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Case Study 4: The Collapse of Nokia’s Mobile Phone Business: Wisdom and
Stupidity in Strategic Decision-making

Chapter · January 2019

DOI: 10.1007/978-3-319-91719-1_6

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 6
Case Study 4: The Collapse of Nokia’s
Mobile Phone Business

From: Peltonen, Tuomo (2018). Towards Wise Management: Wisdom and

Stupidity in Strategic Decision-making. Springer.

Nokia’s loss of dominance in the mobile market after 2007 is one of the
most significant failures in modern business history. For Finland, this was
an economic catastrophe, when the largest company in the country lost
grip on its core business. In 2007, Nokia’s mobile division was the leading
mobile device manufacturer in the world, with a market share of about
40% (Cord, 2014). In 2011, its market share was only 25%, and the
company started software collaboration with Microsoft. In 2013, it was
announced that Nokia would be selling its entire mobile business to
Microsoft. By this stage, the company’s market share was only 14%. By
2015, the market share was a measly 1%. Microsoft, in turn, announced
in spring 2016 that it will stop manufacturing mobiles it inherited from
Nokia. Practically speaking, the company’s mobile phone business
crashed from the top position in the world to complete extinction within
about eight years.
A lot has been written about Nokia’s hardship and ruin. People are pas-
sionate about this topic, particularly in Finland: after all, this company
was the country’s first real world-class business, which at one point had
the highest market value among European corporations. The descriptions
of Nokia’s failures are often ideologically charged and tainted. As
Professors Eero Vaara and Juha-Antti Lamberg (Laamanen, Lamberg, &

© The Author(s) 2019 163

T. Peltonen, Towards Wise Management,
https://doi.org/10.1007/978-3-319-91719-1_6
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 164

Vaara, 2016) have persuasively demonstrated in their recent study, inter-

pretations regarding Nokia have been turned upside down as triumph has
turned to disaster. The same company which was idealised as having
exemplary management started to look like a textbook case of failed strat-
egies, as soon as the difficulties started. It is tempting to interpret every-
thing related to a company through a positive frame of reference when it is
experiencing financial success, while a fault-finding perspective
promptly takes centre stage as soon as problems start to pile up (cf. March &
Sutton, 1997). Such polarisation of the representations of organisa-
tional and managerial competence can obscure a more impartial under-
standing of the actual structures and processes within corporate entities.
Bearing that caveat in mind, this section aims to use the source mate- rial
available about Nokia advisedly. There are so many different types of
people and stakeholders around the company that it is somewhat impos-
sible to try and uncover the overall picture of the decisions and solutions
that led to the downward spiral using traditional interview methods.
Each actor has its own story. And each of these in turn often coalesces
into attempts to rationalise, legitimise and sugar-coat the story-teller’s
own solutions. In this book, the case of Nokia is analysed mainly on the
basis of the executive biographies (Alahuhta, 2015; Ollila & Saukkomaa,
2013; Palmu-Joroinen, 2009) and interviews (Heikkinen, 2010) as well as
historical overviews, newspaper articles and reference books about the
company (Cord, 2014; Häikiö, 2009; Linden, 2015; Nykänen &
Salminen, 2014). However, the interpretation or “reading” provided in
this book in respect to the processes related to the collapse of Nokia’s
mobile business does not attempt to become the exclusive truth about
controversial processes and events; instead, it is offered as one narrative
among others. The focus is, again, on the dynamics between different
levels of wisdom in organisational action and decision-making.
Nokia’s situation around the year 2008 could simply be described by
stating that there was a paradigmatic change under way in the mobile
business. The company had been successful by making reliable, techno-
logically advanced phones cost-efficiently. Nokia was strong particularly in
Europe and in developing countries. However, a significant thing hap-
pened in 2007; Apple launched the iPhone. This model was completely
different from any other product on the market at the time. It had a
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 165

touch-screen and only one function key. The phone was simple to use,
and aesthetically unique. Apple was able to offer a large amount of apps.
Another front also opened up in 2007: the search engine Google pre-
sented their own operating system, Android, designed for smartphones.
The Android system was open; that is, all mobile manufacturers were able
to use it, regardless of their particular software resources. The appearance
of Apple and Android on the mobile market meant that companies that
were previously developing computers and internet services broke into an
arena dominated by mobile device manufacturers. With Steve Jobs at the
helm, Apple had brought home computers within everyone’s reach, and
had recently also expanded into music distribution through the iPod
device and the iTunes online service. Google, in turn, had become the
king of internet search engines.
Nokia’s mobiles were reliable, and always advanced technologically, but
now they looked pitifully old-fashioned, with their clumsy user inter-
faces and limited range of services. A Nokia mobile was durable, but
cumbersome. On the other hand, Apple’s iPhone was a beautiful trendy
product, which was easy to use and whose touch-screen offered many
innovative ways to use the phone; for example, for gaming. The Android
OS provided a strong basis for new smartphones, while the capacity of
Nokia’s own Symbian was starting to reach its limits in its current format
(Cord, 2014).
Nokia was unable to respond to iPhone’s challenge. It started losing
market share. The selected operating system, Windows, was not as intui-
tive as iOS, which Apple had been developing for computers for a long
time. In principle, however, Nokia had every opportunity to accept the
challenge of its new competitors. The company had an extensive product
development organisation and a stable financial situation. It had already
started developing a touch-screen in 2004. The technical features of the
iPhone were not considerably more advanced than those of their com-
petitors. Nokia had also been aware for a long time that the Symbian
operating system was coming to an end, and the company had been
designing a new, substitute software platform for some time (Cord,
2014).
From the perspective of traditional situational management theory,
Nokia’s technological operating environment was going through a sudden
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 166

change, which should have denoted an attempt to achieve greater flexibil-

ity in the operating method and form of organisation. In the case of a
stable operating environment, a company can be successful with a hierar-
chical organisational structure, which functions predictably and effi-
ciently. In turn, in a turbulent situation, an organisation should break
rigid rules and the barriers between different departments and levels of
hierarchy, and aim towards unprejudiced interaction (Donaldson, 2001).
However, this did not happen. Nokia had become a faceless machine,
with information not flowing freely inside it and it therefore wasted
energy on slow decision-making and the wariness of middle management
(Cord, 2014; Heikkinen, 2010; Nykänen & Salminen, 2014).
This explanation, which sounds credible in itself, is not surprising.
Large corporations can easily transform into bureaucratic mammoths,
which can be toppled during an extensive technological or market break-
through due their inability to adapt to the changed situation. Financially
successful companies in particular can easily sink into dangerous compla-
cency. Nevertheless, the bureaucratisation and expansion of an organisa-
tion does not explain why in Nokia’s case it became the fate of the
company. There are also many examples in economic histories where cor-
porations have been able to save their skin and invent new products or
services, or in some cases even focus their business operations on com-
pletely new fields as old opportunities become obsolete. For example, the
computer manufacturer IBM sold its device production unit and focused
instead on services and software business. Previously known as the world’s
most powerful computer manufacturer, the company took a successful
leap into a new life (Agarwal & Helfat, 2009).
On the other hand, Nokia’s extended story could be interpreted as
renewal. As the mobile business collapsed, the company still had the field
of e-commerce, which was first expanded through collaboration with
Siemens and later through the acquisition of Lucent. Perhaps, in its own
way, Nokia returned to its roots as an industrial company, when it con-
tinued business operations in the field of phone network technology.
Recent years have shown that network business was the right choice: the
mobile departments sold to Microsoft were not viable, and the mobile
industry has otherwise shown signs of saturation. Nokia’s background as
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 167

an engineer-driven company manufacturing industrial products seems to

be suitable for the regularities in the information network business.
However, the crash of the mobile business was a clear failure. If we
wish to explain that, we have to look for such factors and backgrounds
that are related to Nokia’s special characteristics: its history, culture and
leadership. These will enable us to better understand Nokia’s story and its
unique dynamic. By addressing the company’s own special background,
we can also avoid the generalising and popularising explanations that
have been offered by previous observers.

6.1 Nokia’s Story

In the 1980s, Nokia was a conglomerate that aimed to internationalise
and become independent from Finland’s closed economic system. Kari
Kairamo, the charismatic CEO of the company, envisioned an interna-
tional or even global future for the company. At the time, the Finnish
economy was dominated by large companies in the paper industry and
profitable projects related to Soviet trade, and like continental Europe,
commercial banks were in control of industry (Häikiö, 2009).
Nokia attempted to detach itself from the Finnish economic system. It was
aiming towards the West, and away from the control of the big banks.
Kairamo had acquired consumer electronics businesses in Europe. At the
same time, the company was still manufacturing rubber boots and tissue
paper. Nokia had recruited a group of young, internationally minded tal-
ent, and it was considered to have a different spirit than many other large
corporations of its time. One of the recruits was Jorma Ollila, who was
hired as the Finance Manager.
Kari Kairamo was an energetic executive who enjoyed being in the
public eye. He also had a nationwide impact, and was active in the politi-
cal sphere. However, in 1988, Nokia’s pace slumped. Showy business
acquisitions were a strain on the balance sheet. Stocks dropped by 40%.
Large banks were no longer satisfied with Kairamo’s management style.
Media publicity had also turned against the company, as the former
favourite of economic press was now branded a rabid adventurer.
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 168

Kari Kairamo had been experiencing mental health problems. In 1988, the
situation started to become unbearable for him. In spring, Timo
H. Koski, a gifted manager and a close colleague of Kairamo, dies of a
brain haemorrhage at a mere 40 years of age. The CEO Kairamo becomes
depressed and ultimately commits suicide in December 1988. At first,
the company refers to it as a seizure, but Helsingin Sanomat later reveals—
for the first time in the Finnish journalistic circles—that the cause of
Kairmo’s death was suicide.
The coming few years are confusing for the company. There is a power
struggle among the top management, and the burden of debt is a strain
on the finances. There are dramatic changes in the environment: the Cold
War ends and trade with the Soviet bloc crashes. Finland ends up in a
recession. Finally, the company’s management is rearranged. Jorma Ollila
from the younger generation is selected as the CEO, supported by
Casimir Ehrnrooth, who becomes the Chairman of the Board.
Nokia had been developing mobile phones already in the 1980s. Now,
these became the main field of business the company started to focus
on. Other business operations were gradually sold off. Ollila sur- rounds
himself with intelligent and ambitious professionals from the same age
bracket. The company clearly turns towards the Anglo- American
business model, where business operations are carried out on the terms of
the owners and investors. The mobile market is growing rapidly, and
Nokia’s previous development work, and the pioneering role of the
Nordic countries in the emerging mobile phone technology, is starting to
bear fruit.
Nokia rises from the bottom: in 1992, the earnings increase by 385%
compared to the previous year, and a staggering 510% in 1993 (Häikiö,
2009). Soon, it is competing for the position of market leader. However, in
1995, the expansion of production is halted by quality and logistics
problems. The company’s shares drop by 50% between 1995 and 1996.
The young generation of executives experiences their first serious crisis
(Ollila & Saukkomaa, 2013). Consequently, the organisation is trimmed
down to a more efficient and more uniform whole. The monitoring of
lower-level operations was made more efficient, and sales forecasts were
compiled more carefully than before (Häikiö, 2009; Ollila & Saukkomaa,
2013; 321–2).
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 169

Nokia achieves market leadership in the mobile phones in 1998. Its

efficient internal monitoring and supervision organisation helps to over-
come the 2001 regression (Alahuhta, 2015; 112–5). The company man-
ufactures a growing number of different models cost-efficiently based on a
similar technology (Ollila & Saukkomaa, 2013). Nokia maintains
about a 30–40% slice of the global market. Its portion of Finland’s GDP
in the 2000s is around 3–4% (Ollila & Saukkomaa, 2013). It seems that
nothing could threaten the leading status of the company.
In 2006, Ollila becomes a full-time Chairman of the Board, and Olli-
Pekka Kallasvuo takes the helm as the new CEO. Ollila has been working
as Nokia’s Chairman of the Board already since 1999, alongside his oper-
ational role. Ollila is one of the most influential people in Finland, and
an internationally renowned business executive. He becomes the
Chairman of the Board at Shell. In 2006, there are rumours that Ollila
had been approached to consider becoming a presidential candidate for
the coming Finnish elections.
In 2007, Apple presents the iPhone. Nokia’s managers belittle this
novelty product. In the same year, Google starts development work on
Android. In 2010, the difficulties in responding to the challenge of new
competitors and product concepts start to become apparent. Nokia’s
market share drops, and the profit rate is getting weaker. Stephen Elop is
appointed as the new CEO. The company starts its first large-scale redun-
dancies in 2011. Personnel layoffs continue almost without break until,
finally, the new owner of the mobile business, Microsoft, stops produc-
tion in 2016. Around the same time, Finland sinks into a long regression
during the aftermath of the global financial crisis. Nokia only retains its
network business.
Some interesting conclusions can be drawn from Nokia’s story. To
begin with, the company has been through several crises, but has survived
from the predicaments by carrying out radical structural updates. The
crisis in the late 1980s/early 1990s led to a generational change in the
corporate management. The old national industrial generation gave way
to a cohort of internationally oriented strategic, finance and marketing
experts. Kari Kairamo’s colourful persona, with attempts at a wide-
ranging societal influence, was replaced by Jorma Ollila and the unas-
suming professionalism of his team. The change was fast. Kairamo’s
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 170

suicide was a warning example to the younger generation about what

could happen if a person does not approach the management of a com-
pany in a professionally detached way. Kairamo was an artist in the cor-
porate world, who burned himself out as problems started to pile up
(Ollila & Saukkomaa, 2013). The new generation had reservations about
spontaneous leadership and publicity operations. The confusing manage-
ment structure after Kairamo’s death and the related power struggle
between groups inside and outside of the company also made its mark on
the executives as warning examples.
The younger generation of executives went through their own “Winter
War” during the logistics crisis of 1995–1996. Their reaction adhered to
the teachings of the 1980s trauma: the company had to be careful with
their growth estimates and focus on ensuring internal efficiency and con-
trol. Problems were caused by poor monitoring and planning, they con-
cluded. Nokia also became more distrustful regarding external
stakeholders, particularly the subcontractors that seemed to have betrayed
the company in 1995 (Häikiö, 2009). There was also an attempt to take
better control over investor publicity. This was a revolutionary experience
for the new executive generation. In Jorma Ollila’s words, “[W]e did not
want to end up in a similar nightmare like in 1995 ever again. … I was a
bit paranoid about this, and I didn’t want to leave any room for bad luck”
(Ollila & Saukkomaa, 2013; 322).
Nokia’s rationalised management methods and mechanistic form of
organisation produced excellent results for a long time. There were no
revolutionary innovations on the mobile market; instead, phone features
expanded gradually, giving Nokia the opportunity to manufacture large
volumes of products tailored for different customers and markets, using
what was essentially the same technological-software template. The com-
pany’s phones were reliable, technologically strong and effortless devices.
After the experience of the 1995 crisis, Nokia’s organisational psyche had
shaped into a model emphasising internal efficiency. In later years, when
the company expanded, it continued on the course of a risk-averse culture.
Now, the organisation just had many new sections and levels, each
trying to avoid risks and ensure sufficient viability in any situation. This
takes us to the twenty-first-century Nokia prevalent in the critical
writings published in recent years (Cord, 2014; Nykänen & Salminen,
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 171

2014): a rigid, finance-oriented consensus system, with the main focus

on avoiding mistakes. After 1996, the visionary aspect was replaced by
verification or audit culture, which was led by finance- and calculation-
oriented people. The engineers’ creative ideas were buried under a multi-
layered bureaucracy, which was apparently intended to ensure that all
operations would be tied to the rest, proving to be sensible with regard to
long-term performance. Recent academic research on Nokia has also
highlighted an atmosphere of fear (Vuori & Huy, 2016), as well as cling-
ing to distinctive internal jargon (Brannen & Doz, 2012) as a path to a
culture of control to avoid mistakes that had developed within the
company.
Experiences of working with Nokia confirm the image described
above. In academic circles, it was known that the company tightly
upholds its organisational privacy. Anyone collaborating with Nokia had
to sign strongly worded non-disclosure agreements (NDAs). When I was
conducting interviews in one of the departments of the company, many
interviewees wanted to know what the study was being conducted for
and what my background was. Mistrust regarding an unannounced “out-
sider” researcher was palpable. By comparison, in another company,
where I also conducted interviews, the reception was sympathetic and
friendly. Word spread throughout the community about the young
researcher making interviews, and soon many were eager to tell their own
story. At the end, I was even approached for advice on developing foreign
operations.

6.2 Jorma Ollila’s Story

CEO Jorma Ollila’s autobiography presents a parallel view of Nokia’s
culture. If the new generation of managers wanted to distance itself from
the fast-paced adventurous mentality of the 1980s, Ollila’s personal jux-
tapositions also contain interesting hints regarding those underlying fac-
tors which helped to develop the company’s culture in a rationalist
direction. In particular, in a few parts of his autobiography, Ollila men-
tions how several key figures related to Nokia’s rise were from Western
Finland or Ostrobothnia (Ollila & Saukkomaa, 2013; 131, 187–8).
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 172

Ollila himself hailed from Southern Ostrobothnia. He combines the

usual stereotypes associated with Western Finland, such as inwardness
and rational contemplation. Heading East, there is an emphasis on
openness and intuitive spontaneity. Whether this distinction based on
regional tribes is truly accurate is irrelevant in this context. What is
important is that Ollila includes this distinction, with the aim of using it
to describe the characteristics of Nokia’s culture.
According to this juxtaposition, Nokia would be a touch more reserved and
intellectually oriented than the average “corporate citizen”. A middle- class
background and entrepreneurial home are also described in Ollila’s
analysis. Elsewhere, he admits to being a person who gets things done,
not an actual political figurehead or an academic analyst. In other words, it
seems that Nokia is a community of professionals who are slightly
introverted, interested in scientific contemplation and solidly middle
class. Not, therefore, a business run by visionary leaders like Kairamo,
but neither a free brainstorming group of reflexive thinkers.
Indeed, since the 1990s, Nokia became specifically personified in Ollila. His
persona and experiential background played their role in shaping Nokia’s
culture, although the effect of a single individual regarding the construction of
the values and beliefs of a large organisation is always limited. Published in
2013 and edited by Harri Saukkomaa, there are fascinating distinctions and
notions in Ollila’s autobiography. The book has been recently published in
English (Ollila & Saukkomaa, 2016). The generational gap and the sig-
nificance of regional cultural differences have already been mentioned.
Furthermore, Ollila highlights his opinion of himself as a person who gets
things done, which in turn is distinct from two other types: those who
use power, and social people. In his book, Ollila has a rather neutral tone
regarding the characteristics of those people who use power, but he
describes people who enjoy social situations to a greater extent (Ollila &
Saukkomaa, 2013; 87). They are the type of people who enjoy socialising
more than results. Ollila clearly alludes to socially oriented people being
morally lazier and perhaps inferior to people who get things done or even
those in power. He mentions “with all due respect” that the people from
the Mediterranean region belong to this category. Ollila’s views are obvi-
ously based on Protestant ethics stemming from the Nordic Lutheran
tradition (Weber, 1976), where it is believed that salvation is guaranteed
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 173

by hard work and frugality. The reliability and goal orientation that is
characteristic of Finnish culture is mixed into this secularised eschatology
(Kortteinen, 1992). Life is a series of projects that are overcome by hard
work and honesty. The comfortable enjoyment of life and other people is
immoral.
In the description of his childhood and youth, Ollila’s memoirs also
emphasise performance and hard work. For socially oriented people, the
natural enjoyment of leisure time and creative idleness were reprehensible
in the Ostrobothnia of his childhood. “You had to work hard if you
wanted to have a successful life” (Ollila & Saukkomaa, 2013; 25). Ollila
also mentions significant things about his childhood home. His parents
had not graduated from university, which is why a lot was expected of the
children. It was particularly important to do well in school. At home, the
power of systematic intellectual preparation was also emphasised: every-
thing would be possible as long as you “research, study, and do things
properly” (p. 37). Hard work and obtaining intellectual control over new
situations were the keys to success in a modern world. Ollila admits that
he is weaker at improvising, for example. Neither was there a significant
collection of fiction in his childhood home. Hardly any emotions were
expressed.
Occasionally, the analyses construed by Ollila are contradictory.
Although he admits in many places that he considered the best option for
himself to be to build a career as a bank employee working for Citibank,
previous stages both as a grad student at London School of Economics
and as a student politician seem to follow the chosen path of business life
as a kind of a “shadow”. At times, Ollila wonders whether he would now
be a professor of political economy at a foreign university if he had con-
tinued with his thesis in London. On the other hand, he notes that the
slowness of an academic career could have been a dangerous path for his
performance-oriented nature. Likewise, when addressing the option of a
political career in his biography, Ollila often ponders how he did not feel
he could adapt to the constant publicity and election campaigns that are a
part of a politician’s life. However, among other things, he paints the
job offer he received from the think tank Elinkeinoelämän Valtuuskunta
(EVA) in 1984 in relatively positive colours. Keeping an eye on social
issues and politics interested him also during the Nokia years.
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 174

Likewise, his views and experiences regarding Kari Kairamo are fasci-
natingly charged. Ollila writes how he had turned down other offers
besides EVA while he was considering his career options after Citibank.
However, it was specifically Kairamo who contacted him and convinced
him of the dynamic nature of the company and its CEO. The interna-
tionally oriented corporate culture created by Kairamo, which seemed
independent in the context of 1980s Finland, suited Ollila’s own tenden-
cies and operating style. He chose Nokia and Kairamo. On the other
hand, Kairamo’s fast-paced and publicity-oriented leadership is used as a
warning example of a distorted business management mentality. Ollila
even goes so far to say that in his opinion, Kairamo may have been a great
president or a director of an international institution, but at the same
time, “he was nevertheless no business manager or industrialist” (Ollila &
Saukkomaa, 2013; 119).
It is possible that the significances and analyses highlighted by Ollila are
contemplations that were included in the biography only by chance. On
the other hand, they tell us in their own way about the internal ten- sions
related to his story. Social influence and a career as a politician or
statesman was left to one side, but the monitoring of wider social issues
continued throughout his career at Nokia. Academic studies in the field
of economics were interrupted when the opportunity arose first to work in
international banking and then at Nokia. At the same time, however,
Ollila contemplates how he could have become a professor of political
economy if things had turned out differently. Ollila’s old schoolmates,
Seppo Honkapohja and Pentti Kouri, also appear in the narrative, both
of who became political economists. He also mentions many other for-
mer fellow students who continued on an academic career path.
The identities of politician and scientist seem to be the Others in Ollila’s
story—parallel roles which negatively determine the chosen path towards
becoming an executive of a large company. This could be inter- preted as
also being reflected to some extent in Nokia’s collective psyche. The
company wanted to distance itself from social and political move-
ments, but was meanwhile stuck in them at a deeper level, drawing a line
between their “own” world and the world of “others”. Likewise, Ollila
could have been subconsciously tied to the sphere of science and aca-
demic life by naming it as the area whose difference determined the
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 175

special characteristics of the sphere of corporations and business manage-

ment in a roundabout way.
As semiotics-oriented organisational researchers (e.g. Cooper, 1986,
1997) have noted, drawing lines and making distinctions not only isolate
an organisation from its environment, but imperceptibly also lock the
community into a relationship with those aspects or topics that are placed
outside the system. Borders separate as well as unite. On the one hand, a
powerful differentiation against politics or science creates a shared inter-
nal identity for a community, while making it dependent on the areas
considered to describe the reality outside the boundary. Accordingly,
Nokia’s culture emphasises rationality and a disciplined systematic
approach, which in a way contains the opposite of the adopted identity,
for example, in Ollila’s case, public social influence and the pursuit of
science, on the other hand.
Considering the warning stories highlighted in Ollila’s biography about
Kari Kairamo’s active public influence, and the Protestant ethics with
their meagre Nordic expressions of emotion adopted in his child- hood,
it can be said that of the two negative “others”, it is actually the
extrovert, intuitive style which has—as the opposite of the ideal mental-
ity—determined Nokia’s culture under Ollila’s management since the
1990s.
Interestingly, the underlying significance of social politics emerges not
only in his biography but also in a few public comments he has made in
recent years regarding global changes. In March 2009, Ollila was inter-
viewed by the Financial Times (Milne, 2009). At that point, the financial
crisis had become apparent to its full extent. Somewhat surprisingly,
Ollila calls for companies to have a more extensive social role. The risk
here is that an economic model aimed only towards the short-term
growth of shareholder value could lead to dangerous apprehensions. In
his view, the Nordic model that combines the market economy with
social well-being could provide a solution to the ongoing crisis. At the
time, it is important “to consider social solidarity to a great extent”. In
2016, Ollila gave a banquet address at the 70th anniversary celebration of
the Research Institute of the Finnish Economy. Ollila has been the
Chairman of the Board at EVA since 2005. In his speech (Ollila, 2016),
he also presented his views on topical social change. The focus of the
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 176

speech is on recent political movements, where populist and nationalist

powers have become stronger at the expense of liberal democracy. Ollila
contemplates the connection between the fears related to globalisation
and technological advances, and the rise of the new political trends.
Finally, he calls on political processes, which he expects to curb the prob-
lems caused by market liberalism and to support the positive features of
technological development.
Both speeches showed concern regarding the social counter-reactions of
market liberalism and technological development, and possible unrest
caused by crisis. This is more clearly the voice of an influencer analysing a
political field, or a social analyst, rather than that of a business execu-
tive. Ollila’s fear regarding the radicalisation of the anti-capitalist move-
ment could stem from his early 1970s experiences in Finnish student
politics (Ollila & Saukkomaa, 2013). Ollila was the Chairman of the
National Union of University Students in Finland in 1973–1974. Back
then, left-wing radicalism was at its peak, and was particularly influential
in student politics (The Editorial Staff of Ylioppilaslehti, 2004). The cen-
trists, represented by Ollila, attempted to restrain the worst revolutionary
intentions while standing firmly behind Kekkonen’s line of foreign policy
that took into consideration the interests of the Soviet Union (Ollila &
Saukkomaa, 2013).
In Ollila’s estimates, the social environment often manifests itself as a
force field, threatening for progress and economic dynamics. Although
this involves a stretched interpretation of the psychological mindscape of
the organisation, it would seem that one of the underlying patterns of
Ollila’s and Nokia’s story is the bipolarity of the Cold War era and its
manifestation during the politically frantic 1970s. The opposite of
Western market liberalism is revolutionary socialism, or more generally a
movement that is desperate to achieve a fundamental social change. The
two camps are mirror images of each other. They cannot be separated
from each other. The anarchist Other is a shadow behind the global mar-
ket economy and its technological engine. This negative aspect of the
binary opposition central to the individual and collective sense of self
follows Nokia’s corporate culture latently, in a symbolic manner—half-
consciously as the imagined uncertainty and unpredictability of society at
large. The bipolarity of the world continues as the ideology of a closed
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 177

organisational system, where external reality is forbidden while it contin-

ues the definition of identity from its own negative perspective. Bipolarity
reinforces differentiation between an efficient, controlled organisational
entity led by disciplined, rationally oriented managers, and the intuitive
external society, or historically speaking—the previous generation, where
visionary adventurers, media figures and revolutionary anarchists cause
unrest and disruption.
The problem with these types of strong dualisms is that although they are
building a uniform organisational culture instead of setting boundar- ies,
they also prevent reactions in situations where two separated operat- ing
methods should be combined. At some point, a company or an
organisation has to attempt to maintain the continuity of its internal
processes and procedures, while focusing its energy on the turbulence
and uncertainty of its operating environment. There are situations where it
would be necessary to surrender to the surrounding discourse and to
draw intuitive conclusions regarding the ongoing changes. The spontane-
ous expression of feelings and the open handling of disagreements also
play their part in thawing changing situations in groups and organisa-
tions. In critical situations, it is necessary for an organisation to under-
stand that they can open up to the turbulence and ambiguity of the
operating environment without the shaking-up of established routines
and structures denoting a descent into chaos. Without opening up to
external dynamics, a company or organisation can perish after losing the
opportunity to participate in the renewal of the markets, technology or
political economy.

6.3 Apple and the iPhone

The new situation faced by Nokia in the field of mobile phones becomes
clearer when we have a short overview of the solutions and visions that led
to the iPhone, developed by Apple. I will again be relying on a biography,
this time on the book written about Steve Jobs in 2011 (Isaacson, 2011).
According to this biography, the iPhone design process was prompted by
the success of Apple’s previous hugely popular product, the iPod music
player. Jobs could see that the constantly developing mobile phone features
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 178

would soon include music downloads and playback. This would deal a
deathblow to the iPod, because nobody would need a separate music
player. So, it was necessary to take a leap towards producing mobile phones.
First, Apple wanted to collaborate with Motorola. However, the com-
pany had no previous experience with mobiles. It soon became obvious at
Apple that the products of established mobile companies did not sat- isfy
the company and its management, who had always focused on user
experience. Apple wanted to make a phone that was completely its own,
with properties similar to its previous classic products: Mac computers
and iPod devices. Product development assignments were first given to a
team led by wireless network engineers, but it was soon transferred to the
department for consumer goods. The phone would become personal and
symbolic.
The iPhone’s revolutionary touch-screen had originally been brain-
stormed for the tablet computer, the iPad, which was launched later. Jobs
wanted to make the iPad as simple and intuitive for its users as possible,
which is why the design process did not include clumsy stylus pens and
buttons, which were dominant on existing devices. The goal was to
achieve an efficient system that could be controlled by touch. This had
already been in development for another product, the new MacBook Pro,
but only as a touch pad designed for the laptop. As the product develop-
ment team for the iPad was presenting the multi-touch control to the
iPad, Jobs realised that this would also be a solution for the user interface
of the iPhone. The finishing touches to the iPad were sidelined, and all
focus was now on the iPhone’s touch-screen.
Consequently, the background to the development of the iPhone at
Apple involved interaction between the development teams of different
products. The MacBook Pro provided an idea for the iPad’s glass touch-
screen, which in turn was taken on board as a lead in the development of
the iPhone. Within the company, new innovations flowed fruitfully from
one department to the next. Jobs himself functioned as the top “cross-
fertiliser” by combining ideas presented by different teams in a way that
would suit the company’s needs. However, many features that made the
user experience more pleasant required a long period of technical devel-
opment before they could function smoothly in the device. The leading
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 179

principle of the design was simplicity and intuitiveness of use, supported

by technological and material solutions.
One of the features that reminded users that the iPhone was an aes-
thetic experience was the closed cover of the device. The iPhone could
not be opened. Its technical parts were not important. Jobs wanted the
device to feel beautiful and appealing. To begin with, glass was selected as
the material for the touch-screen, rather than plastic. Glass provided a
more stable and better-quality impression. The glass screen initially cov-
ered only a part of the phone, but it was later extended to the entire width
of the phone. The design of the phone is that of a single element: a glass
screen surrounded by an aluminium frame. This caused further technical
problems when the antenna did not function without disruptions inside
the solid frame material. However, Jobs did not want to give in on the
visual uniqueness of the phone. The iPhone had to be stylish, like exclu-
sive jewellery or designer clothing.
Apple had previously already built the music service iTunes, through
which it was possible to buy music online and download it to an iPod
device. Now, the same service was available on the iPhone. At first,
Steve Jobs wanted to keep the iPhone as a closed system, to which
external parties would not be able to provide apps. However, he had to
give in to arguments presented by his executive team. This resulted in
the AppStore, a service managed by Apple for getting applications
developed by independent suppliers. The AppStore revolutionised the
use of mobiles. Together with the touch-screen and other features, soft-
ware companies rushed to develop games, utility programmes and
entertainment applications. The phone had now truly become a multi-
purpose device.
Jobs and Apple had already shown their ability to integrate software,
digital content and device options before. The company had first devel-
oped the iTunes music library, and then managed to get large record
companies to offer their products to be purchased digitally in the iTunes
Store. Apple had built a seamless system where the user could download,
manage and play music flexibly. Other competitors could not respond to
this challenge, and Apple assumed the leading position in music services.
This setback was the worst for Sony, which had everything necessary to
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 180

build an equivalent system: reputable portable music devices (WalkMan,

DiscMan) as well as a large record company (the former CBS Records).
However, they were unable to build something that would combine dif-
ferent elements with the same flexibility. The same pattern was later
repeated with mobile phones, where Apple overthrew the sovereign tech-
nological leader, Nokia.
On the other hand, Apple’s strength lay namely in its innovative con-
struction of the user experience. It was not an industrial company, but it
aimed to provide a simple and intuitive way of using information tech-
nology, in accordance with Jobs’ vision. In 1985, the sales of the new
Macintosh computers had not had a great start. The majority of the profit
came from the older machine, the Apple II. However, Jobs would have
preferred to focus on pioneering products such as Mac. Members of the
Board who represent the company’s shareholders felt Jobs to be a threat
to the company’s profitability. Hence, he was fired from the company he
founded. Later, the rapidly advancing field of technology became danger-
ous for the now-conservative Apple, and Jobs was invited back in the
1990s to brainstorm breakthrough products. Since Jobs’ death, Apple has
been unable to present any radical changes in the 2010s, and the com-
pany is now threatened by the cheaper, more cost-efficient smartphones
offered by their competitors.
Apple’s management model is completely different compared to that of
Nokia. Apple has no official strategy. Nokia, in turn, has articulated its
strategic plan meticulously. Neither has Apple formed a traditional divi-
sional structure, which often leads to turf wars between different fields of
business. Instead, the entire company is performance-oriented together.
Steve Job’s management style was also exceptional: he wanted to see the
models and prototypes currently in development in the form of physical
objects. Jobs’ strong vision about the simplicity and intuitiveness of use
guided decisions directly, without any heavy bureaucratic decision-
making machinery or the interference of lower-level managers (Isaacson,
2011). At Nokia, in turn, product suggestions were handled by commit-
tees on several hierarchical levels as well as the finance-oriented managers of
different departments.
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 181

6.4 Why Was Nokia Unable to React

to a Transformed Competitive
Environment During 2007–2010?
Apple’s approach in commandeering mobiles as a part of the integrated,
user-friendly world of devices, digital services and software highlights
Nokia’s weaknesses in responding to this new challenge. Nokia did not
have a similar visionary leader. The top management of the Finnish com-
pany consisted mainly of finance experts. Entrepreneurial experience in
product development by staying close to R&D teams, physical proto-
types and their applications was unfamiliar. Due to rigid performance
monitoring and an isolating organisational structure, different divisions
and functions were unable to communicate with each other. Nokia was
first and foremost a technologically oriented device manufacturer—a
hardware company rather than a software innovator. Apple’s skill of com-
bining a physical device, software and user experience as shown in their
previous products was too challenging for Nokia.
As has been stated above, Nokia’s paralysis caused by the breakthrough of
the iPhone and Android since 2007 could be interpreted through the
obvious features related to the culture and structure of the company.
Nokia had become extremely egocentric and arrogant. Business success
had gone to their heads. As Laamanen et al. (2016) observed, during the
years of success, Nokia was constantly praised without any criticism in
management publications and business studies. This, of course, set the
stage for a dangerous sense of pride, as executives from little remote
Finland suddenly discovered themselves in the global limelight. On the
other hand, the heaviness and bureaucracy of the organisational structure
were obvious. Decisions were made in committees, where each hierarchi-
cal level presented their own assessment on the viability of the presented
projects and innovations (Heikkinen, 2010; Nykänen & Salminen,
2014). There were too many censorship filters in the way of new ideas
before they could have reached the attention of the top management.
And in top management, only a few understood the new application-
heavy mobile paradigm (Ollila & Saukkomaa, 2013).
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 182

But why did Nokia fall into these traps and why was it unable to change
its way of thinking? As an organisation, it had world-class product
development resources and competent staff at its disposal, as well as
access to the leading researchers and consultants. Why did pride and
bureaucracy gain ground in a company that had previously remained
humble and agile?
According to the wisdom-related frame of reference outlined in this
book, we can analyse how Nokia and its management processed informa-
tion and what style of decision-making they had as a dynamic set-up
consisting of three elements. The company’s culture had been focusing on
producing and managing analytical-rational information. Nokia’s man-
agement believed that careful analysis would provide the best basis for
successful decision-making. In addition to Jorma Ollila, this view was
also adopted, for example, by Matti Alahuhta. A former Nokia mobile
phones President, Alahuhta moved from Kone to become the CEO of
Kone Corporation in 2005. In his recent book, Alahuhta has admitted to
being in favour of a decision-making method which “collects all available
relevant information, uses it to build a perspective, and then relies on
contemplation” (Alahuhta, 2015; 170).
Nokia was convinced that it was possible to obtain the best real-time
overview of the condition of the organisation through finance and opera-
tion monitoring systems. After 2007, financial results continued at an
excellent level all the way until 2010. This factual information convinced
Nokia that its current product range was competitive, and that there was
no direct cause for a radical change of strategy. However, this was a short-
term performance analysis, which failed to consider the paradigmatic
change brewing on the market. On the other hand, Nokia’s finely tuned
production management system created the illusion that the risks had
been tamed. Like any other mistake-eliminating system, the production
and logistics information system had its place when the aim was to mini-
mise errors and disruptions within the organisation. However, it is unable
to perceive a changed situation in the operating environment, and reflect
on its own assumptions at a meta-level. Management systems do not
know how to challenge themselves.
Nokia and its management’s previous experience and the intuitive
beliefs and recipes shaped by those experiences were unable to challenge
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 183

the dominance of the analytical-rational information in the company. As

has been highlighted above, the management generation that rose to their
positions in the 1990s saw Nokia nearly destroyed by Kari Kairamo’s
visionary and adventurous leadership in the 1980s. Kairamo’s dedicated
orientation towards broader society and media publicity became a warn-
ing of what kinds of pitfalls are involved in the management of a large
company. The new generation wanted to keep a low public profile and
focus on developing the business operations professionally according to
international rules. Nokia would no longer be a venturous champion, but
rather a careful slow bulldozer, resolutely slogging along the chosen path.
The logistics crisis of 1995 and 1996 further reinforced the belief that a
technology company should focus on controlling growth and expan-
sion instead of compulsively taking over market shares. The idea of Nokia
as a closed organisation is also related to this, developing its own internal
efficiency and monitoring systems. The largest perceived problems were
apparently the company suddenly moving to a new field of business or to a
new market without all of the key operations of the company being able to
follow as a cohesive whole.
It is worth mentioning the last factor that determines intuitive wis-
dom: the illusion of “eternal success”. Nokia had managed to overcome
the 1995 crisis, and it had also survived the crash of the dot-com boom
in the early 2000s. The analytical and conservative approach it had
adopted seemed to be working time and time again. The business saga,
which was unique in Finland, created wealth for the company’s staff but
also for the entire country. The local community obediently served
Nokia’s needs by training suitable personnel, providing support for
research and development, and even shaping legislation to reflect the best
interests of the company. Nokia was a role model for other companies
and management theories. All of this resulted in the company starting to
view itself as infallible.
The background of intuitive experience resulted in the role of analytical-
rational information being valued. Accordingly, Nokia’s subjective beliefs
accepted rational information because it was seen as a representative of
the modern, neutral professionalism valued by the management, which
in turn was opposite to the previous subjective and visionary decision-
making. There was no desire to return to the impulsiveness of the one-time
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 184

CEO Kari Kairamo. The idea of the organisation as a finely tuned

machine also provided space for analytical-rational knowledge. Nokia
wanted to avoid its previous mistakes, which is why it focused on opera-
tion and finance monitoring and reporting systems.
On the other hand, experiential teaching and traumas from earlier stages
also affected the limited use of philosophical wisdom. Sophia, as
advocated by Socrates and Plato, is wisdom based on the premise that all
human knowledge and certainty should be doubted. In 2007, Nokia
should have noticed that the rules of the game were changing and that
the previous beliefs and recipes for success were coming to an end in the
mobile business. However, there were no compelling external reasons for
this. Nokia was making a steady profit and was the global market leader.
As Jorma Ollila describes the mentality of the period in his autobiogra-
phy, “We knew how phones were designed, manufactured and marketed.
Our machinery was supreme. Nokia’s phones worked reliably in all coun-
tries, networks and conditions. Nokia’s engineers were the best in the
world. We had taken over all markets … [In 2007] Nokia would have
been by far the most popular bet to win [in a competition between Apple
and Nokia]” (Ollila & Saukkomaa, 2013; 418).
Nokia did not have sufficient philosophical humility to imagine a time
when the mobile business would be a software-driven competition, with
the mobile having become a part of the digital ecosystem. More generally,
the company could not foresee a situation where the dominant views,
solutions and attitudes would be redundant. Nokia thought that because it
had nearly all the resources (money, know-how, experience) necessary to
control the changing technological and market situation, nothing could
threaten it.
However, studying Apple’s recent history could have shown how wrong
these illusions were. The “fruit company from Cupertino”, as a Nokia
executive, Tero Ojanperä, referred to Apple in 2009 (Borden, 2009),
brought Sony, the electronics and music distribution giant, to its knees in
the field of digital music. Apple had excelled by creating new product
concepts, which the customers did not even know they wanted. Apple
created markets with its user-friendly, stylised packages. Nokia, in turn,
had built the technological field for mobiles, but was stuck going nowhere.
Its attempt at covering up for the lack of software know-how by
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 185

acquiring specialists and companies (Ollila & Saukkomaa, 2013) did not
tackle the actual problem—open dialogue between different departments
and building a completely new kind of user experience from a new tech-
nological and software base.
Nokia’s inability to question dominant views seems to originate mainly
from the company’s organisational culture. The managers valued perfor-
mance and strict work morals in accordance with Protestant ethic. Open
contemplation and analyses of world-changing visions did not really fit
this cultural landscape. Decisions would be made based on facts and
analyses, attempting to predict and manage scenarios of change con-
strued according to the available information. As an old-generation
Nokia executive stated in an interview in 2006 (Ristimäki, 2006), the
executives of the new generation were lacking in general education. They
were only focused on issues relevant regarding the immediate result, and
were not interested in the wider arcs of history, culture and politics. In
this kind of approach, changes in the operating environment are inter-
preted as challenges that can be successfully responded to by further
tightening the grip on the existing machinery.
In addition to Ollila, his successor, Olli-Pekka Kallasvuo, has described the
transformation launched by Apple and Android as an unpredictable
revolution. In an interview of Kallasvuo at the Insead Business School in
2014 (Insead, 2014), Kallasvuo emphasises the uniqueness of this market
change: the transition was stronger and more sudden than any other
business upheaval in modern economic history. “Nobody could have pre-
dicted what would happen” was his assessment of the events between
2006 and 2008.
That is certainly the case if the starting point is the analytical-rational
approach for construing knowledge, which was adopted by Nokia. On the
other hand, as Taleb (2007) states, dynamic markets in the fields of finance
and high technology are full of unpredictable surprises. One illusion that
leads to the appearance of surprising “black swans” is a decision-making
process that is based on observations regarding past events. This inductive
reasoning is common in social scientific reasoning (Bryman, 2015). If a
sufficient number of observations indicate a certain regularity, the analyst
can draw the conclusion that this is a more generally applicable theoretical
law. However, as noted time and again in this book, previous observations
 Case Study 4: The Collapse of Nokia’s Mobile Phone Business 186

are no guarantee of something exceptional not occurring at any point. The

fact that Nokia had been a leading mobile communications company for a
long time, and that it had been able to overcome one difficulty after another,
was no guarantee that a competitor would not appear one day with a com-
pletely different kind of approach. All swans are white until a black swan
appears somewhere, and all previous wisdom is instantly shattered.

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