a great reputation and is currently the leader. (Fogg)

Conclusions
We could see that Nokia, the Finnish giant, which emerged as the most successful European company of the 1990s, was also the most disappointing company of the 2000s, most of it happened because of their leadership in innovation during their rise and the lack of the same is what making them suffer as of now. Tough this case study could connect with most of the lesson in this course, we in our report focused primarily on the lessons from disruptive technologies and radical innovations, since rise and fall of Nokia are very well connected with them. Nokia is a classic case of Clayton M. Christensens Innovators Dilemma, in a very special way, since Nokia started as being the discontinuous innovator and shook the established and dominant players during its rise, but when Nokia itself was established and dominant during its peak, it forgot the lessons from past and ended up ignoring the new disruptive trend, which evidently led to its fall. We believe that with its expertise, talents and lots of groundbreaking innovation up their sleeves, Nokia still has a huge potential to bounce back and take over the market. The only thing needed from Nokia is to make the right judgment and set their timing right. Waiting for competitors to come up with their ideas and regretting later would not help, since the fast changing mobile market will not be kind enough for them to continue surviving in that case.

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