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Spillikins #84. Way of Nokia. About Company CEO Replacement
The system crisis in Nokia didn't start yesterday but has been brewing for years and one could see the spirits flagging, both inside Nokia and among the investors, during the recent months. Unfortunately, the company's losing the grip in the high-end, dropping the average device price and being forced out of European markets by the competitors, not succeeding in the U.S. Ц it all created the necessary prerequisites for the struggle for the control over the company to begin. It has been known for a while that the Nokia CEO is to leave; WSJ had a note about that back in summer. The story is not about OPK leaving his position but rather about the person replacing him, though. It is also about how OPK is being replaced. And what is even more important is that the new choice is a perfect reflection of Nokia's development trend, of the board of directors' goals and future prospects.
Many issues related to the system crisis in Nokia have been covered in Spillikins; to avoid repeating myself, I would recommend you to check the following two links.
If you ask anybody what Nokia is for them, the answer will be phones. Not mail, not maps, not computers but phones and phones only. The company made its name with them and is strongly associated with phones for most consumers. And its technologies have been copied by other companies for almost a decade, leaving no question about the industry leadership. Nowadays, having lost the high-end is not about the profit as the money is of secondary importance. What Nokia has lost is of greater value Ц that is, its superiority in people's eyes, which is much more important than some part of the profit gone astray.
If you take a look at the figures, you will see that Nokia's market share is still there and it is still company number one in the world. Although the product prices are dropping down and the share of low-end models is increasing, the competition is still far away. So, what are all the pessimistic spirits about? Why is it that I think that Nokia has lost several years and won't be able to compensate for that easily? The answer is simple: no company has tried to copy the Nokia N97 flagship model. No company has tried to copy the Nokia N900. No company has offered anything to fight the Nokia N8. It is Nokia that is catching up now. It's all different now. Five years ago, nobody would even think of Nokia trying hard to attract the customers, struggling with the competition. Yet that is exactly what is happening these days. The thing is that the company gave up making phones; they gave up on the very idea. And had it replaced with a bogus idea of phone related services. They made the services their priority and rushed into the slough. And we know the result: total fiasco with each and every service.
The company's strength lies in its engineering staff; the devices are good in terms of circuitry and power consumption. Yet that is vital for regular phones and classic S60 smartphones only. Switching to Maemo/MeeGo renders all such efforts useless as the hardware is not unique anymore and can easily be copied by other manufacturers. The loss of uniqueness is another blow, on par with their own decision to give up on phones per se. And that is when Nokia starts to dance to the others' tune.
Apple made a very pompous debut on the phone market. Yet the new player wouldn't have enjoyed as high the sales volumes if it were without Nokia's help. Back in 2007, the Apple iPhone was called not a smartphone but a revolutionary phone instead. By 2008, Apple had its attitude changed, and started to call the iPhone none other than a smartphone to avoid competing with Nokia. The product appeared to be quite significant for the segment. Apple invented the game and Nokia accepted the challenge. What for? Even now, I don't have an answer to that question. Anyway, that's how Nokia responded. And from that moment on, the company has been fighting monsters of the future instead of dealing with its actual problems. Both Apple and Google release smartphones to get a grip on the market. They choose a particular niche and start to work on it. Nokia did have the technologies to fight back, but its top management got infected with the Apple and Google virus. They adopted the competitors' ideology, terminology, stopped being innovators and turned into followers, albeit neither Apple nor Google had real power at the time. The latter were some two insignificant but daring conquerors of the new market segment. Nokia's initial response coupled with the fear of losing the market (which did happen in the end) did its work. By fighting Apple and Google, Nokia unintentionally attracted extra attention to their products, used its own brand power to promote the competitors. And it was good at it. According to user surveys, the Apple iPhone and Android devices are still the most appealing in the smartphone segment. Nobody even remembers S60, and there's hardly anything to say about the future prospects of MeeGo these days.
Unfortunately, what happened to Nokia is poisoning with the competitors' terminology and ideas, losing its own way. That is a loss of leadership in thinking, which inevitably leads to a loss of product leadership. Whichever way you look at it, it's sad. I want to see Nokia strong, for there to be competition on the market but not a beating up of an old company by its young rivals.
Effective September 20, 2010, Olli-Pekka Kallasvuo no longer holds the position of Nokia CEO. Having spent 30 years in the company, he ends up being laid off and simply has to leave it. His golden parachute is EUR 4.6 million. He will be blamed for the company's failures by many, as his being the CEO since 2006 hasn't been very successful. The attempt to take the U.S. market by force didn't work out. It was also under his governance that Nokia lost its leadership in thinking and got infected with foreign ideology, which coupled with preserving the traditional business processes, led the company to losing some market share and struggling with the competition. Nokia's leadership is built on sand these days. Can a single person be blamed for that? I don't think so. All corporate decisions are collective responsibility, overseen by the board of directors and an assortment of top managers. It is very handy to make a scapegoat of OPK. Yet that is not true. He is a qualified manager whose decisions have been dictated by Nokia's corporate culture. Let me clarify that. Knowing the company from inside, he did understand that some decisions would result in losing the market and some particular businesses but he did his best to preserve Nokia and the company's spirit. He had mild reforms, not a revolution in mind. And when it didn't work out, he became the one to blame. He was made a scapegoat.
In my opinion, it is his knowing Nokia from inside that prevented OPK from successfully reforming the company. He is capable of making strong decisions, and I have always admired that. Unfortunately, that turned out to be not enough.
I would like to repeat it once more. It is naive to believe that replacing one man can change the company's spirit, ideology and business processes. That is not how it works in the real life. Certainly, a CEO position is one that can make an impact, but not omnipotent. I am sorry for OPK who became a prisoner of the situation. And I don't like his being thrown out of the company, to which he devoted his life. That is just wrong.
There is a lot of struggle for power inside Nokia in the story. OPK is fairly popular among the employees and those behind his replacement seem to be afraid that his prestige can be used against them. In other companies, it would take a CEO some time, say 3 to 6 months, to hand over the administration to his or her successor. That is not true for Nokia. Why? The answer is simple: OPK remains a highly authoritative manager and can still affect the company. They are trying to prevent him from doing that. And being afraid implies that they know their weaknesses.
Once again, I don't want to say that OPK is an angel and I do not second each and every decision of his as a CEO. Many mistakes stem from his being inconsistent in making changes. Yet I feel drawn to him and would like to ask everyone not to stigmatize the person who gave 30 years of his life to his company and was trying to do his best all the time. He wasn't an enemy to Nokia, wasn't a hired gun that came for a few years to milk on the company and leave. He did everything from the bottom of his heart. I respect OPK and wish him wholeheartedly to find a new place where he can realize his potential.
On September 21, 2010 Canadian Stephen Elop will become the CEO of Nokia. His Canadian background should not confuse you, because Elop is the product of the American corporate culture. His latest position was a member of the company's senior leadership team in Microsoft, where he was responsible for such products as MS Office. Elop's entire career was connected with software and he was never associated with hardware development. This is a clear sign what Nokia considers as its sore point. Unfortunately, it is the continuation of the previous development policy, which I do not consider correct. Instead of creating strong products, which are not restricted to particular services Nokia wants to provide devices to fit any services. The capabilities of phones become artificially limited and it is their serious downside.
Nokia has high hopes for Elop, but they come from the Board of Directors and not the rank and file managers and those who create products and the company in general. The Board features 10 persons and 8 of them are Finnish. Prior to the appointment of Elop the top position in Nokia was always the domain of Finland. Has the company decided to change everything and adopt new rules? I do not think so. It is the latest hope for the Board, but they have not considered all consequences of the move.
After numerous discussions with a dozen of Nokia employees from different countries during the last few days I came to the sole conclusion that nobody views this appointment as positive. The reason is that throughout the years Nokia emphasized its difference from the American corporate culture and always regarded itself as a more interesting company. Its top executives were more open and managers enjoyed independence in the decision making process. Here lie both strengths and weaknesses of the company. The arrival of a new CEO with different viewpoints will change the company. How profound will be this change depends on the personality of Stephen Elop. I do not have much information about Elop or heard feedback on his performance in Microsoft. He is unknown quantity for many in the market and I am not an exception. I want to believe he will do all the right things and changes will benefit Nokia, which badly needs a turnaround. Bear in mind that the reaction of Nokia employees is either negative or neutral. On the other hand, investors and the market itself welcomed this reshuffling, which was aimed at them first of all. I think we have to wait and see how Nokia goes from here.
After two bouts of restructuring during the last two years we cannot expect one more, because it could kill the company. The current CEO will not bring the new market strategy. Sadly, many Nokia officials still believe that everything is right with the company's vision and current state of affairs. It is a purely technical appointment in an attempt to borrow the expertise from the American corporate culture and bridge the gap with it.
The overall direction of the company was determined by Olli-Pekka Kallasvuo. It highlights the assault in the US and views MeeGo as its main priority. Elop will begin his reign by launching MeeGo with a bang. If this OS becomes popular all glory will be his. Nevertheless, inside Nokia Stephen Elop is considered as the technical CEO to sort out several issues and lead the company down the path, which had been already chosen before. It's a pity that other senior managers and their ideas remain the same. Nokia needed a shakeup in its managerial team and new understanding of the market and the company's position.
Having read no less than ten articles on this appointment and the first statements of the new CEO I can only say that so far Elop looks like a technical figure and not the true and charismatic leader. He will target financial indicators first and only then great products and services. I am not the fan of this approach, but I will suspend my judgment for the time being. It is too early to say.
Analysts try to tell the future and often adopt similar approaches. The temptation to offer an alternative forecast is huge, but it requires many efforts to convince customers and partners. Subsequently, it does not happen very often and many long term forecasts use the same model. The results also rarely differ. Two forecasts from rival research companies (IDC and Gartner) point in the same direction. Will everything follow their scenario? Not necessarily. This is the dominant sentiment in the market and among analysts. It can be true to life or miss the target due to various reasons. I think such developments are unlikely, but they show the thinking of people and how they see the future. At least it shows where the wind is blowing. In a nutshell, the best chance for fair weather belongs to Android. Everybody considers it as the most promising OS for smartphones and No 2 in 2014. First, consider the forecast from IDC:
Look at the forecast offered by colleagues from Gartner:
In both cases they mention market shares in items and do not assess the average price of devices for each OS. For Symbian in 2010 the average price trails that of Android run models almost 2.5 times. The gap in monetary terms is not that big, so Android will overcome Symbian by profit much faster than these data show. Effectively, Nokia has only one way to go Ц damping prices to keep up the sales.
Another conclusion to be made is that leading research companies well-informed about the dominant sentiment of carriers and manufacturers do not see good prospects for MeeGo. This OS even did not get a separate line in the table unlike the upcoming Windows Phone. Sadly, I have to agree with their assessment.
First signs of Motorola renaissance are not dedicated entirely to Android devices and entry level solutions are still in the running. The company is not planning to be active on all markets so far, but probes into several segments. The Chinese office of Motorola puts forward many ideas, which are later embraced by a global division. New EX series will feature low cost models in two versions Ц with one SIM card and two simultaneously active SIM cards. The price difference will be around И15.
Courtesy of one European Motorola partner we have photos of two models. Motorola EX115 Ц a QWERTY candybar for И90 (retail price) sports a 3 MP camera and a microSD memory card slot. The platform somehow resembles old models from Motorola, but as far as I understand it has not been used before. The same form factor will host an Android smartphone, but it will appear no sooner than the beginning of 2011.
EX128 offers a touchscreen and an attractive price of И120. It will be also launched in October and both models may appear in Russia, but it depends on retailers and their willingness to purchase large shipments of such handsets.
I do not think these models are strong solutions or move the company forward, but they are necessary for Motorola to expand their products range. If you do not have entry level models you cannot compete with Nokia and Samsung. Motorola seriously targets its return to the top division and I think they could make it.
A year ago prior to Nokia World the company unveiled several models and mentioned its future plans. It was made to prepare journalists for the packed event. This year everything will be announced at the exhibition as there are not many news worthy developments. The first one is the launch of OVI Browser for S40, which is still in its beta version. The company created its own Opera Mini, with the intermediate server and data compression. There is nothing revolutionary here Ц "Opera Mini" from Nokia. Starting from 2011 all Nokia models will have it preinstalled. You can use the browser even today, but you need an S40 phone.
Look at the video describing this browser:
Nokia also created an unusual accessory - a headset with the in-built DVB-H receiver. Unfortunately, it works only with Symbian^3 smartphones. Taking into account the price of И40, it is a fair one for mobile TV. It is a niche solution, but it is highly original and better than buying a separate phone for mobile TV. In Russia this accessory will become available at the start of 2011 and the negotiations have already started with one of the local carriers.
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Published 14 September 2010
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