Business Report

Nokia's Stephen Elop Speaks

The Finnish phone giant fell behind the smart-phone wave. Now it is seeking a comeback.

A little more than a year ago, Microsoft veteran Stephen Elop agreed to become CEO of Nokia, the world’s largest maker of mobile handsets. Elop’s job at the Finnish cell-phone company was to stop a dangerous slide in mobile-phone sales.

Mobile plan: Nokia CEO Stephen Elop unveiled phones using Microsoft software in October.

Elop, a Canadian who is the first non-Finn to head Nokia, studied the company and the mobile-phone market and quickly concluded that the situation was dire. In a remarkable parable e-mailed to Nokia’s employees in February, he described an oil worker on a burning platform who had to decide whether to be consumed by the flames or leap into the “dark, cold, foreboding Atlantic waters.” The man, said Elop, was Nokia.

The fire had been set mostly by Apple, a company that Elop said had “disrupted the market by redefining the smartphone.” Nokia had practically invented the category, but Apple wasn’t selling just handsets. It had created an entire ecosystem of developers, apps, and revenue tied to its phone operating system, and that ecosystem was making Nokia’s offerings irrelevant.  

Elop decided to jump. The CEO announced that Nokia would wind down development of its own phone operating systems and join forces with Microsoft to build a competing mobile ecosystem around Windows Phone software. Less than eight months later—earlier than expected—Nokia unveiled two Windows phones, the Lumia 710 and 800. This week Nokia announced it would start selling the Lumia 710 in the United States come January. 

Reporter William Bulkeley interviewed Elop via e-mail about his strategy for fixing Nokia’s problems.

TR: In your “burning platform” memo, you asked: “Why did we fall behind when the world around us evolved?” Over the last year, have you developed a different understanding of why Nokia fell behind?

Elop: Well, it’s now been a little over a year, in fact, and I’ve had a good chance to get to know the company and visit many sites. I wouldn’t say I’ve developed a different understanding; I’ve certainly developed a deeper one.

To outsiders, Nokia was a company that was having a rough spell—changing the CEO is rarely a sign that everything is running smoothly—but it also had a commanding share of the smart-phone market and led the industry in terms of volume of phones sold.

When I started I found pockets of brilliance, plus numerous unpolished gems, that together were clear proof of why, and how, Nokia had been able to lead the mobile industry for the past 12-odd years. But I also found many, many frustrated people who had seen Nokia get bogged down by layers and layers of management, committees, and supervisory committees, plus all the other potentially fatal diseases that can beset successful companies.

Most critically, however, the world—the context for our industry—had undergone a remarkable shift from a battle of devices to a war of ecosystems, and it became clear that big changes were needed to compete more effectively in the future. It’s a testament to the work of thousands of determined, driven Nokia people that we were able to go from new strategy to new devices in just eight months.

Nokia delivered its Windows phones ahead of schedule. What have you learned about speeding the pace of innovation at such a large company? What is the most difficult aspect of transforming a company?

What has been crucial in 2011 is the growing change in Nokia’s internal culture. We have focused on three significant changes of attitude, [emphasizing] urgency, accountability, and empathy—ensuring that we are better connected to consumer, supplier, and operator requirements and able to anticipate what they might need in the future.

Nokia is a company that has ‘shed its skin’ many times during its 146-year history, and it has a proven track record of innovation, so we did not start this change process from scratch. But it’s important to stress here that our journey is just getting under way, and the phone launches were the first fruit of our strategy. We have more work to do to instill a true challenger mind-set throughout the company.

Nokia still has a dominant share in lower-end phones sold in large volumes in developing countries. What is the technology trajectory you see in those regions?

I’d be cautious in lumping together trends in, say, Africa with those seen in Asia, as there are naturally differences market by market. That said, what we are clearly seeing is that the lines between a smart phone and a feature phone are blurring; people, regardless of where they are based, want to do more with their phones.

Individuals in fast-growing markets have the same aspirations for usage as their counterparts in developed markets but may have limited economic means. Thus, the secret here will be to deliver on as many of those aspirations as possible in creative ways at lower price points. At Nokia World we launched the Asha line of mobile phones, offering consumers features like touch screens, QWERTY keyboards, and games like Angry Birds—the same ones you see in developed markets.

We feel very good about our prospects in developing markets. We have a strong offering of devices and a brand that is trusted by hundreds of millions of consumers. We are strongly committed to connecting the next billion to the Internet, and this is one of the main pillars of our strategy.

Starter phone: The Lumia 710 will go on sale in January in the U.S. for $49.99. Nokia has lost nearly all its American smart-phone business to Apple and other competitors.

You’ve described a war between ecosystems. What is the single most important technology, or user experience, that will decide the winners?

I don’t think it will be one single element, but rather the key will be the depth of integration between different elements. The first-level ecosystem experience has been characterized by a static collection of app icons on a fixed grid. What we like about Windows Phone is the smooth integration of things like social networking throughout the whole experience. While we know that there are many different components to an ecosystem, the seams between the components should be less and less obvious to consumers.

The history of corporate leaders surviving disruptive innovation is discouraging (Kodak, RCA, Compaq, Sears). Were there historical precedents that inspired you, such as Lou Gerstner at IBM?

I think there are many great cases of companies that have prospered through disruptive times. In the tech field, IBM is a great example where significant changes in strategy combined with a commitment to ongoing transformation can produce strong results.

As I mentioned above, Nokia has a storied history and a knack for reinventing itself. It’s embedded in our DNA.

What did you see Microsoft do wrong in your tenure there that you are committed to having Nokia avoid?

I think looking at what Microsoft does right is more instructive: for example, an absolute commitment to a strategy to see it through, adjusting as one goes. The word “tenacity” is used a lot at Microsoft, and that is how one must approach significant strategy changes.

When will you know your strategy was right? What metrics will show you?

Well, as I said earlier, we are now starting to see the first fruits of our strategy, and that’s encouraging. But this is the first step in a long journey for us. Clearly, we are aiming to win back market share in smart phones and bolster our position in mobile phones. Nokia also needs to adapt a challenger mentality. We must never get to the point where we say, “Okay, we’re done.”

I think the same is true with strategies—you always have to ask yourself if your chosen path is the right one. The mobile market has shown it can change quickly and radically, so we have to always track our strategy with the reality of the industry and make the adjustments—large or small—as necessary.

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