How Nokia’s backward thinking nearly killed it

Nokia Connecting People logoThe Wall Street Journal has put together an excellent report that delves into the history of Nokia and the many bad calls the phone manufacturer has made in the last decade. It details the culture at Nokia, which became far too large and bureaucratic for its own good after it rose to dominate the cell phone market for more than a decade. This story is also well timed, as Nokia today announced a $1.7 billion loss for April through June of 2012 — the period where it brought out its Lumia 900 Windows Phone, which hasn’t had the impact AT&T or Nokia had hoped. In 2012, Nokia has lost its crown as the top phone maker and seen investors and almost everyone else begin to write it’s recovery efforts off as a failure.

Most interesting is that Nokia apparently had concepts and prototypes for iPad-like and iPhone-like devices five years before Apple debuted its first iPhone, but because of a bureaucratic separation between R&D and manufacturing, these products never came to life. Nokia spent more than any other wireless company on R&D — $40 billion over the last decade — but despite the intense research, little got done. Research teams were forced to compete with one another, not just on their ideas but politically as well. Due to its top-market position, Nokia began to spend more time strategizing than executing. 

“What struck me when we started working with Nokia back in 2008 was how Nokia spent much more time than other device makers just strategizing,” said Qualcomm Chief Executive Paul Jacobs. “We would present Nokia with a new technology that to us would seem as a big opportunity. Instead of just diving into this opportunity, Nokia would spend a long time, maybe six to nine months, just assessing the opportunity. And by that time the opportunity often just went away.”

Slowness aside, Nokia also ceded to investor pressure after Motorola’s Razr phone became quite popular in 2004-2007. The company’s standard phone and smartphone operations were combined, which led to a greater emphasis on regular cell phones right as Apple entered the market with the iPhone. Oh, and Nokia deconstructed that product too but deemed it inferior to Nokia devices.

What the article doesn’t state is how bad Nokia’s latest gamble might have been. Stephen Elop, a former Microsoft executive, took over Nokia in late 2010 and after releasing a “Burning  Platform” memo to employees that compared Nokia to a person standing on a burning oil platform and how the choice was to jump and face possible death from drowning, or face imminent death from the fire. Elop’s big gamble has been on Windows Phone. He signed an exclusive agreement with Microsoft in early 2011 and began the process of moving all high-end Nokia products from its longstanding Symbian operating system to Windows Phone, which had a miniscule market share at the time.

The first major fruits of the Nokia and Microsoft partnership launched this year. The Lumia 710 was released on T-Mobile in January and the Lumia 900 hit AT&T shelves in April. Neither device has truly taken off, as evident by the $1.7 billion loss Nokia has posted and the recent price cut of the 900. Now Elop is pointing toward Windows Phone 8 as the savior of Nokia’s fortunes. Though we like Windows Phone, we’re not so sure Windows Phone 8 is going to change much for Nokia or Microsoft. And without a serious upswing in its smartphone sales, Nokia may not leave its burning platform alive.