In this week’s episode, the guys discuss the cellphone brand Nokia, a pioneer in the mobile phone market. However because of not being able to keep up with competition from other smartphone makers the company went completely down. Chad and Nico remember their first ever mobile phones and Nico discusses how “Nokia” is pronounced in the rest of the world.
Believe it or not, the history of Nokia goes back to 1865. That was when a Finnish-Swede mining engineer named Fredrik Idestam founded a pulp mill outside the town of Tampere, Finland (this was back when Finland was part of the Russian empire).
He did well – and three years later he opened a second mill near the neighboring town of Nokia – where there was better potential for hydroelectric power. And in 1871 he and a friend named Leo Mechelin started a company called Nokia Ab (or “Nokia company”). That company existed for the better part of a century, much as it had at its inception. Until the technological age swept it up into an entirely new story.
In 1967 the Nokia Company merged with Finnish Cable Works and Finnish Rubber Works to form a new company with an interesting set of capabilities: Paper products, car and bicycle tires, footwear, communication cables, televisions and consumer electronics, personal computers, electricity generation and more. In 1972 a handful of Nokia employees started working on a phone that could go in people’s cars. They made about 16-hundred of them. A nokia employee named Matti Makkonen – who is often credited as being the father of text messaging – talked about how strange it was to everyone. He said “I remember someone coming up with the term “mobile phone.” Everyone laughed. Who’d carry a phone with them?” He said it was strange because no-one had seen it yet.
Nokia spent the 1980s developing communication technology for the finnish military, including mobile phones. In the late 80’s/early 1990s the company divested itself of everything but it’s telecommunication business to focus on what they saw as the greatest opportunity. And rebranded itself as Nokia mobile phones. They launched the first GSM phone (the 1101) in 1992, followed by the 2100 in 1994. The 2100 was the first phone with that famous Nokia ringtone. These phones pretty much single handedly launched the mobile phone boom. As a result, Nokia became the largest mobile phone manufacturer in the world by 1998.
At its peak, Nokia’s annual budget was larger than the budget for the government of Finland. Nokia seemed untouchable. But in 2007 Apple released the iPhone and everything changed. From 2007 to 2012, Nokia lost a staggering 90% of its market value. Comparing Nokia with rival Samsung, from 2010 to 2012 the balance went from 76% to 6% in Nokia’s favor, to 23% to 42% in Samsung’s favor. And digging into exactly how and why that happened is an object lesson in business strategy for anyone who has ears to hear.
The beginning of the end for Nokia actually happened a few years earlier. In 2001 Nokia took a huge hit, not because of competition, but because of a slowdown in the global market for mobile phones. But they were huge and they recovered easily. Demand increased and Nokia seemed fine.
But just three years later (2004) they started reporting declines in their market share. They still owned 35% of the market, but it was nothing like their dominance in the mid-90s. And then in 2007 Nokia announced a huge recall – $137MM. 46 million of their cell phone batteries were recalled, dating back to 2005. Those batteries were in a huge range of phones, meaning that the impact was spread across Nokia’s devices. The same year Apple announced the launch of the iPhone, and the next year (2008) Android version 1.0 hit the market. Nokia’s internal woes (recalls) were compounded by stiffer competition than they’d yet encountered.
Nokia had to do something. But would it be too little, too late? In 2010 Nokia appointed Stephen Elop – previously the head of Microsoft’s business software division, as CEO. He was the first non-finnish leader in the history of the company. Profits rose briefly that year, but job losses continued as Nokia worked to find its footing. Elop gave a speech to Nokia employees in 2011, coining a term that’s been widely quoted in business circles ever since. He said that Nokia’s business was like a man standing on a “burning platform.”
In a desperate bid to solidify their business – Nokia partnered with Microsoft, announcing in 2011 that they would be using the Windows Phone OS on Nokia devices. The result was the Lumia 710 and 800 smartphones. Sales were disappointing, and in the first quarter of 2012, Nokia announced operating losses of 1.3 billion euros. In 2014 Nokia was indeed bought by Microsoft, and the once powerful giant’s fall was complete. At its height Nokia was valued at $300bn, in 2016 Microsoft sold what remained in two separate parts for a total of just £350m, and in what seems like the final insult: Phones are no longer produced in Finland.
It’s a lesson in how to completely misread your industry’s trends, and let company politics get in the way of success. Reading reports of Nokia’s internal culture at the time, it’s an all-too-familiar story. The workforce reported tension and infighting among staff and leadership. The executive team was ignoring the actual problems – the state of consumer technology and the ways they’d strategically missed the boat – and instead focused on structural re-organizations. Between 2004 and 2013 Nokia underwent four restructurings.
Picking apart where Nokia went wrong, it’s easy to see in hindsight. It was a perfect storm of mismanagement and strategic misfires, combined with a tidal wave of market competition in the form of Apple and Android. For Nokia its own mistakes combined with the advent of one of the most iconic devices of all time (the iphone) to completely bury a company that seemed unassailable only months earlier. But it’s not as though Nokia didn’t have the people or the tech savvy to see it coming. So where was the disconnect that allowed such a huge blind spot?
One explanation is that Nokia was ultimately a hardware company that was crushed by software companies. Nokia engineers (remember the company was started by physical product engineers) made great physical devices. But they weren’t so great at making the software that made those devices work.
As we look at our own companies it’s important to continually ask the question: Is my success (which hopefully my business is achieving) robbing me of the traits that got me there?
What am I doing to make sure the traits that built my business remain true even as the business grows past their initial expression? How do I make sure the hard questions have a place to be asked? How do I as a leader stay open to hearing the things I don’t want to hear?
The guys end off the show by discussing some interesting facts about the company and how we all tend to grow more conservative as we age – valuing comfort and stability over change and disruption. Companies are no different. And for a brand to continually thrive and succeed, influences counter to that impulse have to be built into its DNA.
Enjoy the show!
We speak about:
- [00:20] The first cell phones
- [07:20] The history of Nokia
- [12:30] iPhone release
- [22:40] New CEO – Stephen Elop
- [25:00] No more phones being produced in Finland
- [25:30] Nokia’s internal culture
- [26:40] Where did Nokia go wrong?
- [34:50] Lessons to be learned
- [37:00] Interesting facts about Nokia