Thucydides Sigs

How to save Nokia (from itself)

How to save Nokia (from itself)

[Who can save Nokia from a tumbling market valuation, declining margins and product failures? Guest author Thucydides Sigs deconstructs Nokia’s culture and explains why an acquisition would be the best next step for Nokia]

How to save Nokia (from itself)

When CEO Olli-Pekka Kallasvuo took control of Nokia in 2006, the stock was at $25 per share. In late July 2010, the stock was around $8, the same level as in the late nineties. Ouch. In just four years, two thirds of shareholder equity is gone.

 

If  we go a step further, and compare market cap and sales by number of units, we observe an even more disturbing picture: Nokia’s valuation was at $33B on sales of 125M handsets last quarter; the same figures for Motorola were $17B on 12M handsets and for RIM $31B on 10.6M handsets. The math is pretty simple: Nokia is valued almost as much as RIM, but ships 10 times fewer MORE handsets.

The trend is not looking good for Nokia. No wonder that we have seen news reports of the board finally looking for a new CEO. Is a CEO change what it takes to fix Nokia? Will it make a difference if a foreigner takes over the proud Finnish company? Is Nokia beyond fixing – a dinosaur who can’t survive the climate change – or is there something that can be done to transform the company?

I don’t think Nokia is unfixable. Nokia has a huge potential: amazing global consumer brand, a very strong IP war chest and deep understanding of where the market is heading.

Yes, Nokia does know where the market is going and it always has known. From launching the Nokia Communicator in 1996… and attempting to expand into services (Ovi is the latest strategic attempt), Nokia has known where it wanted and needed to go. But the problem has been and still is the execution. The Finnish giant just fails to move and adapt fast enough to the chaotic, rapidly evolving software and internet market.

What is holding the execution back? More than anything, it’s the company’s culture. And before I dive into it the details, I have to preemptively apologize; like any discussion of a large corporation or a regional culture, one has to use generalizations. Yes, there are always exceptions, but if we want to analyze the culture we need to resort to generalizations. Some readers might find this offensive. Don’t say you haven’t been warned.

Nokia takes great pride in being “Smart, Cold Blooded Vikings.” Thoughtful and tough, strategic and careful, they don’t take chances. They calculate, analyze and think before they react. And “if it takes time, that’s fine”. This is an admirable approach. But as Google’s Shona Brown pointed out in “Competing on the Edge: Strategy as Structured Chaos“, if you try to analyze and manage chaos (or any environment which is rapidly changing in multiple dimensions), that might take a while. Plus, if your analysis takes longer than the rate of change, you are actually moving backward. In the age of fast moving internet and web, the best strategies are coming from the bottom up, and are best developed through experimentation rather than long analytical cycles.

This is the antithesis to what the Nokia culture is all about. And to a large extent, the culture goes beyond Nokia; it is deeply rooted in the Finnish way of living. Nokia is a Finnish company and I would argue that you can’t take the Finnish out of Nokia. Yes, some Nokians – especially those who spent parts of their careers in the US – know how to, and often do, operate differently. And in the last re-org some good “Nokia 2.0” people have moved upward.

But overall, Nokia is a reflection of the Finnish culture: “Smart, cold blooded”, strategic, cautious, Vikings. This should not reflect as a negative comment on Finns: Just like a camel can’t survive in the arctic and a polar bear will die in the desert, a culture makes a company best suited to a specific kind of environment. Nokia has a great tradition of excellence in manufacturing and mastering logistics through process. This DNA is different – and I argue that it is the anti-thesis – of the Internet & Services culture.

The recent rumors about Nokia looking for an outsider, non Finnish CEO are interesting – and a move in the right direction. But will it be enough? I doubt it; either the strong existing culture will change the CEO, or the CEO will leave within a few years.

So, is it possible to change Nokia’s culture and save the company? In my opinion, to change such a deeply ingrained culture, a shock treatment is needed. Three things need to happen.

First, Nokia needs to be acquired by a foreign entity (Chinese? American?) or a private equity group. With a market cap of $33B, it is a bargain. Just turning it into another Motorola will double the value. And if whoever acquires Nokia succeeds in generating service revenues from those 500M handsets sold each year (and one interesting direction they should explore is mobile payments) the valuation will be in the hundreds of billions.

If Nokia were to be acquired it would cause a shock wave throughout the organization, the kind of shockwave that can induce a rapid cultural change. Yes, there will be a lot of resentment among the old-guard Nokians, many of whom will leave, but these are exactly the people who should work in industries that are not as fast paced. And many of the newer Nokians – what we call the Nokia 2.0 execs – who suffer under the existing culture might actually appreciate and support such a move.

Second, for Meego (Nokia’s live-or-die bet on a software platform) to become a viable alternative to Android, the Meego executive leadership must physically relocate to Silicon Valley. We hate to admit it, but when it comes to rapid development of software and services, this is where the right culture exists and right talent can be sourced. This physical change will lead to an attitude change that will impact every decision Nokia makes, and all else will follow.  By relocating to the Valley, MeeGo will become more independent from its Finnish roots and will be able to work more effectively with Intel. It would also give the Silicon Valley team something to rally around, and a clear ambitious goal they can focus on – which is how you build effective teams and why all of Nokia’s previous attempts to build high caliber teams in the Valley have failed. Yes, you can have satellite offices in other countries (just like Android does) but there is only one place where the software & services brains should be placed, and it is in Silicon Valley.

Third, Nokia’s handset development efforts need to be transformed from a mammoth machine into small, fast moving (9-12 month development cycle) commando units of integrated software, hardware, mechanical and design specialists. The economics of the CE space have changed, and it is now possible to test and create prototypes much faster and cheaper than it used to be. Forget the 24-month planning cycle… let multiple teams come up with contrasting ideas, prototype those and then cherry pick the best ones for market testing and production. It will build a constructive competitive culture that will push everybody forward. Samsung does that today. The Taiwan ODMs do that today. Nokia can and should match up.

Nokia is a great company with great assets and some great people working for it. It can be saved from becoming the cold-blooded 21st century dinosaur. For whoever saves Nokia – if they manage to change the culture – a big reward lies ahead.

So who will buy Nokia? Comment with your best guess below…

-TS

[Thucydides Sigs – a pseudonym – has many years of experience juggling computing constraints, mobile software and consumers needs. With that said, imagine listening to a violin sonata not know who the artist is or who composed it. You end up having to listen more carefully in order to make a judgment. He can be reached at thucydides /dot/ sigs [at] gmail [dot] com]

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