Stuck on repeat: at Nokia, is history doomed to repeat itself?

Few companies have demonstrated more grit than Nokia, which, despite selling its mobile phone handset division in 2013, has gone on to become a major player in the 5G race. But it must be wary not to repeat the mistakes of the past

When most people hear the name Nokia, they think of a specific mobile phone handset: the Nokia 3310. It became so renowned for its durability that TechRepublic called it “a big tough cockroach of a phone”. Ironically, its indestructability is not a bad metaphor for the company itself. After everything it’s been through, Nokia is still standing.

The Finnish telecoms firm experienced serious hardship during the late 2000s and early 2010s, when it went from the global smartphone leader to a diminishing player with only a 3 percent share of the market. “We are standing on a burning platform,” then-CEO Stephen Elop said in a memo to staff in 2011, only a few years before the company – once worth $200bn – sold its mobile phones division for just $7.2bn.

The rise and fall of Nokia is now an infamous business school case study; a cautionary tale about missing the signs of the market and ignoring the threat posed by a competitor (in this case, Apple, which released the iPhone in 2007). However, for all the turmoil the company has experienced, it remains a major player in the telecoms industry. Currently, it’s competing with the likes of Ericsson and Huawei to become a global leader in 5G. But there are fears the company could repeat the same mistakes that led to its downfall almost ten years ago.


The art of self-reinvention 
Most people know Nokia only for producing mobile phones. But it was first founded in 1865 as a pulp mill. Over the coming decades, the company expanded into a myriad of different sectors, producing everything from rubber boots to toilet paper.

Nokia’s first major restructuring came in the 1990s, when CEO Simo Vuorilehto divested industrial units such as Nokian Tyres and Finnish Rubber Works. Then his successor Jorma Ollila decided to make telecoms the company’s sole focus. After the sale of its mobile phones division in 2013, Nokia was left with its network business alone. If there’s one thing that can be said about the corporation, it’s that it has an impressive capacity for self-reinvention.

“What’s unusual about Nokia is they have had the courage to disengage from businesses,” said Rita Gunther McGrath, Professor at Columbia Business School. “Getting rid of the handset business, I mean, that was just emotionally wrenching for them. But they were willing to do that. And I think that’s something that does set them apart from many other firms – how they’ve managed to get in and out of so many different categories of business.”

Even today, academics disagree over exactly what caused Nokia’s fall from grace. Some – like Michael Schrage, Research Fellow with MIT Sloan School’s Initiative on the Digital Economy – argue that Nokia never succeeded in positioning itself as a global player. “My view is that the company’s leadership lacked the confidence, clarity and capital to aggressively compete in the US,” he said. “I directly communicated my surprise to many Nokia leaders whom I met in London, Madrid, New York and MIT. It made no sense to me, especially when both Android and iPhone were [rapidly] gaining traction […] They kidded themselves that Asia and Europe would make up for their chosen default in America. They were wrong.”

Another commonly held position is that Nokia had stopped prioritising innovation. But McGrath thinks this is unfair on the company. “Innovation wasn’t the problem in Nokia. They spent billions on research and development,” she said. “I was at one of their branches in Finland, where they have manufacturing facilities. And I was literally, in 2004, holding in my hands, a tablet. It had a stylus, it could connect to the internet – it was an early version of what we would recognise today as a tablet. And that was years before Apple got seriously into that business.”


Faulty connection
But clearly, something went wrong, for the company to so catastrophically miss out on the opportunities in the smartphone market. One problem was Symbian, the now-discontinued operating system which Nokia’s clung to even as the technological superiority of Apple’s iOS became clear.

Fundamentally, the business lacked the agility to address problems like this. “The organisation was basically designed to prevent these very fast reactions to situation’s like the iPhone’s release,” said Juha-Antti Lamberg, professor in strategy at the Jyväskylä School of Business and Economics. “There was so much inertia in the company.”

Even though Nokia was spending huge amounts on research and development – it coughed up €5.6bn in 2007 – it wasn’t leveraging this effectively. Internal competition between business units and poor communication were partly to blame. “Among the CEO and executive team, there was no clear vision about the technological future of the corporation,” said Lamberg. “No one was basically saying ‘we should focus only on this product or this product line’. It wasn’t happening.”

As a business grows, it becomes harder for top management to keep abreast of the changes and problems that are glaringly obvious to workers on the frontline. It’s a pattern McGrath has seen again and again. “When I look at companies that have missed a big inflection point, there were always people deep down in the organisation that knew,” she said. “I remember getting an email from someone in Nokia in 2006. So this is years before Nokia’s problems were obvious to everybody. He said, ‘they’re not really supporting their creative people. It’s all backwards-looking.’ In 2006, he laid it all out in a memo to me. So somebody always knows. And the question I think for leaders is: are you tapping into that wisdom?”

Now that Nokia has committed itself to 5G, it risks making the same mistakes again. Together, Ericsson and Nokia have a similar share of the global 5G market to Huawei. Therefore, the US ban on Huawei should have given them both a significant business advantage. However, Nokia has missed out on a number of huge 5G deals over the past year. In April, it lost billion-dollar contracts with China Unicom and China Telecom to Huawei, ZTE and Ericsson.

Some analysts pinned these lost tenures on Nokia’s inability – or unwillingness – to meet China’s technical requirements. Others believe that Nokia also misjudged the start of the 5G investment cycle and that its acquisition of Alcatel-Lucent lost the company precious time. Once again, Nokia seems to have found itself one step behind the rest.

McGrath has a theory that may explain this. “Once you’ve created something, you fall into this trap of thinking it’s going to just continue the way that it is,” she said, “and you forget that what you need to be doing is continuously working on the next wave. That’s a pattern I would say we’ve seen many times at Nokia.”

The question now is: can Nokia put the past behind it? Some think not. “Nokia’s ‘ecosystem’ vision, aspiration and trajectory shrivelled into an unappealing desert compared to Apple’s and Google’s and Huawei’s and even Samsung’s,” said Schrage.

But others believe Nokia still has the potential to turn it around. In May 2020, Shari Baldauf, one of the most high-profile female executives in the telecoms industry and the last remaining executive from Jorma Ollila’s team, took over as chairwoman of the company. McGrath believes Baldauf could be a boon to Nokia’s internal communication. “Based on my past understanding of how she operates, I think it’s a really good sign she’s on board,” she said. Lamberg has similar optimism around the new chairwoman and also new CEO Pekka Lundmark. “After all these changes in the top management team,” he said, “I think there’s still reason to be positive about Nokia’s future.”