1. What key problems did the company experience? (provide justification)
2. What change strategies would have been the most appropriate to apply and why?
3. What specific recommendations would you have made if you were part of the senior management team at Nokia and why?

NOKIA Nokia originated in 1865 as a wood pulp mill in Finland, its name deriving from the river Nokia, which ran next to the original mill. Its roots are in paper manufacturing, then rubber and cable production. The company has gone through many changes of growth and decline to become the mobile networks company it is today. Its head- quarters are still in Finland and it is listed on the Helsinki, Frankfurt and New York stock exchanges. Nokia had led the explosive growth in mobile phone networks and handsets during the 1990s and 2000s, establishing itself as the premier and dominant consumer brand for mobile devices. Most of the first generation of mobile phone users would have owned a Nokia phone at some stage, especially the early adopters. In 2010, Nokia employed over 123 500 people in 15 manufacturing sites around the world. Serious problems, however, had already arisen with Nokia's competitive position. The company's mission in 2011 was stated as follows: Nokia's mission is simple, Connecting People. Our strategic intent is to build great mobile products. Our job is to enable billions of people everywhere to get more of life's opportunities through mobile, www.nokia.com Having sold its mobile phone handset business to Microsoft in 2013, Nokia was a vastly different company. The company's global workforce was reduced by more than half to 56 000 people. It had refocused around its network infrastructure business, which had been the reliable poor cousin to mobile phone handsets. How did Nokia umanage to go from a position of global dominance in mobile phone handsets to selling the business at a fraction of its earlier market value? At its simplest, the industry that Nokia led was destabilised and reshaped by new entrants, who estab- lished competing business models that added superior value for customers and rapidly eroded Nokia's market share. By the mid-to-late 2000s Nokia was one of the most successful mobile technology firms in the world. However, if we compare its position in the Fortune Global 500 in 2007 and 2010, although the rankings are almost the same, the direction of travel is quite different (Fortune, 2016). In July 2007, the rank was 119, up from 131, and Vokia was number one in the networks and communication equipment industry. Revenue stood at $51593 million in 2006 and profit was $5402 million. These figures vere up 21 per cent and 20 per cent, respectively, from the 2005 position. In 2010, the rank was 120, down from 85. The revenue was $56 966 million and profit was 51238 million in 2009. These figures were down 23 per cent and 79 per cent, respectively, from 2008. Hence, the direction of change was negative, with decreasing rofits and growing market concerns for the future. After dominating the mobile phone handsets sales during the rapid growth of the 990s and the early 2000s, Nokia's mobile phone business was impacted by a series of owerful competitive disruptions that reshaped the wants and needs of mobile phone sers and the value position of the mobile phone itself. Firstly, from 2003 Blackberry ad popularised their mobile phones as genuine business devices, with very strong mail, fax and other business use functions. At the same time, the idea of the mobile hone was undergoing a reinvention into a smartphone. Apple introduced the iPhone 309 PARTE EXTENDED CASES in 2007, with its differentiated smartphone interface of Apple IOS, integration with iTunes for iPod users and AppStore with a growing developer community. In the same year, Google announced the Open Handset Alliance based on the shared use of Google's Android operating system across major handset manufacturers. Whilst Apple was going it alone with its own handsets and operating systems, Google was signing up other manufacturers, such as the rising Korean giant Samsung, to ship its Android operating systems connected to its own marketplace for apps and digital content. All this continued to erode Nokia's market share. By 2011, Nokia's share price slid to 1998 levels. Quarterly results were diving and profit warnings were issued to the markets. The 2011 net result came in as a $1570 million loss. Nokia was in worsening trouble. Lee Simpson, an analyst with Jefferies and Co., put it like this (Arthur, 2011b): What does strike us as quite surprising is the level to which the markets have dropped, we're talking about breakeven now which is quite a slide. I think this level of share. holder destruction is now starting to look dangerous: what can these guys do to reverse this? Our stance is that it's very difficult to value this business right now, because it has to be a different animal if and when it gets into recovery. There were a number of factors behind Nokia's dramatic reversal of fortune. Nokia was still the biggest producer of mobile phones and smartphones, selling about 400 million and 100 million each year, respectively. However, the company's com- petitive position had eroded. At the top end smartphone market the Apple iPhone, Research in Motion's Blackberry and phones using Google's Android operating system (OS) had taken market share. In 2009, Nokia had had a 40 per cent share of the smartphone market, but by 2011 this had decreased to 24 per cent, in comparison to Android's 32 per cent. In addition, Nokia faced stiff cost competition from Chinese 'white box' manufacturers, which could undercut the price for standard mobile handsets. Nokia had previously led innovation in the industry but the innovative pre-eminence had now shifted to North America. The Nokia operating system, Symbian, was acknowledged to be a bit crufty' (Arthur, 2011c), meaning that programmers found Symbian outdated and experienced problems in terms of operation and maintenance. If, in Simpson's terms, it was necessary for Nokia to be a different animal in order to recover, what would this change entail? Stephen Elop, then a senior Microsoft executive, replaced the previous CEO, Olli-Pekka Kallasvuo, in September 2010. The change in CEO occurred at the point at which Nokia's competitive problems were having a significant impact In 2011, Elop described the essential competitive problem to Nokia staff in his famous 'burning platform' memo, that was leaked to Charles Arthur at the Guardian (Arthur, 2011a). He explained how the basis of competition had shifted from device versus device to something much more complex. The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, 310 NOKIA ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren't taking our market share with devices; they are taking our market share with an entire ecosystem. This means we're going to have to decide how we either build, catalyse or join an ecosystem. Without naming them specifically, Elop was, of course, referring to the Google Android marketplace and the Apple iOS iTunes Store and App Store. Elop had a good handle on the fundamental challenge Nokia was facing, however his grasp of how to address it was more tenuous. Elop's view was that the company's managers were 'standing on a burning platform and not even fighting with the right weapons'. By "weapons' he meant Symbian. He led the development of a new strategy, which was aimed at accelerating change and regaining leadership in the smartphone sector, developing the company's mobile device platform and investing in a profitable way for the future. Key changes included: forming a broad strategic partnership with Microsoft to build a new mobile 'ecosystem aiming to gain volume and value growth by connecting the next billion' to the internet in developing markets making focused investments in next-generation technologies putting in place a new leadership team and organisational structure with a clear focus on speed, results and accountability. Nokia had experienced problems with its Symbian operating system, which had fallen behind the rival systems of the new competitors by the late 2000s. Symbian was one of the first-generation smartphone operating systems and was a slow-moving target for newer, superior platforms. Speaking at the D9 conference near Los Angeles on 1 June 2011, Elop said (Arthur, 2011c): 'Symbian was at a deficit in some markets (compared to the iPhone and Android). Our assessment of the speed with which we could catch up (was that it] would not be enough.' The original strategy to develop a competitive smartphone operating ecosystem within Nokia was replaced by a partnering strategy. The proposed solution to this problem was the collaboration with Microsoft to link with the new Windows Phone operating system and Microsoft Marketplace. Sales of smartphones had already outnumbered sales of personal computers (PCs), and that shift has accelerated dramatically ever since. Microsoft faced its own challenges, since its revenues had largely been driven by its dominance of software and operating systems in the PC market, and the US giant needed to find a stronger foothold in the emerging smartphone market. Microsoft's Windows Phone operating system was adopted in new Nokia smartphones. This was seen as a technical solution to the need to innovate and as providing a way forward for the business and a smartphone applications ecosystem. The collaboration meant that innovation would be driven by combining expertise from Microsoft on the software platform side and from Nokia on the hardware side. The aim was not just to create new products (a new high-speed Windows phone, developed through this collaboration, was launched in 2012) but 311 PARTE EXTENDED CASES also to develop the system to a point at which completely innovative services, not ye even envisaged, could be invented and delivered. The collaboration was intended t provide a brand identity advantage, and this was thought to be important, particu larly as competition came from the highly branded Google and Apple. In addition Nokia Maps was to be used in Microsoft's Bing and Ad Centre, and Nokia's conten store integrated into the Microsoft Marketplace. The new feature phones would seel to get 'the next billion people to their first internet and application experience'. The aim was to achieve this by providing affordable mobiles in emerging markets tha. would incorporate QWERTY touch and type, a dual subscriber identity module (SIM facility, Nokia Maps, a browser, 'life tools', web applications and Microsoft Money The intention was also to provide business opportunities for developers. These invest ments were aimed principally at growth economies. Hence, the strategic intent was still to build a model to rival the growth of the iPhone and Android smartphone ecosystems. The strategy differed little from the original failed approach, aside from tackling the challenge with Microsoft and its Windows Phone 7 OS. Nokia still viewed itself as predominantly a mobile phone company. At the time of Nokia's strategic repositioning with Microsoft in 2011, there was a joint focus on collaboration and greater innovation, combined with significant cost cutting. Nokia was still holding on to the increasingly marginalised Symbian platform for non-smart phones, with a view to reaching emerging growth markets with price- competitive Nokia branded products. At the time, analysts were predicting cost cutting plans of 1 billion by 2013 and job-cut estimates from 4000 (Goodley, 2011a) to 6000 (Ward, 2011) staff. As it turned out, these estimated job losses were wildly optimistic. Ever since Elop was appointed, in 2010, there had been suspicion and specula- tion around his move from Microsoft. Some went so far as to suggest Elop was a "Trojan Horse' and that Microsoft planned to take Nokia over after Elop had paved the way. This was vociferously denied by Elop (Arthur, 2011c): "The Trojan horse theory has been well overplayed ... With a situation such as this there is a difficult balance to be struck between focusing on the medium and long term and "taking care of business", which has a short-term focus.' The news of the planned cost and job cuts led to share price increases, but these were short-lived. Speaking at the D9 conference, Elop said: 'My principal focus and the focus of the team is to take care of the short term but make sure that the execution is flawless' (Arthur, 2011c). However, this turned out to be a case of an overemphasis on the short-term 'problem', when more fundamental strategic changes were necessary. Although the charge was unfair, the fact that Nokia chose to hire a senior Microsoft executive to run the entire Nokia business does appear to show that it already saw Microsoft as a potential key player in its future. Nokia had already lost its competitive advantage and market share, and no longer had a sure competitive footing. Large proportions of Nokia's once massive customer base had already moved on and were in the orbit of the Apple or Google ecosystems, where their needs were being met and their wants were being shaped. Microsoft's OS, although in theory better placed to connect with Windows-based computers, was still 312 NOKIA unable to compete for significant market share. The consumer market had already been recast around the Apple and Google Android ecosystems. To put the competitive landscape into perspective, in 2011 the Windows Phone had a 0.42% of the mobile/ tablet OS market (total in usage) compared to Apple's 57% and Android's 18% (Netmarketshare, 2016). Windows Phone and Nokia were trying to challenge Apple and Google from effectively zero market share, whilst Google Android was continuing to take market share from Apple. Elop bet the bank on the joint development with Windows Phone 7 OS as the vehicle to drive a resurgence in Nokia's mobile phone sales. In 2012, Nokia incurred a loss before tax of $2.96 billion. Elop's Nokia-Microsoft alliance or 'Microkia' strategy was failing to deliver - its formulation had been flawed as well as its execution. Despite his talk of the importance of the short term, it was a medium-term strategy to win over a large market share with very little likelihood of success. In September 2013, Nokia announced that it had sold its mobile phone handset division to its partner Microsoft for $7.2 billion. The strategy to regain market share and return to profitability in smartphones had been abandoned. The Microsoft alliance did succeed in one respect - it secured a ready buyer for a fast exit. With the sale and restructure, Nokia managed to achieve a small profit before tax of $323 million. It was time for Nokia to rebuild. Whilst hindsight is 20/20, it can be seen that Nokia made a critical error in choosing to align with Microsoft and Windows Phone 7. Eric Schmidt, the CEO of Google, told a conference in 2011 how he tried hard to persuade Nokia to join the Android ecosystem and not Microsoft. 'We're sorry that they made a different choice. We certainly tried [to persuade them]' (Gilbert, 2011). Having a former senior Microsoft executive, Stephen Elop, as the Nokia CEO on the other side of the table may not have helped. By partnering with Google, Nokia may well have survived and rebuilt itself as a leading Android mobile phone brand, alongside Samsung and HTC. Instead, it was literally disconnected from the mobile phone market. Nokia had successfully reinvented and repositioned itself before. In 2013, Nokia chose to consolidate around its existing mobile networks business. Instead of com- peting with Apple, Google and others within the dominant smartphone ecosystems, Nokia focused on competing with Sweden's Ericsson and China's Huawei in the competitive market for major supply and install contracts for telecom network systems and equipment. In 2014, Nokia made a loss before tax of $315 million, but with an income tax benefit resulted in a $1.6 billion net profit (Amigobulls, 2016). In 2015, it reported a net before tax profit of approximately $1.7 billion and after-tax net profit of $1.3 billion Nokia's narrowed business focus saw it slide in the Global Fortune 500 rankings. From 2012 to 2014, Nokia's Global Fortune 500 ranking dropped from 174 to 392. In 2015, Nokia dropped off the Global Fortune 500 altogether for the first time since 1998, $6 billion in revenue short of making the list. In terms of market value, at its beak market capitalisation in 2000, Nokia was worth $222 billion (YCharts, 2016) - with the equity markets factoring in Nokia's leadership of the mobile phone wave. 313 PARTE EXTENDED CASES By July 2012, Nokia's market value was just $6.3 billion - with the markets account ing for its weak competitive position and the Microsoft alliance. Nokia's vision in 2015 was more constrained, a retreat from 'connecting people, and almost apologetic in some respects. Our vision is to expand the human possibilities of the connected world. We continue to reimagine how technology blends into our lives, working for us, discreetly yet magically in the background. Today, we're shaping a new revolution in how people, businesses, and services connect with each other, creating new opportunities for our customers, partners, and communities. (emphasis added] (Nokia, 2016) Discreetly yet magically in the background' - in other words, you can't see us anymore (we are no longer a consumer brand) but were still there adding value'. In keeping with its new vision, Nokia strengthened its competitive position in network services in 2016 through the $17.6 billion acquisition of a major global competitor, Alcatel/Lucent (Ewing, 2015). It also returned to profitability after an extended period of significant losses. It had managed to reach $32 billion market capitalisation and had a workforce of over 110000. Nokia has been a very impressive company developing market leading technolo- gies and products. It has survived for nearly 150 years by being good at large-scale change, entering growth markets, exiting declining ones, and building new compe- tencies. Nokia's progressive decline and exit from the mobile phone handset/OS industry was a spectacular corporate failure. After such devastating losses, it was not surprising that Nokia fell back on its existing network services business. Nokia itself remains a very large global corporation. Seeking out new growth markets was part of the old Nokia's DNA, but in 2016 Nokia had not yet made any moves in new directions. The $17.6 billion investment in Alcatel/Lucent has certainly raised the stakes. An inability to gain competitive advantage and scale in network services, and/ or a failure to find new markets and opportunities, may leave Nokia exposed again in future. It remains to be seen whether Nokia's new focused strategy and business model pays off in the medium term, and whether Nokia chooses to enter any new growth markets. References Amigobulls. (2016). Nokia Annual Income Statement (NYSE:NOK). Retrieved 28 September 2016 from http://amigobulls.com/stocks/NOK/income-statement/annual Arthur, C. (2011a, February 9). Nokia's chief executive to staff: 'We are standing on a burning platform'. Guardian. Retrieved 28 September 2016 from www.theguardian.com Arthur, C. (2011b, May 31). Nokia shares dive after sales warning. Guardian. Retrieved 28 September 2016 from www.guardian.co.uk Arthur, C. (2011c, June 2). Nokia chief denies Microsoft takeover. Guardian. Retrieved 28 September 2016 from www.guardian.co.uk 314 NOKIA Ewing, A. (2015, December 2). Nokia investors approve $17.6 billion purchase of Alcatel- Lucent. Retrieved 28 September 2016 from www.bloomberg.comews/articles/2015-12- 02okia-investors-approve-17-6-billion-purchase-of-alcatel-lucent Fortune. (2016). Fortune Global 500. Retrieved 26 September 2016 from http://fortune.com/ fortune 500) Gilbert, D. (2011, February 16). Schmidt says Nokia made wrong decision. Retrieved 26 September 2016 from www.trustedreviews.comews/Schmidt-Says-Nokia-Made-Wrong- Decision Goodley, S. (2011, February 9). Nokia to axe 4,000 jobs. Guardian. Retrieved 28 September 2016 from www.guardian.co.uk NetMarketShare. (2016). Mobile/Tablet Operating System Market Share. Retrieved 28 Sep- tember 2016 from www.netmarketshare.com Nokia. (2016). About Us. Retrieved 28 September 2016 from http://company.nokia.com/en/ about-us/our-company/our-vision Ward, A. (2011, February 14). Threat to 6,000 jobs following Nokia deal. Financial Times. Retrieved 28 September 2016 from www.ft.com Ycharts. (2016). Nokia market capitalisation. Retrieved 28 September 2016 from www.ycharts .com/companies/NOK/market_cap This case is from: Beech, N., MacIntosh, R., Krust, P., Kannan S., & Dadich A., (2017). Managing change: Enquiry and action. Cambridge University Press. 315