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How Nokia Fell from Grace
By failing to understand changes in its market and remaining geographically removed, the mobile-phone maker ceded control to Apple and others
By Matthew Lynn
September 15, 2010,
What was the most successful European company of the 1990s? Easy: Nokia (NOK). The Finnish mobile-phone manufacturer captured the emerging market for mobile phones and built the industry's most powerful brand. Its handsets virtually defined the industry from the time it launched its first GSM phone, the 1011, in 1992. From 1996 to 2001 its revenues increased almost fivefold, and by 1998 it was the world's biggest mobile manufacturer. In 2005 it sold its billionth handset, an 1100 to a customer in Nigeria.
Politicians lined up to praise Nokia as an example of how Europe could prosper in the 21st century. Romano Prodi, president of the European Commission, drew attention to the success of Nokia and its rival, Sweden's Ericsson (ERIC), in a speech in 2002. "Their achievement in mobile telephones helped to create two vibrant clusters, around Oulu in Finland and Stockholm in Sweden, which have attracted a large number of startups as well as investment from foreign companies," Prodi said. "These examples demonstrate that European regions are capable of developing new, high-tech clusters."
Now, what's the most disappointing company of the 2000s? Easy again: Nokia. The company has been in steep decline—a point underscored by its Sept. 10 announcement that it was hiring its first non-Finn as chief executive officer.
Lessons of the Fall
Just as Nokia's rise held lessons about how Europe could succeed, its downfall tells us much about why European enterprises—and large companies worldwide—so often stumble. In the past three years, the news out of Nokia has only been bad. Since Apple (AAPL) introduced its iPhone in January 2007, Nokia shares have fallen 49 percent. In a ranking of global brands by Millward Brown Optimor this year, Nokia was No. 43, having dropped 30 places in 12 months. Its profit margins have been shrinking, along with its market share and the average price of its phones.
True, it still has more than one-third of global mobile-phone sales. But it's stranded in the middle of the market. Korean manufacturers such as Samsung Electronics are leading the main consumer market. Apple's iPhone and Research In Motion's (RIMM) BlackBerry dominate the upscale smartphone industry. Recognizing the scale of its challenges, Nokia hired Stephen Elop, the Canadian head of Microsoft's (MSFT) business unit, to turn the company around. Everyone will wish him well. (It takes a hard heart to root against the Finns.) But if the guy knows so much about phones, he's kept it a secret. Microsoft has never made any progress in that industry.
The cruel truth is that for all its residual market share, Nokia looks like a has-been. The company misread the way the mobile-phone industry was merging with computing and social networking. And it's probably too late to turn that around.
There are uncomfortable lessons here. First, success is not a sinecure. Nokia got to the top of its industry quickly. Once there, it became complacent. Under CEO Olli-Pekka Kallasvuo, Nokia worried about hanging onto market share rather than creating innovative products that excite customers. Second, Nokia was unwilling to challenge itself. The company clung to the idea that handsets were mainly about calling people. It failed to notice that they were just as much about checking your e-mail, finding a good restaurant, and updating your Twitter page
By failing to understand changes in its market and remaining geographically removed, the mobile-phone maker ceded control to Apple and others
By Matthew Lynn
September 15, 2010,
What was the most successful European company of the 1990s? Easy: Nokia (NOK). The Finnish mobile-phone manufacturer captured the emerging market for mobile phones and built the industry's most powerful brand. Its handsets virtually defined the industry from the time it launched its first GSM phone, the 1011, in 1992. From 1996 to 2001 its revenues increased almost fivefold, and by 1998 it was the world's biggest mobile manufacturer. In 2005 it sold its billionth handset, an 1100 to a customer in Nigeria.
Politicians lined up to praise Nokia as an example of how Europe could prosper in the 21st century. Romano Prodi, president of the European Commission, drew attention to the success of Nokia and its rival, Sweden's Ericsson (ERIC), in a speech in 2002. "Their achievement in mobile telephones helped to create two vibrant clusters, around Oulu in Finland and Stockholm in Sweden, which have attracted a large number of startups as well as investment from foreign companies," Prodi said. "These examples demonstrate that European regions are capable of developing new, high-tech clusters."
Now, what's the most disappointing company of the 2000s? Easy again: Nokia. The company has been in steep decline—a point underscored by its Sept. 10 announcement that it was hiring its first non-Finn as chief executive officer.
Lessons of the Fall
Just as Nokia's rise held lessons about how Europe could succeed, its downfall tells us much about why European enterprises—and large companies worldwide—so often stumble. In the past three years, the news out of Nokia has only been bad. Since Apple (AAPL) introduced its iPhone in January 2007, Nokia shares have fallen 49 percent. In a ranking of global brands by Millward Brown Optimor this year, Nokia was No. 43, having dropped 30 places in 12 months. Its profit margins have been shrinking, along with its market share and the average price of its phones.
True, it still has more than one-third of global mobile-phone sales. But it's stranded in the middle of the market. Korean manufacturers such as Samsung Electronics are leading the main consumer market. Apple's iPhone and Research In Motion's (RIMM) BlackBerry dominate the upscale smartphone industry. Recognizing the scale of its challenges, Nokia hired Stephen Elop, the Canadian head of Microsoft's (MSFT) business unit, to turn the company around. Everyone will wish him well. (It takes a hard heart to root against the Finns.) But if the guy knows so much about phones, he's kept it a secret. Microsoft has never made any progress in that industry.
The cruel truth is that for all its residual market share, Nokia looks like a has-been. The company misread the way the mobile-phone industry was merging with computing and social networking. And it's probably too late to turn that around.
There are uncomfortable lessons here. First, success is not a sinecure. Nokia got to the top of its industry quickly. Once there, it became complacent. Under CEO Olli-Pekka Kallasvuo, Nokia worried about hanging onto market share rather than creating innovative products that excite customers. Second, Nokia was unwilling to challenge itself. The company clung to the idea that handsets were mainly about calling people. It failed to notice that they were just as much about checking your e-mail, finding a good restaurant, and updating your Twitter page
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