We didn't do anything wrong, but somehow, we lost."
- Stephan Elop, ex-CEO of Nokia
Once a booming company, Nokia is considered as an example of 'change management failure'. So, why did Nokia fail to implement and manage change? What caused Nokia to fall behind its competitors? Let's take a look.
Introduction to Nokia
Change is not a new thing for Finnish telecommunication giant Nokia. The company was founded in 1865 on the banks of the River Nokia, as a single paper mill operation and moved in different industrial sectors like rubber boots, cable, paper products, tires, televisions, and finally mobile phones. The company we see today that is focused on telecommunications began its journey in 1990.
The first GSM call was made in 1991 using Nokia equipment. By 1998, Nokia was the best-selling mobile phone brand in the world. In 2001, Nokia launched its first phone with a built-in camera, and by 2004, Nokia 3G phones could capture video, browse the web, download music, watch TV on the move, and more. In 2004 the Nokia corporation reduced the number of its business units to four. The change was made in a week. This was aimed at helping Nokia meet consumer needs.
The year 2007 can be termed as 'turning point' for Nokia. It is where its downfall began. No, it is not because Apple launched the iPhone, it is because the company recalled 46 million phones due to potentially faulty batteries. Nokia partnered with Microsoft in 2010 to compete with the iPhone but it did not claim Nokia its throne back. Finally, Microsoft bought Nokia's mobile manufacturing unit for £4.6 bn in 2013 just to sell it in 2016 to HMD and Foxconn.
With all these ups and downs, Nokia is far from a dead company. Nokia's phones returned to the market in 2016. Nokia is mainly concentrating its attention on telecommunication 5G equipment. In 2021, Nokia is hoping to expand its 5G network solutions in Europe and Western countries.
What is change management?
Strategic change is a change in a company's scope, resource planning, competitive advantages, and synergy. Changes can be incremental (gradual changes) or disruptive (sudden changes).
Change management is the process of managing responses to changes in the internal and external environment of a business.
It is the leadership's responsibility to lead the company into a changing phase. The organisational culture plays a crucial role in implementing change. It is imperative to say that it is not the organisation that changes but each employee in the organisation does. The vision and ability of leadership to make fast decisions help smoothen the transition.
The Nokia change management failure is a great example of what can happen if leadership resists change.
Analysis of key drivers of change for Nokia
In the case of Nokia, external influences forced the company to change. The telecommunication market was developing fast and Nokia failed to keep up with it.
The external influences of the industry included:
The competitive environment
Nokia ignored the threat posed by Apple when it launched the iPhone in 2007. The iPhone did not use a QWERTY keypad but the touchscreen. The iPhone had better software compared to Nokia.
Google introduced Android in 2008. Other major players like Samsung, Huawei, and Motorola jumped on it but Nokia ignored it. Nokia did not accept android but rather started developing the Symbian operating system.
First-mover advantage
First-mover advantage refers to the benefits enjoyed by the firm as a consequence of its early entry into a new market.
Nokia missed an opportunity to launch android phones and touch screen phones as well. This opportunity was captured by Apple when it launched a full touch screen iPhone.
Nokia change management failure
In the year 1998, Nokia was the largest cell phone maker and overtook Motorola. This move shocked many business gurus back then. So what happened if Nokia was the market leader? Nokia failed because it resisted the change. Nokia clung to its fundamental ways and did not change with market developments. The reasons for Nokia's change management failure are as follows (see Figure 1 below).
Not accepting Android: Nokia leadership did not see the android operating system as an advancement. They believed that customers prefer QWERTY keypad phones over touch screen phones. At the same time, companies like Samsung and Motorola launched Android-based, cheap, and user-friendly phones. With the launch of Android and iPhones, the demand for touch screen smartphones increased exponentially. Nokia realized their mistake and they introduced the Symbian operating system. Symbian was inferior when launched compared to Android. By then, Samsung and Apple had made a strong impact on the smartphone market.
Shaking hands with Microsoft: Microsoft partnered with Nokia to launch Windows phones when Microsoft itself was making losses. In this case, two negatives did not make a positive. Windows phones were not successful because there was nothing new for customers to switch from their old phones. The lack of innovative features made the windows phone a failure. Nokia was on brink of bankruptcy due to huge losses. On the other hand, Apple and Samsung were innovating, launching new product lines, and taking over different markets.
Failed umbrella marketing strategy: Another factor that contributed to the downfall was the wrong marketing strategy.
Umbrella branding can be defined as when a company sells different products under the same brand name.
Samsung 'Galaxy' series is one such example of Umbrella branding. Nokia tried to do the same under the 'Lumia' series of phones but as there was no uniqueness as compared to its competitors, the Lumia series could not fetch any success for Nokia. Nokia faced problems with branding and distribution that led to practically no sales for Nokia mobile phones.
Not working enough on software: Anyone who has used Nokia phones will surely vouch for the sturdy hardware of the Nokia phone. But when it comes to software, Nokia has taken a back seat. Nokia did not try to change software innovatively and quickly enough, giving other major players an upper hand in business. Android had already gone through some iterations when the first version of Symbian was launched. Employees knew Symbian would take years to catch up with Android. Employees did not convey actual problems to management because they thought their efforts would go in vain and rigid management would not heed to it.
Nokia thought they were too big to fail: Nokia enjoyed customer loyalty when it was at its peak of success and believed it would still be the favorite option of mobile phone buyers. This did not happen (even when Nokia finally accepted Android). Nokia is still struggling to improve the software at its core.
Not innovating enough: Apple and Samsung launch at least one flagship phone every year with some innovative advancements. Nokia is far too behind to catch up.
Dysfunctional organisation: Nokia opted to be a matrix structured organization in 2004. It caused many conflicts as many managers had equal power. It led to the power struggle in some departments and complete dysfunction in others. Some executives left Nokia and many workers lost trust in management. Employees became insecure regarding their jobs and started to hide facts. Many employees knew Symbian was way behind the Android but engineers did not tell the truth to the higher management believing that it is of no use. The tagline of Nokia is 'Connecting people' but during those days it seems like employees failed to connect with each other.
Studying Nokia change management failures has helped many companies to avoid pitfalls. We can apply change management models and processes to understand what Nokia did wrong when external factors forced Nokia to change.
Change management Nokia example: Lewin's force field analysis
Kurt Lewin proposed a model, the Force Field Analysis, which provides an overview of the different factors and issues that influence change within an organization. If influencing and restraining forces are equal, then the organization is said to be in equilibrium. The state of equilibrium should be disturbed in order to bring out the change. If the analysis indicates that forces are unbalanced, then the organization should change itself.
Lewin's force field analysis is done to check whether Nokia should or should not have changed their business practices immediately in 2008 when Android was launched.
For scoring, we are using a Likert scale (1 = Weak, 5 = Strong). The forces are rated according to their influence on the company:
Forces for change | score | Forces against change | score |
A volatile market (Android, iPhone) | 5 | Commitment towards existing stakeholders | 2 |
Disruptive technologies (touch screen) | 5 | Existing customer base who preferred QWERTY over the touch screen | 3 |
Changing trends (software-centric) | 4 | Current strong market position | 4 |
Declining team morale (Fear-driven work culture) | 3 | Resistance due to company politics | 4 |
Increase profitability | 3 | Existing organizational structures | 4 |
Total | 20 | | 17 |
Table 1 - Lewin's Force Field Analysis Example for Nokia
The analysis shows that Nokia should have changed its strategy in 2008. The Nokia change failure cost Nokia its mobile phone business. The organizational culture was also toxic at that time. Leadership did not provide a way to pass information and communicate effectively among the organisation.
As change often comes with an attitude of resistance, Nokia faced resistance at every level of management.
Fear of the unknown: The leadership was not transparent about the vision or goals they wanted to achieve. This instilled the fear of the unknown in their employees.
Misunderstanding: No proper communication channels caused inter-departmental misunderstandings.
Organisational politics and self-interest: There was always a struggle for power in the organisation. Many either resisted the change to prove the decision 'wrong' or to hold their power longer.
Nokia change management plan
In order to change quickly according to internal or external influences, organizations have to be flexible. Nokia should have embraced the characteristics of a flexible organization and made a change management plan considering the characteristics of a flexible organization.
Figure 2 shows the characteristics of a flexible organisation.
A flexible workforce: this makes it easy to increase or decrease the workforce efficiently and quickly.
Information management: information management systems help share knowledge quickly at scale within the organization.
Research market trends: analyzing and predicting the market would have helped Nokia make the right decisions on time
Internal analysis: Nokia should have conducted a deep SWOT analysis. This would have made them aware of potential pitfalls.
Once Nokia becomes a flexible organization, it can overcome resistance by using a strategy based on Kotter and Schlesinger's Overcoming Resistance to Change Model. The model includes six ways for managing resistance:
Education: Nokia informs employees about changing processes by communicating effectively.
Participation: Nokia gives resisting employees a chance to speak their minds, get their inputs to develop new processes.
Facilitation: Nokia supports employees during the time of change.
Negotiation: Nokia compromises to make some changes rather than not addressing it with their employees.
Manipulation: In manipulation, employees are offered rewards to change. Nokia could have done that to make changes quicker.
Coercion: When other methods are not viable, Nokia has no choice but to transfer, terminate, or promote employees.
With all the above considerations, Nokia's change management plan might have worked better.
We have discussed what happened with Nokia in the past. But what is Nokia doing after the takeover by HMD and Foxconn? Will Nokia's change management plan be successful under the new leadership of CEO Pekka Lundmark? As per the report released by Nokia in March 2021, Nokia has announced plans to reduce costs and invest them back into R&D. The future areas of focus will be 5G, cloud, and digital infrastructure.
The mobile network business group aims to top in wireless mobile networks and associated services. Nokia owns many patents related to 5G standards. In October 2020, Nokia's research arm, Bell Labs, recorded a $14 million contract from NASA to install the first 4G network on the moon. The opportunities look promising for Nokia. However, Nokia will only be able to conquer this quest if it implements a change management plan successfully.
Nokia Change Management - Key takeaways
- Nokia ignored Apple as a potential competitor in the mobile market.
- Nokia took a steady approach towards innovation while other competitors were fierce in bringing out new technologies.
- Nokia did not accept Android.
- Nokia invested a lot of resources in developing the Symbian operating system, which was lacking when compared to Android and iOS (Apple).
- Nokia's work culture was toxic. Employees were always under the fear of losing their jobs.
- The untimely partnership with Microsoft did not work for any side.
- The higher management of Nokia thought Nokia was too big to fail.
- Nokia overestimated brand value and customer loyalty.
- Nokia had good hardware but the lack of efficient software cost Nokia its market position.
- Nokia resisted change due to rigid organizational structure, internal politics, and the power struggle between managers.
Sources:
1. Lieberman, Marvin (2016). First mover advantage. 10.1057/978-1-349-94848-2_602-1.
2. Hofer, GW & Schendel, DE Strategy Formulation: Analytical Concepts, St. Paul, MN: West Pub. Inc., 1978.
3. Kotter, JP, & Schlesinger, LA (1979). Choosing strategies for change.
4. eWeek, https://www.eweek.com/mobile/10-reasons-microsoft-s-mobile-business-has-failed-to-take-off/
5. Satellite Today, https://www.satellitetoday.com/telecom/2021/01/04/bringing-lte-to-the-moon-nokia-exec-talks-nasa-tipping-point-contract/
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