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Knock, Knock, Nokia's Heavy Fall... (Part III)

Finland's industrial flagship Nokia has lost its way. What on earth happened to the mobile phone pathfinder?

Knock, Knock, Nokia's Heavy Fall... (Part III)
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By Mikko-Pekka Heikkinen
      The next person to be interviewed for this article is a man who has a lot to say. He worked in the past decade in middle management positions within Nokia, for example in user interface design, conceptualising, and brand management tasks.
      He does not mince his words, and in his view the ranks of Nokia's middle and senior management are altogether too crowded.
      The foggy grey mass of the organisation critical hinders the progress of the engineers' clever inventions towards their intended destination in mobile phone handsets.
The man recounts a "thoroughly typical" example:
      A novel application or feature has been dreamed up that should end up installed in a phone a year from now.
      This is the beginning of a long day's journey to nowhere.
      The first thing that is missing is the conceptualisation of the feature in question, and then comes the design phase, and after that the bedding of the feature into the phone.
      People have to sign off on actions at every stage in the process for it to go forward.
      According to the ex-manager, everybody who knows anything about this particular feature approves of the idea, albeit with one or two modifications.
"But then you run up against some Vice-President who gets cold feet, because he doesn't know the subject-matter. The innovation is going to tie up money and resources if it gets the go-ahead. He is very aware of this, and he sits on it. He might for our purposes be an engineer with a background in HVAC or systems engineering. He doesn't know squat about user interface software design."
      "What he does know, mind you, is that developing this particular feature is going to require the input of fifty people for the next year ahead. He does not dare to commit people to the project, because they might be required elsewhere. For him, it is safer to freeze the innovation process or at least keep the handbrake on. Then in time the innovation will no longer be so novel after all, and it will not make any sense to carry it forward."
According to the ex-manager's own calculations, there are around 300 vice-presidents and SVPs within the Nokia organisation.
      A hundred would probably be quite enough.
      "If the company goes on with the current structure, one thing is certain, and that is that nothing will ever change."
      For example inside Google, widely regarded as one of the world's most inventive enterprises, there is none of the expanding waistline found in the Nokia organisation.
      Furthermore, Google actually makes a point of pricking its employees into coming up with all kinds of new ideas. The Google staffers can use a fifth of their working time on developing their own projects.
      Small shoots like these have grown up into things like Gmail and Google News.
The strength of Nokia's American competitors comes from managers who know what sort of products should be being made.
      And these managers also push to see them getting into production.
      "There are not the sort of strong figures within Nokia who can come out and say 'Hell yeah, we're going to do this and see it through, even if it takes us two or three years'. This is because the people in those management positions aren't up to the task. And that's why they are lacking in the necessary courage and backbone."
      "The members of the Nokia Board and the Group Executive Board are untrained people insofar as Nokia's present business is concerned. Neither the Board nor the Executive Board has a single representative who could broadly be described as a visionary type. It would be something if there were even one, but by rights there ought to be eight of them."
By "Nokia's present business" , the ex-manager means that mobile phone manufacturers are no longer companies that turn out merely devices and hardware, but that they must also provide online services such as Ovi or Apple's App Store, which are used by the owners of those devices.
      The genesis in a company of services that are attractive to the customer and "sticky", in the sense of pulling the users in and holding them - like Facebook, for instance - is something that requires creative leadership.
      According to the ex-manager, this is something that Nokia has never been able to boast.
      "Managing technology can be done successfully as teamwork, but creative management doesn't work that way."
The man is thus pointing the finger squarely at Nokia's uppermost management echelon.
      Clearly there have been problems there, or otherwise it is hard to see why President and CEO Olli-Pekka Kallasvuo would have been set aside recently in favour of Stephen Elop, headhunted to the post from Microsoft's Business Division.
      But if we are to believe the former Nokia staffers and executives interviewed for this piece, Nokia's woes began years before Olli-Pekka Kallasvuo's tenure at the helm, back at the beginning of this decade.
      During Chairman and CEO Jorma Ollila's time.
      And in 2003, Ollila did something that put the Finnish mobile phone giant onto the wrong tracks.
On the table in the meeting room in downtown Helsinki are a few sticky buns, coffee cups, and a data projector.
      Into the room steps a man wearing a tailored sports jacket.
      He made a point of not wanting to meet in a café, so that nobody would see him talking to a reporter.
      He pulls the door to behind him.
The man sits himself down at the table and gives a quick run-through of his background: a long career in Nokia, with many years in an executive role. He witnessed at first hand Nokia's rise to become the world's largest manufacturer of mobile handsets.
      This all happened with a very simple corporate structure.
      As recently as at the beginning of the century, Nokia had just two business units: Mobile Phones making handsets and Nokia Networks producing cellular network equipment and solutions.
The former Nokia executive pours coffee.
      At that time, he says, Mobile Phones was in full gallop and it was Nokia, for all practical purposes. The unit generated 80% of the company's annual net sales.
      From 1998 it was headed by Matti Alahuhta as President. Alahuhta was a well-liked figure, even down on the assembly hall floor.
      Then everything changed.
In September 2003, Nokia announced it was comprehensively rearranging the corporate furniture, and Mobile Phones was broken up into three business groups: Mobile Phones, Multimedia, and Enterprise Solutions.
      Mobile Phones was given responsibility for basic phones "for large consumer segments", Multimedia was charged with "bringing mobile multimedia to consumers in the form of images, games, music and a range of other attractive content", and Enterprise Solutions was to provide "seamless mobile connectivity solutions" for business.
      In the considered view of the ex-Nokia man, "the key reason" for Nokia's present problems is there: Jorma Ollila's matrix organisation, which came into effect from January 1, 2004.
The man pauses and raises the coffee cup to his lips.
      "What emerged was a leadership vacuum. Right there and then the seed of gradual internal decay was planted. The various units began to compete tooth and nail with each other for the same resources and the same markets. And above them there were not the necessary strong decision-making mechanisms for control of the product assortment. I mean the sort of leadership that would have looked at the big picture and held up a hand and said: 'Hey, just a second now, it doesn't make any sort of sense to manufacture overlapping products like this'", says the former Nokia manager.
He takes the view that the restructuring of 2004 led to a situation where the management of the product assortment fell apart and the development of technologies shifted to become very short-sighted - a sort of "instant gratification" model.
      "People tried simply to respond to the challenges and needs of all the different product lines. There was not enough time and money for work at the long-haul end. For example for things like updating and upgrading the operating system software", he goes on.
      This lack of far-sighted research proved to be a significant stumbling block a few years down the line, when a competitor unleashed on the market a real humdinger of a touch-screen mobile phone.
"Precisely. Nobody had had the responsibility for thinking about and putting hands to work on the next user interface. Nokia woke up with its pants around its ankles when the iPhone arrived. In practice, nothing had been done about it at that point. It really was not anyone's direct responsibility in the then organisation. The responsibility was spread about all over the place, in the whole house. All the resources at that time went into producing the existing product assortment."
      This is not to say Nokia had no touch-screen technology.
      It did have. For example the Nokia 7710 multimedia smartphone, released in 2004 and "ahead of its time", came with a wide, touch-screen colour LCD.
      However, the model worked and sold poorly, and was discontinued not long afterwards.
The former Nokia manager reports that the development of the touch-screen technology that went into the prototype 7700 and the 7710 model had to be wound up some time in 2005, or two years before the advent of the iPhone.
      The sums of money that were going into the product development were being drained away from maintaining an assortment comprising dozens of handsets that were all much of a muchness one with another.
      "The development of the touch-screen should have been continued", argues the man.
      "All the most catastrophic errors are associated with decision-making on the product management side. We produced a quite enormous number of rather average products. It would have been smarter to make fewer - and better."
The ex-manager charges that Nokia has the world's most ineffective product development regime.
      It is possible to examine this claim in the light of some recent numbers: between April and June of this year Nokia spent a heap of money - some EUR 737 million - on product development. This was more than twice as much as was spent by Apple.
      On the other hand, Nokia's Devices and Services unit generated just EUR 647 million in operating profit for Q2/2010, or approximately 2.7 billion euros less than Apple for the same period.
      Nokia's top-floor management did not notice quite how frenzied the competition between the business units had become.
      "Jorma Ollila neither saw nor understood the enormous degree to which the organisation had become politicised from within."
      In the fourth and final part of this article, the former Nokia manager turns his attention to Jorma Ollila's chosen heir as President and CEO, Olli-Pekka Kallasvuo, who stepped down from the post only last month.
Helsingin Sanomat / First published in the Kuukausiliite monthly supplement for October 2010.

More on this subject:
 Knock, Knock, Nokia's Heavy Fall...
 Knock, Knock, Nokia's Heavy Fall... (Part II)
 Knock, Knock, Nokia's Heavy Fall... (Part IV)


  5.10.2010 - THIS WEEK

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