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Bouwman, Harry et al.

Conference Paper
How Nokia failed to nail the Smartphone market

25th European Regional Conference of the International Telecommunications Society

(ITS): "Disruptive Innovation in the ICT Industries: Challenges for European Policy and
Business" , Brussels, Belgium, 22nd-25th June, 2014
Provided in Cooperation with:
International Telecommunications Society (ITS)

Suggested Citation: Bouwman, Harry et al. (2014) : How Nokia failed to nail the Smartphone
market, 25th European Regional Conference of the International Telecommunications Society
(ITS): "Disruptive Innovation in the ICT Industries: Challenges for European Policy and
Business" , Brussels, Belgium, 22nd-25th June, 2014, International Telecommunications Society
(ITS), Calgary

This Version is available at:

http://hdl.handle.net/10419/101414

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How Nokia Failed to Nail the Smartphone Market

Harry Bouwman

Delft University of Technology, The Netherlands, and Åbo Akademi, Turku, Finland

Christer Carlsson, Joanna Carlsson, Shahrokh Nikou, Anna Sell, Pirkko Walden

Åbo Akademi, Turku, Finland

Abstract

In this paper we will discuss Nokia’s struggle to find a sustainable approach to the Smartphone
market. The findings are based on (i) a review of Nokia’s history, and specifically on how Nokia dealt
with introducing new, more or less smart handsets, (ii) on interviews with managers from Nokia and
(iii) on data collected on mobile phone usage in 2003 -2011 in Finland. We contribute to insights on
how a company with an active innovation policy, product launch and market segmentation strategy
failed to maintain its dominance on the mobile handset market.

Introduction

Aspara et al. (2011, 2013) discuss the early history of Nokia when the company and its business
model transformed from a rubber, paper and cable company to a company that focussed on mobile
handsets and mobile telecommunication infrastructure (components). Nokia was in the 1990s and
early 2000s one of the largest mobile phone companies in terms of volume, sales, market share and
profit, but it failed to make the transition to the smartphone market in the early 2010s. Although,
Nokia till 2007 had a market share of 80% in the smartphone market, the main reason for losing
ground during the “second coming of the smartphone age” was due to the weak position of Nokia in
the “technological system” (or ecosystem) i.e. the network of interacting actors in a specific techno-
economic area involved in the generation, diffusion, and utilization of technology and its
complements (Aspara et al, 2011, p. 131). Palmberg (2002) explains the relative success of Nokia
starting his reasoning from economic, cognitive, organizational and institutional factors. Steinbock
(2010) on the other hand looks into factors as culture and diversity expressed in corporate
responsibility, the creation and role of shared values, management of human resources, as well as
the strength and character of senior management. Next to these factors also the Finnish innovation
systems, as discussed by Palmberg (2002) and the R&D within Nokia are important factors that
explain the development of new products and businesses. Some studies specifically focus on one
specific element of Nokia modus operandi, such as the use of agile methodologies (Laanti et al, 2011)
or alliances focussed on acquiring production facilities (Rice and Galvin, 2006).

Steinbock pays scant attention to the turnout of new products and patents. Koski and Kretschmer
(2010) pay attention to handset innovation and imitative product introduction, studying 16 major
handset manufactures, amongst other Nokia. They look into vertical (handset innovations that
encompass novel features that are attractive to all consumers, like lighter weight and longer battery
life) and horizontal innovations that are only attractive to a subset of the market. A severe limitation
of their study is however that it focuses on the period 1992-2002. Typically handset manufacturers
introduced between one to three new handsets per month, but during the peak growth years of the
cellular market some companies took 10-25 new handsets to the market in a single month.

1
It is extremely important to reach and keep the technological leadership. Koski and Kretschmer
(2010) point out that in the smartphone era; it is not only about product innovations but more
importantly about software innovations, and more specifically about hard- and software integration.
Therefore we will also explore Nokia’s idea and innovations database that consists of patents and
patents applications with demonstrations and validated idea descriptions that are available via the
Innovation Mill that contains Nokia’s unused, non-core ideas (Hossain, 2012). The objective of this
paper is to understand why Nokia failed in capturing the smartphone market while there where many
reasons to expect that Nokia was in the position to do so. We use a forensic approach to do so.

Forensic studies aim at understanding and reconstructing processes after they have run their course
and produced (sometimes fatal) outcomes. This follows the logic of abductive reasoning (also known
as the logic of Sherlock Holmes) which is used to find and understand the producer-product
relationships that generate and guide the processes. We cannot, of course, fully reconstruct the
processes as we do not have the necessary inside information to do so, but we have built our
storyline with published material from numerous sources and using our experience from more than a
decade of research on mobile technology and services and their impact on consumer markets.

The paper (largely work in progress) is structured as follows. First we will give a short history of Nokia
presenting a chronological view of events. Next we will discuss eight core, more or less related issues
that might explain Nokia’s lack of success in entering the smart phone era. Next we will present the
research method as used for the more quantitative part before we will combine insights. We will
conclude this paper with some discussion, limitations and future outlook.

Nokia’s History and Nokia’s DNA

We will first present a short factual overview of Nokia’s history based on literature (Häikiö, 2001;
Palmu-Joroinen 2010; Cord, 2014). We will discuss a number of topics that might be considered as
the elements in Nokia’s DNA that were problematic. We start with Nokia’s leadership and business
architecture. We will discuss Nokia’s R&D and innovation policy with a focus on patents, R&D-s and
venturing policy. We will look into Innovations and new product launch in combination with
marketing. We will shortly discuss the problematic relation of Nokia with the American market. Also
the shift from a telecom to an Internet reality plays a role. We will pay attention to what role Nokia’s
platforms played, i.e. Symbian and MeeGo, as well as Nokia’s app store Ovi.

Nokia’s History in short

Nokia’s original antecedent company was established under the name of Nokia Aktiebolag founded
by Fredrik Idestam in 1865 as a ground wood pulp mill. This company was acquired by Finnish Rubber
Works Ltd. and merged with Finnish Cable Works Ltd in the period 1918-1922. The companies
officially merged in 1967, laying the foundation for the Nokia Corporation. In the late 1950’s and
1960’s Nokia became active in the computer industry, already having considerable experience in
electronic engineering and telecommunication since the 1900’s. In 1979 Nokia merged with Salora,
under the name of Mobira Oy. Mobira developed mobile phones for the Nordic Mobile Telephony
(NMT) standard. In 1984 Mobira was fully integrated in Nokia.

In 1988 Nokia-Mobira’s market share on the global analogue technology phone market was 13.8%
whereas Motorola Inc., being the second largest had a market share of 13.4% (Häikiö 2001).

2
However, the year 1988 was according to Häikiö (2001) “annus horribilis” as Nokia-Mobira Oy was in
its deepest crises. Palmu-Joroinen who joined the company that year, stressed that these problems
and solutions paved the way for Nokia’s latter successes (Palmu-Joroinen 2010).

In 1989 the first legal process concerning nine patents were raised in the US by Motorola. This
process was settled the same year and Nokia paid Motorola some 20 million dollars, and an
important lesson was learnt on how important it is to pay attention to the IPRs when you are among
the market leaders (Palmu-Joroinen 2010). In year 1989 Motorola was the market leader with a 20%
market share at the same time Nokia’s market share was only 12 % and dropped to 10% in year 1990
(Häikiö 2001).

In 1990 Ollila was appointed CEO for Nokia-Mobira. The next year, 1991, Finland was in financial
crises and Nokia made huge losses. The very same year Nokia bought Technophone Ltd and this
changed Nokia’s company language to English. Also the meaning of a brand became a focal point for
the company and large efforts were made to position Nokia as a strong brand. The name of the
company was changed to Nokia Mobile Phones Ltd. The first GSM network was in place in July 1991
and the first call was made the same day with a Nokia phone. The growth in production of the
number of mobile phones by Nokia, and some of its major competitors, is presented in figure1. Mid
1990s the mobile market and Nokia’s market share really gained momentum.

600

500

Nokia
400
Ericsson; Sony Ericsson

300 Motorola
Samsung
200 Rim
Apple
100

0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Figure 1 Mobile phones produced per year for selected hardware providers

In the 1990’s Nokia Research Centre also became more prominent and refocused on mobile
telecommunications as the CEO Jorma Ollilla believed that know-how would be a long-term effort.
Collaboration with universities and knowledge centres was considered utmost important, as were
internal education programmes. Nokia played a key role in the shift from NMT to GSM (originally
named Group Spécail Mobile, latter capture by Anglo Saxon countries to be labelled as Global System
for Mobile Communications). The position of Nokia was reinforced by investments in 1993 in GSM 2+
or GSM 2.5. 1994 was the year that the Nokia 2110 DCT/GSM handset was brought to the market
with 618.000 units sold (Häikiö, 2001, p. 165).

3
In 1994 Nokia made the shift from a Finnish company to a global payer. Although Finland remained a
pioneer market, the real market was global with Nokia having a rather troublesome relation with the
US market. Initially, global markets were served by exports and slow international expansion. Next
manufacturing outside Finland was ventured, in the UK by acquiring Technophone and in the US by
taking over Tandy shares after an initial 50-50 joint venture owned operations. In 1998 Nokia became
the number one mobile phone manufacturer in the world.

In 2002 the company was restructured with four main divisions, i.e. Nokia Mobile Phones, Nokia
Networks, Nokia Venture Organization, and Nokia Research Centre (NRC). In this year Nokia started
to develop and market what can be labelled as Smartphones. Nokia actually started to create the
market that became disastrous for some (Motorola, RIM, and Nokia itself) and for the time being a
goldmine for others (Apple and Samsung).

In 2003 the Nokia 1100 handset was launched. Together with the Nokia 1110 phone, the 1100 was
one of the most successful phones ever. Each sold 250 million devices worldwide. In 2003 N-Gage, a
combination of a game console and mobile phone was introduced, after acquiring a branch of the
Sega company to gain gaming competence and know-how. Providing specific products to specific
market segments was typical for Nokia’s marketing strategy.

In 2006 Nokia launched its flagship and first smartphone N 95. Conceptually the question is what
makes a smartphone a smartphone. The first device that combined telephony capabilities with
palmtop computer capabilities was IBM’s Simon Personal Communicator in 1994. Since 2007, the
moment of the “second coming of the smartphones”, smartphones are associated with Apple’s iOS
telephones, and the breakthrough HCI that set the standards for user experience. A core
characteristic of smartphones is the convergence of telephony with computer technology in a
handset. Nokia gave a lot of attention to convergence of technologies (Burde, 2009) . Specifically
Nokia’s N- and E-series, focussed on consumers and business respectively, offered integration of
converging technology, and focussed on entertainment and business applications, respectively.

Till 2007 Nokia dominated the smartphone market, mainly due to the Symbian operating system, and
with the introduction of the N95 Nokia market share jumped in two months from 33% to 36%
(Talouselämä30/2009). On the smartphone market Nokia was having a market share around 70%
leaving the competitors far behind. Simultaneously Nokia was struggling on the North-American
market to get a foothold. The new CEO for Nokia, Kallasvuo, promised to work things out on the
North-American market but that did not happen. We will come back to this issue in more detail.

In 2007 Apple launched the iPhone and Talouselämä (30/2009) writes “Apple had begun to eat up
Nokia alive in the US”. Europe was bound to follow. 2007 was also the year in which Nokia launched
the Ovi-store and started focussing on services. The same year Nokia bought Navteq to gain a
foothold in the maps- and navigation market. According to some sources, at a too heavy/high price.

In 2010, the year in which Android and iOS made substantial market progress, Nokia hired a new
CEO, Stephen Elop. In 2011 the shift from Symbian to the Windows phone was announced by Elop.
The OVI store was integrated in the Windows Phone Store. Since then sales dropped, numerous
factories and R&D facilities were closed, employees made redundant, as well as the market
capitalization dropped considerably, form € 110 Billion to € 15 billion in 2012.

4
In 2013 the announcement was made public that Microsoft would acquire Nokia’s mobile device
business, and the deal was closed April 2014. The Nokia handset division and a license to Nokia’s
portfolio of patents for 10 year, is now moved to Microsoft Mobile Inc. for € 5.44 billion. Nokia, or
what is left of Nokia, will focus on its mapping applications (Here), infrastructure (Nokia Solutions
and Networks) and on developing and licensing advanced technologies, So for the moment, the end
of the successful Nokia handset manufacturing story. But what were the reasons that Nokia failed to
absorb the major disruption in the (mobile) telecom industry of the last decade? What was in the
DNA of Nokia that made it unable to respond and to retaliate? In this forensic research we will look
at the DNA of Nokia to understand why Nokia was not able to continue its dominance and to capture
a fair share of the smartphone market.

(1) Nokia Leadership

During the period that Kari Kairamo (1977-1988) was CEO, Nokia was shifting from a conglomerate
with a lot of diversity to an internationally large multi-industry company with a focus on telecom but
this process was not complete at the time of his untimely death. His successor Simo Vuoriletho
(1988-1992) was left with a company with internal conflicts and conflicts with the two main
shareholders at that time, the Union Bank and Kansallis Osake Pankki. The appointment of Jorma
Ollila as his successor started the era of the modern Nokia Corporation. Nokia was when Ollila took
office, a conglomerate with divisions that produced consumer electronics as well as tyres, paper as
well as cables. Ollila (CEO from 1992-2006) was leading the digital GSM expansion era, and refocused
Nokia by the strategic choice for mobile technology. In 1994-1995 the company was restructured and
a cultural change was achieved based on value-based leadership and management. The key values
within Nokia were trust, loyalty and commitment, while employees enjoyed freedom and took
responsibility. Based on Aspara et al (2011), Nokia under Ollila can be characterized as a company
with a clear focus on mobile telephones and telecommunication, looking for organic growth. The
strategy was geared towards internal product development based on concentration of intangible
assets in know-how, skilled people and filling of critical patents, while operations were based on
coherent and efficient process architecture, and strong customer orientation offering that was
integrated with technical consumer focussed solutions. Moreover, shareholder value was
acknowledged, and financial reporting had a keen eye on shareholders´ interest.

According to some, when Olli-Pekka Kallasvuo (2006-2010) took over, the culture change focussing
on control as a result of the logistic crises, see next section, was even more reinforced and became a
culture of management by numbers. Partially this can be explained by his background as a lawyer
and CFO of Nokia. However this change in the control culture coincidence with the shift of ownership
from traditional Finnish investors (banks, pension funds, charity foundations, the Finnish state) and
rather powerless international investors, to American mutual funds with short term profit
expectations and aggressive and active policies, focussing on high profit margins and short-term
gains. As Cord (2014) suggests, the Nordic model of ownership and corporate governance was
replaced by American owners who “where near-sighted professional funds who had a hands-off style
and little, if any, loyalty to the companies they own” (p.32). With his background Olli-Pekka Kallasvuo
was fit to deal with the financial markets and to optimize production, but in the end he was not the
visionary that was needed in times of disruptive innovation and market change (De Wit and Meyer,
2010).

5
Stephen Elop (2010-2013) was expected to have the capabilities to turn around Nokia. Talouselämä
(30/2010) commented that Nokia took its greatest risk during its whole history when hiring a CEO
from outside the company, as very few outsiders have been able to save a company in crises. Others
hold the opinion that it was important that the new CEO was an outsider to Nokia, in order to
convince the financial markets that a new wind was going to blow within Nokia. Members of the
Nokia management team were less likely to be serious candidates, as they did not succeed to get
Nokia on track in time (Cord, 2014).

Although Elop succeeded in changing the Nokia matrix organization structure, his reputation will be
always connected to his Burning Platform memo, in which he succeeded to express as the CEO his
lack of trust in core products of the company, e.g. the Symbian and the MeeGo Nokia platforms. It is
therefore not that striking that on August 22, 2011 a group of Finnish Nokia investors made public
that they were considering gathering signatures for the removal of Elop as CEO of Nokia 1. Although
this announcement might also be a hoax, but even then it illustrates the lack of trust in Elop as a CEO.

(2) Nokia’s business architecture

As mentioned before, in 1996 due to increasing demand and failing logistics to meet production
demand, there was a crisis in production (Steinbock, 2001). Oversupply at one hand and short supply
of materials at the other hand, i.e. the well-known bullwhip effect, lead the production to stall. As a
consequences the control over logistics, process descriptions and so on were tightened, as well as
logistic and financial systems aligned. As a result the logistics of Nokia became known to be superb
(Cord, 2014, p. 14). Production of Nokia handsets therefore was cheaper as the production of the
handsets of competitors. Although Dell served as an example, there is a fundamental difference. Dell
reduced the number of product lines in order to optimize the logistics and to focus its operations.
Nokia catered for a broad product range, with a lot of alternative products, and still was able to
optimize logistics.

At the downside the logistics crises did lead to more control within the organization, according to
some (multiple informants working within Nokia) at the expense of creativity and innovativeness.
The metaphor of a jazz band with a limited number of players and a large orchestra is being brought
forward multiple times in different sources and interviews. Due to the increasing sales not only the
number of employees did raise but also the organizational structure and control mechanisms did get
tighter. Nokia had to solve the problem of an increasing bureaucracy and control while being agile
and faster due to rapidly changing customer demand. In an analysis of Nokia’s business model
dynamics, Aspara et al. (2011) state that the routines and capabilities of a corporation is a necessary
requirement for the swift refocus of the business model to successfully fit to the evolving business
environment (p. 642).

In order to deal with external demand factors, different approaches were used based on a market
segmentation strategy (see latter on), on technology (TDMA vs. CDMA), on high-end-low end
markets, and on the distinction between entertainment and mobile services. As long as Nokia had a
major market share of the mobile phone market these approaches did work well. Nevertheless, at
the end of 2004 a matrix organization was introduced leading to unclear and complicated, and
therefore slow, decision procedures, multiple lines of responsibility and multiple managers to report

1
(http://www.phonearena.com/news/Nokia-Finnish-investors-considering-gathering-signatures-to-get-CEO-Elop-sacked_id33611, retrieved May 6, 2014).

6
to. In the end, this matrix organization did lead to an expanding growing bureaucracy and people
spending less time on their jobs, and more time in meetings and bureaucratic procedures, waiting for
clear decisions. As Cord states (2014, p. 202), “in the late 2000s Nokia still had innovative talent but
their organizational structure and culture was such that their skills could not be deployed”.

(3) Nokia’s R&D Policy and venturing policy

R&D within Nokia was initially mainly focussed on product development. Only a fraction of Nokia’s
effort was in basic research. In the 1990s research was channelled towards basic development of
mobile phones and mobile data communications. In 1999 Nokia had besides Nokia Research Centre,
44 additional business units based international research centres in 12 countries.

Nokia Research Centre was closely connected and embedded in the Finnish education and research
infrastructure. Access to highly trained and skilled IT professionals never has been an issue.
Collaboration with universities has always been part of Nokia’s open innovation policy. Tampere
University of Technology is the core partner, but also collaboration with Aalto and Oulu University
and top American (MIT, Stanford) and Chinese (BUPT, Tsinghua) universities were established.

Nokia spent a very large amount of revenues in R&D (see figure 2), also as a proportion of the sales,
sometimes close to 10% (Sölvell and Porter, 2011). At the end of 2006, 31% of the Nokia employees
worked in R&D, although mainly in product development (Cord, 2014, p. 38).

Figure 2 R&D spending Nokia in Euros (multiple sources; data recalculated towards Euro’s
2014)

The list of Nokia innovations is quite impressive, ranging from network components, to handset
features, digital camera capabilities (together with Zeiss) to software-solutions. The number of
patents filed steeply increased at the end of the 1990’s, from about three hundred each year in the
period 1992-1994, to increase to more than two thousand in 1998 to increase gradually to over 6500
in 2008, and then to be drop dramatically from 20009 to 2012 2 (see figure 3). From these patents,
mainly related to the mobile network and handsets, 3,000 actually resulted in royalties being paid to
Nokia (Cord, 2014).

2
(http://envisionip.com/blog/2012/07/19/530/)

7
It is well known that there have been multiple conflicts with regard to IPR (Intellectual Property
Rights), with the first conflict with Motorola as mentioned before, between main providers of (smart)
phones and network components delivery companies, leading to costly court cases and settlements.
These settlements sometimes had positive and sometimes negative effects on the balance sheet

7000
6510

6000 57335846 5610

5322
4869
5000 46044467 4507
4309
4064 40704045
4000
3527
2943
3000
2524

2000 1755
1490
1169
853
1000 661
315 343 400

0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Figure 3 Nokia Patents application by publication date (based on wipo.int data, thanks to
Conor McGlynn)

Due to its patents Nokia was not only the biggest mobile phone producer and key to network
components, but also became the largest maker of digital cameras. Nokia also developed a tablet
prototype in the late 1990s, large colour touch screens in early 2000, and was one of the first to
adopt and experiment with NFC technology for mobile payments. Nokia typically had an engineering
culture in which requirements and functionality, and technological excellence more than design were
driving innovation. UI design and research got careful attention (Lindholm, et al. 2003). The common
opinion was that the timing of innovative products was unfortunate, they were accomplished too
early.

(4) Innovations at Nokia

The leadership of Nokia was quite aware of the caveats of having a well-defined superior technology
and having a competitive advantage based on their high-tech products. The work of Clayton
Christensen (1997) was not unknown, and also the Open Innovation concept proposed by
Chesborough (2003) was adopted by Nokia leadership as well as Nokia engineers. In order to not only
focus on optimizing existing technologies and on hard core engineering, an ambidextrous approach
was followed. At one hand exploiting existing technologies was important, and preferably on a cost
effective basis and with high volumes, on the other hand Nokia tried to stimulate exploration by
establishing a Venturing Fund in 2000. Next to Venturing, an acquisition strategy was followed not
only to absorb the most advanced technologies (Sega.com, Intellisync Corporation, Twango, Cellity,

8
Scalado), product concepts (MetaCarta), access to content (music: Loudeye Corporation; maps:
Navteq) but sometimes also to acquire top-talent. In that sense Nokia followed the open innovation
concepts quite clearly. Nokia Ventures however was not very successful, many ideas, projects, and
plans, with few exceptions did not materialize. In 2004, with the introduction of the matrix
organization Nokia Venture was abandoned. Cynically enough, the most successful Venturing
approach was followed after 2011, when promoted by Esko Aho the Bridge program was launched.
Those made redundant were offered 25.000 Euro to start their own company, and up to four could
jointly receive 100.000 Euro. Next to funding also training and support was made available. 18.000
people went through this program and more than 100 companies were established with a
sustainable outlook and creating labour positions (Cord, 2014, p. 226).

(5) Product launch and product families, marketing and segmentation

Nokia´s many different designs of mobile handsets have been a result of their production and market
segmentation strategy. We will first discus the products launched and then turn to market
segmentation.

Product launch

In 1996 Nokia launched the first digital multimedia device, the Nokia Mediamaster. Nokia launched
the Nokia 8100 series with an ergonomically comfortable design, the Nokia 2160 with dual mode
telephony and the Nokia 9000 communicator, an all-in-one mobile communication tool. The Nokia
5100 series was the first mobile phone that could be personalized by changing covers. In 1997 the
Nokia 6100 was the first GSM product. In 1999 the Nokia 7110 was the first media phone using WAP,
and which offered access to Internet. Latter followed by the more stable Nokia 6210. In 2002, the
upgraded 9200 Communicator series and the N7650 camera phone were introduced. In 2003 the N-
gage game telephone followed. Nokia succeeded in reducing the weight and the volume of the
handsets and at the same time improved the User Interface (Lindholm et al, 2003); in that way Nokia
more or less set the standard for mobile phones for a long time.

In 2003 the first smartphone was launched, the Nokia 6600 based on Symbian OS v7.0 kernel
software. In 2004 the Nokia 6630 phone was the first NFC phone with worldwide coverage. The
Nokia 770 Internet tablet, introduced in 2005, was the first Nokia communicator that could make use
of Linux OS instead of Symbian to connect to the Internet via WiFi.

Latter on Nokia made a distinction between E-, N- and X-series. The E-series, i.e. E60, E61, E70 and
E71, made use of the Symbian OS version. 9.1, which combined mobile email and advanced voice
calling functions. The E-series were RIM phone look-a-likes, specifically focused on the business user
(see Table 1).

The Nokia convergence strategy became most apparent with the N-series, i.e. the N71, N73, N80,
N82 N90, N 92, N 95, and N97, enabling Universal Plug and Play, mobile TV, music, photo sharing,
games and sending emails over multiple networks. The N-series was the advanced smartphone
series with multimedia and advanced connectivity features. The N95 released March 2007 was a real
smartphone, it contained GPS in combination with Nokia maps. It had a high end rear-end camera, a
front-end camera for video calls, could play audio and video, and included business applications. It

9
could make use of alternative wireless networks, run JAVA as well as Symbian. The N97 was released
in June 2009. See figure 4 for the number of phones released by year.

Table 1 Nokia product series

Nokia 1000 series; most affordable ones, mostly targeted towards developing countries and users
needing only calls and SMS, alarm clock, reminders
Nokia 2000 series; entry-level phones, more advanced features than the 1000 series, newer
models with color screens and some feature cameras, Bluetooth and even A-GPS
Nokia 3000 series; mostly mid-range phones, later targeted towards the youth market
Nokia 5000 series; similar in features to the 3000 series, often more features towards active
individuals, extra features for music playback
Nokia 6000 series; mid-range to high-end phones, high amount of features, conservative, unisex
designs, business use
Nokia 7000 series; targeted towards fashion-conscious users, especially women; consumer-
oriented; fancy design, test features
Nokia 8000 series; ergonomics and attractiveness; exclusive, high-end materials
Nokia 9000 series; Communicators prior E90 (the latest Communicator)
C-series; affordable series optimized for social networking and sharing; OS Series 40 and C-5xx
Symbian 60 5th ed., C-6/7 Symbian^3
E-series; enterprise-class, business-use; Symbian S60 and E7 Symbian^3
N-series; highly advanced smartphones, with strong multimedia and connectivity features; mainly
S60 3rd ed., but Maemo in N900, Meego in N950, N8 Symbia^3
X-series; targeted to a young audience with a focus on music and entertainment; OS mainly Series
40, but X5 (updated) and X6 with S60 and X7-00 with Symbian^3
Source: http://en.wikipedia.org/wiki/List_of_Nokia_products

The Nokia N8 was the last device based on Symbian OS, e.g. Symbian ^3, shipped one week after
Elop became CEO. The N* was followed by the E7 for business users, C7 for social networks, and C6
as a low-end smartphone. The Nokia N9 was making use of Maemo/MeeGo and was the only
telephone that actually runs MeeGo.

The MeeGo development team started in 2005 under the name of Open Source Software
Operations. In 2007 this team was relabelled as the Maemo team. The Linux based-Maemo software
platform integrates a set of open-source technologies with proprietary in-house components. In
2010 the Maemo team was renamed as MeeGo, after Intel and Nokia in 2010 decided to develop the
OS jointly. The Maemo teams used subcontracting relations extensively in order to reduce internal
development costs, leading to quality management issues as a result of poor coding and language
issues with software providers. After the MeeGo decision was taken compatibility issues with regard
to Maemo and MeeGo had to be solved. Many problems with regard to the User Interface had to be
tackled as well. In 2011 Nokia succeeded to bring the N9 to the market. However the eco-system
around the MeeGo platform never expanded beyond the Nokia and Intel. Neither other hardware
providers, nor operators supported the platform after some first orientation talks.

10
 Nokia Phones Released 1995-2013
50 47
44
45
41
40
35 36
35 32
30
30 28
26 25
25
21
20
16
15
10 7 7
4 5
5
1 0 1
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Figure 4 The number of Nokia phones released by year, 1995-2013 (based on data from
www.gsmarena.com)

The parallel investment in Symbian and MeeGo did lead to an inefficient spending of resources,
budget, and manpower; the development of User Interfacing caused similar problems to be solved at
the same time and in parallel. As a result the Burning Platform metaphor of Elop was not incorrect,
but from a public relation perspective an example of poor leadership.

The Mobile Windows Lumia phone was introduced in 2012, but lagged behind the sales of the N8
smartphone in the same first quarter in 2012.There was also the announcement of the Nokia X-series
that was realized in 2014. The X-series was supposed to be focussed on music and entertainment for
a young audience. This X-series is rather unique because it was an Android back up option in case
the Windows phone would fail.

Market view and segmentation

Lifestyle segmentation, as described by Ketola (2002) in the context of mobile phones, is based on a
detailed or deep knowledge of a user’s actual desired usage patterns. Today, everyone is a
potential mobile phone customer. As the market has become increasingly segmented, the
ability to master various product categories has become crucially important. In a segmented
consumer market with high volumes, the critical success factors include a comprehensive
product portfolio, a strong and appealing brand as well as efficient global logistics (Nokia
1998)

Nokia launched their first ideas on lifestyle segmentation of mobile phone use in the early 1990s
after which the company has come forth with many different ways of segmenting the mobile phone
market. The most important lifestyle segments that Nokia focused on were trendsetters (technology
oriented, male, wants latest gadgets and functions), high-fliers (career-oriented, male, want
efficiency, heavy use of text and data), social contact seekers (family and friends important, female,

11
use mobile phone for personal use) and posers (want to impress others, more male, trendy, fun-
loving) (Ketola 2002).

In 2000 two additional lifestyle categories were added, reachable (sports, adventure, outdoor life,
value reliability and durability) and assured (rational, hard-working, want established and reliable
technologies) (Baffoy 2000). In 2002 another revision was made with the resulting categories
trendsetters, hi-flyers, social contact seekers and assured (Kiljander 2004). Concurrently, Nokia was
also employing an approach called ‘user interface segmentation’, meaning an understanding of
different user interface styles and interaction styles that were used in product development
(Kiljander 2004).

In 2003 Nokia established a new consumer segmentation model for mobile phone users with the
introduction of “Mindstyles” (Nokia 2003). Mindstyles was based on large-scale consumer surveys
conducted in key markets, e.g. the United States, China, Brazil, Japan and Germany. The respondents
were asked to evaluate statements regarding their attitudes and values, which were converted to six
life strategies employed in today’s global society. The six segments in Mindstyles were called
experiencers, impressors, controllers, maintainers, balancers and sharers, and outlined behavior,
cost-sensitivity, loyalty, aesthetics, desired functionality and core life strategies within each group.

In the years 2007-2008 Nokia was operating based on a different view of the consumer mobile phone
market. In the new Nokia segmentation model, twelve user categories were plotted according to two
dimensions, e.g. higher involvement vs lower involvement, rational vs aspirational. The involvement
axis was created to portray technology needs, whereas the rational / aspirational axis portrayed
technological desires. Nokia saw consumers as falling into four quadrants (see figure 5):

- Rational, low involvement: mobile communication only when necessary

- Aspirational, low involvement: mobile communication trend followers
- Rational, high involvement: mobile communication as empowerment tool
- Aspirational, high involvement: mobile communication trend leaders

Each of the quadrants was further split into more specific segments. One of the user categories
described as low involvement and rational was e.g. ‘simplicity seekers’, whereas one of the user
categories described as low involvement and aspirational was ‘style followers’ (see Figure 5). In the
high involvement – aspirational quadrant Nokia placed ‘technology leaders’, one of the target groups
for N-series telephones (e.g. N82, N95), whereas the Nokia 3110 was targeted at ‘Life builders’, in the
same quadrant but scoring lower on both dimensions. Nokia’s main target segments were those
displaying higher involvement, e.g. the Young explorers wanting immediate connectivity, advanced
communications functionality, music, and an all-in-one handset with computer capabilities; Life
builders desiring data services for personal productivity, high quality camera, convergence, and an
all-in-one handset with large number of features (Metsäranta, 2007).

12
Figure 5 Nokia global segmentation strategy (Öistämö, 2007)

The many product launches as well as the fine-grained market segmentation did lead to a plethora of
product-market combinations. This lack of focus might have been one reason why reason why Nokia
wasn’t able to deliver the one product that would counter the threat of Apple and Samsung. Being
successful on many markets did not help Nokia to focus. Although Nokia had a thoughtful product
launch and marketing strategy, it was not successful on all markets. Specifically the American market
proofed to be cumbersome.

(6) Nokia and the US market

Nokia has been highly successful in the European, Chinese and Indian markets. However, the
American market has been troublesome from the very beginning. The core issue in penetrating the
US market was, next to standard issues with regard to CDMA, that Nokia was costumed in Europe to
promote its own brand, advertising directly to the consumer market. This did lead to pressure on
operators to offer Nokia telephones. In the US the control within the ecosystem was with the
operators, specifically Cingular and Verizon had dominant positions. Bundling of handsets by
operators was common practice in the US; operators were the main advertisers in the US market and
not the handset providers. Nokia could not brand its products as they were dependent on contracts
with operators. Moreover, Nokia was not very sensitive to US operators´ requirements on technology
and the look and feel of handsets (Cord, 2014, p. 45). Moreover, for a long time the US mobile
network standards (CDMA) were lagging behind Europe. The different technology requirements and
the different frequency bands required investments for at that time a relative small market segment
(10%) of the global market. The operator power became very apparent when Nokia tried to
introduce the N95 to the US market in 2007/2008. As Cord (2014, p. 90) puts it, “the N95 was
unsubscribed and unsupported, and so it went unnoticed and unsold”. At the end of the Olli Pekka
Kallasvuo era the North American market was lost (Kurri, 2012). Elop however had the view that
trends in the mobile world start in the US and will prevail, a market in which Nokia never had been
dominant.

13
 (7) Nokia and the Internet: the shift to services

Nokia in 2006 focussed on MP3 players. In order to compete in this market Nokia needed to offer an
alternative to the iTunes. In 2006 Music recommender was started, soon to be followed up by Nokia
Music Store. This was an attempt to get control over the flow of content that at that time was with
Apples’ iTunes. But the iTunes gave Apple control over customers, and customer billing; Nokia was
left to be dependent on revenue streams from handsets, and had no control over customers,
customer relations or customer billing processes. It was clear to the Nokia leadership that controlling
platforms was the next big thing. The MP3 example should have been a clear sign to Nokia that due
to the Internet the control was no longer defined by the intelligence in the core of the network as
managed by telecom operators, but had shifted to the periphery of the network. In the periphery all
kinds of new devices will enable access to content and communication. Establishing a core platform
either based on an Operating System for a device or as a service-based platform like Facebook or
Google would drive developments. The relevance of OS in combination with developer platforms for
applications would only increase. Nokia needed to reconsider their OS and platform approach.

(8) Nokia, OS and platforms

Core to the phone is it operating system. Originally Nokia phones were provided with the Nokia OS.
The devices produced belong to the Series 40 also labelled the rich call- platform. This platform was a
closed proprietary platform consisting of an in-house developed operating system, a cellular
subsystem managing the cellular connectivity, and a subsystem managing applications and user
interface (Bosch, 2005).

In 1998, together with Ericsson, Nokia started the Symbian initiative, as an alternative to the Nokia
proprietary OS. Originally Symbian was launched by Psion, a PDA-provider. Symbian was originally
developed as an open system by an eco-system; however the eco-system consist of partners that
were also competitors and had other technological optional for the Symbian OS as well, making the
platform vulnerable for opportunistic behaviour.

For Nokia, software platforms built on top of the Symbian OS became more important for defining
Nokia products. These software operating platforms were layers on top of the Symbian kernel and
libraries, and were indicated by Series numbers. For instance Series 30 were used for basic phones,
the S40 for mid-range telephones. The S60 was introduced in 2002 and was the basis for Nokia’s
Symbian smartphones, by incorporating the game software of N-gage. Symbian was core to Nokia
Series 60, but also other device manufacturers and telecom providers, specifically Japanese, used the
OS and built sometimes proprietary, applications on top of it. The kernel of the OS was operated by
Symbian Ltd.

Nokia’s series 60 - text input- platform was explicitly intended for 3rd party application providers,
making use of C/C++, Java or a scripting language like Python or Perl. The architecture consisted of
an adaptation layer between hardware and Symbian OS, Series 60 layer and an application layer
(Bosch, 2005). The S60 would later be” rebranded” as Symbian ^3, and initially specifically built for
touchscreen. Touchscreen technology was a technology that Nokia took some to master, specifically
the captive touchscreen proved to be problematic.

14
Series 80 was focussed on Nokia’s software platform for communicator devices with keyboards. The
series 90 was used for touch screens. The S90 was not well developed and ill-documented (Cord,
2014). Although the software families, and the related User Interfaces (Lindholm et al, 2003), where
related to certain type of phones, for instance the N-series devices mainly made use of the Series 90,
the inverse reasoning is not applicable. There were devices that made use of the Series 90 software
as well, but had alternative functionalities at their core. In practice there were too many flavours of
Symbian and of related software families leading to incompatibilities between versions and to less
support for aftermarket (or non-native) app developers (Orlowski, 2010).

In 2007 not only Apple’s iOS but more importantly the Linux based Android open platform became
an important threat to Nokia’s Symbian based phones. The Open Handset Alliance, as promoted by
Google, was a direct threat to Nokia’s eco-system organized around the Symbian OS. Operators,
component providers and competing device manufactures joined the Alliance. Although Nokia was
aware of possible lock in and path dependency due to the support of Symbian, Nokia tried to keep
options open for developing alternative platforms, for instance by developing the Meamo Linux
based open platform and by making the Symbian platform open source. Nokia’s retaliation strategy
was based upon acquiring Symbian Ltd in 2008 and licensing the Symbian and Series 60 Software for
free under an open source licence. However the openness of the OS and the shift in eco-system was
not the core issue at stake that did lead to the downturn of Nokia (alone). Nokia saw the shift in
power basis to Over The Top Providers and responded internally to the threat, but in general the
response was too little, too late and lacked focus. The way Nokia dealt with its own developer and
content platform is illustrative.

The first content related platforms were Club Nokia and Nokia Entertainment services. Soon to be
followed by Ovi in which also map services were offered based on the acquired Navteq maps and
navigation technology. Ovi was the platform that would serve as an access point to Nokia’s internet
services, like providing games, maps, media content, music and apps in general. Next to Navteq
other companies were acquired (Twango, Avvenu, Cellity and Dopplr) to realize the objective to
provide an alternative to the iTunes platform. Nokia proposed to offer Ovi in a rather complicated
way, per country in an open as well as a closed platform. The latter offered the possibility to
collaborate with individual operators (Cord 2014). However, due to the different Nokia-product
families and dozens of different devices, new interfaces had to be built for every single device to
enable access to Ovi. Ovi went to market almost two years after its announcement.

Moreover, although Nokia made it possible to have add-on apps next to native apps as early as 2002,
the conditions under which app developers worked were not very favourable. Support was very
limited, access to the development community relative expensive (€ 60 fee to be accredited by Ovi, €
200 for Symbian) and revenue sharing favoured Nokia and not the developers (initially Nokia took
more than 50%, compared to 30% by Apple). As a result app developers rather would work for other
platforms, the number of apps soured, and so the revenues were limited. Nokia did not see the two-
sided market opportunities that others did see. When in May 2009 OVI was brought to the market,
the initial response was overwhelming, but did lead to the platform to stall due to scalability issues
and not to be accessible. Major technological flaws became apparent. The interface was considered
to be poor and the user experience troublesome, at the least. So the OVI store actually never took off
both in terms of number of Apps offered as in the number of downloads.

15
In 2011 the strategic alliance of Nokia and Microsoft was announced. Seeing the problems Nokia had
on the US market and the fact that the North American market is a core market for Windows this was
bound to become a big failure. As a result of the alliance Nokia smartphones would make use of the
Windows mobile OS. So the Nokia Lumia came about and the OVI store was integrated with the
Windows Phone Store. Since then Nokia collapsed, i.e. sales went down, and the share prices fell
dramatically. In the end it wasn’t about devices or platforms alone, but about the eco-system that
supported the platform. The battle between platforms became a battle between eco-systems.

Discussion, future research and conclusion

This is the first part of our forensic analyses of why Nokia did not succeed to maintain a dominant
position in the mobile (smart) phone market. As in a traditional Whodunnit- story, we first looked
into the persons involved. The Nokia leadership is partly to blame for not being able to translate their
strategic insights with regard to disruptive innovations, technological know-how and capabilities, as
well as know-how on platforms into executable strategies. As De Wit and Meyer (2010) make clear
leadership of one dominant person is in the long counterproductive. Small boards with mixed
personalities, one preferable being a visionary and another being a builder would have made Nokia a
more stable company. Now a visionary Ollila, was succeeded by a builder, Kallasvuo. Elop tried to be
both, and dramatically failed in offering a new vision. As a result of the fast growth in the 1990s and
the early 2000s the Nokia organization had to be redesigned, and processes had to be managed. As a
result the control culture conflicted with the culture of an innovative, engineering and design
oriented start up. Form a R&D policy perspective Nokia leadership was aware of pitfalls and was
looking for strategies to circumvent path dependency. However the many product releases and
strong market segmentation did lead to a lack of focus. Be aware that Nokia’s many product releases
are in glaring contrast with the five iPhone versions that Apple introduced to the market in 6 year
time. Nokia understood the relevance of building an eco-system around their products but miserably
failed. Not only was Nokia rather arrogant towards their natural allies but they failed to see the
relevance of actors with an Internet background. Nokia have been too long a champion of the
telecommunications industry, focussing on technical integration and excellence, while the market
and eco-systems shifted towards service, Internet and information providers. The late shift from the
Symbian platform to alternatives is illustrative, both with regard to not grasping in time that the
technical life cycle of Symbian came to an end, as well as not putting all efforts, resources and
capabilities in developing a viable alternative. Cynically put, yet another version of a device for a
specific market was more relevant, and illustrative for lack of focus and strategic choices. Next of
course the lack of understanding the American market was more a failure on a tactical level than
structural.

As a next step in our research we will connect the presented insights based on literature review, and
a limited number of interviews with Nokia employees and insiders, we will relate some of the insights
with our own data. We collected data on mobile phone usage between 2003 and 2011 (Carlsson et
al, 2006; Bouwman et al, 2007; Bouwman et al., 2008; Bouwman et al., 2009). The data have been
collected on a yearly basis mainly in Finland and can be related to issues like number of devices used,
expected functionalities, market segmentation (see also papers of Bouwman et al 2012; Hamka et al,
2014; Sell, Mezei and Walden, 2014) and on OS and platforms. We used a simple random sampling
method and the sample frame we used offered a complete representation of the target population,
which was defined as the Finnish population between 16 and 64, whose mother tongue was either

16
Finnish or Swedish. Based on this data including type of handsets people owned and are planning to
buy, as well as preferred features, we analyse shifts in interest towards smartphones or at least find
indications for what kind of functionalities people opted for.

In all samples for the period from 2003 to 2011 (N= 3130), Nokia phones are the dominant devices
used by respondents. Most people are able to specify what type of phone they have. Only 15%
indicate that the mobile phone is a Nokia without further specification. In total 227 different types of
phones are mentioned by respondents. The most popular phones are the Nokia 3310 (330
respondents) and Nokia 3210 (157). The combined Nokia 3510 and 3510i is used by 139 respondents.
If we consider the C-,E-, N- and X- series to be smartphones then 388 (12%) of the respondents have
a smartphone, mainly E and N series telephones (both total to 5%). Typically the first Smartphones
are being reported in 2006, with an exception for the Nokia N9000 communicator (20, in the period
2003-2009) and the N-Gage (2, in the period 2004-2005). In our analyses we will focus on the
differences between traditional phones and smartphones, wishes as expressed by respondents with
regard to functionalities. But we also will look into handset related issues that are mentioned by
respondents hindering usage of mobile applications as desired. We expect that combing the results
of this paper with our empirical data will lead to more DN-based evidence.

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Open Journal of Business and Management, 2015, 3, 446-452
Published Online October 2015 in SciRes. http://www.scirp.org/journal/ojbm
http://dx.doi.org/10.4236/ojbm.2015.34045

Analysis of Nokia’s Decline from Marketing

Perspective
Jianzhong Jia, Yuchan Yin
School of Business Administration, South China University of Technology, Guangzhou, China
Email: [email protected]

Received 28 September 2015; accepted 24 October 2015; published 27 October 2015

Copyright © 2015 by authors and Scientific Research Publishing Inc.

This work is licensed under the Creative Commons Attribution International License (CC BY).
http://creativecommons.org/licenses/by/4.0/

Abstract
Nokia was a synonym for the mobile phone industry for a long time; however, when it came into
the era of smart phones, the former leader was under an awkward situation. Nokia sold its mobile
phone business to Microsoft on September 3, 2013. A company following Kodak with the legen-
dary color failed in the impact of the new technology revolution. This was a typical case of the
subversion of an industry; therefore, the author believed that it was necessary to analyze the
process. This paper studied Nokia’s decline mainly from the three parts. First of all, looking back
Nokia’s development process from the glory to the decline, it can be divided into three stages: the
transition period, the peak period and the decline period, followed by analyzing the reasons of its
decline from three parts: Nokia executives’ grasp for the market, the company’s business strategy
and business cooperation, and finally analyzing its inspiration for modern enterprises from the
marketing perspective.

Keywords
Nokia, Market Grasp, Operational Tactic, Cooperation

1. Introduction
Nokia, the leader of mobile phone industry, was acquired by Microsoft in September 2013. Nokia’s mobile
phone business would be owned by Microsoft since then. Microsoft announced in Monday (September 2nd)
evening that it would buy most of Nokia’s mobile phone business at the price of 3.79 billion euros (about 5 bil-
lion dollars), and buy Nokia’s patent license with 1.65 billion euros (about 2.18 billion dollars) in addition, so
the total price of the transaction was about 5.44 billion euros (about 7.17 billion dollars). Once the transaction
was completed, 32,000 employees of Nokia, including 4700 employees in Finland and about 18,300 manufac-
turing employees, would join Microsoft; Microsoft would get Nokia’s department of device and service, includ-

How to cite this paper: Jia, J.Z. and Yin, Y.C. (2015) Analysis of Nokia’s Decline from Marketing Perspective. Open Journal of
Business and Management, 3, 446-452. http://dx.doi.org/10.4236/ojbm.2015.34045
 J. Z. Jia, Y. C. Yin

ing mobile phones, smart devices and the leading design team [1].
As the leader in the mobile phone industry, Nokia was bought by Microsoft in September 2013, and Nokia’s
mobile phone business had been owned by Microsoft since then. Nokia, as an enterprise with a long history of
one hundred years old, was founded in 1865 and developed to the peak in 2007. It took nearly a hundred years to
accumulate its brand. But it was acquired by Microsoft in 2013; it took only several years for the brand to de-
cline. Nokia’s decline was an irreparable loss for Nokia itself, while it was a lesson that it was worth learning for
other companies. Both business world and academic circles had been analyzing the fall of Nokia from different
aspects in order to obtain some valuable experience and lessons.

2. Literature Review
In academic circles, different experts and scholars have analyzed the decline of Nokia from different perspec-
tives. Fu, Z. S. [2] had analyzed Nokia’s failure according to impracticability of Nokia phone’s operating system.
Yi, M. and Zheng, Z. Q. had resolved Nokia’s failure by comparing Nokia with Apple. Yi, M. [3] thought that
the main reason why Nokia lost to Apple was pursuing technological innovation blindly, and neglecting the
most important business model innovation. Zheng, Z. Q. [4] discussed the importance of the correct grasp of the
consumer need from consumer purchasing behavior characteristics of different periods. Yang, K. [5] believed
that Nokia wasn’t flexible, and led the advantage to barriers, thus blamed Nokia’s failure to over pursuit of cost
control. Zeng, F. P. [6] discussed the factors affecting the success of the enterprise taking Nokia as an example.
It mainly analyzed from four aspects: product innovation, management mechanism, marketing models and mar-
keting channels. Wang, Y. W. [7] explored the impact of organizational practice update on the competitiveness
of Nokia and Apple by using case study method in the process of 2G era changing into 3G era. Wang, W. H. [8]
paid much attention to the strategies Nokia implemented in the past, pointed out the company’s existing prob-
lems and put forward practical suggestions on the base of analyzing its financial data, financial performance and
financial policy. Shang, T. M. [9] considered that Nokia made a lot of errors in the process of strategic transfor-
mation, and caused the transformation sure to succeed into a doomed failure. Specifically, Nokia failed to adapt
to the competition of mobile Internet era, but still hoped bring the experience and order of the old era into the
new era. While some critics believed that the quality of Nokia’s mobile phone was the essential issues. In this
paper, we analyzed the reasons of the decline of Nokia from the perspective of marketing, and put forward some
suggestions for the contemporary enterprises.

3. From Glory to Decline—The Development of Nokia

As a veteran mobile phone companies, Nokia has experienced a total of three transformations: from rubber, pa-
per to cable, from cable to mobile phones, from mobile phone to mobile Internet over a hundred years of busi-
ness process since 1865. The two former transformations can be said to be very perfect, and did make a great
contribution to the development of Nokia. However, in the era of mobile Internet, Nokia in the third transforma-
tion has been out of orbit, and has not launched star products meeting the requirements of mobile Internet. Fac-
ing the rapid development of Apple and Android phones, it seemed that Nokia was a bit powerless, and has al-
ready lost the leadership style of the mobile phone industry.

3.1. Nokia’s Transition from Diversification to Specialization (1865-1998)

Before 1992, Nokia adopted the business tactic that was highly cross-industry and diversified, and had 34 sub-
sidiaries in 10 different industries and 108 areas. When Nokia was in the situation of full loss in 1992, the com-
pany’s board of directors hired Ollila as president of the company. Ollila immediately gave up the diversifica-
tion tactic, adjusted the business structure drastically, narrowed the scope of operation, abandoned non-core
business, and sold 71 enterprises. At last, there were only two groups, mobile phone and network, and Nokia
began its professional road from now on.
Before 1998, Motorola is the world’s largest mobile phone manufacturer, and Nokia has been in hot pursuit of
it. In the 6 years of the implementation of the professional tactic, Nokia’s rate of increase increment has re-
mained at around 50%, becoming the world’s largest mobile communications manufacturers. Nokia produced
the 100,000,000th mobile phone in 1998, and then become the world’s largest mobile phone manufacturers in-
stead of Motorola.

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3.2. On the Road of Professionalization and Being No. 1 (1998-2007)

Since Nokia exceeded Motorola in 1998, its market share soared in a few years. The year of 2006 was a miles-
tone for the development of Nokia in China. Nokia’s annual sales and exports in China were more than 10 bil-
lion euro with net sales being more than 5.3 billion euro and exports amounting to 4.8 billion euro. China has
become the largest market for Nokia in the world.
The year of 2007 was Nokia’s harvest year, because its global market share reached 40%; in China, the larg-
est market, the market share of this year was also more than 30% (Economics New, Jan. 2012). So far, in China
and the global market, there is no such crazy data. However, the glory of Nokia seemed to be drawing to a close
during this year.

3.3. From the Peak to the Decline and Final Acquisition of Microsoft (2007-2013)
The smart phone operating system Android, Google released in 2008, became a new market reform. The smart
phone storm led by iPhone and Android has proved to be market mainstream. For the first time, Nokia didn’t
occupy the first position of the mobile phone market share, the ranking dropped to the third. What’s worse, No-
kia’s share of the smart phone market in 2011 has dropped from 33% in 2010 to 14%, far lower than Apple and
Samsung.
According the “mobile Internet users behavior research survey in 2012” released by CNNIC, 53% of Nokia’s
mobile phone users planned to buy smart phone in the future s, of which 43.3% chose the Android system, 28.6%
picked IOS system. Massive customer switching meant that the future of Nokia’s mobile phone market share
would further decline, Nokia was facing not only how to compete for new users, but also how to retain the old
users. Nokia user’s future choice of cellphone system was shown in [10] Figure 1.
IResearch Consulting’s report released in December 2012 showed that for the domestic market of mobile
phone sales, Samsung became the market leader accounting for 32.3%, Apple (14.3%), HUAWEI (12.5%), Le-
novo (7.3%) and HTC (5.9%) followed. Nokia, whose ranking has slipped out of the top three since September,
occupied 5.9% in the market. Sales share of each mobile phone brand in December 2012 in Chinese market as
shown in [11] Figure 2.
Nokia has suffered a series of attacks since 2012. It has been pressed by many events, including several land-
mark events Nokia announced 10,000 layoffs globally on June 15, 2012, besides Nokia sold headquarters build-
ing at 17 million euro on December 5, 2012; finally Nokia sold the company's mobile phone business to Micro-
soft on September 3, 2013.

4. Analysis of the Reasons for Nokia’s Decline

Nokia had a long history of manufacturing mobile phone, and not only its manufacturing standard but also its
management leadership reached a fairly high level. And during its strategic transformation Nokia developed
corresponding auxiliary products to assist the sales of mobile phones, such as, Nokia put forward the concept of
mobile Internet and developed the Internet brand Ovi in early 2007; Nokia reached a strategic cooperation rela-

Figure 1. Nokia users’ future choice of mobile phone system.

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 J. Z. Jia, Y. C. Yin

Sony
2% MI
ZTE 3%
Motorola
4%
5%
Nokia
6% Samsung
35%
HTC
7%

Lenovo
8%
HUAWEI Apple
14% 16%

Figure 2. Sales share of each mobile phone brand in December 2012.

tionship with Microsoft in February 2011, to obtain success with the help of the cooperative development.
However, Nokia’s equipment and services department was acquired by Microsoft on September 3, 2013, and the
equipment and services sector was mainly responsible for the mobile phone business. Since then, Nokia as a
mobile phone brand exited the stage of history, and went over course of its mobile phone development.
Throughout the history of its development, I analyzed Nokia’s decline mainly from the following three aspects.

4.1. Nokia’s Executives Didn’t Grasp the Market Accurately

The first mobile phone entered people’s life as a tool of calling, and was mainly dedicated to mobile phone calls
to make up for the lack of fixed telephone. People at that day could absolutely not imagine that they could use
mobile phones to listen to music, watch videos, surf the Internet, play games and even go shopping. Neverthe-
less, with the progress and development of science and technology, smart phones appeared in people’s life, po-
werful functional machine was unable to meet the new needs of people, cellphone manufacturers began to real-
ize that mobile phone must be updated.
When the mobile phone was popular in the market dozens of years ago, the majority of consumers paid more
attention to the actual benefits of mobile phones such as battery life and cellphones’ drop number due to the
economic level limit, their purchase behaviors were generally more rational, objective and real; however,
people’s income increased significantly in twenty-first century, buying mobile phone was no longer as carefully
as in the past, mobile phone was more considered as entertainment tools, the purchase behavior is more emo-
tional and initiative.
In the face of the changes of the market and consumer demand, Nokia still adopted the technology-oriented
and product-oriented strategies to guide the innovation of products, continued to strengthen the inherent proper-
ties of Nokia mobile phone blindly: for example, Nokia was trying to make its cellphone hard to broken, then
exploited new ways to extend its battery’s life span, and increased the pixel of mobile phones to reach the cam-
eras’ standard [4]. The executives focus on products and technology a lot, so as to ignore that the needs of con-
sumers have changed with the market showing different characteristics. Decision-making that wasn’t based on
consumer’s demand lead Nokia not only to separate itself from the market, ignore the real needs of consumers,
but also to do much idle work.

4.2. There Is a Deviation in the Business Tactic of the Company

The traditional 4P theory (including product, price, place, promotion) transformed into 4C theory (including
Consumer, Cost, Communication, Convenience) gradually. It meant that companies should pay more attention
to the products as well as the consumer needs, so that the product innovation must take the real needs of con-
sumers into account. Like the mobile phone, what do consumers really care about, the hardware or software?

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J. Z. Jia, Y. C. Yin

Nokia has valued the hardware business a lot and neglected the software business over a long period of time.
The company continued to carry out technological innovation so as to cause Nokia mobile phones to be a magic
that couldn’t be broken, but ignored the fundamental problems, the incompatibility and closure property of the
operating system. The operating system of Nokia mobile phone was Symbian, which was very popular in the
machine age and did earn a lot of market share for Nokia. However, in the era of smart phones, Symbian’s
drawbacks gradually emerged and eventually became the biggest hinder for the development of Nokia mobile
phone. Firstly, Symbian system is not compatible, not only having the multiple incompatible versions, but also
having no ability of backward compatibility, which lead to Saipan 7 application couldn’t run on Symbian 8, and
increased research and development costs virtually. Secondly, Saipan’s shortcoming such as process solidify and
clumsy problem caused it not to support touch screen, multimedia and new operation interface, which meant
Nokia mobile phones were at a disadvantage in the smart phone market. Finally, Saipan’s insisting on 2G de-
velopment didn’t adapt to current 3G development momentum.
However, even if Symbian’s faults were well aware, Nokia did not give it up, only because Symbian was ra-
ther mature and brought Nokia huge profits. If Nokia could adopt an open attitude to treat the innovation of the
operating system and cooperated with Google Android, it must have developed one operating system that was
more suitable for smart phone system than the Android and Symbian system, thus Nokia may haven’t come to
such a situation.

4.3. Nokia Was Lack of Teamwork

Any marketing strategy should guarantee that the company and other enterprises could achieve a win-win situa-
tion. Nowadays, trying to control the market share of a certain industry through the technology monopoly to ob-
tain high profits was not possible in the context of product and service homogenization. The biggest mistake that
Nokia made was refusing to cooperate with other mobile phone manufacturers in its business process.
Symbian system itself is a closed system, which on one hand can form barriers to prevent other Handset man-
ufacturers from entering the market Nokia has occupied; on the other hand lead Nokia to lose sight of the
changes of outside and thus missed the best chance of reform. In order to obtain the high monopoly profits, No-
kia refused to work with other mobile phone manufacturers and gave this closure property to the extreme. Re-
fusing to cooperate did keep its own inherent market and achieve the monopoly to a certain extent, while the
Symbian system was very difficult to develop and the application were few, which made it hardly possible to
meet the consumers’ demand; at the same time Nokia’s strong style also forced other mobile phone manufactur-
ers seek to cooperate with each other. Owing to Android system was a fully open system, which can be applied
to any phone, so far many mobile phone manufacturers have joined the Android camp, such as Samsung,
HUAWEI, HTC, SONY Ericsson, Coolpad and ZTE, etc. Many Android camp companies’ cooperation was not
only enough to compete with Nokia, but also could enrich and improve the Android system develop more ap-
plications meeting the needs of consumers.

5. The Inspiration to Modern Enterprises

5.1. The Executives Need to Accurately Grasp the Market Trend
In the era of rapid development of science and technology, the replacement speed of products as well as service
was rapidly increasing. All customer needs, even the core needs that firms were most familiar with, would in-
evitably change. Therefore, enterprises should keep close to customers, and tried their best to study them, take
the change trend of their demands and satisfy them. Remember not to use the old marketing information, even
though they have been proven effective in the last years, because they might not be able to resonate with the
current customers. Just like the mobile phone industry, consumer demand for mobile phones has shifted from
functionality and durability to intelligence and entertaining, thus strengthening the phone’s hardware facilities
like Nokia was wrong, on the contrary, it should seek to develop and improve the software, the focus should also
be shifted from the call quality to the number of the applications and simplicity of operation.
Consumers’ demand and desire is the subjective feeling to consumption, and could be effected by a lot of
factors, such as the characteristics of the products itself, service quality, brand influence, the affordability, the
market trends, etc., so it would be extremely difficult to determine which one was more important. This required

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all companies to always stand in a leading position of the times, follow the market trends, have an insight into
the changes happened in the entire consumer market. On the one hand, enterprises can acquire the general situa-
tion of the past consumer demand through access to second-hand information about the development of the in-
dustry; on the other hand, enterprises could get better understanding of market changes through market research
to obtain the latest first-hand data of trends in consumer demand changes.

5.2. The Companies Should Make the Right Business Tactic

Business tactic means that the reaction that one enterprise takes to form their own advantages and create space
for survival and development by considering its advantages and disadvantages in the competitive environment.
Business tactic can’t remain unchanged, on the contrary, it must be adjusted to the changes of the internal condi-
tions and the external environment. Besides, Business tactic is related to future development of the enterprise.
So it is significant for any company to investigate and analyze the external environment and internal conditions
of enterprises, define the position of the enterprise in the market competition, and eventually have a clear direc-
tion about how to enhance its own strength.
Enterprises should abandon those programs that are not very suitable for the enterprise project quickly, as
Symbian has been unable to meet the smart phone requirements and unable to meet consumer demand, when
they have recognized the market trend. Any firms intending to occupy a share in the field of smart phones
should learn from Samsung, who withdrew from Saipan to Android camp in the early development of the smart
phone. As the result turns out, Samsung’s timely abandoning Symbian made it now the largest smart phone
maker in Android camp, and Nokia’s seeing the situation distinctly made it gradually lose the king of hill posi-
tion, even had no right to speak in smart phone market, and eventually ended up being acquired by Microsoft.
This is a revelation for modern enterprises, on the one hand to seize the opportunity to give up the business
tactic not adaptable to the market and its own development path early, on the other hand, to find a new way
suitable for the market and its own development prospects [7]. Companies must understand that the business
tactic of a business is its business strategy and have a significant impact on the enterprise, whether in the short
term or in the long term.

5.3. The Enterprises Should Be More Cooperative than Competitive

The current world is an open world, the resources, technology, management experience and so on have to be
shared under the rapid development and popularization of the Internet. There is no isolated enterprise, any en-
terprise is having a variety of contact with other enterprises, and it is proved that only cooperation is the source
and power of long-term development of enterprises. Any enterprise refusing to cooperate must be faced with the
fact that it will be defeated by other united companies in the same industry. Just like in the smart phone industry,
a number of mobile phone manufacturers in the Android camp grabbed Nokia’s market share to an empty.
So Nokia should have cooperated with other mobile phone manufacturers to broaden the entire mobile phone
market, in this way each company’s share of profits will increase accordingly, and the profit is far more than its
previous monopoly profits. But Nokia was unwilling to abandon the high monopoly profits Symbian brought,
worse still it was not willing to share the profits with other enterprises and rejected to collaborate with Android.
It may also be said that Nokia’s crisis was blamed for its conservation, because its rejecting to cooperate forced
other handset vendors to associate with each other, and the smart phone market share was seized step by step.
So the current enterprises must have a win-win idea and put it into action. Take a small step back is to take a
big step forward, and win-win does not mean to give up their own interests, but this is a more intelligent and
forward-looking profit thinking, it not only helps companies to preserve their own in the competitive environ-
ment, but also establish business partnerships to seek support for the future development.

6. Conclusion
This paper first introduced the background of Nokia’s acquisition by Microsoft, then proposed the research di-
rection of this paper based on the interviews by studying the problems, and followed by giving a brief account of
the three stages of Nokia’s development. After that, this paper analyzed the Nokia’s decline from three aspects:
Nokia’s executives didn’t grasp the market accurately; there was a deviation in the business tactic of the com-
pany; Nokia was lack of teamwork. Finally, this paper put forward the targeted marketing strategies on the

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above three problems of Nokia.

References
[1] http://www.cnii.com.cn/mobileinternet/2013-09/03/content_1214896.htm
[2] Fu, Z.S. (2010) Nokia Smart Phone Satisfaction Is Not High Operating System Closed or the Main Reason. communi-
cation Information
[3] Yi, M. (2011) When Nokia Met Apple. Business Management, 12, 60-62.
[4] Zheng, Z.Q. (2013) Influence of Utilitarianism and Hedonism on Purchase Behavior in Mobile Phone—Nokia and Ap-
ple as an Example. Journal of Liaoning Medical College, 10, 50-52.
[5] Yang. K. (2013) Nokia, the Giant Dying from the Advantage. East China Science and Technology, 9, 62-63.
[6] Zeng, F.P. (2012) Key of the Success of the Enterprise as an Example to Nokia. China Trading, 15, 60-63.
[7] Wang, Y.W., Ma, J., Wu, X.F. and Liu, S.C. (2012) Introduction of New Technology, Organizational Practice Update,
Enterprise Competitiveness Research-Based on Nokia, Apple Case Comparison Research. Science and Technology
Management, 11, 150-159.
[8] Wang, W.H. (2013) Superstar’s Death—Financial and Strategic Analysis of the Nokia Failure. Master’s Thesis, Xia-
men University, Xiamen.
[9] Shang, T.M. (2012) To Live or To Die, It’s a Question for Nokia. State-Owned Enterprise, 10.
[10] China Internet Network Information Center (CNNIC) (2012) China Mobile Internet Users Online Behavior Research
Report. 11.
[11] IResearch (2012) China Mobile Network Retail Market Testing Report. 12

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 Independent Journal of Management &
Production
E-ISSN: 2236-269X
[email protected]
Instituto Federal de Educação, Ciência e
Tecnologia de São Paulo
Brasil

Pal Singh, Netra

MICROSOFT ACQUIRED NOKIA IN UNIPOLAR OPERATING SYSTEM MARKET
Independent Journal of Management & Production, vol. 5, núm. 3, junio-septiembre, 2014,
pp. 598-622
Instituto Federal de Educação, Ciência e Tecnologia de São Paulo
Avaré, Brasil

Available in: http://www.redalyc.org/articulo.oa?id=449544335005

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 INDEPENDENT JOURNAL OF MANAGEMENT & PRODUCTION (IJM&P)
http://www.ijmp.jor.br v. 5, n. 3, June - September 2014
ISSN: 2236-269X
DOI: 10.14807/ijmp.v5i3.166

MICROSOFT ACQUIRED NOKIA IN UNIPOLAR OPERATING

SYSTEM MARKET

Netra Pal Singh

Management Development Institute, India
E-mail: [email protected]

Submission: 13/11/2013
Revision: 05/01/2014
Accept: 10/01/2014

ABSTRACT

The recent big tickets include Microsoft acquiring part of Nokia for US$
7.2 billion, Verizon buy 45% stake in Vodafone for US$130 billion,
Google acquiring Motorola for 12.5 billion. These buyouts are analyzed
and commented by experts of the industry. This research paper
attempted to collate their view in the context of Microsoft and Nokia
deal on six parameters. These parameters are (i) reasons for the
downfall of the Nokia market share, (ii) general comments of the
experts, (iii) similarities / dissimilarities of past and business models of
the smartphone business, (iv) reasons for Microsoft to buy out Nokia,
(vi) impact of buyout on Microsoft, Nokia, consumers and markets. In
addition, paper discusses the existing theories of merger & acquisition
in telecom sector in the past.

Keyword: Smartphone, Microsoft, Nokia, HERE Maps, Galaxy, Lumia,

Synergy Trap Hypothesis.

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DOI: 10.14807/ijmp.v5i3.166

1. INTRODUCTION

According to Redmond (2013), Microsoft will pay EUR 3.79 billion to purchase
substantially all of Nokia’s Devices & Services business, and EUR 1.65 billion to
license Nokia’s patents, for a total transaction price of EUR 5.44 billion in cash.
Microsoft will draw upon its overseas cash resources to fund the transaction. The
transaction is expected to close in the first quarter of 2014, subject to approval by
Nokia’s shareholders, regulatory approvals and other closing conditions. Microsoft
CEO Steven Ballmer told reporters at Nokia's headquarters in Finland, “It's a
signature event”.

Walton (2013) and other experts commented on Microsoft-CEO statement in

the context of buying Nokia. They said his justification is based on four factors.
These are (i) acceleration of phone share; CEO Microsoft quoted the success of
Lumia in the context, (ii) strengthens overall opportunity; CEO Microsoft mentioned
that Windows Phone will improve the health of the entire Windows ecosystem.
Microsoft believes that the traditional role of Windows in enterprise software will help
elevate Windows Phone into the workplace as well as in the home segment what it
called the “consumerization of IT”. Microsoft believed that increased smartphone
sales will lead to increased tablet sales and increased tablet sales will lead to
increased PC sales. It will help Microsoft to recreate every Google and Apple service
for Windows Phone, (iii) smart acquisition; CEO Microsoft mentioned that the
purchase used offshore cash so as not to have any impact on investors. Nokia
purchase will help company’s Windows Phone business to achieve breakeven of 50
million devices faster, (iv) strong execution plan; he mentioned that Nokia will
continue operating as it is with minimal interference coming from the merger. The
Nokia executive team will join Microsoft, but actual phone development will continue
unabated in Finland.

Further to it, Microsoft believes that there is an urgent need of having a mobile
handset device business, if Microsoft wishes to compete with Google and Apple.
However, the experts and the market have different views on the buyout. Sizable
segment of the market does not report it a best buyout for Microsoft.

In any case, the success and failure of the Microsoft and Nokia deal will have
huge impact on the phone business across the globe. Keeping in view the

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importance of such deal in mobile phone market, this research is attempted with two
objectives.

Objective 1: To present an analysis of the very recent views expressed by experts

and members of eco-systems of mobile communication industry. These
views are mainly with respect to impact on eco-systems of mobile
industry, acquirer Microsoft and bought out company Nokia.

Objective 2: To established similarities with earlier theories/findings of merger and

acquisition of telecom sector such as synergy trap hypothesis
(MYEONG-CHEOL, et al. 2002), asset efficiency hypotheses (SALLEH,
et al. 2013; BARKEMA; SCHIJVEN, 2008), hypothesis with respect to
innovative performance of the acquiring firm and similarities in
knowledge base of acquired firm (CLOODT, et al. 2006), and ethical
conduct of mergers and acquisition have relations with job performance
(LIN; WEI, 2006).

2. METHODOLOGY

The methodology adopted in this research work is exploratory cum descriptive

in nature. The methodology of the study is designed keeping in view above two
objectives of the study. Most of the data used in the study is secondary data
collected from the articles, news reports, press releases published on the web before
and after the buyout of Nokia phone business by Microsoft. These sources are very
recent. The analysis is similar to content analysis. Key words and phrases were
identified from the secondary sources with respect to (i) reasons for downfall of
Nokia, (ii) general views on the deal in the market, (iii) similarities & dissimilarities of
the past & business models in relation to merger & acquisition activities of
competitors in the market, (iv) specific reasons for Microsoft to buy Nokia, (v) impact
on the stakeholders.

In addition, analysis of the Microsoft-Nokia deal is done with the following

earlier theories/ researches of the past with respect to telecom company’s merger
and acquisition.

(i) Synergy Trap Hypothesis: It says that immediately before and after an
acquisition announcement, the acquiring firm’s stock price is negatively

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affected and the target firm’s stock price is positively affected. (MYEONG-
CHEOL, et al. 2002).

(ii) Technical Efficiency: Merger & Acquisition (M&A) activities are one of the
routes to enhance relative technical efficiency in an effort to increase the
overall efficiency which would later be translated into increase revenue.
(SALLEH, et al. 2013); BARKEMA; SCHIJVEN, 2008).

(iii) Innovative performance: Non-technological M&As appear to have a negative

impact on the acquiring firm’s post-M&A innovative performance. With respect
to technological M&As, a large relative size of the acquired knowledge base
reduces the innovative performance of the acquiring firm (CLOODT et al.
2006).

(iv) Ethical conduct: Ethical conduct in M&A is significantly correlated with

employee job performance (LIN; WEI, 2006).

It is difficult to prove all such theories at this stage since empirical evidences
for some hypotheses are not yet available at present. But it was possible to have
data collected with respect to first and fourth hypotheses from the sources as listed
above.

The data with respect to recent statistics of top smartphone operating systems
(OS), shipments, and market share from 2008 to 2013, world wide mobile terminal
sales to end users from 2009 to 2013, smart phone OS Shares in select countries for
July 2012 & 2013 with a view to see the dominance of operating system providers
and handset manufacturers.

In addition, data with respect to market share forecast of Operating System in

India for 2017, and market share of feature phones and smart phones in India for the
year 2Q 2011, 2Q 2012, 2Q 2013 was also collected to have an idea how the
dynamics of a big market is behaving. The data is given in Table A1 to Table A6.

3. REASONS OF DOWNFALL OF NOKIA

This section present reasons for the downfall of the Nokia. Analysis is based
on mainly expert opinion of Murtazin (2010), Thompson (2013), Gassée (2012), Ciol
(2012), Chang (2012), Ahonen (2013), Edwards (2013), Rox (2012), Lobo (2011),
Fundey.com (2012), and Dominies Communicate (2013).

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(i) Operating System & Apps: During August, Thompson (2013) wrote that both
BlackBerry and Nokia had significant strengths in this stack:

“BlackBerry had differentiated hardware – there are people who still swear by
their keyboards – and highly differentiated services, including BlackBerry
Enterprise Server and BlackBerry Messenger”

“Nokia dominated all the parts of this stack you don’t see: they had, and in
some respect, still have, the best supply chain and distribution network. In
addition, they had high quality hardware that served every segment
imaginable”

However, these strengths were missing in operating system & apps for
success and compete. Ciol (2013) reported that operating system space was
nearly occupied by Android and iOS and Window operating system does not
have much role.

(ii) Domination Blindness: Gassée (2012) mentioned that with its Microsoft
Exchange integration; a solid personal information manager that neatly
combines mail, calendar, and contacts; and the secure BlackBerry Messenger
network, the "CrackBerry" is rightly perceived as the best smartphone on the
market. The success blinded the management and it refuses to accept that
the iPhone poses a threat to their dominance. Apple and Google deploy
technically superior software platforms that expose the BlackBerry's weaker
underpinnings. In 2010, RIM acquires the QNX operating system in an effort
to rebuild its software foundations, but it's too late.

Story is the same for Nokia. In 2007 Nokia was the world's largest mobile
phone maker, but Nokia could not see the technical shortcomings of aging
Symbian, or the utility of their attempts to "mobilize" Linux. It allows iOS and
Android devices quickly eat into Nokia's market share and market cap.

(iii) Leadership: Ahonen (2013) listed the achievement of Elop, CEO of Nokia on
three parameters, i.e., (i) Nokia revenue, Nokia profits, Standard & Poor
Ratings of Nokia, (ii) handset revenue, profits, volumes, market share, and (iii)
smart phone unit revenue, profits, volumes, market share. He concluded that
Nokia was 50% bigger than Samsung when Elop joined & now Samsung is
30% bigger than Nokia in handset market. In smartphone segment Nokia was
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twice of number (2) Tim and Number (3) Apple and now even Samsung is 12
times of Nokia. He rated him as worst CEO. Similar sentiments were shown
by Edwards (2013) in the context of “Burning Platform” memo.

(iv) Delay in giving up Symbian: Nokia was slow to react on the aging features
of Symbian which were not in line of consumer demands (CHANG, 2012;
CIOL, 2012). Microsoft is still shipping the 2nd version of its Windows Phone
OS, whereas Android and Apple are in their 10th version (Jelly Bean) and 7th
version (iOS7) of Operating Systems (PATHAK, 2013).

(v) Politics of Middle Management: Middle management of any organization

plays a crucial role in sustaining the growth in all segments. However, Nokia
middle management was highly publicized. It was focusing more on internal
competition and their personal interest. The phenomenon of co-operation was
missing at middle level (DOMINIES COMMUNICATE, 2013).

(vi) Stiff Project Management: Exceedingly stiff project management model and
management was another reason for lack of innovation and in turn downfall.
Project management model was tuned to manufacturing process efficiency
not for innovation. For the workforce it was difficult to innovate against the
manufacturing process efficiency (DOMINIES COMMUNICATE, 2013).

(vii) Nokia failed in the race with Samsung: Nokia could not market itself as
innovator in the market (CHANG, 2012; CIOL, 2012). The price of Nokia
phones has been higher than Samsung phones. In addition, Samsung has the
capacity to launch new models in every 40 days while Nokia has very limited
capacity of introducing new models (FUNDEY.COM, 2012).

(viii) Hurt on the lower end and also by local vendors: Nokia did not anticipated
competition in the lower end of the market. Its competitors such as HTC,
Huawei and ZTE, competed better in low-end emerging markets like China
(CHANG, 2102). Similarly, in dual SIM emerging market of India where in
Nokia could not compete with local vendors such Micromax, Haier, Spice
Mobiles, Maxx Mobiles etc; due to its arrogance (LOBO, 2011). The story was
a repeat of dual SIM card phones in other countries such as Russia. Nokia
was slow to react (MURTAZIN, 2011).

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(ix) Android paid off (for Samsung) and Windows Phone Hasn’t … Yet (for
Nokia): Samsung bet on multiple platforms (Android, Windows Phone, and
homegrown OS, Bada). Android paid off handsomely. Samsung chose
Android at the right time. Nokia, spent time on Symbian. Its partnership with
Microsoft was too late from business perspective (CHANG, 2012).

(x) Strategic Move in relation to MeeGo, Qt-A, Meltemi: Rox (2012) analyzed
the strategies of the Nokia before February, 2011 and after arrival of Elop &
concluded that “bad luck + bad execution of plans and mistakes of Elop (CEO
Nokia) lead to the massive downfall. Utkarsh (2013) cited MeeGo as NoGo, a
reason for the downfall of Nokia. He also cited that Ovi store never really took
off. Linux based Melteni platform melted due to layoff of employees by Nokia.
However, it continued to make investment in Qt-A.

4. GENERAL COMMENTS / VIEWS/ STATEMENTS OF THE EXPERTS /

RESEARCHERS

In the past experts, executives, researchers have expressed their views about
the deal. They have described it as terrible idea to an excellent one in the context of
economic environment across the globe. These views are listed in the following:

(i) Data given in table 1 is an ample proof that this deal is not very costly in
comparison to earlier ones. Nokia bought NAVTEQ for 8.1 billion, which is the
forefather of today’s HERE Maps. It is included in Microsoft Nokia deal for 7.2
billion. It is therefore cheap acquisition.

(ii) Microsoft/Nokia deal is a terrible idea in the present context (MIMS, 2013).

(iii) There is very little in this acquisition for the Microsoft. Microsoft’s, previous
partnership with Nokia had yielded every bit of this deal as mentioned by
Mobile Analyst Ben Thompson (MIMS, 2013).

(iv) It is an act of “quiet desperation” that is unlikely to succeed (Om Malik of

GigaOm (MIMS, 2013)).

(v) It will drive volumes of business for Microsoft in mobile phone business
domain CEO Microsoft (MIMS, 2013).

(vi) It will triple Window Phone Market Share by 2018 in many markets across the
globe (BLAGDON, 2013).
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(vii) The layoff factor will be nil to nonexistent, as per Colliers International Senior
Vice President Jim Beeger (DONATO-WEINSTEIN, 2013). It is contrary to
Google-Motorola deal wherein layoff of 20% employees was announced as
first step by Google after inking the deal (MILLER, 2012). The process of
layoff by Google is continued during 2013 (ROWINSKI, 2013).

(viii) The deal that make no sense (THOMPSON, 2013).

(ix) Nokia buy makes it easier to envision cleaving Microsoft along devices and
services lines of its business (FOLEY, 2013).

(x) Nokia threat: Microsoft had to buy Nokia because Nokia was going to stop
making Windows Phones very soon and planning to switch to Android (Views
of the experts (GRALLA, 2013).

(xi) It is a clear sign that Microsoft believes it can and must succeed in the phone
business. It cannot afford to leave the success in the hands of a partner like
Nokia. Microsoft’s phone software has managed to pass BlackBerry, but
remains a distant No. 3 platform to Google’s Android and Apple’s iOS (FRIED,
2013).

(xii) “It is combination of two weak companies. It will emerge as a strong new
competitor in the phone domain is doubtful” said Paul Budde, a
telecommunications consultant in Sydney. Further comments: “Both Nokia
and Microsoft really missed the boat in terms of smartphones, and it is
extremely difficult to claw your way back from that.” (BASS; HEISKANEN;
FICKLING, 2013).

(xiii) Metz (2013) reported that it will be a best shot to Microsoft in a world that’s
quickly moving from desktops and laptops (Microsoft’s traditional domain)
onto smartphones and tablets. Rise of Google’s Android mobile operating
system and the Apple iPhone, forced Microsoft to change its ways.

(xiv) Metz (2013) mentioned that Google bought Motorola, to better compete with
Apple. Microsoft has bought Nokia to compete with both of them (Google &
Apple). He also said that Microsoft is in habit of following Google & Apple.

(xv) Three lessons for Nokia (a) Nokia should have not rested on its laurels, (b)
Nokia should have challenged itself, and (iii) Nokia should have been

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surrounded by Web companies or consumer-electronics manufacturers to

succeed (LYNN, 2010). These lessons are true for today’s winners also.

(xvi) On the capabilities of Window phone, a Senior Manager, Nokia Multimedia in

T&T forum said that “You can’t make a Ferrari sports model on top of Lada
engine” (DOMINIES COMMUNICATE, 2013).

(xvii) Nokia has strong carrier relationship with African telecom operators. It has
brand equity, and excellent supply chain. It has a good position in Africa's
dumb and feature phone segments. Microsoft will make advantages of it in
future (HARRIS, 2013).

(xviii) Garnry (2013) mentioned that “The job is not done for Nokia. In fact the
struggle might continue, but today Nokia is the winner. Microsoft is no longer
one obvious buyer of BlackBerry’s mobile division” now.

(xix) Marek (2013) mentioned that “if history is any indication, it's clear that even
when the strongest companies acquire weaker ones, it doesn't spell
instantaneous success”.

Table 1: Past Acquisition in $ Billion in the Domain

SN Deal Year Amount
1 Google buys Motorola Mobility 2011 12.5 Billion
2 Microsoft buys Skype 2011 8.5 Billion
3 Nokia buys NAVTEQ 2007 8.1 Billion
4 Microsoft-Nokia deal 2013 7.2 Billion
5 Nokia buys out Siemens out of NSN 2013 2.2 Billion
6 Sony buys out Ericsson 2012 1.5 Billion
7 NSN buys Motorola audio assets 2011 1.2 Billion
8 Microsoft buys Yammer 2012 1.2 Billion
9 Face book buys Instagram 2012 1.0 Billion
10 Nokia sells Vertu 2012 0.26 Billion
Source: Peter (2013), Hill (2012)

5. SIMILARITIES & DISSIMILARITIES OF THE PAST & BUSINESS MODELS

Zeigler C. (2011) reported that Google dropped its "top five" Android partners
to let them know that this Motorola acquisition was taking place. Microsoft has not
done yet after making the announcement of acquiring Nokia. However, it is reported
by the experts that it may be end to Window Phone Licenses (ROGOWSKY, 2013).

Google's primary goal was to shore up Android's shaky patent situation.

Though it was not the exact case for Microsoft but Nokia buy out had increased the
size of the basket of its patents.

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The smart device market has two basic business models as followed by Apple
& Google. Additional models are also visible in the market & can be termed as
Samsung Model or future Microsoft-Nokia Model. These models are listed as under:

(i) Apple Model: Apple has focused on a closed vertical integration model where
the device value is high and is based on a combination of software and
hardware, and the cost model reflects that value. In addition, the closed
nature of the ecosystem extends the control and the overall price (and
underlying costs).

Baker (2013) mentioned that Apple has approached the market from the
customer end, choosing to own the OS, most of the service infrastructure, the
distribution as a way to keep as much revenue within their ecosystem and
deliver profits. It is further moving back into the supply chain, developing its
own processors for example.

(ii) Google Model: Google model has as many devices as possible allow users
to consume Google cloud services. It has opened up OS Android to a large
set of device vendors, driving a market where the software has little to no cost
and reflects lower product costs and prices. Though recently, it had acquired
Motorola to have some intent of Apple Model.

(iii) Samsung Model: Baker (2013) said that Samsung is primarily supply chain-
based business model. It is controlling much of the production of the
components and it can better manage cost and supply. In addition, it rely on
others partners to provide the front-end customer services such as support of
distribution, software, Operating System, and services. Further, it is venturing
in to these domains by having its own OS & other tools but these tools are not
yet very popular.

(iv) Microsoft Model: Microsoft business model will be somewhat similar to Apple
and Samsung. Microsoft has an OS basket, and other tools such as Skype &
Lync that depend on open integration of smart device which none of the
competitors have in the domain (EDHOLM, 2013). He added further, that
Microsoft has been out-flanked for two of the cloud pillars, search and social.
In addition, Microsoft has a reasonable position in the gaming pillar (Xbox
Live) but it has minimal positions in entertainment (Netflix, Amazon Prime,

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MSOs). It means, Microsoft's strength is in communications and productivity

apps (Office 365). Still it has gaps. Nokia is the beginning of strategy which
has filled the gap in the hardware segment. It also needs the client business
the way Samsung and Apple do. In Microsoft environment its client partners
are suffering. Even Nokia is an example. Window OS has failed to bailout it.
After filling the gaps Microsoft may emerge with a better business model.

6. REASONS FOR MICROSOFT TO BUYOUT NOKIA

The community of the experts came out with many reasons that are
responsible for the deals between Microsoft and Nokia. These reasons are listed in
the following.

(i) To compete better with Android and iOS & also to take full control of its
smartphone destiny (CRINGELY, 2013; ROGOWSKY, 2013).

(ii) To support Ballmer’s (CEO Microsoft) new devices and services strategy for
the Microsoft (CRINGELY, 2013).

(iii) The deal will bring 32,000 Nokia employees on board of Microsoft. It will
transform Microsoft into a true multinational company with all the tax flexibility
(CRINGELY, 2013).

(iv) Acquisition of a global brand and an effort to keep Nokia away from jumping
into the Android camp (CRINGELY, 2013).

(v) To create a setup which gives Nokia full control over the Windows Phone
platform, and Microsoft does not want to lose its primacy over its mobile
efforts (WILHELM, 2013).

(vi) Apple and Google control mobile software and hardware, which allows them
to push their own services to users. Microsoft can do the same by acquiring
Nokia phone business (WILHELM, 2013).

(vii) It is a mile stone in Microsoft’s efforts to break Apple and Google’s hold on
smartphone business (WILLIAMS, 2013).

(viii) The deal will protect Windows Phone platform future and will make it may
make it more competitive & can give impetus to innovation (BARRETT, 2013;
OVIDE, 2013).

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(ix) Microsoft currently makes less than $10 from every Windows Phone unit sold;
that number may go up when it's all in-house (BARRETT, 2013).

(x) Nokia's Lumia smartphones are beautiful, well-designed, solid, and top build
quality. Lumia didn't sell well, but still more successful than Microsoft's
Surface tablet. Nokia Lumia will guarantee that Microsoft's push into
smartphones is not an embarrassment (BARRETT, 2013).

(xi) The deal provided an opportunity for better Utilization of cash Microsoft kept
away from the US taxman (TIMMONS, 2013).

(xii) Finland is planning to cut its corporate tax rate to 20% from 24.5% to attract
new business. It will be to the advantage of Microsoft (TIMMONS, 2013).

(xiii) Ballmer Statement “Integration of two great teams will accelerate Microsoft’s
share and profits in phones, and strengthen the overall opportunities for both
Microsoft and our partners across our entire family of devices and services”. It
mean new synergies will be created (METZ, 2013).

(xiv) Google also bought an enormous collection of smartphone-related patents

(more than 17000 patents at the total buy of $12.5 billion in Motorola deal in
Motorola deal). Microsoft does the same with Nokia deal by buying 8,500
design patents of Nokia (METZ, 2013; MILLER, 2102).

(xv) It will help Microsoft to make more money per handset, less redundant
marketing efforts and access to the source code for Nokia's mapping
software. But if App Ecosystem is not improved by Microsoft it will be a naught
(JOHNSON, 2013).

(xvi) Microsoft was very keen to be in the Windows Phone smartphone business &
also wants to bring Stephen Elop back to the company as CEO (WOLF,
2013).

(xvii) It is possible that Nokia threatened to switch to Android (the relevant contracts
are getting close to renewal), rather as Motorola threatened to sue other
Android OEMs before Google bought it (GRALLA, 2013).

(xviii) Issues Related to Window Phone OS: Restrictions on Lumia 1020 camera
software. A Bluetooth file sharing feature is particularly popular in developing

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countries, but Microsoft wasn’t aware as US consumers don’t typically use it.
It can exploit these features in developing countries (WORSTALL, 2013).

7. IMPACT OF THE BUYOUT ON STAKEHOLDERS OF ECOSYSTEM

As reported by large number of experts of the industry, the deal will have a
huge impact on the ecosystem of the mobile phone industry across the globe. It may
put breaks on Android to convert present Unipolar OS market (as evident from the
data given in tables A1 to A6) in to Multi-polar OS Market. Additional impacts of the
deal are listed in the following.

(i) Shares of Microsoft slid as much as 6% in the afternoon of the deal date,
reducing market value of Microsoft by $15 billion, as investors protested the
acquisition of an underperforming and marginalized corporation that lost more
than $4 billion in 2012 (REUTERS, 2013). It is in sync with synergy trap
hypothesis in the context of mergers and acquisitions (MYEONG-CHEOL, et
al. 2002).

(ii) It will brings an end to Nokia’s three-decades-long adventure mobile phones

selling, as well as speculation about a future sale to Redmond, dating back to
the moment Nokia announced a former Microsoft executive, Stephen Elop,
would take the reins in September 2010 (OLSON, 2013).

(iii) The deal will make Microsoft a big time hardware player, and Nokia will shift
focus to technologies and software (RAJAN, 2013). Nokia will focus on its
three established businesses, i.e., (a) network infrastructure and services; (b)
mapping and location services; and (c) advanced technologies (RAJAN,
2013).

(iv) It will position Microsoft as number three provider in the smartphone domain
(ROGOWSKY, 2013).

(v) It will effectively end the Windows Phone licensing business. It may not be
true. Business model of Microsoft may emerge more innovative
(ROGOWSKY, 2013).

(vi) It's a bold step into the future - a win-win for employees, shareholders and
consumers of both companies (ASSOCIATED PRESS, 2013).

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(vii) It will expand the range of applications on Microsoft products. It may also
force the competitors as well as Microsoft to innovate more in all segments of
the mobile phone business.

(viii) Nokia shares jumped as much as 48 percent in Helsinki as the deal with
Microsoft removes a money-losing handset business and lets Nokia focus on
higher-margin networking gear (BASS; HEISKANEN; FICKLING, 2013). It is
again in sync with synergy trap hypothesis in the context of mergers and
acquisitions (MYEONG-CHEOL, et al. 2002).

(ix) Windows phone partners such as HTC, Samsung and Huawei will be loser
(MIMS, 2013). It is yet to be proved.

(x) Asha OS: Microsoft has bought Nokia’s line of Asha quasi-smart phones.
These devices are halfway in between “dumb phones” and smartphones in
features and processing power. Nokia has done an impressive job of making
them into an affordable alternatives to smartphones for emerging markets. It
may be end for Asha OS if it is replaced with Windows (MIMS, 2013).

(xi) Blackberry can no longer count on a Microsoft acquisition to save it (MIMS,

2013).

(xii) Samsung just recently pulled ahead of Nokia in India, and if Microsoft bungles
the transition of India’s Asha fans to Windows Phone, a transition that might
not work even under the best circumstances. It will be an advantage to
Samsung (MIMS, 2013).

(xiii) Huawei, ZTE and Samsung are already leading the Android charge in
emerging markets, but right on their heels are the “no-name” manufacturers of
Android phones, which already produce 1 in 4 Android handsets. If Asha is
out of the race in India, the local manufacturers could make further inroads
into a huge new market (MIMS, 2013).

(xiv) The acquisition may solve Nokia's problem of cash (GRALLA, 2013).

(xv) It had prevented the only Windows Phone original equipment manufacturer
(OEM) from vanishing from the market (GRALLA, 2013).

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(xvi) Microsoft would obviously reduce or remove the high charges for licensing its
mobile operating system. Hence there is a possibility of getting low-priced
Lumia phones very soon (DATTA, 2013).

(xvii) OEMs may develop their own ‘non-Google’ version of the Android OS, and
may become independent of existing OS developers (PATHAK, 2013).

(xviii) Both Microsoft and BlackBerry will be competing for the third place in the war
of operating systems specifically in the enterprise space (PATHAK, 2013).

(xix) Nokia’s mobile telephony patents (10,000 in number) may put a little more
financial strain on Korean Handset Manufacturers (Samsung, LG Electronics,
and Pantech) (BUSINESS KOREA, 2013).

(xx) Nokia focus was on Asian Markets. Microsoft will focus on USA & Europe
Markets (SINGH, 2013). Microsoft may also focus on Asian markets.

(xxi) It may result in to breakup of Microsoft into at least two separate operating
businesses: one focused on consumers and one on enterprises (WOLF,
2013).

(xxii) Microsoft will not lay off employees of Nokia. It will be ethical practice and may
enhance job satisfaction among employees. It is in line with the theories of Lin
and Wei (2006).

8. CONCLUDING REMARKS

The world is short of business models in the domain of smartphone business.

It is battle of the supremacy between manufacturers of the handsets versus mobile
operating system providers. Though the world of mobile OS is divided between
Google, Apple, and Microsoft, but it is now between Android V/s rest OS providers.
This is evident from the data given in table A1, A3 and A4. This is the reason author
termed Mobile OS world as a unipolar world. At the moment mobile operating system
providers have upper hand over handset manufacturers. Hall (2013) mentioned that
Microsoft has acquired Nokia “to accelerate its share and profits in phones, to create
a first-rate Microsoft phone experience for its users, to prevent Google and Apple
from foreclosing app innovation, integration, distribution and economics”.

Many initiatives are taken by Nokia similar to the competitors. To mention,

Samsung has branded Android products around Galaxy. In response, Nokia also
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tried to use Lumia. Rebranding of "Nokia Maps" to "HERE Maps" on non-Symbian

platforms makes a total sense because map side of Nokia is free to expand in other
markets (LITCHFIELD, 2013). It has been reported that Nokia’s execution has been
shoddy in recent years; it doesn’t mean it can’t make a comeback with Windows
Phone. Nokia and Microsoft have huge assets. It may come out to be a good
chemistry & Windows Phone may be a great success. Even, Nokia’s Mobile
Telephony Patents may put a Strain on Korean Handset Manufacturers.

Microsoft may bring in to the market powerful combination of low-cost, secure,

functional smartphones. It may integrate across multiple devices e.g. smartphones,
PCs and game console, that can meet the requirement of individual and businesses
users. Microsoft can incorporate Yammer, Skype, Xbox, Outlook and Office to
compete with Google Android. Recent entry of new operating system players like
Ubuntu, Firefox and Tizen will make war of smartphone operating systems very
interesting in days to come. In addition, growth of small local vendors will provide a
good competition to Microsoft. To mention, two local vendors such as Micromax,
Karbonn in India are competing with international brands as can be seen from the
data given in Table A5 & Table A6.

The bigger issues with Microsoft could be integration of the employees of

Nokia as well as phone business, competing with Google, be a device company or a
services company. It is not like Google at the moment as Microsoft is not removing
Nokia employees from jobs. It is in line with findings of Lin and Wei (2006). Buyout
also proves the synergy trap hypothesis of Myeong-Cheol Park, et al. (2002). For
other two hypothesis data is not yet generated by the merger.

In the end, it is summarized that present Mobile OS world is “Unipolar” world

as far as mobile operating system is concerned. Still the ecosystem will consist of
many Mobile OS players which will compete successfully with Android, and all
categories of mobile phones manufacturers due to economic conditions of the users
in different parts of the world. It will include international, national, as well as local
brands. This conclusion is somewhat in line of conclusion of Singh and Nayeem
(2011) in case of expansion strategies of biggies in Business Intelligence domain.

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DOI: 10.14807/ijmp.v5i3.166

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DOI: 10.14807/ijmp.v5i3.166

ANNEXURE

Table A1: Top Smartphone Operating Systems, Shipments, and Market Share, 2013
Q3 (Units in Millions)
Operating 2Q13 Unit 2Q13 Market 2Q12 Unit 2Q12 Year-Over-
System Shipments Share % Shipments Market Year Change
Share % %
Android 187.4 79.3 108 69.1 73.5
iOS 31.2 13.2 26 16.6 20.0
Windows 8.7 3.7 4.9 3.1 77.6
Phone
Blackberry OS 6.8 2. 7.7 4.9 -11.7
Linux 1.8 0.8 2.8 1.8 -35.7
Symbian 0.5 0.2 6.5 4.2 -92.3
Others N/A 0.0 0.3 0.3 -100.0
Total 236.4 100 156.2 100. 51.3

Source: IDC Worldwide Mobile Tracker, August 07, 2013

Continued…
Operating System 2Q11 Unit 2Q11 Market 2Q10 Unit 2Q10 Market
Shipments Share % Shipments Share %
Android 50.8 46.97 20.5 25.5
iOS 20.4 18.8 13.5 16.7
Windows Phone 2.5 2.3 2.2 2.8
Blackberry OS 12.5 11.5 11.9 14.8
Linux 3.3 3.0 1.7 2.1
Symbian 18.3 16.9 29.5 36.6
Others 0.6 0.5 1.2 1.5
Total 108.3 100 80.5 100

Source: For 2010: http://tamss60.tamoggemon.com/2010/11/14/gartner-on-smartphone-marketshare-q3-2010/

For 2011: http://www.idc.com/getdoc.jsp?containerId=prUS23638712
Continued…
Operating 2Q09 Unit 2Q09 Market 2Q08 Unit 2Q08 Market Year-Over-
System Shipments Share (%) Shipments Share (%) Year Change
(%)
Android 1.2 2.8 - - -
iOS 5.2 13.7 0.7 2.1 626.9
Windows 3.4 9.0 4.8 14.3 -28.7
Phone
Blackberry OS 8.0 20.9 5.6 16.7 41.6
Symbian 19.2 50.3 19.6 58.2 -2.1
Others 1.2 3.3 2.9 8.6 -56.8
Total 38.1 100 33.6 100 100

Source: http://radar.oreilly.com/2009/08/whos-winning-the-smartphone-wa.html

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DOI: 10.14807/ijmp.v5i3.166

Table A2: Worldwide Mobile Terminal Sales to End Users in 3Q10 (Thousands of
Units)
Company Q3 2009 Q3 Share Q3 2010 Q3 Share Q3 2011 Q3 2011
in % in % Share in
%
Nokia 113,466.20 36.7 117,461.00 28.2 82,612.20 18.7
Samsung 60,627.70 19.6 71,671.80 17.2 105,353.50 23.9
LG 31,901.40 10.3 27,478.70 6.6 17,295.30 3.9
Apple 7,040.40 2.3 13,484.40 3.2 14,107.80 3.2
Research In 8,522.70 2.8 11,908.30 2.9
Motion 21,014.60 4.8
Sony Ericsson 13,409.50 4.3 10,346.50 2.5 10,668.20 2.4
Motorola 13,912.80 4.5 8,961.40 2.1 9,004.70 2
HTC 2,659.50 0.9 6,494.30 1.6 12,701.10 2.9
ZTE 4,143.70 1.3 6,003.60 1.4 11,182.70 2.5
Huawei 3,339.70 1.1 5,478.10 1.3
Technologies 12,099.90 2.7
Others 49,871.10 16 137,797.60 33 145,462.20 32.9
Total 308,894.70 100 417,085.70 100 441,502.20 100
Source: Ranger, (2013)
2009, 2010: http://www.gartner.com/newsroom/id/1466313
2011: http://www.gartner.com/newsroom/id/2237315
Continued…

Company Q3 2012 Q3 2012 Share Q2 2013 Q2 2013 Share

in % in %
Samsung 97,956.80 22.9 107,526.0 24.7
Nokia 82,300.60 19.2 60,953.7 14.0
Apple 23,550.30 5.5 31,899.7 7.3
ZTE 16,654.20 3.9 15.280.7 3.5
LG Electronics 13,968.80 3.3 17,016.4 3.9
Huawei Device 11,918.90 2.8 11,275.1 2.6
TCL Communication 9,326.70 2.2 10,134.3 2.3
Research in Motion 8,946.80 2.1 - -
Motorola 8,562.70 2 - -
HTC 8,428.60 2 - -
Others 146,115.10 34.2 181,072.5 41.7
Total 427,729.50 100 435,158.4 100
Source: 2012: http://www.gartner.com/newsroom/id/2237315
2013: http://www.gartner.com/newsroom/id/2573415

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ISSN: 2236-269X
DOI: 10.14807/ijmp.v5i3.166

Table A3: Smart Phone OS Sales (%) in Select Countries

Germany 3m/e 3m/e % USA 3m/e 3m/e %
July July Change July July Change
2012 2013 2012 2013
iOS 13.3 11.2 -2.1 iOS 35.6 43.4 7.8
Android 73.3 76.8 3.4 Android 58.7 51.1 -7.6
BlackBerry 0.6 0.8 -0.2 BlackBerry 1.9 1.2 -0.7
Symbian 5.0 1.4 -3.6 Symbian 0.0 0.0 0.0
Windows 6.2 8.8 2.6 Windows 3.0 3.5 0.5
Others 1.5 1.0 -0.5 Others 0.9 0.8 -0.1
GB 3m/e 3m/e % China 3m/e 3m/e %
July July Change July July Change
2012 2013 2012 2013
iOS 23.3 31.1 7.8 iOS 26.3 22.4 -3.9
Android 59.1 55.2 -3.8 Android 61.7 70.5 8.8
BlackBerry 11.0 3.5 -7.5 BlackBerry 0.1 0.1 0.0
Symbian 1.7 0.5 -1.2 Symbian 5.2 2.9 -2.2
Windows 4.2 9.2 5.0 Windows 4.6 2.4 -2.2
Others 0.7 0.4 -0.3 Others 2.2 1.6 -0.5
France 3m/e 3m/e % Australia 3m/e 3m/e %
July July Change July July Change
2012 2013 2012 2013
iOS 12.7 17.3 4.6 iOS 28.0 28.1 0.1
Android 62.1 62.5 0.4 Android 62.9 62.0 -0.9
BlackBerry 9.2 3.7 -5.5 BlackBerry 1.4 0.3 -1.1
Symbian 2.1 1.5 -0.6 Symbian 1.8 1.1 -0.7
Windows 3.6 11.0 7.4 Windows 4.6 7.0 2.4
Others 10.3 4.1 -6.2 Others 1.3 1.4 0.4
Italy 3m/e 3m/e % Mexico 3m/e 3m/e %
July July Change July July Change
2012 2013 2012 2013
iOS 14.8 16.2 1.5 iOS 3.3 9.2 5.8
Android 58.2 71.0 12.8 Android 28.3 60.0 31.7
BlackBerry 4.1 1.8 -1.2 BlackBerry 34.9 10.0 -25.0
Symbian 12.4 1.8 -10.5 Symbian 24.7 7.3 -17.5
Windows 8.3 7.8 -0.5 Windows 2.0 12.5 10.5
Others 2.3 0.3 -2.0 Others 6.7 1.1 -5.6
Spain 3m/e 3m/e % EUS 3m/e 3m/e %
July July Change July July Change
2012 2013 2012 2013
iOS 2.9 6.1 3.1 iOS 14.8 17.9 3.1
Android 82.5 89.9 7.3 Android 66.2 69.1 2.9
BlackBerry 9.4 0.7 -8.7 BlackBerry 6.7 2.4 -4.3
Symbian 2.1 0.7 -1.5 Symbian 4.3 1.1 -3.1
Windows 1.7 1.8 0.1 Windows 4.9 8.2 3.3
Others 1.4 0.9 -0.5 Others 3.2 1.3 -1.9
Source: http://techpinions.com/windows-phone-android-and-hate/22730

Table A4: India Smartphone Share by Operating System

Operating System 2012 2017 Source
Android 74% 74% Singh (2013)
Window Phone 4% 15%
Apple iOS 3% 6%
Blackberry 6% 4%
Others 14% 1%

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ISSN: 2236-269X
DOI: 10.14807/ijmp.v5i3.166

Table A5: Market Share of Feature Phones

Manufacturer 2011 Q2 2012 Q2 2013 Q2 Source
Nokia 23% 17% 15% Singh (2013)
Samsung 14% 17% 12%
Karbonn 5% 5% 8%
Micromax 8% 5% 8%
Others 50% 56% 57%

Table A6: Smart Phone Market Share in India

Manufacturer 2011 Q2 2012 Q2 2013 Q2 Source
Nokia 46% 17% 5% Singh (2013)
Samsung 21% 50% 26%
Karbonn 0% 1% 13%
Micromax 1% 6% 22%
Others 32% 24% 34%

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Case

Could the Adoption of South Asian Journal of

Business and Management Cases
Organizational Ambidexterity 8(2) 167–181, 2019
© 2019 Birla Institute of Management Technology
Have Changed the History Reprints and permissions:
in.sagepub.com/journals-permissions-india
of Nokia? DOI: 10.1177/2277977919833752
journals.sagepub.com/home/bmc

M. M. Sulphey1

Abstract
Nokia, more than a century-old company, rose to stardom as the market leader for mobile phones in
the 1990s and continued to be so until the early 2000s. Thereafter, the decline of Nokia started. The
firm had to sell many of its assets and its mobile phone division to Microsoft. It later became a trun-
cated company and ultimately faded into oblivion. Management and academic experts have analysed
the reason for the failure of Nokia from various dimensions. The present work analyses Nokia’s failure
from the viewpoint of organizational ambidexterity (OA). OA is defined as the ‘ability to simultane-
ously explore and exploit, enabling a firm to succeed at adaption over time rather than pursuing limited
activities’. This can be considered as the first attempt to analyse the failure of Nokia through the lens
of ambidexterity. It is concluded with compelling evidence that the story of Nokia would have been
different had it followed exploitation and exploration simultaneously.

Keywords
Ambidexterity, exploitation, exploration, Nokia, strategy

Introduction
Nokia, which was synonymous with mobile phones a decade back, has lapsed into oblivion. It definitely
is not hyperbolic to state that the company was once a brand in itself. It even had to sell off its iconic
headquarter building in an attempt to bail itself out of its precarious situation. What was the reason for

Disclaimer: This case is written for classroom discussion and is not intended to illustrate either effective or ineffective handling
of an administrative situation, or to represent successful or unsuccessful managerial decision-making, or endorse the views of the
management. The views and opinions expressed in this case are those of the authors and do not necessarily reflect the official
policy or position of South Asian Journal of Business & Management Cases.

1
College of Business Administration, Prince Sattam Bin Abdulaziz University, Al-Kharj, Saudi Arabia.

Corresponding author:
M. M. Sulphey, College of Business Administration, Prince Sattam Bin Abdulaziz University, Al-Kharj 11942, Saudi Arabia.
E-mail: [email protected]
168 South Asian Journal of Business and Management Cases 8(2)

this ignominious exit of the once coveted company? For management experts and social scientists, this
question has offered alluring fecundity, as literature is replete with analyses of its failure analysed from
various exciting dimensions. The present work is a glance at Nokia from an entirely different dimension—
from the viewpoint of organizational ambidexterity (OA).1 A fair review of the literature reveals the
absence of systematic probing in this arena.
The present work assumes a qualitative case study research approach to address the research question.
The case study, according to Eriksson and Kovalainen (2008), is more of a research strategy than a
method and is capable of producing substantial quantitative data. Though it may not produce statistical
generalizations, such as experimental, quantitative and deductive results (Ghauri & Gronhaug, 2005), it
can investigate the relationships among various human, organizational, and social environments. It has
the dexterity to be connected to ‘interpretative, ethnographic and field-research studies’ (Dyer & Wilkins,
1991, cited in Eriksson & Kovalainen, 2008). This approach will also help in arriving at a holistic
understanding of complex organizational issues.

History of Nokia
Nokia was started in 1865 in Finland by Fredrik Idestam as a wood pulp mill by the name Nokia
Aktiebolag. Between 1918 and 1922, Finnish Rubber Works Ltd. acquired Nokia Aktiebolag and merged
it with another company named Finnish Cable Works Ltd. All the companies were officially merged in
1967 and Nokia Corporation was born. This company established itself in the field of electronic and
telecommunication engineering. In the 1960s the company gained considerable experience in the
manufacturing of computers. In 1979 Nokia merged with Salora and was named Mobira Oy. The
company engaged in the development and manufacturing of mobile phones for Nordic Mobile Telephony
(Jia & Yin, 2015).
In 1984 Mobira was integrated into Nokia and named Nokia-Mobira. By 1988 the company had a
share of 13.8 per cent on the global analogue technology phone market (Bouwman et al., 2014). Against
this, Motorola, its competitor, had a market share of 13.4 per cent (Häikiö, 2001). The succeeding year
was eventful in the history of Nokia as it had to settle nine patent cases due to intellectual property rights
issues in the USA with Motorola for a sum of over US$20 million (Palmu-Joroinen, 2010). During these
years Motorola was the market leader with an increased share of 20 per cent as against the 12 per cent of
Nokia (Jia & Yin, 2015).

The Upsurge
In 1990, when Jorma Ollila was appointed CEO, the share further dropped to 10 per cent (Häikiö, 2001).
The overall economic conditions of Finland became bleak in 1991, and during this year Nokia suffered
massive losses. However, this did not avert Nokia from buying out Technophone Ltd.—a UK-based
company. This event had a number of unexpected consequences, the paramount being change of the
company language to English. Further, the name of the company was changed to Nokia Mobile Phones
Ltd. It was also decided to make the brand a focal point for the company. For this, strong and dedicated
efforts were taken towards positioning Nokia as a strong brand (Bouwman et al., 2014). Nokia reached a
milestone in July 1991, when its phone was used to make the first call when the Global System for Mobile
(GSM) network was initiated. It was indeed Nokia that played a key role in shifting the technology from
Sulphey 169

the earlier Nordic Mobile Telephone (NMT) to GSM. By middle of the decade, following the pattern in the
mobile market, Nokia’s share in the segment had gained substantial momentum (Bouwman et al., 2014).
As CEO Ollila believed that know-how and innovation will only present a long-term effect in the
company, importance was given to R&D, and as a result, the Nokia Research Centre became a sought-
after institution in the area of mobile telecommunications. Further, the collaborations that the R&D wing
had with various universities and knowledge centres helped them have a competitive edge. They also
embarked on an internal education programme which had its own impact on R&D (Ali-Yrkkö, 2010).
All these helped Nokia in gaining stupendous growth and trumping up its position in the market.
Further, their investments in GSM 2+ reinforce their position in 1993. The succeeding year, when the
Nokia 2110 DCT/GSM handset hit the market, they were able to sell 618,000 units (Häikiö, 2001),
which was first of its kind. This helped the company become a global player. They also ventured into
setting up manufacturing units outside Finland, which included acquired companies such as Technopohne
of the UK and Tandy of the USA. All these helped Nokia increase their market share of cellular switching
system from 0 per cent in 1986 to 14 per cent in 1996. Similarly, the market share for mobile phones for
the period increased from 15 per cent to 24 per cent (Bekkers & Smits, 1997; Häikiö, 2001). All these
resulted in Nokia capturing the number one position from Motorola in mobile phone manufacturing by
1998. In this year Nokia produced the billionth mobile phone and raced ahead of Motorola to become the
largest manufacturer! Further, during the 5-year period from 1995 to 1999, Nokia had an average per
annum growth rate of over 30 per cent!
The structure of the company was changed in 2002 when it was reorganized into four divisions: Nokia
Mobile Phones, Nokia Networks, Nokia Venture Organization and Nokia Research Centre. These
changes and the strong thrust in R&D helped Nokia develop ‘smartphones’—the device that converged
telephony with computer technology in a single handset (Burde, 2009). Nokia can be credited to being
the pioneer in creating a market for smartphones. Needless to say, it is this turn towards smartphones that
later on proved disastrous for some players such as Motorola and RIM, including Nokia, and at the same
time a ‘goldmine’ for certain other players such as Apple, Samsung and so on.
In 2003 Nokia launched two of its most successful products ever—the 1100 handset and the Nokia
1110 phone. It is estimated that each of these devices sold 250 million the world over. The same year, to
cater to specific market segments in line with Nokia’s strategy, it launched N-Gate, which combined a
game console with a mobile phone, through the acquisition of a company called Sega.
As a result of consistent research and development, in 2006, Nokia launched N95, its flagship and
first smartphone. This was followed up with the E series. Both the N and E series phones succeeded in
offering ‘integration of converging technology’. While N series focused on entertainment, E focused on
business applications (Bouwman et al., 2014). During these times Nokia was able to dominate the market
with the help of the ‘Symbian’ operating system (OS). The N95 helped the company take a quantum leap
in its market share from 33 per cent to 36 per cent in a period of just 2 months. Overall, Nokia’s market
share in the smartphone sector was over 70 per cent. All the competitors were left far behind, despite the
company’s footholds in North America not being firm (Ali-Yrkkö, 2010).

The Decline
In 2007, markets saw the ‘second coming of smartphone’, which set higher standards for user experience.
It was in this year that Apple launched its iPhone. These iOS telephones of Apple with its breakthrough
Human-Computer Interaction (HCI) set standards with respect to user experience. This resulted in Apple
gobbling up Nokia’s market in the USA, which was soon followed in Europe. With a view to focusing on
170 South Asian Journal of Business and Management Cases 8(2)

services, in 2007, Nokia launched the Ovi store. Further, with a view to having a say in maps and navigation
market, Nokia bought out another company—Navteq. This later turned out to be disastrous because the
price paid for the acquisition was too high (Bouwman et al., 2014). By 2010, Android and Apple’s iOS
made stupendous progress in the market. The same year Nokia appointed Stephen Elop as CEO. To have
an edge over the competitors, in 2011, Elop announced the shifting of the operations system from Symbian
to Windows. The Ovi store was also integrated with the Windows phone store (Bouwman et al., 2014).
These changes did not have any impact on the market, which had by then galvanized towards Android
and iOS. Nokia’s fortunes started looking the other way. Sales went in for a toss and it had to close a
number of factories and even its R&D facility. Large numbers of employees were made redundant the
world over due to these changes. The going became tough for Nokia. Sales and revenue fell, the share
prices collapsed drastically and market capitalization took a beating and fumbled from a EUR€110
billion to a gobsmacking EUR€15 million, and Nokia looked for other propositions. 2012 was an eventful
year for Nokia. Nokia laid off over 10,000 employees globally. On December 5 Nokia was also compelled
to sell its landmark headquarters building at EUR€17 million. This was followed by a stunning
announcement in 2013 (Bouwman et al., 2014).
On 3 September 2013 came the announcement that US giant Microsoft would acquire Nokia’s mobile
device unit. A legendary technology company has failed due to the onslaught of technology revolution!
The deal of acquisition was completed in April 2014 for EUR€5.44 billion, when the handset division
and a licence of patents for a decade moved to Microsoft Mobile Inc. With the transaction, over 32,000
employees of Nokia, including a sizable number in Finland, were taken over by Microsoft. Subsequent
to this deal, the once mighty and stupendous Nokia became a truncated company. It was left with only
its mapping applications and infrastructure operations (Nokia Solutions and Networks) and the rights for
the developing and licencing of advanced technologies. The handset manufacturing of Nokia thus
became history! A brand that took nearly a century to accumulate declined in a matter of few years.

Possible Reasons for Fall from Grace

What made Nokia, the largest mobile phone company in the 1990s and early 2000, which at one point in
time had an 80 per cent share in the smartphone market, have such a tryst with destiny? Though it
maintained a covetable position in the mobile market in terms of all commercial parameters—volume,
sales, market share and profit—how did it fail drastically in transitioning itself to the smartphone market?
While some commentators and researchers have examined the reasons for the success of this prized
company in its heyday, still, a larger number have analysed threadbare the reason for failure. It would be
pertinent to discuss both these. A few factors that caused the success of Nokia include its culture, values
and human resources (HRs) (Palmberg, 2002; Steinbock, 2010), economics (Palmberg, 2002),
organization and institution (Palmberg, 2002), production methodology and innovation system (Laanti,
Salo, & Abrahamsson, 2011; Palmberg, 2002; Rice & Galvin, 2006) and so on. Zheng (2013) analysed
the failure from four perspectives: management mechanism, product innovations, their marketing models
and finally the various marketing channels. Others who analysed the failure of the company include
Aspara, Lamberg, Laukia, and Tikkanen (2011), Bouwman et al. (2014), De Wit and Meyer (2010) and
so on.
The reason for failure is presented under various heads as follows:

1. Leadership: One of the main aspects that led to the downfall of Nokia, according to Bouwman
et al. (2014), is its leadership. Nokia mostly had only one dominant leader at a time. This sort of
Sulphey 171

leadership, according to De Wit and Meyer (2010), was counterproductive in the long run. For
instance, while Ollila was a visionary, the successor Kallasvuo was an institution builder. Though
Elop who became CEO later tried an amphibious type of leadership, he failed drastically as he
lacked the required vision. The best course of action would be to have small boards with a
harmonious mix of personalities such as visionaries, institution builders and so on.

Overall, the leadership of Nokia failed drastically in translating their strategic insights in tune with the
latest ‘disruptive innovations, technological know-how, and capabilities, as well as know-how on
platforms into executable strategies’ (Aspara, Lamberg, Laukia, & Tikkanen, 2013). Further, the
stupendous growth in the 1990s and early 2000s warranted a thorough redesign of the organization as
well as the processes, which never came forth. The ‘control culture’ which was in vogue in Nokia was in
sharp contrast and in conflict with the preferred culture of an ‘innovative, engineering and design-
oriented start-up’ (Aspara et al., 2013; Bouwman et al., 2014).

2. R&D: According to Bouwman et al. (2014) the company experienced pitfalls from the point of
view of the R&D policy. Though the leadership was aware of this, the multiple product releases
and strong segmentation in the market resulted in a form of lack of focus. Though Nokia
appreciated the compelling relevance of having an appropriate ecosystem around their products,
they failed miserably in creating it. It is also stated that Nokia was, to a certain extent, arrogant
towards their ‘natural allies’, with the folly of not appreciating the relevance of players having a
background in the Internet. Partly to blame is their undue focus on ‘technical integration and
excellence’ in the telecommunications industry, even when the markets and the ecosystems were
shifting drastically towards services, Internet and information providing. Further, for a considerable
period, Nokia concentrated only on developing high-end mobile phones and the required software
for such products with a view to outmaneuver its competitors. This was while paying scant
attention to external conditions and market developments. The analysis also shows that the delayed
shift from the Symbian to alternative and viable platforms, despite it having overrun its technical
lifecycle, accelerated its downfall. Others, for instance, Yi (2011), attributed the reason for Nokia’s
failure to ‘pursuing technological innovation blindly, and neglecting the most important business
model innovation’.
3. The ecosystem: Aspara et al. (2011) attribute this failure to:

[T]he weak position of Nokia in the ‘technological system’ (or ecosystem) i.e. the network of interacting
actors in a specific techno-economic area involved in the generation, diffusion, and utilization of technology
and its complements. (p. 131)

In a recent analysis Bouwman et al. (2014) were more specific when they opined that its failure ‘was not
about devices or platforms alone, but about the eco-system that supported the platform’. The battle
between platforms became a battle between ecosystems, accelerating the downfall. Many others, for
instance, Jia and Yin (2015), have attributed the failure to the impracticability of the phone’s OS. The
Android smartphone OS released by Google in 2008 was something like a market revolution or reform.
Thereafter smartphones loaded with Android and the iPhone took the markets by storm. This made
Nokia’s market position vulnerable and it fell to the third position. In 2011 Nokia’s market share dropped
to 14 per cent from 33 per cent in the immediate preceding year. This was far lower than its competitors—
Apple and Samsung.
172 South Asian Journal of Business and Management Cases 8(2)

Though Nokia has successfully withstood a number of transformations during its over-a-century
existence, it was pushed out of orbit in the era of mobile Internet. They failed miserably in launching
competitive and attractive products to take on the mobile Internet revolution (Jia & Yin, 2015). Due to
this failure, while the market underwent rapid development and transformations, with competition from
Apple and Android phones, Nokia became powerless and had to surrender meekly.

4. Strategy: According to Porter (1985), a firm is capable of clearly improving or eroding its position
within the industry space merely by its choice of strategy. To develop market-driven strategies that
are sensitive to customer needs, there is a definite need for organizations to develop two
complementary approaches—a harmonious blend of both market-driven and resource-based
strategies. Organizations should focus on and balance both internal and external ‘knowledge-
based core competencies’ that are market-driven and at the same time be hypersensitive to
customer requirements (Greenley & Oktemgil, 1996; Prahald & Hamel, 1990). While in the initial
stages Nokia did precisely this, its overconfidence led to its free fall, resulting in a loss of market
share and reduced revenues. According to Teece and Pisano (1994), to continue to be successful,
a firm should develop all necessary capabilities and capacities to adapt to or reshape with the
external environment. Nokia erred gravely in this front. All these tactical failures, according to
Bouwman et al. (2014), were ‘illustrative for lack of focus and strategic choices’. According to
Shang (2012), Nokia’s failure was due to the errors it committed in the process of strategic
transformation. Due to this, the transformations that could have succeeded hands down resulted in
its utter failure. This can be attributed to the failure to adapt to ‘the competition of the mobile
Internet era’. He further notes that Nokia hoped to succeed by bringing ‘the experience and order
of the old era into the new era’. These strategies were utter failures.

Another compelling argument for its failure is the change in the hitherto-followed diversification strategy
(Jia & Yin, 2015). Before 1992, when Ollila was hired as CEO, Nokia had a tradition of being a highly
diversified company. At the time of his appointment, Nokia had 34 subsidiaries spread across 10 diverse
industries in 108 areas. Ollila discarded the diversification strategy followed by Nokia until then. He
spruced this business structure drastically and narrowed its operations, with a view of consolidating the
operations of the company. This resulted in the company abandoning its non-core business and selling
out over 70 of its varied enterprises. Only two groups were left—the mobile phone and networking.
Though this strategy helped in the initial phases, it had the effect of ‘putting all eggs in one basket’ when
the times started changing.

5. Consumer demand: This is another area where Nokia failed miserably. Even at the height of
drastic changes in the market and among consumers, Nokia steadfastly adopted ‘technology-
oriented and product-oriented strategies to guide the innovation of products’ (Zheng, 2013). R&D
was focused on certain inherent properties of the phone such as making the handset unbreakable,
extending the lifespan of the battery, increasing the pixel of cameras and so on. The focus on
products and technology was so intense that they, to a certain extent, failed to notice the changes
in consumer demands. Thus, decisions that failed to consider consumer demands isolated Nokia
from consumers and the market. During this phase, the entire resources spend on R&D went down
the drain, with no value addition to Nokia. The indispensable transformation from the product,
price, place and promotion (4P) theory to the consumer, cost, communication and convenience
(4C) theory never happened in Nokia. It was so confident about its products that it paid scant
attention to consumer tastes and behaviours.
Sulphey 173

Nokia accorded undue importance towards the hardware at the cost of software. As stated elsewhere, it
continued its focus on technological innovations like ‘unbreakable’ handsets, ignoring a host of
fundamental problems. The main problem that was ignored was the incompatibility and closure property
of the OS, which had outlived its productive life. Though the Symbian OS of Nokia was very popular
during the machine age and propelled the company to the top position, they failed to understand its
inherent drawbacks with respect to a smartphone (Jia & Yin, 2015).
Some of the problems faced by Symbian include the following.

1. Incompatibility: The Symbian system had multiple incompatible versions. It lacked the ability of
backward compatibility—for instance, the Symbian 7 application was incompatible with Symbian
8. This led to the increased R&D cost of Nokia.
2. Problems with the touchscreen: The shortcomings of Saipan failed in supporting touchscreen and
multimedia operations. This was a grave handicap for Nokia in the smartphone sector.
3. Delay: Nokia focused more on the development of 2G and delayed immigration to 3G.
4. Overconfidence: Though Nokia was aware of the inherent problems of Symbian OS, they were
hesitant to give it up due to its perceived maturity through which huge profit was once earned.

These drawbacks later hindered the smooth sailing of Nokia in the smartphone market.

Organizational Ambidexterity
A fair discussion about OA is now important to present what it signifies. Though OA has been discussed
for the past few decades, it still has different meanings for different functional domains (O’Reilly &
Tushman, 2013; G. B. Voss & Voss, 2013). OA was considered by Rothaermel and Deeds (2004) as:

a dynamic capability by which organizations mobilize, coordinate, and integrate dispersed contradictory efforts,
and allocate, combine and recombine resources and assets across differentiated exploratory and exploitive units.

Of late substantial research was conducted about OA. However, research about OA received its due
focus and impetus after the influential work of March (1991). Thereafter substantial literature was
accumulated about the topic (Sulphey & AlKahtani, 2017). According to March (1991), OA can be
developed by encouraging group members to make their own judgements on dividing their time between
various conflicting demands so that alignment and adaptability can be obtained. Yan, Yu, and Dong
(2016) opine that this evolves over a period of time based on the need for organizations to continuously
adapt to the highly volatile, uncertain and dynamic environment. March (1991) identified ‘exploration’
and ‘exploitation’ as two different or opposite activities that are to be simultaneously followed to facilitate
OA. According to him exploration is ‘exploring novel ideas and opportunities that could foster
innovation’, and exploitation is the ‘re-using of the existing resources and knowledge that could result in
efficiency’. For a better understanding, the features of exploitation and exploration are presented in a
table format (Table 1).
OA is thus the ability of a firm to concurrently pursue radical as well as incremental innovation (Li,
Lin, & Chu, 2008; March, 1991; Mattes & Ohr, 2013; O’Reilly & Tushman, 2007; Prange &
Schlegelmilch, 2010; Raisch et al., 2009; Simsek, Heavey, Veiga, & Souder, 2009; Sinha, 2013; Sulphey
& Alkahtani, 2017; Vera & Crossan, 2004). The mediating role that OA can play in attaining organizational
sustainability has also been highlighted by Sulphey and Alkahtani (2017). A study by Sulphey (2017) has
also highlighted its applicability in educational institutions.
174 South Asian Journal of Business and Management Cases 8(2)

Table 1.  Features of Exploitation and Exploration

Variables Features Authors

Exploitation • Represents efficiency, productivity, control and initiating Ancona et al. (2001);
action based on experience. He and Wong (2004);
• Associated with ‘mechanistic structures’ and systems, Lewin et al. (1999);
control and bureaucracy as well as stable markets and March (1991).
technologies.
• Capable of contributing to the present operational
efficiencies and ensuring a stable short-term profitability.
Exploration • Associated with ‘organic structures’ and loose systems, O’Reilly and Tushman (2007);
improvization, greater autonomy and chaos, emerging March (1991).
markets and technologies, etc.
• Involves concepts likely to contribute towards adaptation,
search and discovery, innovation and looking ahead for the
unknown.
• Leading towards new approaches and ideas, deviating from
the current level of operations.
• Contributing to organizations future opportunities that
could be beneficial for ensuring long-term profitability.
Source: Sulphey and AlKahtani (2017).

OA is ‘shaped by the co-evolution of learning mechanisms that change, renew, and exploit the
knowledge resources of a company’ (Raisch et al., 2009). To develop market-driven strategies sensitive
to customer needs, organizations should develop two complementary approaches—a harmonious blend
of both resource-based and market-driven strategies, which precisely is OA (Porter, 1985). OA can be
either structural ambidexterity (SA) or contextual ambidexterity (CA). While SA facilitates the various
organizational units to perform separate activities simultaneously (Gibson & Birkinshaw, 2004), CA
helps in balancing both exploitative and explorative tasks concurrently (Schulze, Heinemann, & Abedin,
2008). CA is also considered as the interplay of system capacities that facilitate its alignment and adaption
in the entire business (Sulphey & Alkahtani, 2017).
Based on this understanding of OA, we now attempt to superimpose it on the history of Nokia and
analyse where it went wrong.

Exploitation
As discussed earlier, this involves initiating action based on experience and is associated with ‘mechanistic
structures’ and systems, as well as stable markets and technologies. This involves mostly looking inwards
at the available strengths and building on it. A close look at Nokia’s story shows that Nokia did this—
albeit at times at the wrong places. Few areas where Nokia failed drastically in undertaking exploration
are discussed.

• Porter (1985) pointed out that if a market-driven strategy sensitive to customer needs is to be
developed, organizations should involve two complementary approaches—a harmonious blend of
Sulphey 175

both resource-based and market-driven strategies. It should balance both internal and external
‘knowledge-based core competencies’. Simultaneously they should be hypersensitive to customer
requirements (Greenley & Oktemgil, 1996; Prahald & Hamel, 1990). Nokia erred here drastically.
While the company went hammer and tongs into making the handsets state of the art, they ignored
the rapidly changing tastes and likes of consumers. No priority was seen accorded to consumer
tastes at the time of a crucial shift towards a smartphone, thereby giving the go by for market-
driven strategies.
• In the earlier days of its upsurge Nokia embarked on various collaborations with universities and
an internal education programme which had a tremendous impact in its R&D. This helped Nokia
grow and triumph in the market. Later this was not given the due importance, resulting in its
inability of building up the required talent. This resulted in a lack of talent in the later days when
the company actually required it.
• Nokia followed a sort of diversification strategy throughout its existence (Jia & Yin, 2015). This
contributed to a large extent for its success in its over 100 years of its existence. It was Nokia’s
strategy to provide specific products to specific market segments. As mentioned earlier, prior to
1992, Nokia was a highly diversified company with 34 subsidiaries spread across 10 diverse
industries. This was reversed by the new CEO Ollila. The diversification it followed earlier could
have worked in favour of Nokia, as a shock absorber, at times of crisis. By narrowing the
operations, the immense knowledge and experience gained by Nokia over a period of time went
down the drain. Thus the scope for exploitation was unscrupulously discarded by Nokia.
• Another area where Nokia failed in exploitation was in 2007 when it launched the Ovi store with
a view of focusing on services. It also bought another company, Navteq, with a view of having a
say in maps and the navigation market. The exorbitant price paid to acquire Navteq, which turned
out to be disastrous for Nokia, also shows its lack of exploitive quality. Nokia never thought of the
inherent strength it had in various areas. Had it embarked on an inward-looking drive, it could
have saved substantial sums of money, including the amount wasted in acquiring Navteq, as well
as the savings it would have gained by internally developing it.
• According to Aspara et al. (2011), Nokia had problems with respect to ‘generation, diffusion, and
utilization of technology and its complements’. Exploitation involves utilization of the available
resources and technology to the core. There is also evidence to show that Nokia failed to take care
of its employees and other vendors. Commenting on the working conditions the report of Cereal,
Cividep India and SOMO (2015) stated that ‘Nokia was extremely profitable, but workers in
Nokia’s supply chain faced job insecurity and job losses due to shifts of production to low-wage
countries, and poor working conditions’. The same report highlighted the conditions of the
suppliers; thus, ‘Nokia’s manufacturing sites and its supplier companies were systematically
unable to benefit from the company’s success while facing the most difficult consequences of the
company’s decline’.

From the foregone discussions, it is amply clear that Nokia, despite having had various inherent
strengths and opportunities, failed in utilizing them to its advantage. Thus, it had failed in various counts
in terms of the exploitation part of OA.

Exploration
Exploration is associated with improvization, autonomy and emerging markets and technologies. It also
involves contribution towards adaptation, search and discovery, innovation and looking ahead for the
176 South Asian Journal of Business and Management Cases 8(2)

unknown. There should be innovative approaches and ideas that should deviate from the current level of
operations, which in turn should contribute towards long-term profitability. An audit of the Nokia case
shows yawning gaps in terms of simultaneously possessing exploration. Following are a few instances:

• Nokia committed a series of errors in the process of strategic transformation. It failed drastically
in adapting and transforming itself during the acute competition posed by the mobile Internet era.
According to Shang (2012), Nokia hoped to succeed by bringing ‘the experience and order of the
old era into the new era’. In fact, the company was doing this at a time when disruptions and chaos
were the hallmarks of the new era. This indeed is a classic example of lack of exploration on the
part of Nokia.
• There were compelling problems with respect to the OS of Nokia. Had the company adopted the
ambidextrous attitude of exploration towards innovation in their OS, its story would have been
different. Nokia even missed the bus when it failed in cashing on the opportunity of cooperating
with Google Android and developing an OS that would have been more suited for smartphone
systems—even better and smarter than Android/Symbian OS! Nokia, blind with its trust towards
Symbian OS, never explored this possibility.
• According to Yi (2011), Nokia is involved in ‘pursuing technological innovation blindly, and
neglecting the most important business model innovation’. This is another instance of acute
exploration blunting exploitation. It should have pursued the course of OA by simultaneously
focusing on both exploitation and exploration.
• Nokia was overconfident about the Symbian OS, which they considered to be highly mature. The
fact that Symbian helped them earn massive profits in the past blinded their attitude from exploring
other possible better alternatives. Even when the competitors surged ahead by having superior OS
and environment, Nokia was still confident of its existing OS, which had, in fact, outrun its
productive life. This lack of exploration led to its free fall in terms of market share and revenues.
Here Nokia failed tactically—it was rather insensitive in reshaping its capacities and capabilities
in tune with the changes in the external environment. This is another area where Nokia gave
exploration the go by.
• Nokia also erred continuously by failing to explore and understand the mind of the consumer. As
Zheng (2013) rightly pointed out Nokia adapted ‘technology-oriented and product-oriented
strategies to guide the innovation of products’. The R&D in Nokia was steadfastly focused on
inherent properties such as making the handset unbreakable, extending the lifespan of the battery,
increasing the pixel of cameras and so on; even at the height of drastic changes in terms of
consumer tastes and market demands, the company showed a lack of explorative tendencies. This
lack of sensitivity isolated Nokia from consumers and the market, resulting in its downfall.
  The company also failed to explore the possibility of the badly required transformation from
‘4Ps’ (to ‘4Cs’ in the rapidly transforming smartphone market. It was so confident about its
products that it repeatedly paid scant attention to changes in consumer tastes and behaviours.

The aforementioned details present a strong case for Nokia having erred in both exploration and
exploitation. A simultaneous embrace of both exploration and exploitation—or in another sense OA—
would have written an entirely different story for Nokia.
Further, OA being a dynamic capability (O’Reilly & Tushman, 2013) responsible for the
‘reconfiguration of an organization’s resources’ (Kriz, Voola, & Yuksel, 2011), it would facilitate the
sensing of the environment with sagacity and help in taking prudent and appropriate decisions (Jurksiene
& Pundziene, 2016). This can be made possible through the harmonious and optimal balancing of
Sulphey 177

Figure 1.  Organizational Ambidexterity

Source: Jurksiene and Pundziene (2016).

exploration and exploitation. According to Ridder (2012) and Teece (2007), the dynamic capabilities of
organizations can be considered as strategic processes. Jurksiene and Pundziene (2016) consider sensing
and seizing of new opportunities and operational processes, as well as reconfiguration of existing
knowledge, competences and recourses as components of dynamic capabilities. Thus OA is a constant
search for new ideas, knowledge and competencies, launching of new markets and creating new pro-
ducts (exploration) and the optimal utilization of available recourses, knowledge and competencies
(exploitation).
OA has been pictorially presented by Jurksiene and Pundziene (2016), which clearly states how an
organization can achieve competitive advantage (Figure 1). According to the factors like scanning the
environment to identify possible opportunities, due importance to organizational settings and organi-
zational learning is the prerequisite for OA.
O’Reilly and Tushman (2011) opine that OA contributes to sensing the antecedents to determine
competitive changes in a volatile environment and seizing the processes that help manage new challenges
and remain competitive. In this way, these aspects lead to presumptions that dynamic capabilities may
contribute to stronger firm competitive advantages, with OA as a mediator in this relationship.

Models of Ambidexterity
The following two models of OA have been identified as SA and CA:

1. Structural ambidexterity (SA): SA facilitates organizational units to undertake different activities

simultaneously (Gibson & Birkinshaw, 2004). It calls for appropriate organizational designs that
are capable of separating the exploitative and explorative activities and their planned integration
(Benner & Tushman, 2003; Schulze et al., 2008). Each individual unit should strive to identify,
adapt, utilize and align their distinct and unique competencies, processes, systems and cultures.
The top management has a key role to play with respect to SA.
178 South Asian Journal of Business and Management Cases 8(2)

2. Contextual ambidexterity (CA): CA enables organizations to balance exploitative and explorative

tasks without separation (Schulze et al., 2008). It facilitates members in assigning their time
effectively between compelling and conflicting demands of the organization so that the systems
and processes are aligned and adapted in a holistic manner (Gibson & Birkinshaw, 2004). The due
focus is also maintained on the behavioural capacity of organizational members. Through CA,
employees are provided with due importance to overcome ‘structural inertia’ (Levinthal & March,
1993) and strive wholeheartedly towards innovative and superior performance (Tushman &
O’Reilly, 1996).

O’Reilly and Tushman (2013) postulated that different types of OAs (structural or contextual
[organizational]) require different types of dynamic capabilities. However, the relevant type of ambidexterity
is dependent on a host of aspects. This could include the unique characteristics of the individual firm, its
strategic context (such as vision and goals), recourse availability (financial, technological and human) and
its capabilities (such as sensing, seizing and spearheading) (Mattes & Ohr, 2013).

Conclusion
OA, defined as an ‘organization’s ability to simultaneously explore and exploit their internal and external
resources to meet today’s business needs as well as being adaptive to market changes’ (O’Reilly &
Tushman, 2013; Raisch & Birkinshaw, 2008), is indeed a fascinating area of research. It is considered a
‘higher-order construct’ that is composed of explorative and exploitative capabilities (Kathuria &
Konsynski, 2012). This work has analysed the failure of Nokia in terms of OA. Was the company able to
balance the explorative and exploitative capabilities and bring them, adapting to market changes? This
was the crux of the work.
It can be emphatically stated that the history of Nokia would have been entirely different had it been
able to balance the requirement of exploiting its existing strengths and capabilities, while simultaneously
searching for new opportunities. Nokia was found to be oscillating between the two (which indeed is
what OA is) but mostly at the wrong order! It was gloating over its past and turning a blind eye to market
requirements, even at the time of drastic disruptive tendencies in the market. It failed at many crucial
occasions to ‘simultaneously pursue contradictory goals’, which precisely is OA. Further, Nokia also
failed miserably in focusing on CA. Though it had adequately trained and experienced HR, power was
mostly concentrated at the top. Had there been collective decision-making, Nokia would have succeeded
in making good use of all adversities to its advantage.
The existing market leaders have various hues of classical lessons to learn from Nokia’s history that
clearly evidences that past glories can in no case be a pointer to the future. Further, it can also be inferred
that there are lots at stake when ‘all eggs are put in one basket’. Another area that can be considered as
having a potential for further study is the history of Nokia phones subsequent to its takeover by the
mighty Microsoft. Has Microsoft, with its top position and massive infrastructure, been able to cash in
its name to build a niche of its own in the mobile market? Literature in this fascinating area is lacking,
and it would be an area worth exploring.

Declaration of conflicting interests

The author declared no potential conflicts of interest with respect to the research, authorship and/or publication of
this case.
Sulphey 179

Funding
The author received no financial support for the research, authorship and/or publication of this case.

Note
1. Defined by O’Reilly and Tushman (2007) as the ‘ability to simultaneously explore and exploit, enabling a firm
to succeed at adaption over time rather than pursing limited activities’.

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CASIRJ Volume 5 Issue 6 [Year - 2014] ISSN 2319 – 9202

A STUDY ON NOKIA

Ms. NEELU
ASSISTANT PROFESSOR

LAKSHMIBAI COLLEGE

UNIVERSITY OF DELHI

ABSTRACT

Nokia has been an established worldwide brand & a major market player in mobile industry. It
became a global giant in handsets market because it could foresee the huge demand for mobile
handsets which other firms could not foresee.But, since 2008, Nokia has been left behind by its
rivals in the growth oriented Smartphone market. The aim of the study is to assess the current
position of Nokia in mobile industry and the future prospects.

KEY WORDS : Mobile Industry, Market Player, Smartphone

INTRODUCTION

Nokia, headquartered in Finland, is a global company having sales in more than 150 countries.
Nokia is a public limited-liability company listed on the Helsinki, Frankfurt, and New York
stock exchanges.Nokia plays a very large role in the economy of Finland1.Nokia produces
mobile phones for every major market segment and protocol, including GSM, CDMA, and W-
CDMA (UMTS). The corporation also produces telecommunications network equipment for
applications such as mobile and fixed-line voice telephony, ISDN, broadband access, voice over
IP, and wireless LAN2. Nokia's focus on telecommunications and its early investment in GSM
technologies had made the company the world's largest mobile phone manufacturer, a position it
held until 2012. Brand 'Nokia' and customer loyalty are the main strenghts of Nokia. Between
1996 and 2001, Nokia's turnover increased almost fivefold from 6.5 billion euros to 31 billion
euros. With the introduction of Iphones and Android smartphones, the world brand Nokia came

1
http://en.wikipedia.org/wiki/Nokia
2
http://nokia-edition.blogspot.in/2007/09/nokia-introduction.html

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into a crisis and its marke t capitalization had fallen from €110 billion in 2007 to €14.8
billion in May 20123.

HISTORY

Nokia, an established worldwide brand in mobile phones, was established as Nokai Ab by

Finnish mining engineer Fredrik Idestam as a ground wood pulp mill in southwest of Finland in
1865.It has been into variety of Business including electricity generation,manufacture of Tyre,
Plastics, Aluminium, Chemicals, Rubbers,Cables, Footwears,consumer electronics, personal
computers, electricity generation machinery, robotics, Robots, Military equipments, Capacitors,
Television and several other consumer durables since its very beginning4.In 1967, Nokia
Corporation came into existence as a result of the merger of Idestam’s Nokia AB, Finnish
Rubber Works, a manufacturer of rubber boots, tires and other rubber products founded in 1898,
and Finnish Cable Works Ltd, a manufacturer of telephone and power cables founded in 1912.
The new Nokia Corporation had five businesses: rubber, cable, forestry, electronics and power
generation .Nokia first entered the telecommunications equipment market in 1960. Nokia
introduced the first fully-digital local telephone exchange in Europe followed by the world’s first
car phone for the Nordic Mobile Telephone analog standard in 1982.The first GSM call was
made with a Nokia phone over the Nokia-built network of a Finnish operator called Radiolinja in
1991. It divested its basic industry and non telecommunications operations between 1989 and
1996 to focus on telecommunications business and becoming a world leader in
telecommunications. It was only after this strategic decision of focussing only on
telecommunications business, that Nokia's sales to North America, South America and Asia
became significant.Nokia had to overhaul its entire supply chain because the worlwide response
to Nokia's mobile phones was beyond expectations and had created a logistics crisis in the mid
1990s. By 1998, Nokia was the world leader in mobile phones, a position it enjoyed for more
than a decade.In 2011, Nokia joined forces with Microsoft to strengthen its position in the highly
competitive smartphone market. Nokia adopted the Windows Phone operating system for smart
devices and through their strategic partnership Nokia and Microsoft set about establishing an
alternative ecosystem to rival iOS and Android5.Year 2013 has been transformative for NOKIA
as it purchased Siemen's share in Nokia Siemens Networks, which is now renamed as
NSN(Nokia Solutions and Networks) Nokia sold of its Devices and Services business to
Microsoft. The process started on 3rd September 2013 and completed on 25th April
2014.Thereafter Nokia has three continuing businesses :Network Business Networks (previously

3
http://www.forbes.com/sites/haydnshaughnessy/2013/03/08/apples-rise-and-nokias-fall-highlight-platform-
strategy-essentials/
4
http://news.biharprabha.com/2013/09/nokia-the-journey-of-a-company-from-paper-pulp-to-mobile-phones/
5
http://company.nokia.com/en/about-us/our-company/our-story

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Nokia Solutions and Networks, or NSN), HERE mapping and location services and
Technologies (previously Advanced Technologies) .

NOKIA IN INDIA

Mobile Phone industry made a slow start in India in 1994 when the Indian government first
opened up the country’s telecom market to private enterprise. Several private players jumped
into the fray but due to absence of an authorized telecom regulator, high licensing fees and
unfriendly government policies in telecom sector,such private players exited the market in the
initial years only. It is during this phase of unfriendly telecom policies that Nokia made an entry
in India in 1995 with the aim of tapping the Indian mobile market. Initially, Nokia had a tough
time in India as the tarrifs levied on importing mobile phones in India were as high as 27%, call
rates were rupees 16 per minute and hence there was not much demand for mobile phones. It also
had to face tough competition from players like motorola, sony etc but finally Finland-based
Nokia — forged ahead of rivals and became a leader in the Indian mobile industry.

Nokia’s glory days were largely due to the fact that the global demand surge for mobile handsets
was something leading consumer electronics firms could not foresee. So Nokia ended up
competing with two lumbering, erratic messes called Ericsson and Motorola.Nokia established
itself in the Indian market by launching new products and enhancing the products with features
designed specifically for local customers(e,g. Hindi sms facility, torchlight,music & games etc),
as well as promotional campaigns targeted at Indian audience. An extensive distribution network
helped it to take its products to rural markets in India.Four P's strategy helped Nokia grow
exponentially in India and build brand loyalty among customers.

ACHIEVEMENTS

1987 - Introduced world's first handheld phone, the Mobira Cityman 900

1991 - Worls's first GSM call was made over a nokia supplied network6

1994 - Nokia launched it’s famous ringtone through the Nokia 2110

World’s first satellite call using a Nokia phone

1995 – First mobile phone call made in India on a Nokia phone on a Nokia network

The company had commissioned India's first cellular network for Modi Telstra7.
6
Maneesh Garg,2012, “Nokia: Connecting People or Disconnecting Customers”- a case
study.

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1997 - The snake game launched

1998 – Saare Jahaan Se Acchha, first Indian ringtone in a Nokia 5110

2000 – First phone with Hindi menu (Nokia 3210)

2002 – First Camera phone (Nokia 7650)

2003 – First Made for India phone, Nokia 1100

2004 – Saral Mobile Sandesh, Hindi SMS on a wide range of Nokia phones

First Wi-fi Phone- Nokia Communicator (N9500)

Nokia chosen as most respected consumer durable company by business world

2005 - Nokia recognised as ―Brand of the year‖ by CII

Local UI in additional local language

2006 – Nokia manufacturing plant in Chennai

2007 – First vernacular news portal

Introduced Ovi, the company's new internet services brand name.

First mobile phone manufacturer to put alerts into mobile phones to remind .
people to unplug their chargers once their phones were fully charged

2010 - The Interbrand annual rating of 2010 Best Global Brands positioned

Nokia as the eighth most valued brand in the world.

Nokia Money initiative, the first commercial services called ―Mobile Money Services
by YES Bank‖ started in India.

2012 - Introduced the brand HERE , the first location cloud aiming to deliver the world’s best
maps and location experiences across multiple screens and operating systems .

Launched its first products on Windows Phone ,(Nokia Lumia 920 & Nokia Lumia
820).

7
http://www.business-standard.com/article/specials/nokia-to-invest-20m-in-india-
197052201054_1.html

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2013 - Nokia Life+ English Teacher, was created to assist primary school English teachers in
Nigeria by providing free professional development support through their mobile phones.
The service was created in partnership with UNESCO.

Completed the acquisition of Siemens' stake in Nokia Siemens Networks and the new
name and brand is Nokia Solutions and Networks, also referred to as NSN.

Gi Group, a leading Italian multinational company dedicated to the human resources

market, chose Nokia Lumia as its business smartphone, replacing BlackBerry.

Nokia Asha 305 won a GSMA Global Mobile Award for 'Best Feature Phone or Entry
Level Phone' during Mobile World Congress 2013.

DATA

Nokia : Net Sales, Operating Profit, PBT, R&D Expenses

Devices & Services : Net Sales

2007 2008 2009 2010 2011 2012 2013

Net 51058 50710 40984 42446 38659 15400 12709

sales(Nokia
)

Operating 7985 4966 1197 2070 -1073 -821 519

profit

Profit 8268 4970 962 1786 -1198 -1179 243

before
taxes/Loss

Devices 37705 35099 27853 29134 23943 15686

&Services
(Net sales)

Research 5647 5968 5909 5863 5612 3081 2619

and
developme
nt

Note : Devices & Services is a business segment of Nokia

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60000
Net sales/R&D Expenses(Euro
50000

40000
million)

30000 Net Sales(Nokia)

20000 Net Sales(D&S)

R&D Expenses
10000

0
2007 2008 2009 2010 2011 2012 2013

Years

Source:Nokia Annual Reports 2007-2013

INTERPRETATION

NET SALES

The net sales figure for Nokia was EUR 51058 million in 2007 and a mere EUR 12709 million in
2013.The net sales declined from EUR 51058 million in 2007 to EUR 50710 in 2008 and to EUR
4098 million in 2009.The year 2010 reversed the trend previaling in Nokia for the last 3 years(as
per our study), meaning thereby, the net sales increased in 2010. The net sales increased from
EUR 40984 in 2009 million to EUR 42446 million in 2010. Again in 2011, the net sales figure
dropped from EUR 42446 million in 2010 to EUR 38659 million. The decline in net sales figure
further sharpened in 2012 and 2013 whereby the net sales figure fell from EUR 38659 million in
2011 to EUR 15400 million in 2012 and to EUR 12709 million in 2013.

2007 2008 2009 2010 2011 2012 2013

Net sales - 51058 50710 40984 42446 38659 15400 12709

Nokia(Euro
millions)

% Change 24% -1% -19% 4% -9% -22% -17%

Net sales- 37705 35099 27853 29134 23943 15686 Sold off to
Devices & Microsoft*
Services (Euro
millions)

% Change 1% -7% -21% 5% -18% -34% -

* Devices & Services segment was sold off to Microsoft in 2013.

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Growth in Net Sales (%)

30%

20%

R 10%
g
a
r
t 0%
o Nokia
e 2007 2008 2009 2010 2011 2012 2013
w -10% D& S
t
o
h -20%
f

-30%

-40%
Years

Souce : Nokia Annual Reports : 2007-2013

The above chart shows the growth in net sales in percentage terms. As can be seen, the steepest
fall in net sales came in 2008 y-o-y basis, when growth in net sales turned from +24% to -1%.In
2009, the negative trend in net sales continued and the growth in net sales figure further moved
down to -19% as compared to -1% in 2008. The reasons attributed to this turnaround are global
economic slowdown combined with unprecedented currency volatility and limited availablility
of credit and hence. reduced global consumer and corporate spending.Devices & Services net
sales also saw a downfall of 7% in 2008 and -21% in 2009 y-o-y basis.

The negative sales growth figure turned positive in 2010 when growth in net sales figure moved
from -19% in 2009 to +4% in 2010.Net sales benefitted from improved economic and financial
conditions following the significant deterioration in demand during the second half of 2008 and
2009. The year 2010 saw volume and value growth in the global mobile device market driven by
rapid growth in converged mobile devices. At the same time, the intensity of competition in the
mobile market increased tremendously and hence Nokia was adversely impacted. Nokia's device
volumes were also adversely affected in the second half of 2010 by shortages of certain
components. The overall appreciation of certain currencies relative to the Euro during 2010 had a
positive effect on its net sales.The Devices & Services net sales saw a 5% increase due to higher
volumes and a flat ASP and smaller negative foreign exchange hedging impact compared with
2009.The, volumewise, growthr rate for overall mobile devices industry stood at 13% in 2010(y-
o-y basis) and the same figure for Nokia stood at 5%.A;so as per Nokia's estimates, its market
share decreased to 32% in 2010 from an estimated 34% in 2009 .

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Growth in net sales again turned to -9% in 2011 from +4% in 2010 and thereafter remained
negative till 2013. Nokia's net sales were negatively affected by the increasing momentum of
competing smartphone platforms relative to Nokia's Symbian smartphone platform. Competetors
product portfolio included phones with varying screen sizes,affordable prices,dual sim features
etc.. which gave them a lead over Nokia. Aggressive price competition, infact, rseulted in
reduced inventories of Nokia phones with the distributors and operators. However, movement of
Euro relative to other currencies had no impact on overall net sales of Nokia in 2011.

The figure further moved down from -9% in 2011 to -22% in 2012 and moved up to -!7% in
2013 signalling that net sales declined by -17% in 2013 but the decline was less as compared to
the -22% figure in 2012. The major reason for fall in net sales of Nokia was increasing
popularity of iphones and android based smart phones relative to Nokia's symbian smartphones.
Lack of affordable touch devices from Nokia was another reason for falling sales, particularly in
the first half of 2012, when market was flourished from affordable touch devices from different
brands like samsung, micromax, sony etc.

Moreover, having a presence in emerging markets such as China, India, Brazil, and Russia gave
it substantial foreign exchange exposure.The reason for neagtive sales growth in 2013 is majorly
attributed to lower sales of its two major business components namely NSN and HERE who
divested some of their inconsistent businesses and lower recognition of deffered revenue.
Moreover, impact of foreign currnecy fluctuation was also there.

FALL OF NOKIA

Introduction of Iphone in 2007 changed the global mobile market scenario. Iphones & android
based touch phones provided good opputunity to all existing and new market palyers in the
mobile handsets industry. Brand Nokia, which, identified a similar opputunity in early 1990's
and launched various consumer friendly phones, was too much preoccupied with its established
business and Symbian software, that it got late in identifying the direction of the wind & the
requirements of the time as compared to other market players with the resultant that it has seen a
huge decline in its market share in the past couple of years.

The introduction of Symbian series by Nokia in 2002 had a good market response. But with the
introduction of Apple IOS in 2007 and Android in 2008, the OS race was completely taken over
by the two giants. Symbian OS lagged behind in mobile applications and user interface, though
efforts were made by Nokia to improve the Symbian OS but still it could not come to pace with
other operating systems and hence the collapse of market for Symbian OS and declining market
share for Nokia. Moreover, too much reliance on Windows platform proved another costlier step
to Nokia.

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Nokia required product innovation to recapture the market. But lack of innovation resulted in late
introduction of various software and even hardware features by Nokia while other palyers had
already launched products in the market which were highly apprised by the mobile users and
thus customers switched over from Nokia to competetive brands. While Nokia was loosing
charm in high end phones, at the same time players like Micromax, HTC gave it a stiff
competition in lower segment as well. In India, local brands stole the lead on dual SIMs, low-end
Qwerty and long-battery-life phones.

While Apple was designing the iPhone and Nokia was selling half a billion phones each year,
Google bought a company called Android and announced an Open Handset Alliance, a grouping
of industry players who would come together to build an open source OS for smartphones. Nokia
was invited to join but refused to demean itself. Within a time span of 2 years, Nokia came into
crisis and its market capitalization had fallen from €110 billion in 2007 to €14.8 billion in may
2012. thus, while Nokia's symbian lost, apple and google highly accomplished in smartphones.

Considering the success of mobile apps introduced by apple and android, Nokia/Symbian also
launched an Apps Store, Horizon and its own Apps and Content store – Ovi, in 2009. But Nokia
had no real platform experience to compare with Apple’s. The platform was shaky and it tried to
launch simultaneously in 35 countries but it faced a gale of criticism for the first time8.

The partnership with Microsoft led to Nokia switching over from Symbian platform to Windows
platform, which has become the primary smartphone opertaing system for Nokia. Nokis's
hardware quality and Microsoft's software experience enabled the launch of variety of windows
based smartphones from Nokia incorporating features like dual sim, enhnaced mapping,
navigation, location based services etc in varying screen sizes and affordable ranges.

CONCLUSION

Nokia lacked experience in the choice of Operating Systems which could tempt the exixsting as
well as new employees and hence made wrong paltform choices.Due to lack of needed skill sets,
ti could not move at the required speed in the market.

Combination of complementary assets and technical skills of Nokia and Microsoft may provide a
differentiated (mobile) product portfolio as against the rivals.

Both Nokia and Microsoft enjoy strong brand image and brand awareness, hence should result in
a stonger brand image.

Significant investements in R& D, hiring expertise, technology, outsourcing, market exploration

etc may be required to innovate and grow successfully.

8
http://www.forbes.com/sites/haydnshaughnessy/2013/03/08/apples-rise-and-nokias-
fall-highlight-platform-strategy-essentials/2/
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Nokia may have a less diversified portfolio of businesses and reduced bargaining power with
counterparties as a consequence of its Devices and Sales business.

There could be potential threats of Microsoft and Nokia deal. Hence, both need to be attentive to
such threats and manage the partnership to be aligned to their long term objectives.

Nokia needs to scan the environment for the upcoming trends, identify the opputunities and
deliver innovative products timely.

BIBLIOGRAPHY/REFERENCES:

 Aug, 2007, ―How Did Nokia Succeed in the Indian Mobile Market, While Its Rivals Got
Hung Up?‖
 https://knowledge.wharton.upenn.edu/article/how-did-nokia-succeed-in-the-indian-
mobile-market-while-its-rivals-got-hung-up/
 Dutta, S. (2006), ―India has 100m mobile subscribers‖, DMasia.com.
 Jamie Yap - March, 2013, ―Nokia's India revenue falls 23 percent‖
 http://www.zdnet.com/in/nokias-india-revenue-falls-23-percent-7000012715
 Maneesh Garg,2012, “Nokia: Connecting People or Disconnecting Customers”- a case
study
 Ndu, P. (2005), ―Nokia’s Strategy in India (BSTR174)‖, IMCR Case Collectin, ICFAI
Center of
 Management Reseach, India
 NextBigWhat , July 2010, “15 Years Ago, India Made its First Cellular Call on this
Date”
 http://www.nextbigwhat.com/cellular-mobility-in-india-15-years-297/
 Nikunj Daga, 2007 ,Nokia’s Marketing Strategies in India
 http://edissertations.nottingham.ac.uk/1698/1/07MAlixnd1.pdf
 Nitish Singhal, Sep, 2013, ―Why Nokia Failed – Top 4 Reasons‖
 http://nxtinsight.com/why-nokia-failed-top-4-reasons/
 Nokia Annual Report 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013
 Nokia Sustainability Report 2011, 2012, 2013
 Nokia SWOT Analysis. (2007, October 31). Docstoc – Documents, Templates, Forms,
Ebooks, Papers & Presentations
 Press Releases, 7 August, 2013, Nokia completes the acquisition of Siemens' stake in
Nokia Siemens Networks
 http://company.nokia.com/en/news/press-releases/2013/08/07/nokia-completes-the-
acquisition-of-siemens-stake-in-nokiasiemens-networks
 Press Releases, 26 February, 2013 Nokia Asha 305 wins 'Best Entry Level Phone' at
Mobile World Congress
 http://company.nokia.com/en/news/press-releases/2013/02/26/nokia-asha-305-wins-best-
entry-level-phone-at-mobileworld-congress

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CASIRJ Volume 5 Issue 6 [Year - 2014] ISSN 2319 – 9202

 Press Releases, 16 July, 2013, Gi Group recruits Nokia Lumia as its business smartphone
 http://company.nokia.com/en/news/press-releases/2013/07/16/gi-group-recruits-nokia-
lumia-as-its-business-smartphone
 Rajorshi Biswas,May 22, 1997, “Nokia To Invest $20m In India”
 (http://www.business-standard.com/article/specials/nokia-to-invest-20m-in-india-
197052201054_1.html
 Tero Kuittinen, Sep, 2013, ―A brief history of Nokia: When the future was Finnish
 http://www.bgr.in/manufacturers/nokia/a-brief-history-of-nokia-when-the-future-was-
finnish/?gclid=COOTjsznzL4CFQuTjgod_joAew

 The Forbes, 2013, ―Apples rise and Nokias fall highlight platform strategy essentials‖
 http://www.forbes.com/sites/haydnshaughnessy/2013/03/08/apples-rise-and-nokias-fall-
highlight-platform-strategy-essentials/2/
 http://cmrindia.com/pressreleases/
 http://cmrindia.com/58-9-million-mobile-handsets-shipped-in-india-during-1q-cy-2014-
a-y-o-y-growth-of-8-9-but-a-q-o-q-seasonal-decline-of-16-4/
 http://company.nokia.com/en/about-us/our-company/our-story
 http://company.nokia.com/sites/default/files/download/investors/2013_nokia_full_form_
20-f_bmk.pdf
 http://en.wikipedia.org/wiki/Nokia
 http://news.biharprabha.com/2013/09/nokia-the-journey-of-a-company-from-paper-pulp-
to-mobile-phones/
 http://www.docstoc.com/docs/20145441/Nokia-SWOT-Analysis
 https://www.elance.com/file/nokia.doc?crypted...
 http://www.slideshare.net/manigarg211/nokia-connecting-people-or-disconnecting-
customers-a-case-study-on-nokia
 http://www.6300phones.com/nokia-company-information-history-and-their-future/
nokia fall

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International Journal of Engineering Research and Development
e-ISSN: 2278-067X, p-ISSN: 2278-800X, www.ijerd.com
Volume 13, Issue 9 (September 2017), PP.22-28

Analysis of Decline Market: with Special Reference To Nokia

Mobile Phone
*
Dr. Sanjeev Chaturvedi
1
Ph.D Guide Thanks & Regards, Swarnpreet Singh
Corresponding Author: *Dr. Sanjeev Chaturvedi

ABSTRACT: Nokia was a synonym for the mobile phone industry for a long time; however, when it came
into the era of smart phones, the former leader was under an awkward situation. Nokia sold its mobile phone
business to Microsoft on September 3, 2013. This was a typical case of the subversion of an industry; therefore,
the author believed that it was necessary to analyze the process. This research paper studied Nokia‘s decline
mainly from the three parts. First of all, looking back Nokia‘s development process from the glory to the
decline, it can be divided into three stages: the transition period, the peak period and the decline period,
followed by analyzing the reasons of its decline from three parts: Nokia executives‘ grasp for the market, the
company‘s business strategy and business cooperation, and finally analyzing its inspiration for modern
enterprises from the marketing perspective.

I. INTRODUCTION
Nokia was one of the first handset companies to enter the India market in the early 1990s and the brand
almost became generic to cell-phones. Its hold on the Indian market was far stronger than in the international
market. Adding to this is the fact that the Indian mobile phone market grew at a scorching pace in the early
1990s, Nokia even started one of its largest manufacturing facilities in India. However, along with the rest of the
world, Nokia lost its leadership position in India and across International market, unable to capitalise on the
Smartphone trend. Industry feels that the Microsoft buy was meant to popularise the Windows OS and possibly
fight Google phones in the market. However, given that the brand Nokia is leased to it for just 10 years, how
will the company use the handset manufacturing facilities and the brand to further its objective?

The marketing team realises that currently Windows OS is definitely not the most popular and will,
hence, hamper the growth of Nokia handsets, especially in the Smartphone segment. At the same time, unless
the Nokia Smartphone share grows rapidly, the objective of popularising the Windows OS will not be achieved.
It is obvious that the Microsoft board is only keen to popularise the Windows OS and not just increase Nokia
handset sales. You are the head of the Mobile Solutions business at Microsoft and have been asked to share
your views on what should Microsoft do from here with respect to Nokia handsets division and why. The
objective for you is to make Windows the strong second as the operating system for phones, if the not the first,
during this 10-year period. As both companies in question are live companies, you can gather additional
information on their current strategies from secondary research.

II. METHODOLOGY
In my analysis I have perceived as relevant to explore the competitive situation in the Smartphone
industry. For this analysis I have chosen to use Porter‘s Five Forces. I find themethod suitable as it exposes
every aspect of the competition in an industry. It is important that Nokia is aware of the dangers of the various
sources of competition, so it builds its marketing strategy protecting from those. I choose to use SWOT analysis
to map the environment of Nokia. The method is a way to better explore the strengths, weakness, opportunities
and threats for Nokia. SWOT analysis will help me understand whether Nokia has build its strategy utilizing its
strengths and protecting from the threats in the market, and whether it has worked to offset its weaknesses.
I have used the product life cycle concept, as Nokia is manufacturing physical goods and the method
will help me understand, which strategies are appropriate for the introduction stage of the LumiaSmart phones.
For the strategy analysis I have chosen to explore two strategy models, which I find suitable for the introduction
stage of a smart phone. These are Smith‘s differentiation and segmentation strategies and Porter‘s Generic
strategies. I have chosen to use this two strategy models, as they seem to fit the strategic possibilities in the
Smartphone market.

III. SCOPE OF THE STUDTY

Nokia‘s situation may be affected by factors outside the scope of marketing strategy, those may be
discussed briefly but they are not included in the scope of this research paper. This analysis is taking into
22
 Analysis of Decline Market: with Special Reference To Nokia Mobile Phone

consideration only the marketing strategy factors, affecting Nokia‘s performance in the European market. The
paper is manly discussing the marketing decline of the company in the Smartphone market and the mobile
phone market is ignored, as the product is sidelined due to changing customer needs. More specifically the
analysis focus only on Nokia mobile phones, as these products seem to be marketed in order for Nokia to
achieve its main goals in the Smartphone market.

IV. PROBLEM STATEMENT

This research paper has the purpose of exploring the marketing strategy of Nokia, and more specifically
the introduction strategic choices of the company when marketing its Lumia products. The purpose of this
analysis is to understand whether there is evidence to conclude that Nokia‘s performance in the Smartphone
market has been affected negatively by the marketing strategy choices of the company. This paper will
concentrate on finding problems with the marketing strategy choice and implementation.

The research question of my research paper is:

1. What is the problem with the marketing strategy of Nokia Lumia, which may have slowed down the
recovery of the company?

In order to answer the research question I have come up with smaller questions to guide my analysis:
1. What is the goal of Nokia in the Smartphone market, and how does it want to achieve it?
2. Which marketing strategy the company chooses to translate its vision into reality?
3. Is the strategy choice proper and implemented correctly?
4. What course of action should the company undertake to fix the problem?
5. How Nokia‘s market decline and fall the grace of strategy?

V. LITERATURE REVIEW FROM 1992 TO 2013

Nokia was the unchallenged leader in the mobile phone market until 2012 when South Korean
consumer electronics giant Samsung Electronics, a late entrant, dislodged it from the top. Things had begun to
change for the Finnish handset maker from early 2007. The first threat to its dominance came from Apple's
iPhone. Soon Google's mobile operating system, Android, and HTC's first Android device - HTC Dream- added
to its challenges. In 2009, a year after Android was unveiled, the company posted its first quarterly loss in more
than a decade. Since then it has been struggling to regain its lost position. According to reports, market share of
Nokia's Symbian operating system fell from 62.5 per cent in Q4 2007 to 52.4 per cent in Q4 2008. By Q4 2010,
Symbian's market share had dropped to about 32 per cent, while Android's share had increased to about 30 per
cent. Faced with dwindling market share, in 2011, Nokia decided to move out of Symbian altogether. India was
one of the key markets for Nokia which it dominated with more than 26 per cent market share until 2012. 66
As a veteran mobile phone companies, Nokia has experienced a total of three transformations: from
rubber, paper to cable, from cable to mobile phones, from mobile phone to mobile Internet over a hundred years
of business process since 1865. The two former transformations can be said to be very perfect, and did make a
great contribution to the development of Nokia. However, in the era of mobile Internet, Nokia in the third
transformation has been out of orbit, and has not launched star products meeting the requirements of mobile
Internet. Facing the rapid development of Apple and Android phones, it seemed that Nokia was a bit powerless,
and has already lost the leadership style of the mobile phone industry.

But before 1992, Nokia adopted the business tactic that was highly cross-industry and diversified, and
had 34 subsidiaries in 10 different industries and 108 areas. When Nokia was in the situation of full loss in
1992, the company‘s board of directors hired Ollila as president of the company. Ollila immediately gave up the
diversification tactic, adjusted the business structure drastically, narrowed the scope of operation, abandoned
non-core business, and sold 71 enterprises. At last, there were only two groups, mobile phone and network, and
Nokia began its professional road from now on.
Before 1998, Motorola is the world‘s largest mobile phone manufacturer, and Nokia has been in hot
pursuit of it. In the 6 years of the implementation of the professional tactic, Nokia‘s rate of increase increment
has remained at around 50%, becoming the world‘s largest mobile communications manufacturers. Nokia
produced the 100,000,000th mobile phone in 1998, and then become the world‘s largest mobile phone
manufacturers instead of Motorola.

Since Nokia exceeded Motorola in 1998, its market share soared in a few years. The year of 2006 was a
milestone for the development of Nokia in China. Nokia‘s annual sales and exports in China were more than 10
billion euro with net sales being more than 5.3 billion euro and exports amounting to 4.8 billion euro. China has
become the largest market for Nokia in the world. The year of 2007 was Nokia‘s harvest year, because its global

23
 Analysis of Decline Market: with Special Reference To Nokia Mobile Phone

market share reached 40%; in China, the largest market, the market share of this year was also more than 30%
(Economics New, Jan. 2012). So far, in China and the global market, there is no such crazy data. However, the
glory of Nokia seemed to be drawing to a close during this year.

The smart phone operating system Android, Google released in 2008, became a new market reform.
The smart phone storm led by iPhone and Android has proved to be market mainstream. For the first time,
Nokia didn‘t occupy the first position of the mobile phone market share, the ranking dropped to the third.
What‘s worse, Nokia‘s share of the smart phone market in 2011 has dropped from 33% in 2010 to 14%, far
lower than Apple and Samsung.

According the ―mobile Internet users behavior research survey in 2012‖ released by CNNIC, 53% of
Nokia‘s mobile phone users planned to buy smart phone in the future s, of which 43.3% chose the Android
system, 28.6% picked IOS system. Massive customer switching meant that the future of Nokia‘s mobile phone
market share would further decline, Nokia was facing not only how to compete for new users, but also how to
retain the old users. A Research Consulting‘s report released in December 2012 showed that for the domestic
market of mobile phone sales, Samsung became the market leader accounting for 32.3%, Apple (14.3%),
HUAWEI (12.5%), Lenovo (7.3%) and HTC (5.9%) followed. Nokia, whose ranking has slipped out of the top
three since September, occupied 5.9% in the market. Sales share of each mobile phone brand in December 2012
in Chinese market.
Nokia has suffered a series of attacks since 2012. It has been pressed by many events, including several
landmark events Nokia announced 10,000 layoffs globally on June 15, 2012, besides Nokia sold headquarters
building at 17 million euro on December 5, 2012; finally Nokia sold the company's mobile phone business to
Microsoft on September 3, 2013.

VI. ANALYSIS OF NOKIA’S DECLINE

After a while Nokia came developed the mobile phones with Symbian OS, with this the capabilities
were expended. But then came Apple with the iPhone in 2007, Apple Brings a new definition to the
‗Smartphone‘. Apple developed the iPhone in such a Way that is a mini computer that could make phone calls.
Nokia couldn‘t keep up with the iPhone as Nokia was still using Symbian OS. Nokia‘s market shares were
falling more downwards after Samsung came with their smart phones. During this period Nokia was unwilling
to challenge itself1. Nokia was sticking to the model that Mobile phones were mainly about calling people.
Nokia failed to notice that they were Just as much about checking your e--‐mail, surfing and social media. In
2011 Nokia unveiled their new strategic alliance with Microsoft. The new Windows Phone is to replace the
Symbian OS for Smartphone. It was suggested the alliance would make Microsoft‘s Windows Phone a stronger
contender against Android and iOS.

24
 Analysis of Decline Market: with Special Reference To Nokia Mobile Phone

Source: www. nokia+lumia+sales+figures+in+india&source=lnms&tbm

Figure-1Nokia Lumia Sales
This new Line is called Lumia line. In 2012 the Lumia line sold above 1 million phones before26 January 2012.
In the second quarter sales went up to 5.4 million Windows Phones. The sales of the Lumia line went up, in the
second quarter of 2013 Nokia announced That Lumia sales were 7.4 million as shown in Figure-1.This is a new
record for Nokia. In 2013 Nokia returns to profit after a spell of losses, Microsoft buys Nokia‘s handset business
for €5.44bn2.

The performance of Nokia during the period 2004 in further detail, a glimpse at them still gives a good idea of
what has happened. The first graph depicts Nokia‘s sold volumes, both in emerge America) and their total sold
volume shown in Figure 2. It is worth noticing how large share of their volumes were actually sold in
developing countries. Interestingly, the decline is much steeper in developed countries percent (Europe and the
United States) where the company lost 47 of its volume from 2008 to 2012 as compared to 22 percent in
emerging economies.
Figure:2
Nokia Sold Mobile Phones (million units)

The following graph showed in Figure3 Nokia‘s financial performance in terms of revenues and operating
profit:
Figure:
25
 Analysis of Decline Market: with Special Reference To Nokia Mobile Phone

Nokia mobile Phones Business 2004-2012 (million euros)

Needless to say, the company‘s market share has declined significantly. It peaked around 40 percent in 2007. In
the years up to the introduction of smartphones, Nokia gained market share on a growing market inFigure 4.

Figure: 4
Nokia Market Share (Sold Units %)

Decreasing volumes have implied collapsing operating margins, as illustrated in Figure 5 below:

Figure: 5
Nokia Mobiles Phones Operating Margin

26
 Analysis of Decline Market: with Special Reference To Nokia Mobile Phone

Another, perhaps more important explanation of Nokia‘s problem is related to the decline in Average Selling
Price in Figure 6. If each so phone generated 110 Euros of revenue in 2004, then getting only 45 Euros per
phone in 2012 is of course a tragedy for the company.

Figure: 6
Average Selling Price Nokia Phones (Euros)

For sure, parts of the decline in Average Selling Price can be explained by increasing volumes in developing
countries, but I nevertheless clear that price competition has been fierce in these years.

Nokia has been squeezed from two ends margins and in the Western world Nokia has been forced to cut prices
due to an outdated product portfolio.
It is truly amazing how a company can appear so solid and competitive and then fall apart within only a couple
of years.
According to their data the Nokia Lumia 520, released only a month ago, has already taken 16.9%
of the WP market in India, taking first place ahead of the Nokia Lumia 620, at 15.4%.
The data shows that the majority of WP handsets in India now run Windows Phone 8, at more than 52%, and
that Nokia had more than 90% of the market there. It also suggests Nokia sold more handsets in the first few
months of 2013 than they did in the whole of 2012 in India.
Here are the Q4 2012 results, meaning they only show WP 7.5 devices, since WP8 phones were only released
this year:

Figure: 7 Windows Phone Devices-India

According to the William Stofega, IDC‘s program director for mobile device, speaking in Wired,
289,000 Windows Phones were sold in India in Q4 2012, out of 5.4 million smartphones sold there in the same
27
 Analysis of Decline Market: with Special Reference To Nokia Mobile Phone

quarter, giving the OS a market share of 5.4%. Nokia's share out of this is more than 90%. As Microsoft of
course mentioned recently, this is a greater market share than iOS has in the same region. While the Indian
smartphone market is quite small, with only 16.3 million handsets sold in total in 2012, this is a 70% YoY
growth, and with a number of cheap and powerful Windows Phone 8 handsets being released there, the OS is
set to ride this wave of growth much better than iOS or Blackberry is at the minute, who have priced
themselves out of the market.

VII. CONCLUSION
This research paper first introduced the background of Nokia‘s acquisition by Microsoft, then proposed
the research direction of this paper based on the interviews by studying the problems, and followed by giving a
brief account of the three stages of Nokia‘s development. After that, this paper analyzed the Nokia‘s decline
from three aspects: Nokia‘s executives didn‘t grasp the market accurately; there was a deviation in the business
tactic of the company; Nokia was lack of teamwork. Finally, this paper put forward the targeted marketing
strategies on theabove three problems of Nokia.

REFERENCES
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india/article5440360.ece.
[3]. Fu, Z.S. (2010) Nokia Smart Phone Satisfaction Is Not High Operating System Closed or the Main
Reason. Communication Information.

[4]. Yi, M. (2011) When Nokia Met Apple.Business Management, 12, 60-62.
[5]. Zheng, Z.Q. (2013) Influence of Utilitarianism and Hedonism on Purchase Behavior in Mobile
Phone—Nokia and Apple as an Example.Journal of Liaoning Medical College, 10, 50-52.
[6]. http://www.bloomberg.com/news/2010--‐09--‐13/nokia--‐s--‐decline--‐holds--‐three--‐lessons--‐
[7]. S. Christian, ―Nokia‘s decline in figures‖, From His Blog (Accessed 13May, 2013 Category Archives:
Mobile phones, http://disruptiveinnovation.se/?cat=16.
[8]. Bug hits new Nokia Lumia 900 smartphone. (2012, April 11). Retrieved on February 10, 2013, from:
http://www.bbc.co.uk/news/technology-17675319
[9]. Desmarais, C. (2013). Google, Apple, Microsoft app number wars heat up. Retrieved February 10,
2013, from: http://www.pcworld.com/article/2023783/google-applemicrosoft-app-number-wars-heat-
up.html
[10]. Dickson, P. R., &Ginter, J. L. (1987).Market Segmentation, Product Differentiation, and Marketing
Strategy.Journal Of Marketing, 51(2), 1-10.
[11]. Donnelly, A. (2008, Oct 01). Nokia.Marketing, 18-18. Retrieved on February 6th, 2013 from:
http://search.proquest.com/docview/214961929?accountid=14468
[12]. Drucker, P. (1973) Management: Task, Responsibilities and Practices, New York: Harper and Row.
[13]. El-Ansary, A. (2006). Marketing strategy: Taxonomy and frameworks. European Business Review,
18(4), 266-266
[14]. King, A. (2012). Lumia 920 pre-orders doing well in Europe. Retrieved on February 10, 2013 from:
http://winsource.com/2012/10/17/lumia-920-pre-orders-doing-well-ineurope/
[15]. Kotler, P., Keller, K. L., Brady, M., Goodman, M. and Hansen, T. (2009) Marketing Management, 1st
ed., Pearson Education Limited.
[16]. Nokia, about us. Retrieved March 10, 2013 from:http://www.nokia.com/global/aboutnokia/about-
us/about-us/
[17]. Nokia and Microsoft form partnership. (2011, February 11). Retrieved February 10, 2013, from:
http://www.bbc.co.uk/news/business-12427680

*Dr. Sanjeev Chaturvedi. ―Analysis of Decline Market: with Special Reference To Nokia Mobile Phone.‖
International Journal of Engineering Research and Development, vol. 13, no. 09, 2017, pp. 22–28.

28
International Journal of Engineering Research and Development
e-ISSN: 2278-067X, p-ISSN: 2278-800X, www.ijerd.com
Volume 13, Issue 9 (September 2017), PP.22-28

Analysis of Decline Market: with Special Reference To Nokia

Mobile Phone
*
Dr. Sanjeev Chaturvedi
1
Ph.D Guide Thanks & Regards, Swarnpreet Singh
Corresponding Author: *Dr. Sanjeev Chaturvedi

ABSTRACT: Nokia was a synonym for the mobile phone industry for a long time; however, when it came
into the era of smart phones, the former leader was under an awkward situation. Nokia sold its mobile phone
business to Microsoft on September 3, 2013. This was a typical case of the subversion of an industry; therefore,
the author believed that it was necessary to analyze the process. This research paper studied Nokia‘s decline
mainly from the three parts. First of all, looking back Nokia‘s development process from the glory to the
decline, it can be divided into three stages: the transition period, the peak period and the decline period,
followed by analyzing the reasons of its decline from three parts: Nokia executives‘ grasp for the market, the
company‘s business strategy and business cooperation, and finally analyzing its inspiration for modern
enterprises from the marketing perspective.

I. INTRODUCTION
Nokia was one of the first handset companies to enter the India market in the early 1990s and the brand
almost became generic to cell-phones. Its hold on the Indian market was far stronger than in the international
market. Adding to this is the fact that the Indian mobile phone market grew at a scorching pace in the early
1990s, Nokia even started one of its largest manufacturing facilities in India. However, along with the rest of the
world, Nokia lost its leadership position in India and across International market, unable to capitalise on the
Smartphone trend. Industry feels that the Microsoft buy was meant to popularise the Windows OS and possibly
fight Google phones in the market. However, given that the brand Nokia is leased to it for just 10 years, how
will the company use the handset manufacturing facilities and the brand to further its objective?

The marketing team realises that currently Windows OS is definitely not the most popular and will,
hence, hamper the growth of Nokia handsets, especially in the Smartphone segment. At the same time, unless
the Nokia Smartphone share grows rapidly, the objective of popularising the Windows OS will not be achieved.
It is obvious that the Microsoft board is only keen to popularise the Windows OS and not just increase Nokia
handset sales. You are the head of the Mobile Solutions business at Microsoft and have been asked to share
your views on what should Microsoft do from here with respect to Nokia handsets division and why. The
objective for you is to make Windows the strong second as the operating system for phones, if the not the first,
during this 10-year period. As both companies in question are live companies, you can gather additional
information on their current strategies from secondary research.

II. METHODOLOGY
In my analysis I have perceived as relevant to explore the competitive situation in the Smartphone
industry. For this analysis I have chosen to use Porter‘s Five Forces. I find themethod suitable as it exposes
every aspect of the competition in an industry. It is important that Nokia is aware of the dangers of the various
sources of competition, so it builds its marketing strategy protecting from those. I choose to use SWOT analysis
to map the environment of Nokia. The method is a way to better explore the strengths, weakness, opportunities
and threats for Nokia. SWOT analysis will help me understand whether Nokia has build its strategy utilizing its
strengths and protecting from the threats in the market, and whether it has worked to offset its weaknesses.
I have used the product life cycle concept, as Nokia is manufacturing physical goods and the method
will help me understand, which strategies are appropriate for the introduction stage of the LumiaSmart phones.
For the strategy analysis I have chosen to explore two strategy models, which I find suitable for the introduction
stage of a smart phone. These are Smith‘s differentiation and segmentation strategies and Porter‘s Generic
strategies. I have chosen to use this two strategy models, as they seem to fit the strategic possibilities in the
Smartphone market.

III. SCOPE OF THE STUDTY

Nokia‘s situation may be affected by factors outside the scope of marketing strategy, those may be
discussed briefly but they are not included in the scope of this research paper. This analysis is taking into
22
 Analysis of Decline Market: with Special Reference To Nokia Mobile Phone

consideration only the marketing strategy factors, affecting Nokia‘s performance in the European market. The
paper is manly discussing the marketing decline of the company in the Smartphone market and the mobile
phone market is ignored, as the product is sidelined due to changing customer needs. More specifically the
analysis focus only on Nokia mobile phones, as these products seem to be marketed in order for Nokia to
achieve its main goals in the Smartphone market.

IV. PROBLEM STATEMENT

This research paper has the purpose of exploring the marketing strategy of Nokia, and more specifically
the introduction strategic choices of the company when marketing its Lumia products. The purpose of this
analysis is to understand whether there is evidence to conclude that Nokia‘s performance in the Smartphone
market has been affected negatively by the marketing strategy choices of the company. This paper will
concentrate on finding problems with the marketing strategy choice and implementation.

The research question of my research paper is:

1. What is the problem with the marketing strategy of Nokia Lumia, which may have slowed down the
recovery of the company?

In order to answer the research question I have come up with smaller questions to guide my analysis:
1. What is the goal of Nokia in the Smartphone market, and how does it want to achieve it?
2. Which marketing strategy the company chooses to translate its vision into reality?
3. Is the strategy choice proper and implemented correctly?
4. What course of action should the company undertake to fix the problem?
5. How Nokia‘s market decline and fall the grace of strategy?

V. LITERATURE REVIEW FROM 1992 TO 2013

Nokia was the unchallenged leader in the mobile phone market until 2012 when South Korean
consumer electronics giant Samsung Electronics, a late entrant, dislodged it from the top. Things had begun to
change for the Finnish handset maker from early 2007. The first threat to its dominance came from Apple's
iPhone. Soon Google's mobile operating system, Android, and HTC's first Android device - HTC Dream- added
to its challenges. In 2009, a year after Android was unveiled, the company posted its first quarterly loss in more
than a decade. Since then it has been struggling to regain its lost position. According to reports, market share of
Nokia's Symbian operating system fell from 62.5 per cent in Q4 2007 to 52.4 per cent in Q4 2008. By Q4 2010,
Symbian's market share had dropped to about 32 per cent, while Android's share had increased to about 30 per
cent. Faced with dwindling market share, in 2011, Nokia decided to move out of Symbian altogether. India was
one of the key markets for Nokia which it dominated with more than 26 per cent market share until 2012. 66
As a veteran mobile phone companies, Nokia has experienced a total of three transformations: from
rubber, paper to cable, from cable to mobile phones, from mobile phone to mobile Internet over a hundred years
of business process since 1865. The two former transformations can be said to be very perfect, and did make a
great contribution to the development of Nokia. However, in the era of mobile Internet, Nokia in the third
transformation has been out of orbit, and has not launched star products meeting the requirements of mobile
Internet. Facing the rapid development of Apple and Android phones, it seemed that Nokia was a bit powerless,
and has already lost the leadership style of the mobile phone industry.

But before 1992, Nokia adopted the business tactic that was highly cross-industry and diversified, and
had 34 subsidiaries in 10 different industries and 108 areas. When Nokia was in the situation of full loss in
1992, the company‘s board of directors hired Ollila as president of the company. Ollila immediately gave up the
diversification tactic, adjusted the business structure drastically, narrowed the scope of operation, abandoned
non-core business, and sold 71 enterprises. At last, there were only two groups, mobile phone and network, and
Nokia began its professional road from now on.
Before 1998, Motorola is the world‘s largest mobile phone manufacturer, and Nokia has been in hot
pursuit of it. In the 6 years of the implementation of the professional tactic, Nokia‘s rate of increase increment
has remained at around 50%, becoming the world‘s largest mobile communications manufacturers. Nokia
produced the 100,000,000th mobile phone in 1998, and then become the world‘s largest mobile phone
manufacturers instead of Motorola.

Since Nokia exceeded Motorola in 1998, its market share soared in a few years. The year of 2006 was a
milestone for the development of Nokia in China. Nokia‘s annual sales and exports in China were more than 10
billion euro with net sales being more than 5.3 billion euro and exports amounting to 4.8 billion euro. China has
become the largest market for Nokia in the world. The year of 2007 was Nokia‘s harvest year, because its global

23
 Analysis of Decline Market: with Special Reference To Nokia Mobile Phone

market share reached 40%; in China, the largest market, the market share of this year was also more than 30%
(Economics New, Jan. 2012). So far, in China and the global market, there is no such crazy data. However, the
glory of Nokia seemed to be drawing to a close during this year.

The smart phone operating system Android, Google released in 2008, became a new market reform.
The smart phone storm led by iPhone and Android has proved to be market mainstream. For the first time,
Nokia didn‘t occupy the first position of the mobile phone market share, the ranking dropped to the third.
What‘s worse, Nokia‘s share of the smart phone market in 2011 has dropped from 33% in 2010 to 14%, far
lower than Apple and Samsung.

According the ―mobile Internet users behavior research survey in 2012‖ released by CNNIC, 53% of
Nokia‘s mobile phone users planned to buy smart phone in the future s, of which 43.3% chose the Android
system, 28.6% picked IOS system. Massive customer switching meant that the future of Nokia‘s mobile phone
market share would further decline, Nokia was facing not only how to compete for new users, but also how to
retain the old users. A Research Consulting‘s report released in December 2012 showed that for the domestic
market of mobile phone sales, Samsung became the market leader accounting for 32.3%, Apple (14.3%),
HUAWEI (12.5%), Lenovo (7.3%) and HTC (5.9%) followed. Nokia, whose ranking has slipped out of the top
three since September, occupied 5.9% in the market. Sales share of each mobile phone brand in December 2012
in Chinese market.
Nokia has suffered a series of attacks since 2012. It has been pressed by many events, including several
landmark events Nokia announced 10,000 layoffs globally on June 15, 2012, besides Nokia sold headquarters
building at 17 million euro on December 5, 2012; finally Nokia sold the company's mobile phone business to
Microsoft on September 3, 2013.

VI. ANALYSIS OF NOKIA’S DECLINE

After a while Nokia came developed the mobile phones with Symbian OS, with this the capabilities
were expended. But then came Apple with the iPhone in 2007, Apple Brings a new definition to the
‗Smartphone‘. Apple developed the iPhone in such a Way that is a mini computer that could make phone calls.
Nokia couldn‘t keep up with the iPhone as Nokia was still using Symbian OS. Nokia‘s market shares were
falling more downwards after Samsung came with their smart phones. During this period Nokia was unwilling
to challenge itself1. Nokia was sticking to the model that Mobile phones were mainly about calling people.
Nokia failed to notice that they were Just as much about checking your e--‐mail, surfing and social media. In
2011 Nokia unveiled their new strategic alliance with Microsoft. The new Windows Phone is to replace the
Symbian OS for Smartphone. It was suggested the alliance would make Microsoft‘s Windows Phone a stronger
contender against Android and iOS.

24
 Analysis of Decline Market: with Special Reference To Nokia Mobile Phone

Source: www. nokia+lumia+sales+figures+in+india&source=lnms&tbm

Figure-1Nokia Lumia Sales
This new Line is called Lumia line. In 2012 the Lumia line sold above 1 million phones before26 January 2012.
In the second quarter sales went up to 5.4 million Windows Phones. The sales of the Lumia line went up, in the
second quarter of 2013 Nokia announced That Lumia sales were 7.4 million as shown in Figure-1.This is a new
record for Nokia. In 2013 Nokia returns to profit after a spell of losses, Microsoft buys Nokia‘s handset business
for €5.44bn2.

The performance of Nokia during the period 2004 in further detail, a glimpse at them still gives a good idea of
what has happened. The first graph depicts Nokia‘s sold volumes, both in emerge America) and their total sold
volume shown in Figure 2. It is worth noticing how large share of their volumes were actually sold in
developing countries. Interestingly, the decline is much steeper in developed countries percent (Europe and the
United States) where the company lost 47 of its volume from 2008 to 2012 as compared to 22 percent in
emerging economies.
Figure:2
Nokia Sold Mobile Phones (million units)

The following graph showed in Figure3 Nokia‘s financial performance in terms of revenues and operating
profit:
Figure:
25
 Analysis of Decline Market: with Special Reference To Nokia Mobile Phone

Nokia mobile Phones Business 2004-2012 (million euros)

Needless to say, the company‘s market share has declined significantly. It peaked around 40 percent in 2007. In
the years up to the introduction of smartphones, Nokia gained market share on a growing market inFigure 4.

Figure: 4
Nokia Market Share (Sold Units %)

Decreasing volumes have implied collapsing operating margins, as illustrated in Figure 5 below:

Figure: 5
Nokia Mobiles Phones Operating Margin

26
 Analysis of Decline Market: with Special Reference To Nokia Mobile Phone

Another, perhaps more important explanation of Nokia‘s problem is related to the decline in Average Selling
Price in Figure 6. If each so phone generated 110 Euros of revenue in 2004, then getting only 45 Euros per
phone in 2012 is of course a tragedy for the company.

Figure: 6
Average Selling Price Nokia Phones (Euros)

For sure, parts of the decline in Average Selling Price can be explained by increasing volumes in developing
countries, but I nevertheless clear that price competition has been fierce in these years.

Nokia has been squeezed from two ends margins and in the Western world Nokia has been forced to cut prices
due to an outdated product portfolio.
It is truly amazing how a company can appear so solid and competitive and then fall apart within only a couple
of years.
According to their data the Nokia Lumia 520, released only a month ago, has already taken 16.9%
of the WP market in India, taking first place ahead of the Nokia Lumia 620, at 15.4%.
The data shows that the majority of WP handsets in India now run Windows Phone 8, at more than 52%, and
that Nokia had more than 90% of the market there. It also suggests Nokia sold more handsets in the first few
months of 2013 than they did in the whole of 2012 in India.
Here are the Q4 2012 results, meaning they only show WP 7.5 devices, since WP8 phones were only released
this year:

Figure: 7 Windows Phone Devices-India

According to the William Stofega, IDC‘s program director for mobile device, speaking in Wired,
289,000 Windows Phones were sold in India in Q4 2012, out of 5.4 million smartphones sold there in the same
27
 Analysis of Decline Market: with Special Reference To Nokia Mobile Phone

quarter, giving the OS a market share of 5.4%. Nokia's share out of this is more than 90%. As Microsoft of
course mentioned recently, this is a greater market share than iOS has in the same region. While the Indian
smartphone market is quite small, with only 16.3 million handsets sold in total in 2012, this is a 70% YoY
growth, and with a number of cheap and powerful Windows Phone 8 handsets being released there, the OS is
set to ride this wave of growth much better than iOS or Blackberry is at the minute, who have priced
themselves out of the market.

VII. CONCLUSION
This research paper first introduced the background of Nokia‘s acquisition by Microsoft, then proposed
the research direction of this paper based on the interviews by studying the problems, and followed by giving a
brief account of the three stages of Nokia‘s development. After that, this paper analyzed the Nokia‘s decline
from three aspects: Nokia‘s executives didn‘t grasp the market accurately; there was a deviation in the business
tactic of the company; Nokia was lack of teamwork. Finally, this paper put forward the targeted marketing
strategies on theabove three problems of Nokia.

REFERENCES
[1]. http://[email protected].
[2]. http://www.thehindubusinessline.com/on-campus/case-studies/can-nokia-regain-share-in-
india/article5440360.ece.
[3]. Fu, Z.S. (2010) Nokia Smart Phone Satisfaction Is Not High Operating System Closed or the Main
Reason. Communication Information.

[4]. Yi, M. (2011) When Nokia Met Apple.Business Management, 12, 60-62.
[5]. Zheng, Z.Q. (2013) Influence of Utilitarianism and Hedonism on Purchase Behavior in Mobile
Phone—Nokia and Apple as an Example.Journal of Liaoning Medical College, 10, 50-52.
[6]. http://www.bloomberg.com/news/2010--‐09--‐13/nokia--‐s--‐decline--‐holds--‐three--‐lessons--‐
[7]. S. Christian, ―Nokia‘s decline in figures‖, From His Blog (Accessed 13May, 2013 Category Archives:
Mobile phones, http://disruptiveinnovation.se/?cat=16.
[8]. Bug hits new Nokia Lumia 900 smartphone. (2012, April 11). Retrieved on February 10, 2013, from:
http://www.bbc.co.uk/news/technology-17675319
[9]. Desmarais, C. (2013). Google, Apple, Microsoft app number wars heat up. Retrieved February 10,
2013, from: http://www.pcworld.com/article/2023783/google-applemicrosoft-app-number-wars-heat-
up.html
[10]. Dickson, P. R., &Ginter, J. L. (1987).Market Segmentation, Product Differentiation, and Marketing
Strategy.Journal Of Marketing, 51(2), 1-10.
[11]. Donnelly, A. (2008, Oct 01). Nokia.Marketing, 18-18. Retrieved on February 6th, 2013 from:
http://search.proquest.com/docview/214961929?accountid=14468
[12]. Drucker, P. (1973) Management: Task, Responsibilities and Practices, New York: Harper and Row.
[13]. El-Ansary, A. (2006). Marketing strategy: Taxonomy and frameworks. European Business Review,
18(4), 266-266
[14]. King, A. (2012). Lumia 920 pre-orders doing well in Europe. Retrieved on February 10, 2013 from:
http://winsource.com/2012/10/17/lumia-920-pre-orders-doing-well-ineurope/
[15]. Kotler, P., Keller, K. L., Brady, M., Goodman, M. and Hansen, T. (2009) Marketing Management, 1st
ed., Pearson Education Limited.
[16]. Nokia, about us. Retrieved March 10, 2013 from:http://www.nokia.com/global/aboutnokia/about-
us/about-us/
[17]. Nokia and Microsoft form partnership. (2011, February 11). Retrieved February 10, 2013, from:
http://www.bbc.co.uk/news/business-12427680

*Dr. Sanjeev Chaturvedi. ―Analysis of Decline Market: with Special Reference To Nokia Mobile Phone.‖
International Journal of Engineering Research and Development, vol. 13, no. 09, 2017, pp. 22–28.

28
ETLA Muistio • Brief 16 • 3 September 2013 1
Muistio • Brief 16 • 3 September 2013
ISSN-L 2323-2463, ISSN 2323-2463

ETLA Muistiot tarjoavat ajankohtaista tutkimustietoa ETLA Briefs provide timely research-based information
polttavista yhteiskunnallisista kysymyksistä. on pressing societal issues.
www.etla.fi » julkaisut » muistiot www.etla.fi » publications » briefs
ETLA • Elinkeinoelämän tutkimuslaitos ETLA • The Research Institute of the Finnish Economy

Microsoft Acquires Nokia: Implications for

the Two Companies and Finland
Jyrki Ali-Yrkkö is a Research Director at Etlatieto Oy, a subsidiary of ETLA ([email protected]).
Matias Kalm is a Researcher at Etlatieto Oy, a subsidiary of ETLA ([email protected]).
Mika Pajarinen is a Researcher at Etlatieto Oy, a subsidiary of ETLA ([email protected]).
Petri Rouvinen is a Managing Director at Etlatieto Oy, a subsidiary of ETLA ([email protected]).
Timo Seppälä is a Research Associate at Etlatieto Oy, a subsidiary of ETLA ([email protected]).
Antti-Jussi Tahvanainen is a Researcher at Etlatieto Oy, a subsidiary of ETLA ([email protected]).

This brief is a part of BRIE-ETLA collaborative research.

Suggested citation: Ali-Yrkkö, Jyrki; Kalm, Matias; Pajarinen, Mika; Rouvinen, Petri; Seppälä, Timo & Tahvanainen, Antti-Jussi (3.9.2013).
“Microsoft Acquires Nokia: Implications for the Two Companies and Finland”.
ETLA Brief No 16. http://pub.etla.fi/ETLA-Muistio-Brief-16.pdf

Lead-In Finally, what comes to possible effects on em-

Microsoft’s acquisition of Nokia’s phone business ployment, the Finnish labor market has ab-
has considerable implications for Nokia and po- sorbed the previous batches of ex-Nokia em-
tentially for Finland as a country, but little im- ployees quite well. Short-term difficulties aside,
mediate effects on Microsoft and related indus- we remain optimistic regarding the broader
tries. One might ask, couldn’t there have been ICT sector in Finland – the surge in demand
better remedies for the challenges both Micro- for, and application of, software and IT services
soft and Nokia were facing? across all sectors may well continue.

One has to further ask, why Nokia’s board sud- These are the burning hot questions of today. In
denly abandoned the strategy it has endorsed this brief, we first take a step back and look at
for almost three years, especially when there the big picture before addressing them in detail.
finally were signs that the plan might actually
come to fruition. Nokia’s chairman of the board, How the Mighty Fall
Mr. Siilasmaa, defended the company’s decision Up until the launch of Apple’s iPhone in 2007,
stating that Nokia didn’t have the resources to and Google’s Android in 2009, Nokia and Micro-
successfully promote its smartphone business. soft were indisputable leaders of their own re-
He further explained that the two companies spective industries. Since then they were both
failed to find another strategy that would have caught by the rapid convergence of digital com-
been victorious for both sides. munications, information systems, consumer
electronics, as well as software and digital con-
One could also wonder whether the acquisition
tent of various sorts. This convergence broke
improves Microsoft’s position in any material
the previously prevailing sectoral silos and re-
way, particularly in the consumers’ eyes. In
placed them with a rapidly evolving Internet of
a press conference in Espoo (Finland) today,
everything world. Both companies found them-
CEOs Ballmer and Elop assured their optimism
selves facing new and unknown competition,
for the new Windows Phone software and hard-
and were forced to design new strategies fit for
ware entity. At the same time, however, infor-
a new market regime.
mation provided today suggests that Nokia
can re-enter the phone business any day, albeit The titans have clashed over the dominance of
with certain limitations. this this huge and yet-to-be conquered domain.
2 ETLA Muistio • Brief 16 • 3 September 2013

So far Goliaths, such as Nokia and Microsoft, come less tied to a particular screen. Thus, it
have been unable to capitalize on their old com- makes sense to consider the market shares of
petitive advantages. More agile Davids, such OSs across the three main terminals for digit-
as Amazon, Apple, Facebook, and Google (with its al creation and consumption, i.e., PCs, smart-
arms-length allies such as Samsung), have done phones, and tablets. As Figure 2 shows, Micro-
better in establishing lucrative early positions. soft still dominated this space quite recently. By
the end of 2012, however, Android had become
But so far we have only seen the first battles in the biggest OS in terms of this metric.
a lengthy war. How does Microsoft’s acquisition
of the Nokia Devices & Solutions unit in Septem- These developments have had significant con-
ber 3rd, 2013, change the respective positions of sequences on companies’ financial performanc-
the two companies? And what does it imply for es and valuations, as Figures 3 and 4 show. No-
Finland as a country? We address these ques- kia in particular has found itself between a rock
tions in this Brief. and a hard place. Upon becoming Nokia’s CEO
in September 21, 2010, Mr Elop’s internal slogan
Industry Developments Prior to forebodingly proclaimed: “Fix the phone business
the Acquisition or get out of business”. While it is too early for
the final verdict, he may have done both.
Figure 1 illustrates how rapidly Nokia’s Sym-
bian operating system (OS) for mobile phones
lost its global market share in smartphones Nokia’s Ill-Advised Marriage with
and how Microsoft’s Windows Phone OS failed to Microsoft Windows OS
gain ground. One should note, however, that With the benefit of hindsight, it is clear that
Figure 1 underestimates Nokia’s overall role, as Nokia rode its Symbian OS far too long. Slow
Nokia fared better in feature phones. On a sim- progress in developing its Linux-based earlier
ilar note, the decline of Symbian’s market share Maemo OS, later MeeGo OS to replace Symbian
after 2011 was part of Nokia’s strategy to switch added to the insult. Nokia was left with a set of
to Microsoft’s operating system. undesirable choices.

As illustrated, the iPhone started a new era of Looking back, it seems clear that either sticking
smartphones, but the death knell for the early with MeeGo or hopping on the Android band-
leaders was the rise and subsequent dominance wagon would have been better choices for No-
of Google’s Android OS. kia as a company. It is nevertheless true that, at
the time, Microsoft seemed like the most logical
One of the consequences of the digital conver- choice. Once the mistake was done, both jump-
gence has been that our digital lives have be- ing ship and having a dual OS strategy were

1 Market Shares of Mobile Smartphone 2 PC, Smartphone and Tablet

Operating Systems Operating Systems Together
100% 100%
Windows
90% 90%
Android
Other 80%
80% iOS (Apple)
RIM 70%
70% (Blackberry) Other
60% RIM
60%
50%
50% Apple
40%
40% 30%
Symbian
30% (Nokia) 20%
Android Microsoft Windows
20% (Google) 10%
0%
10%
2009/1
2009/2
2009/3
2009/4
2010/1
2010/2
2010/3
2010/4
2011/1
2011/2
2011/3
2011/4
2012/1
2012/2
2012/3
2012/4

0%
2008 2009 2010 2011 2012
Source: Business Insider, Gartner, IDC, Strategic Analytics,
Source: Gartner.
ETLA company filings. ETLA
ETLA Muistio • Brief 16 • 3 September 2013 3

ruled out due to “speculative” contractual and regulatory approval. The sales of the ac-
reasons and obligations. quired unit were €14.9 billion in 2012, almost
half of Nokia’s net sales.
Upon his arrival at Nokia, CEO Elop had to
choose the least-worse strategy – the good ones Nokia is left with NSN, its digital content serv-
had been exhausted by his predecessors. With ices carrying the HERE brand (including digit-
its rapid cash burn rate, Nokia was in a vertical al maps and navigation it gained after acquir-
tailspin, so he needed something fast. At that ing Navteq), a considerable portfolio of patents
time Android’s winning streak was far from and other intellectual property related to, e.g.,
obvious and one’s opportunities to differentiate 2G and 3G telecommunications standards, and
with that ecosystem seemed slim. Nokia Research Center.

What Was Actually Acquired? Why Did Nokia Sell?

Microsoft is acquiring Nokia’s Mobile Phones and At this point there are few good answers to
Smart Devices business units including Nokia’s why Nokia sold the businesses. The answer
design team and its operations, all related pro- may simply be that it was running out of cash.
duction facilities, sales and marketing func- Obviously the board of Nokia lost faith in its
tions, and related activities. In total, Nokia Windows OS strategy and, with the still binding
transfers 32,000 employees to Microsoft, of contractual obligations, was lacking good alter-
which 4,700 in Finland. natives. One should note that, with the assets
it still retains, Nokia remains a force in mobile
Microsoft licenses, but does not acquire, non-re- communications. To our knowledge it can still
lated Nokia IPRs: a non-exclusive license of pat- make mobile phones, using any OS, as long as
ents for 10 years, right to the Nokia brand for they are not marked under the Nokia brand.
10 years, and certain rights in relation to HERE
services. Nokia is restricted in the use of its own
brand in mobile devices for 30 months or un- What Does the Post-Acquisition Nokia
til the beginning of year 2016, but the deal an- Look Like?
nounced today does NOT prevent Nokia from Nokia’s communications network business as
making mobile devices carrying other brands. well as its Navteq acquisition and other HERE
businesses are doing reasonably well. Nokia’s
The cash price of the deal is €5.44 billion (of IPR portfolio should provide a steady revenue
which licenses and future options account for stream, roughly €0.5 billion annually as Mr. Sii-
€1.65 billion), and it is to be closed in the first lasmaa indicated in the press conference. While
quarter of 2014 pending Nokia’s shareholders the new Nokia is only a shadow of the Nokia in

3 Operating Profit Margins, % 4

Market Value (billion USD)
50 700

Microsoft 600
40

Google 500
30
Apple
400 Apple
20
Samsung 300
Microsoft
10
Nokia 200 Google

0 Samsung
100
2008 2009 2010 2011 2012 2013
Nokia
-10 0
Source: Company releases. 2007 2008 2009 2010 2011 2012 2013
ETLA Source: Company releases. ETLA
4 ETLA Muistio • Brief 16 • 3 September 2013

the early 2000s, it has all the potential to suc- mix-and-match their favorite applications/con-
ceed, even though good growth opportunities tent across platforms. Microsoft has not been
are scarce. particularly strong in neither attracting develop-
ers nor nurturing openness of its offerings. For
It should be noted that due to this deal, Nokia’s instance, Windows Phone users are locked into
loss streak has come to an end and the compa- Microsoft’s Internet Explorer and to a large extent
ny obtained more than €5 billion in cash. Due also to its Bing search engine. As far as end-us-
to the improved financial standing, Nokia has ers are concerned, these issues may be impor-
plenty to spend on new businesses via, for in- tant, as a strong preference for a particular so-
stance, acquisitions or in-house development. lution – say for Google search – may determine
the choice of one’s preferred digital ecosystem.
Microsoft Still Has a Few Aces
Up Its Sleeve The Acquisition from Microsoft’s Vantage
The strongest and the most binding lock-in Apple and Google have an increasing presence in
Microsoft retains over its customers relates to hardware. Microsoft’s own phones and tablets
its Office application suite. While particularly have failed so far. Nokia Lumias have accounted
corporate professionals’ reliance on Excel and for over 80% of Windows Phones and currently
PowerPoint is not to be underestimated, this have a nice line up of offerings. Microsoft had
strength is undeniably eroding with alterna- the cash and Nokia’s assets were available at
tives such as Google Apps. fire sale prices, so why not? First and foremost
this seems like an incarnation of MS’s “me too”
Furthermore, Microsoft continues to be a lead-
strategy, however.
ing provider of corporate IT solutions. MS con-
tinues to hold up reasonably well in the client- Nokia’s success in handsets has been crucial to
server architectures segment. Here the threat the whole Windows ecosystem, but it has been
comes from cloud computing rather than from insufficient to turn the ecosystem into a real
more direct competition. third alternative. With the acquisition Micro-
soft is undeniably, albeit only marginally, in a
Since full support and update services for
stronger position in building the Windows eco-
Microsoft’s Office and server solutions are
system. The move fits to MS’s overall strategy
provided on its own Windows operating sys-
but is hardly enough in itself.
tem, it has extra staying power that comple-
ments its huge installed base and unmatched After a few years of gloomy news, Nokia has
variety of third-party PC applications. shown positive signs this fall. One has to ask
why Nokia’s board abandoned the strategy
In our view Microsoft’s current strategy rests on
now, unless of course Nokia’s cash crisis is even
three cornerstones:
deeper than anticipated. In the coming months
• Roll out one nearly identical, seamless, and
we’ll know whether Microsoft timed its move
synchronized interface across all digital
perfectly. Even if not, the damage to its pocket-
devices (i.e., Xbox, Lumia phones, Surface tab-
book was not too severe.
lets, and computers).
• Provide a solution that effortlessly stores all As for the industry at large, the acquisition has
aspects of one’s digital life (i.e., SkyDrive). hardly any immediate and, most likely, only
• Offer manageable and secure back-end so- minor long-term effects.
lutions to support the above in all desirable
configurations (local infrastructure, public
vs private cloud, etc.). Impacts on Finland as a Country
Microsoft has a fair chance in succeeding with The acquisition significantly affects Nokia’s im-
the above strategy, but so far it has been unable pact on the Finnish economy. At the peak of
to make the right moves in a timely manner. Nokia’s success in 2000, the company account-
ed for 1% of the total employment in Finland.
As the examples of Apple and Google show, the In June 2013, Nokia’s share of the country’s total
key to a successful digital ecosystem is to at- employment was 0.4–0.5%. Due to the divest-
tract third-party application and content pro- ment of the Devices & Services unit, in 2014 No-
viders. End-users also appreciate the ability to kia’s will employ approximately 6,100 in Fin-
ETLA Muistio • Brief 16 • 3 September 2013 5

land which is about 0.2% of the total employ- 5 Nokia’s Employment in Finland
ment in Finland (Figure 5).
30000
A similar effect is expected to hit Nokia’s share
of R&D expenditures in Finland. Nokia’s share 25000
of corporate R&D in Finland remained stable at
slightly over 40% until 2009. Subsequently the 20000
share declined. In 2012, Nokia accounted for 31%
of corporate R&D in Finland. After the acquisi- 15000
tion the share will drop to approximately 17%.
10000
The effects the deal has on Nokia’s contribu-
tions to employment and R&D do not necessar- 5000
ily impact the Finnish economy as a whole. For
instance, if Microsoft retains all 4,700 ex-Nokia
0
employees, the impact of the deal on the em- 1975 1980 1985 1990 1995 2000 2005 2010 2015
ployment on a national level is potentially neg- Source: Nokia’s annual reports.
ETLA
ligible (Figure 6). Thus, the total impact on the
national economy depends on choices made af-
ter the acquisition. The key issues to be consid-
ered are: Will Microsoft succeed in its mobile 6
The Employment of Nokia and
phone business? Will Microsoft maintain em- Microsoft in Finland
ployees in Finland? Would the long-term fate
of these 4,700 individuals be any different if the Nokia Microsoft
deal had never happened? Will Nokia invest its 12000 12000
new cash reserves at least partially in Finland? 10000 Other 10000
8000 than 8000
Be that as it may, the exceptional period when NSN
6000 6000
a single company dominated a remarkably big
share of the Finnish GDP is over (Figure 7). In 4000 4000
NSN NSN
the early 1990s, Finland transformed from be- 2000 2000

ing one of the least information and communi- 0 0

31st, 31st, 31st, 31st,
cation technology -specialized countries to be-
June March June March
coming the single most specialized one in the 2013 2014 2013 2014
world. The success of Nokia was one of the ma-
Source: ETLA, Company releases.
jor factors in pulling Finland out of the most ETLA
severe economic crisis in any OECD country
since World War II. As a result, Nokia’s share of
the Finnish GDP increased rapidly. But since
7 Nokia’s Share of Finnish GDP, %
2007 the share declined as fast as it rose ten
years before. In 2012, Nokia’s share of the Finn- 4.0

ish GDP was actually negative. 3.5

The counter-intuitive observation calls for fur- 3.0

ther explanation. When we calculate Nokia’s 2.5
(including NSN) value added in Finland as the
sum of 2.0

• local labor costs, 1.5

• local depreciation,
1.0
• local rents, and
• the operating profit (or loss) recorded in 0.5
Finland, 0.0
we obtain a negative figure. Due to Nokia’s
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012e
2013e

heavy losses recorded in Finland, in particular, -0.5

Source: Ali-Yrkkö, ETLA. GDP = Value added = Operating
the value added of Nokia in Finland was nega- profit (shown in Finland) + Depreciation + Labor costs + Rent ETLA
6 ETLA Muistio • Brief 16 • 3 September 2013

tive. From a technical viewpoint the procedure The vitality of the Finnish ICT sector requires
is correct: Finland is Nokia’s global profit-and- not only new establishments but also successful
loss center – in better times the operations in divestments of existing operations. Only the
Finland enjoyed “excess profits” and in worse future will tell the total impact of the Microsoft–
times they suffered “excess losses”. Nokia deal on the Finnish economy.

Despite Nokia’s misfortunes in recent years,

ICT sector employment in Finland has not de- 8 ICT Sector Employment by
creased drastically. As Figure 8 shows, software Sub-categories in Finland
and IT services have largely filled the void. 70000
The analysis reveals that a dramatic structur-
60000
al change has occurred within the ICT sector. Software,
IT services
While ICT hardware manufacturers have shed 50000
their workforce, software firms have recruited
40000
more staff in Finland. Thus, the Finnish ICT
Equipment
sector does not rely only on Nokia anymore. 30000 manufacturing

The past few years have witnessed the birth 20000

Telecommunications
and growth of new ICT companies. The most
10000
visible of those are game makers Rovio and Wholesale

Supercell. But there are also thousands of other 0

software companies in Finland.
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Data: Statistics Finland. ETLA
 International Academic Journal of Information Sciences and Project Management | Volume 1, Issue 3, pp. 28-62

EFFECTS OF ORGANIZATIONAL COMMUNICATION

ON EMPLOYEE MOTIVATION: A CASE STUDY OF
NOKIA SIEMENS NETWORKS KENYA

Claire Katunge Mutuku

Master of Business Administration (Strategic Management), Jomo Kenyatta University

of Agriculture and Technology, Kenya

Dr. Petronilla Mathooko

Jomo Kenyatta University of Agriculture and Technology, Kenya

©2014

International Academic Journal of Information Sciences and Project Management (IAJISPM)

Received: 5th September 2014

Accepted: 19th September 2014

Full Length Research

Available Online at: http://www.iajournals.org/articles/iajispm_v1_i3_28_62.pdf

Citation: Mutuku, C. K. & Mathooko, P. (2014). Effects of organizational communication

on employee motivation: A case study of Nokia Siemens Networks Kenya. International
Academic Journal of Information Sciences and Project Management, 1 (3), 28-62

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ABSTRACT Kenya with its regional office in Nairobi.

Stratified random sampling was used to
Organizational communication, in today’s select a sample population of 123
organizations has not only become far more respondents. Both qualitative and
complex and varied but has become an quantitative data was collected using the
important factor for overall organizational semi-structured questionnaire. The data was
functioning and success. The way the analysed by use of descriptive statistics
organization communicates with its (mean score and percentages) and inferential
employees is reflected in morale, motivation statistics multiple regression. The
and performance of the employees. Research information was displayed by use of bar
indicates that up to 70 per cent of change charts, graphs and pie charts and in prose-
programmes fail and poor internal form. The study found that information
communication is seen as the principal sharing had the greatest effect on the
reason for such failure. Communication as employee motivation, followed by the
an integral element of management is employee involvement in decision making,
ignored in many organizations which lead to then communication channels while the 7
practices of use of poor communication C’s of communication had the least effect to
techniques, untimely communication, and the employee motivation. The study
misunderstanding of information and at recommends that the company managers
times total lack of communication. While should involve the employees of all cadres
many organizations believe that positive to enable them have experience on the
employee communication promotes intricate of running the business. The
employee motivation, this belief can still be management should ensure there is clarity,
considered as a complex issue because of the courtesy, correctness and completeness of
changing nature of organizations and the any information shared. Communication
differences of their structure. The purpose of should always take into consideration timing
the study was to explore the effects of and the media and the organization’s
communication on employee motivation in structure has a significant impact on the
Nokia Siemens Networks Kenya. The communication.
research design employed in this study was
descriptive survey method. The population Key Words: organizational communication,
of study was 287 respondents comprising of employee motivation, Nokia Siemens
senior managers, middle level managers and Networks, Kenya
support staff at Nokia Siemens Networks

INTRODUCTION
Business all over the world today is very challenging. To stay profitable in the highly
challenging and competitive global market economy, all factors of production, i.e. men, machine
and materials, should be wisely managed. Among the factors of production, the human resource
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 International Academic Journal of Information Sciences and Project Management | Volume 1, Issue 3, pp. 28-62

constitutes the biggest challenge because unlike other inputs, employee management demands
skilful handling of thoughts, feelings and emotions to secure highest productivity. Organizational
communication plays an important role in this challenge. Understanding human behavior in
workplace has been one of the most prioritized tasks for any organization. This is due to major
changes like globalization and technological advancement that change in the structure of the
business done, the workforce behavior and management of employees. To keep up the business
state of the art and become successful, the organizations should acclimatize with these changes
(Vercueil, 2001). So, it has become important for employers to know what motivates their
employees rather than emphasizing them to increase productivity. The environment, in which the
employees work as a team, should be created and sustained so that they are themselves driven
towards achieving the common goals. Hence, motivation is given more attention in the
organization to know employees and their behavior. In any organization, every staff is unique
and performs the task based on their mental abilities and the extent to which they are applied at
work (Mullins, 2007). Some people tend to work really harder than others. If a staff is
appreciated for his/her hard work, he/she is more likely to be motivated to high performance.

In the current competitive environment, the need for better management of all organizational
resources, specifically human resource management has become a concern for most of the
organizations. Improving employee motivation is a prime factor to achieve competitive
advantage. It is a common belief that the use of mobile communication improves organizational
performance. If employees feel that communication from management is effective it can lead to
feelings of job satisfaction, commitment to the organization and increase trust in the workplace.

Concept of Communication
Communication is widely used in running almost all organizations effectively. Effective
communication is essential for any business or organization to prosper. It cuts out on wasted time
and provides both customers and employees with the necessary tools to succeed and find
satisfaction. When communication is not effective, the end result is an increase in production
time and a decrease in the bottom line. In order to avoid this outcome, effective communication
must be in place (Joey, 2002). Consequently communication can be defined as the “exchange of
information between a sender and a receiver, and the inference (perception) of meaning between
the individuals involved (Bowditch et al, 1997). Analysis of this exchange reveals that
communication is a two way process consisting of consecutively linked elements. Managers who
understand this process can analyze their own communication patterns as well as design
communication programs that fit organizational needs (Kinicki & Kreitner, 2006).

Communication is rather complex to define in a single sentence. In a glimpse, however, it has

many types which include: interpersonal communication; intrapersonal; group communication;
public communication; mass communication; and online or machine assisted communication.
Interpersonal communication means to interact with another person, while intrapersonal means
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to interact with oneself, or to reason with or evaluate self. Group communication, on the other
hand, is defined as the process of interacting with a limited number of others, work to share
information, develop ideas, make decisions, solve problems, offer support, or have fun. Mass
communication, is communicating to a large number of people using media (television,
newspaper, internet, radio), and finally, online or machine assisted communication deals with
communicating through the use of online software that are programmed to interact with browsers
or users (Gamble and Gamble, 2002).

Communication is also categorized into two: verbal and non-verbal. Verbal communication
means the use of the spoken word when communicating, while nonverbal communication means
using other mediums such as body signals, writing etc. Communication undergoes a process,
which involves the information source, the transmitter, noise source, receiver and destination as
shown by the communication model developed by Shannon and Weaver (1949). The information
source is the communicator of the information, which then uses a specific type of transmitter or
medium e.g. verbal, written or telephone. The receiver receives the information, but the
information can be affected by a specific noise source, which can be a distraction from anyone or
anywhere. The receiver then interprets the message and finally puts the communicated message
in its destination (Bryant and Heath, 2000). Communication is not just important to an
organization, but is an important component in everyday human life. Gamble and Gamble (2002)
has stated that: “Communication is the core of our humanness”, and that “how we communicate
with each other shapes our lives and our world”. Communicative skills help humans to reach out
to one another or to confront events that challenge our flexibility, integrity, expressiveness and
critical thinking skills.

Effect of Communication on Motivation

Managers have traditionally spent the majority of their time communicating in one form or
another (meetings, face to face discussions, memos, letters, e-mails, reports etc.). Today,
however, it has become an indispensible part of their work. An effective management of
production processes requires greater collaboration and teamwork among workers in different
functional groups. Hence, to manage the existing performance of the employees and to motivate
them for better performance, efficient communication practices have become more important in
all organizations. In modern days, communication is one of the most dominant and important
activities in organizations (Harris & Nelson, 2008). Fundamentally, relationships grow out of
communication, and the functioning and survival of organizations is based on effective
relationships among individuals and groups. In addition, organizational capabilities are
developed and enacted through “intensely social and communicative processes” (Jones et al.,
2004).

From the forgoing analysis it is important to note that every managerial function and activity
involves some form of direct or indirect communication. Whether planning and organizing or
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 International Academic Journal of Information Sciences and Project Management | Volume 1, Issue 3, pp. 28-62

directing and leading, managers find themselves communicating with and through others.
Managerial decisions and organizational policies are ineffective unless they are understood by
those responsible for enacting them. Ineffective communication can clearly affect a company’s
performance leading to a drop in its share price. Moreover, effective communication is critical
for employee motivation and job satisfaction (Kinicki & Kreitner, 2006). This can be backed up
by a study of 274 students which revealed that student motivation was positively related to the
quality of student faculty communication in the instructor’s office. Another study involving 65
savings and loan employees and 110 manufacturing employees revealed that employee
satisfaction and organizational communication was positively and significantly correlated with
job satisfaction and performance.

Communication helps individuals and groups coordinate activities to achieve goals, and it’s vital
in socialization, decision-making, problem-solving and change-management processes. Internal
communication also provides employees with important information about their jobs,
organization, environment and each other. Communication can help motivate, build trust, create
shared identity and spur engagement; it provides a way for individuals to express emotions, share
hopes and ambitions and celebrate and remember accomplishments. Communication is the basis
for individuals and groups to make sense of their organization, what it is and what it means.
Good communication practices are at the heart of every successful business. Communication
serves two essential functions in every organization. It disseminates the information needed by
employees to get things done and builds relationships of trust and commitment. Without it,
employees end up working in silos with no clear direction, vague goals and little opportunity for
improvement. Successful projects and change programs are a rarity and real leadership is scarce.
Staff morale plummets when communication is ambiguous, unfocused, lacking in important
details and does not allow for genuine two-way dialogue. Critically, the impact of poor
communication hits customers and suppliers. They begin to feel disenfranchised and take their
business elsewhere.

STATEMENT OF THE PROBLEM

Organizational communication, in today’s organizations has not only become far more complex
and varied but has become an important factor for overall organizational functioning and
success. The way the organization communicates with its employees is reflected in morale,
motivation and performance of the employees. Salem (2008) outlines seven communication
reasons why organizations fail to change that include insufficient communication, distrust, poor
interpersonal communication skills, and conflict avoidance. Salem also claims that “research
indicates that up to 70 per cent of change programmes fail and poor internal communication is
seen as the principal reason for such failure. Communication as an integral element of
management is ignored in many organizations which lead to practices of use of poor
communication techniques, untimely communication, and misunderstanding of information and
at times total lack of communication. When this takes place there are possibilities of strikes, go-
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slows, and in extreme cases closures. It is important to appreciate that many organizations world
over have suffered enormous loss due to lack of proper or inadequate communication. In some
cases communication between employees and management is poorly carried out and may lead to
confusion and lack of direction, frustration of employees, decrease in motivation, purpose and
productivity and even exit of highly skilled and dependable employees. This may eventually
make the organization fail to achieve its goals and objectives. The Workplace Communication
Consultancy (2005) reported that statistics show that 90% of those who are kept fully informed
are motivated to deliver added value; while those who are kept in the dark almost 80% are not”.
However, such results are industry specific. Industries vary in terms of culture and structure. In
Kenya, Testamicael (1997) carried out a research on improvement of managerial communication
using the Ministry of Finance as a case study. The study found out that managerial
communication advance the necessary competence, namely the possession of employees,
information exchange, participation and opportunities, and joint efforts and redesign. However,
there is no study that has been done in Kenya to specifically evaluate the role of communication
in management of human resource motivation and more so in the telecommunication industry.
This is despite the critical role that communication plays in the management of human resources
in an organization. There is therefore an academic gap that exists in this field and this study
seeks to fill it.

GENERAL OBJECTIVE
The main objective of the study is to explore the effects of organizational communication on
employee motivation in Nokia Siemens networks Kenya.

SPECIFIC OBJECTIVES
1. To determine the effect of employee involvement in decision making on employee
motivation in Nokia Siemens Networks Kenya.
2. To establish the effect the 7 C’s of communication on employee motivation in Nokia
Siemens Networks Kenya
3. To assess the effect of communication channels on employee motivation in Nokia
Siemens Networks Kenya
4. To determine how information sharing on employee motivation in Nokia Siemens
Networks Kenya

THEORETICAL REVIEW
Motivation
If we consider the role of motivational practices followed in the organization, we can easily find
a solution to the ‘communication problem’ mentioned above. Motivating is the work which
managers perform to inspire, encourage and impel people to take action. To motivate the
employees, the employee must be reached and to reach him there must be a completed
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 International Academic Journal of Information Sciences and Project Management | Volume 1, Issue 3, pp. 28-62

understanding of the complexity of his make-up. Motivation efforts must be directed towards
improving organization operations. To be effective, however they must also be designed to show
benefits to the employee. In fact, motivation can best be accomplished when workers are able to
merge their personal ambitions with those of the organization. Traditional management methods
(Theory X) might not be the only way to get people motivated. Instead, you could take a
different approach (Theory Y) and achieve the same if not more. Theory Y based on the
integration of individual and organization goals, states that a person’s commitment to an
objective is a function of the rewards for its achievement. Theory Y seems to be the right
approach which requires much management efforts but the effects of it would be long lasting for
modern organizations (Bryant & Heath, 2000).

Chandran (2004) defines motivation as a set of independent and dependant relationships that
explains the direction, amplitude and persistence of an individual’s behavior holding constant the
effects of aptitude, skills, understanding of a task and the constraints operating in the work
environment. Babiel (2004) defines motivation as the contemporary immediate influence on the
direction, vigor and persistence of action. The relationship between the employer and the
employee should be of mutual understanding with a view to facilitate the employee to identify
himself with his work and with the business he is working for. Lack of motivation in return,
affects productivity. A number of symptoms may point to low morale: declining productivity,
high employee turnover, increasing number of grievances, higher incidence of absenteeism and
tardiness, increasing number of defective products, higher number of accidents or a higher level
of waste materials and scrap. A motivated employee is a loyal employee and to be loyal implies
that the employee supports the actions and the objectives of the firm. The appearance of the job
as a whole has, in fact a bearing on the willingness and quality of an employee’s performance.

Internal communication plays a very vital role in implementation of all these ideal motivational
practices in the organization. If people understand the bigger organizational picture they was
more willing to stay for the ride and more motivated to do the job you need them to do. It is this
making people understand the bigger picture, is an important and complex job that demands
attention from practicing managers. Indeed, the ‘manager who suffers from poor communication
skills is likely to feel frustrated most of the time. Because the aim of this study is to determine a
possible motivational factor for employees (which is specifically “communication”), the
theoretical frameworks that have been chosen for this study are motivational theories – a content
motivation theory; and a process motivation theory. Theories of motivation can be divided into
two: the content theories; and the process theories. Content theories emphasize the factors that
motivate individuals. Examples of content theories are Maslow’s theory, Alfelder’s theory,
McClelland’s theory, and Herzberg’s theories. On the other hand, the emphasis on process
theories is on the actual process of motivation. Some examples of process theories are
Expectancy theories, equity theory, goal theory, and social learning theory (Salem, 2008).

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The content motivation theory that has been chosen as one of the frameworks for this study
is Herzberg’s Two-Factor Theory or Motivator-Hygiene Theory. This theory basically extended
Maslow’s hierarchy of need theory and is more directly applicable to the work
situation. Herzberg's research suggested that motivation is composed of two largely unrelated
dimensions: job-related factors which can prevent dissatisfaction, but do not promote employees'
growth and development (hygiene); and job-related factors that encourage growth (motivators).
Herzberg’s theory is the first of its kind to emphasize the importance of non-monetary rewards in
motivating employees. According to this theory, satisfying experiences are most often associated
with the non-monetary, or intrinsic, content of the work. This includes variables such as
achievement, recognition, personal growth, personal responsibility and the characteristics of the
work. These factors are called motivators. When people are satisfied, they attribute their
satisfaction to the work itself and not on the environment in which they work (Grunig, 1992).

On the other hand, dissatisfying experiences result from the extrinsic work environment. These
factors include company policies, salary, co-worker relations, supervisor relationships, status,
supervision, personal life and job security. Extrinsic factors cause a person who feels neutral
about the job to feel dissatisfied and less motivated. The theory explains that workers basically
attribute their dissatisfaction to the environment in which they work, or conditions that surround
the doings of the job. This is also known as the “Hygiene factor”. This should be continually
maintained because employees never completely satisfied (Joey, 2002). He also noted that when
the hygiene factors are very low, workers are dissatisfied. However, when hygiene factors are
met, workers are not dissatisfied but it does not necessarily mean that they are satisfied or
motivated to work. The same goes for the motivator factors. When motivators are met, workers
are satisfied leading to higher performance. However, when motivators are not met, workers are
not satisfied but it does not necessarily mean they are dissatisfied with their work. On the other
hand, the process motivation theory adopted for this study is the goal theory of motivation. In the
late 1960s, Edwin Locke proposed that intentions to work toward a goal are a major source of
work motivation. That means the goal will tell the people what needs to be done and how much
effort will need to be put in order to fulfill the goal and target of the organization. The key steps
in applying goal setting are: (1) diagnosis for readiness; (2) preparing employees via increased
interpersonal interaction, communication, training, and action plans for goal setting; (3)
emphasizing the attributes of goals that should be understood by a manager and subordinates; (4)
conducting intermediate reviews to make necessary adjustments in established goals; and (5)
performing a final review to check the goals set, modified, and accomplished (Cooper&
Schindler, 2006).

Herzberg's two Factor Theory

Herzberg put forward the view that productivity of an employee is based not only the job
satisfaction but also on work motivation. Chandran (2004) elucidates that according to Herzberg,
an individual's relation and attitude towards work can determine success or failure. People have
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two sets of needs that are related to job satisfaction and others to job dissatisfaction. Elements of
the job that led to job satisfaction are labeled as motivators and elements to dissatisfaction are
labeled as hygiene factors. Intrinsic factors or motivators such as achievement, recognition,
advancement, the work itself and responsibility are related to job satisfaction. Job dissatisfaction
is the result of extrinsic factors or hygiene factors such as working conditions, job security,
supervision, level of communication, pay and organization policies. Herzberg is interested in the
extremes where employees either feel good or bad about the work, this leads to development of
motivators and hygiene factors. Herzberg states that the opposite of job satisfaction is not job
dissatisfaction and therefore, job dissatisfaction is not the opposite of job satisfaction.

Chandran (2004) suggests nine factors that motivate employees and they are reducing time spent
at work, fringe benefit, sensitivity training, spiraling wages, two-way communication, job
participation, human relation training, communication and employee counseling. He also
compared motivation with that of internal self-charging battery suggesting that the energy or the
positivity should come from within the employees to become motivated. Herzberg argues that an
employee is motivated to satisfy it growth needs; it is founded upon satisfaction innate of a sense
of achievement, recognition, responsibility and personal growth. He further says that recognition
is transformed into feedback, responsibility to self-regulation, authority to communicate,
exercise control over resource and accountability and lastly, growth and advancement are
transformed into the new expertise. Though hygiene theory is one of the popular theories of
motivation, the findings done from past empirical studies show that pay, recognition and
responsibility are classified as both a motivator and hygiene factors. This study looks at
communication as one of the extrinsic factors of motivation.

McClelland's Theory of Needs

Pinnington (2011) put forward the theory stating that individual acquires certain type of needs
during his/her lifetime. Individuals acquire these needs by learning and interacting with the
environment theory focuses on three needs: Need for achievement - it drives to excel, to achieve
in relation to a set of standards, to strive to succeed. Individuals with this drive desire to do
something more efficiently overcoming challenges to achieve the objectives; Need of power - it
is the need to make others behave in a way that they would not have behaved otherwise.
Individuals with this need are placed in competitive situations to be concerned with gaining
influence over individual, group or organization; Need for affiliation - it is the desire for friendly
and close interpersonal relationship. Individuals with this desire tend to have a strong desire to be
liked or accepted by others and thus maintain harmonious relationship with others. According to
Shannon & Weaver (1949), these theories are based on needs of people and the factors that
influence their behaviour. It therefore follows that the achievement of the three needs can be
enhanced with good communication.

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Transmission Model of Communication

The theory of communication evolved over the years, but the model of Shannon and Weaver
(1949) is one of the firsts that explains the process of communication. The Shannon
Shannon-Weaver
model of communication has been called the "mother of all models." According to ShannonS and
Weaver's model, a message begins at an information source, which is relayed through a
transmitter, and then sent via a signal towards the receiver. But before it reaches the receiver, the
message must go through noise (sources of interference). Finally, the receiver must convey the
message to its destination. Today, communication is being regarded as an important factor in
business, and that the ability of the company to communicate can determine its success (Welch
& Jackson, 2007). This model is specially designed to develop the effective communication
between sender and receiver. Also they find factors which affecting the communication process
called “Noise”. At first the model was developed to improve the Technical communication. Later
it’s widely
ely applied in the field of Communication. A later development of this theory was the
Osgood and Schramm’s circular theory of communication (Mitchell et al, 1990).1990) Transmission of
information across the organization is therefore a preliquisite to employee motivation.

This later theory emphasizes the circular nature of communication. The participants swap
between the roles of source/encoder and receiver/decoder. This theory is a based on Shannon and
Weaver’s communication theory although it goes a step further. further. Schramm believes that the
communication process should consist of a sender, channel and receiver (Bryant & Heath, 2000).
However, Schramm explains that while one person is speaking, the other is listening. How this
listening is done constitutes information
information for the sender (Bryant & Heath, 2000). If a receiver
frowns, that provides different information than if “he or she” smiles supportively (Bryant &
Heath, 2000). It is explained in this theory that recognizing the dynamics of interaction countered
the tendency to communication as a linear progression of steps leading to or "causing" each
following step. He understood that people respond idiosyncratically to messages as a function of
their personality, group influences, and the situation under which the communication occurs
(Bryant & Heath, 2000).

Figure 1:: Osgood and Schramm’s Circular Theory of Communication

Source: Schramm W. (1954) quoted in Mitchell et al (1990)

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The process of the model is simple. In it, the sender and receiver function as both encoder and
decoder of information. Each functions as the interpreter of the message (Underwood, 2003).
This model explains that effective communication can be possible if both the receiver and the
sender are capable of interpreting meanings out of the information being communicated. For
instance, in the business context, the supervisor may mean well and believe that he is delivering
the messages properly to the employees. However, because the employees have not been briefed
earlier about a particular piece of information that plays an important part on what the supervisor
communicated, they miss the point of what the supervisor tries to say. In return, the supervisor
may interpret that the employees are still ignorant about a specific piece of information and still
need further briefing.

Communication Theory
The communication theory is some form of explanation of a class of observed phenomena.
Harper (2002) colorfully described theory as "the net which we throw out in order to catch the
world to rationalize, explain, and dominate it." The idea of a theory lies at the heart of any
scholarly process, and while those in the social sciences tend to adopt the tests of a good theory
from the natural sciences, many who study communication adhere to an idea of communication
theory that is akin to that found in other academic fields. Uncertainty reduction theory (URT)
was initially presented as a series of axioms (universal truths which do not require proof and
theorems (propositions assumed to be true) which describe the relationships between uncertainty
and several communication factors. URT was developed to describe the interrelationships
between seven important factors in any dyadic exchange: verbal communication, nonverbal
expressiveness, information-seeking behavior, intimacy, reciprocity, similarity, and liking.
Communication has existed since the beginning of human beings, but it was not until the 20th
century that people began to study the process. As communication technologies developed, so
did the serious study of communication. When World War I ended, the interest in studying
communication intensified. The Universal Communication Law states that, "all living entities,
beings and creatures communicate" through movements, sounds, reactions, physical changes,
gestures, languages, breathe etc.

Shannon's (1948) model of the communication process is, in important ways, the beginning of
the modern field. It provided, for the first time, a general model of the communication process
that could be treated as the common ground of such diverse disciplines as journalism, rhetoric,
linguistics, and speech and hearing sciences. Part of its success is due to its structuralist
reduction of communication to a set of basic constituents that not only explain how
communication happens, but why communication sometimes fails. Good timing played a role as
well. The world was barely thirty years into the age of mass radio, had arguably fought a world
war in its wake, and an even more powerful, television, was about to assert itself. It was time to
create the field of communication as a unified discipline, and Shannon's model was as good an
excuse as any.
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CONCEPTUAL FRAMEWORK
A conceptual framework can be defined as a set of broad ideas and principles taken from
relevant fields of enquiry and used to structure a subsequent presentation (Salem, 2008). A
conceptual framework is a research tool intended to assist a researcher to develop awareness and
understanding of the situation under scrutiny and to communicate this. A conceptual framework
is used in research to outline possible courses of action or to present a preferred approach to an
idea or thought. According to Bowditch and Jones (1997), a conceptual Framework is a basic
structure that consists of certain abstract blocks which represent the observational, the
experiential and the analytical aspects of a process or system being conceived. The
interconnection of these blocks completes the framework for certain expected outcomes. The
framework tries to interpret that the higher the level of hygiene and motivator in terms of how
the supervisor communicates with the employees during policy briefing, training, or just
informal talk, the higher the possibility that employees will develop goals. However, the
effectiveness of that process is affected by how well the two parties communicate – that is how
well the employees encode, interpret and decode the messages that the supervisor tries to
disseminates, and vice-versa, on how well the supervisor encode, interpret and disseminate the
messages that the employees give in return.

Employee Involvement in Decision Making

The 7 C’s of communication

Employee
motivation
Communication channels

Information sharing

Independent variable Dependent variable

Figure 2: Conceptual Framework

Relationship between Communication and Employee Motivation

Employee commitment has been a matter of focus for companies to be successful and the
committed employees are considered as the most important factors of organizational
effectiveness. However, retaining committed employees within organization is not an easy task.
The employees of modern era work to satisfy the needs as well as achieve their individual goals
(Daly et al, 2003) who pointed out the increasing trend of employees doing many jobs at a time
in their career and have become more mobile. Employees are no more working in organizations
for a long term basis. Thus, it needs a proper understanding of what motivates and satisfies them
at work to generate such commitments. As they pointed out, communication is an interchange of
thought or information that brings about mutual understanding, trust, confidence and harmony in
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an organization. Through communication behavior is modified, change is effected, information is

made productive and eventually goals are achieved. Good communication is mandatory in any
organization in order for the organization to survive and sustain its competitive advantage.

Internal communication has been recognized as a strategic focus for business communication,
second only to leadership concerns (Barret, 2002) who notes that “given the emerging paradigm
of public relations by relationship management, the terms of internal communication need to be
redefined as part of building favorable relationships between management and employees”.
Managers within organizations are in a role of personal influence in their relationships with
employees. Employee communication has several purposes, and motivating employees to action
in support of organizational objectives is one important one. Most employee communication
functions rely on a multiple audience strategy such as face-to-face managerial communication
activities and all-employee channels, including newsletters, magazines, posters, videos and
intranets. Some employee communications functions add a formal feedback mechanism to their
strategies. However, most of the effort is placed on producing informational material and
delivering it—an output-centered model that often has no measurement strategy attached to the
plan. Today, organizations worldwide have a wide choice of different communication strategies
and tools for communicating at all levels within an organization. Communication technique or
tools selected would depend on the subject matter that needs to be communicated to employees.
Of the many communication techniques available, induction programmes and printed or graphic
communication appear to be more commonly used, either alone or in combination, to convey an
important or complicated message.

It is clear from the available sources on organizational communication that an organization’s

internal communication system is an important contributing factor to staff morale and
productivity. Employees tend to have higher morale and are more motivated in the workplace if
all the channels of communication are open. Some messages contain general information about
the organization; while others, are intended to motivate staff or to boost the organization’s
general morale.

A modern organization, therefore, cannot function effectively without a positive internal climate
and well-functioning channels of internal communication. To reach these goals, an
organization’s internal communication strategy should be responsive to employee needs and
concerns. Sim & Wright (2000) states that in the new information era, managers have realized
that the assets of the institution lie very much in the hands of the employees. Management cannot
afford to ignore the aspirations, attitudes and preferences expressed by its employees. It has to
gain from satisfied employees, working at jobs to which they are best suited. When organizations
commit themselves to effective communication with their employees, a number of important
benefits can result. Well-informed employees are usually satisfied employees.

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There has been plenty of research across a number of industries and countries and the research
from organizations like Gallup as to the benefits of enhancing the bond between the employee,
their colleagues and the organization. Some of those benefits documented are: increased passion
for, commitment to and alignment with the organization’s strategies and goals , improved overall
organizational effectiveness, a high-energy working environment ;Increased productivity and
improves morale; Boosted business growth ; Made the employees effective brand ambassadors
for the company; Created a sense of loyalty in a competitive environment ; Attracted more
people like existing employees Increases employees' trust in the organization ; Lowered attrition
rate and higher talent retention; Created a community at the workplace and not just a workforce
and Improved customer brand experience and customer loyalty.

Employee Involvement in Decision Making

According to Mitchell et al (1990) there are three predominant types of participation comprising:
representative, consultative and substantive. Representative participation would include
participation which consists of employees serving on boards, or some other formal
representation, in which employees are able to express their views. The second type of
participation is consultative which is similar to representative in that employees have the ability
to make inputs to the work process, although not through formal means such as boards. The final
type of participation is substantive. In substantive participation, employees are more likely to
have control over the work process and be able to have a direct impact on their working life.

Organizational researchers from all around the world consider the job involvement as an
important factor which influence both employees’ as well as organizational outcomes (Lawler,
1986). Employees with high levels of job involvement make the job a central part of their
personal character and focus most of their attention on their jobs. They are likely to exhibit less
unexcused lateness and unexcused absences than employees with lower levels of job
involvement. Also job involvement is negatively related to intentions to quit and positively
associated with job satisfaction and organizational climate perceptions. It also promotes
organizational citizenship behaviors as OCBs are more influenced by what employees think and
feel about their jobs and that job involvement shows a positive attitude towards the job.

Employers increasingly attempt to access knowledge with productivity enhancing potential, held
by employees. A broad variety of different employee participation and involvement programmes
have been put in place by employers attempting to obtain this information. The intent of quality
circles, teams, employee involvement and participation programmes is at least partially to access
the information asymmetries which exist between employers and employees. Recently, there has
been a focus on the concepts of `decentralization of decision making'. This has taken the form of
management pushing either decisions or tasks down to lower levels in the organization. Such
efforts are associated with the belief that there are decisions and tasks which employees are in a
better position to respectively take and complete, than those more senior members of the
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organization. However, not all experts are convinced that employee involvement will promote
greater efficiency (Gamble & Gamble, 2000).

According to Joey (2002), in a participatory environment where information is communicated

back to management, profits was reduced because the resultant increase in the number of
decision makers increases monitoring costs and subsequent inefficiencies. Participation should
be in an advisory capacity with employees conveying information `back-up' to management. The
greater transaction costs involved when many people are making decisions. However, Mullins
(2007) asserts that participatory programmes can result in improved firm performance. This is
the case when employees have greater job knowledge than management, and can either act
directly on this information, or the information can be efficiently conveyed back to management.

The majority of research into worker involvement has been within the very broad area of
employee participation. This concept encompasses practices ranging from ornamental employee
advisory committees, with employees only able to make suggestions, to initiatives which give
employees primary control over the work process, and many of the decisions which are made
regarding how the work is performed. In previous research the typical means of measuring
whether a firm or establishment does have employee participation programmes or processes, is to
ask whether quality circles, advisory committees or employee involvement initiatives exist. At
the firm level, this type of question reveals very little because the firm may consist of 500
manufacturing sites, stores or outlets, each with some variation of the type of practice. This type
of measurement error is less likely if the interview is conducted in any one establishment.
However, determining if a practice exists yields us with little knowledge of the actual level of
employee control or increased communication which employee involvement programmes are
often meant to promote. Due in part to these design deficiencies in previous research, the results
are largely mixed regarding the impact of employee involvement on performance. Whether
employee involvement has an impact on company performance depends largely on the quality
and form of involvement adopted.

It has been found by lots of researchers across various time periods that job involvement keeps
the employees motivated and satisfied with their jobs and boost the employees to put more
efforts into their work and therefore tend to display higher levels of job performance
(Testamicael, 1997).

The 7 C’s of Communication

There are 7 C’s of effective communication which are applicable to both written as well as oral
communication. The communication must be complete. It should convey all facts required by the
audience. The sender of the message must take into consideration the receiver’s mind set and
convey the message accordingly. A complete communication develops and enhances reputation
of an organization, they are cost saving as no crucial information is missing and no additional

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cost is incurred in conveying extra message if the communication is complete. It persuades the
audience (Gamble and Gamble, 2002).

Conciseness on the other hand means wordiness, i.e., communicating what one want to convey in
least possible words without forgoing the other C’s of communication. Conciseness is a necessity
for effective communication. Concise communication is both time-saving as well as cost-saving
and it underlines and highlights the main message as it avoids using excessive and needless
words (Harris & Nelson, 2008).

Consideration implies “stepping into the shoes of others”. Effective communication must take
the audience into consideration, i.e. the audience’s view points, background, mind-set, education
level, etc. and making an attempt to envisage the audience, their requirements, emotions as well
as problems. It involves ensuring that the self-respect of the audience is maintained and their
emotions are not at harm (Kinicki & Kreitner, 2006). The communicator should modify their
words in message to suit the audience’s needs while making their message complete.

According to Welch and Jackson (2007) clarity implies emphasizing on a specific message or
goal at a time, rather than trying to achieve too much at once. Communication contributes
effectively towards the organizational success. This is only done if it is used to perform its key
functions of: controlling, motivating, emotional expressions and decision making. In large
organization, miscommunication is inevitable.

Most executives agree that effective communication is essential for the successful performance
of organizations. In fact, it seems clear that communication is the key to all interpersonal
activity. Communication is the process for conveying meaning from one person to another or
from the formal organization to the individual employee. Communications from the organization
are the essential ingredients in the formation of individual role expectations, better known as sent
roles (Joey, 2002). One conclusion from these studies would be that different workers from
different working environments have varying degrees of role clarity needs. Unfortunately, there
is a paucity of research with respect to the specific effects of role clarity on the need structures of
workers.

According to Barrett (2012), concrete communication implies being particular and clear rather
than fuzzy and general. Concreteness strengthens the confidence. A concrete message is
supported with specific facts and figures. It makes use of words that are clear and that build the
reputation. Courtesy in the message implies the message should show the sender’s expression as
well as should respect the receiver. The sender of the message should be sincerely polite,
judicious, reflective and enthusiastic. Courteous message implies taking into consideration both
viewpoints as well as feelings of the receiver of the message. Courteous message is positive and
focused at the audience. Correctness in communication implies that there are no grammatical
errors in communication. Correct communication is exact, correct and well-timed. If the

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communication is correct, it boosts up the confidence level. It checks for the precision and
accurateness of facts and figures used in the message. Awareness of these 7 C’s of
communication makes one an effective communicator (Pinnington, 2011).

Communication Channels
Today, numerous channels are used for internal and external organizational communication. Yet,
while channels such as bulletin boards, intranets, newsletters and e-mail are an efficient mode of
communication for certain messages, the power of face-to-face communication cannot be
underestimated. Media such as reports and letters are less effective for information exchange
than "dynamic" channels--such as one-on-one conversations, corridor chats and small-group
meetings--that incorporate dialogue in the workplace (Grunig, 1992). For example, CEO
meetings with employees help to build affinity and trust. Luncheons, roundtables and cross-
depart mental work groups facilitate communication among employees. To encourage face-to-
face communication, HR and top management" can work together to enable supervisors to be
key communicators in the organization.

Organizational communication is also essential on a routine basis. It provides updates, such as

progress on fulfilling organizational goals or reasons for policy changes. Ongoing reports from
HR and senior management on business strategy and policies, for example, demonstrate respect
for the employee role in the company's success, provide direction and foster trust. In addition,
new communication techniques help to improve sharing and retention of information. Message
maps, for instance, are one-page summaries of a change process, assembled by the leadership
team, that create clarity and consistency of the message transmitted by top management (Harris
& Nelson, 2008). Additionally, the mission statement is a key communication channel, both
internally and externally focused. Recent research highlights that Fortune 1000 organizations use
the mission statement as a business strategy to build corporate identities, good will, public image
and organizational values. The findings note that high-performing organizations use their
mission statement, within the context of good will, to reach out to employees, shareholders and
communities (Shannon & Weaver, 1949). Whatever communication channel is selected, it is
important to be upfront and transparent about both positive and negative issues.

However, in today's age of continuous connectivity, a common problem is information overload.

Research shows that people typically remember only three to five points from any
communication, so a good message will make those points stand out. Clear, concise and precise
messages help employees focus on relevant information and ensure that staff will pay attention to
them. Intricate presentations of strategy may prevent employees from understanding and
correctly implementing the company's communications.

For many people, clear and concise communication within a working environment is essential.
When employers choose to not create channels of communication with employees that allow

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each party to share information with the other, chances are that employee perception of the
company was less than ideal. Lack of communication can go a long way toward setting up an
us/them mentality that breeds negativity in the workplace, opens the door for rumors to develop,
and can undermine the morale of even the most devoted of employees. Honesty in
communication will also have a significant impact on employee perception. Employees who are
confident that employers are being truthful and forthcoming in what they say are more likely to
support the company and its officers, even during periods when sales are down and production is
temporarily curtailed. When management develops a reputation for making statements that are
later proven to be untrue, employees lose confidence in the leadership and are more likely to
begin looking for an employer they can trust (Sim & Wright,2000).

Dynamics of communication in organizations is always varied and complex as the complex

rules, values, climate and corporate goals, perhaps because the message is a multidimensional
construct. In connection with the necessity of complex interactions of internal publicity is no
different from outside the organization

Information sharing
Information sharing is one of the easiest and most effective management for the participation of
workers in firms (Babbie, 2004). Good information on organizational goals and objectives, new
events, activities and services can reveal features of their employees from others. At the level of
internal communication organization aims to create a unified corporate identity, understanding
the philosophy of the organization. There are radicals who believe that the involvement and
motivation of staff is the only way to ensure customer satisfaction and the organization must
ensure that its employees are highly motivated to communicate, "are necessary, and we need
you". Work related to enrichment design jobs so that employees have a high level of vigilance
and choice. This can be achieved through the development of individual workstations, including
features that Barker (2002) stated that independence is a key element or the formation of groups
that independence, the following example, the principles social and scientific design.
Fundamentals of the theory and strengthen the regime emphasized that the function can play in
increasing the promotion of and satisfaction with, and how this in turn can improve individual
and collective work. The value inherent motivation, therefore, based on the idea of enrichment
work model of contribution also diverse, with the strength of his first four aspects. They must
ensure that the impact extends to lower levels of the organization, so that clarification can be
decentralized, and therefore covers the work of fortification. However, the power aspect also
includes suggestions for improving the organization that the environment is one aspect of voice.
The other three degrees - the dissemination of information, extension and mastery of content to
ensure that employees have the right to information, skills and rewards for using their power so
as to make a significant contribution to the goals of the organization.

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Similarly Testamicael (1997) included four practices that are directly related to the contributions
of its employees at the beginning of a list of 16 management practices that advance the necessary
competence, namely the possession of employees, information exchange, participation and
opportunities, and joint efforts and redesign.

The article by Foerenbach and Goldfarb (1990) in the early nineties has been one of the firsts to
take notice of the changing needs of employees. Testamicael (1997) took note from a survey of
nearly 300 organizations conducted from 1987 to 1989 by the International Association of
Business Communicators (IABC) that employers in the nineties have become increasingly aware
that employee loyalty and commitment are dependent on effective communications programs,
but that many corporate communications efforts remain ineffective. Findings show that
employees are less focused on the company and more focused on non work-related issues-
families and quality of life. Thus, the organization has the responsibility to get the employees
involved. However, several issues must be resolved first. For instance, although employees are
more satisfied than ever with the information they're getting, communication efforts are still not
meeting their needs. The majority of employees want face-to-face communication. Also, other
issues include: employees remain intensely critical of management's willingness to listen to them
and to act on their ideas; first-line supervisors, although overwhelmingly the preferred source of
information, are still not communicating at satisfactory levels; and senior management remains
invisible and out of touch.

Cooper & Schindler (2006) also agrees that effective communication can lead to employee
motivation and job satisfaction. The authors believe that companies can use their employee
communications programs to achieve their business goals if these are managed properly. One of
the factors that affect the reputation of the company is the consistency and relevance of
communications, outside and in. Therefore, managing communication and being able to
implement an effective one may motivate employees to work as they will have the perception or
the view that the company treats them as someone who really belongs with the group, and is not
isolated.

ACAS, an organization in the UK the resolves employment disputes, stated that “ensuring that
everyone has a say in decisions that affect them is the basis for building better relationships
within workplaces”. Furthermore, the company stated that effective communication is a key to
good decision making, smooth management of change and organizational improvement.

According to Tarrington & Hall (1991), a study from General Electric and Hewlett-Packard in
the 1980s revealed the importance of communication in motivating employees. The two
companies quantitatively established the correlation between managerial communication
effectiveness and employee satisfaction based on five questions in employee attitude surveys that
focused on one-to-one communication. They concluded that “the better the managers'
communication, the more satisfied the employees were with all aspects of their work life”. Since
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then, both Hewlett-Packard and GE have shifted the focus of much of their communication
efforts to build on the immediate manager as the key link in the communication chain.

In GE, employees have freedom of speech. Employees have been given the opportunities to
improve and to voice out their ideas and suggestions. Employee empowerment has been
considered as a management technique which can be applied universally across all organizations
as a means of dealing with the needs of modern global business. Empowerment describes
working arrangements which engage the empowered at an emotional level. They differentiate
between concepts of empowerment which are relational and motivational. As a relational
concept empowerment is concerned with issues to do with management style and employee
participation. As a motivational construct empowerment is individual and personal, it is about
discretion, autonomy, power and control. This motivational aspect to empowerment becomes the
defining feature of the initiative. Furthermore, Chandran (2004) stated that an empowered
employee must feel a sense of personal worth, with the ability to effect outcomes and having the
power to make a difference. In addition, advocates of empowerment claim that employee
empowerment helps firms to enthuse and enable employees to take responsibility for the service
encounter.

According to Denscombe (2007), the attitudes and loyalty of employees are directly influenced
by their participation in communication efforts, and this has a direct influence on how they treat
customers and clients, which in turn leads to growth of the bottom line. This shows the
importance of communication in the organization’s daily operation. For instance, in change
management, he explained that the more employees participate in the communication and change
strategy, the higher the level of trust between the organization and its employees; the higher the
degree of control mutuality between an organization and its employees; the higher the level of
commitment between an organization and its employees; the higher the level of satisfaction with
the relationship between an organization and its employees; and the more positive the overall
relationship between an organization and its internal publics.

EMPIRICAL REVIEW
Recognition for the importance of communication to the management process can be attributed
largely to the work of Gamble & Gamble (2002) who maintained that communication was the
very “heart” of the management process. The human relationships movement of the 1940’s
contributed significantly to the notion that communication in organizations should be a two-way
process. It emphasized the concern for employee attitudes and satisfaction, stimulated research
on employee involvement in decision making, the two-step flow of communication, and upward
and downward communication flow.

In 1950’s, research on the effects of feedback on employee performance and climate research
was initiated. The problem of upward communication distortion was the focus of attention and

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research methodologies like ECCO which refers to Episodic Communication Channels &
Organizations. The term “communication audit” was first used as a description of the process
used to assess the accuracy of management’s perceptions of subordinates’ communication.
Communication audit methodologies advanced a general systems approach to the study of
organizational communication (Sim & Wright, 2000).

The study concludes and recommends that communication is very important for employees who
work in any organization anywhere in the world, such as communication gives the feeling of
belonging and sense of partnership with employees working in the organization. When
employees feel they have been heard and that they can communicate with their supervisors at
any time they feel more a part of a group and are more motivated to work. Communication
problems also decrease as the conflicts among professional colleagues resulting in a pleasant and
healthy to work around the world to increase productivity of the organization in general
(Torrington and Hall 1991).

Strategic internal communication system leads to increased employee passion for, commitment
to and alignment with the organization’s strategies and goals. Vercueil (2001) stated that many
companies are now realizing that an employee’s attitude and performance cannot be separated.
When employees have negative attitudes about their work, their job performance and
productivity inevitably suffer. When they have positive attitudes, job performance and
productivity are likely to improve. Employee values have shifted. If employers want to count on
a productive workforce in changing times, they have to understand why employees will work for
an organization and give the commitment they desire.

In today's global business environment effective organizational communication--internal and

external--has a significant impact on an organization's success. Reasons for the increasing
importance of organizational communication are many, with workplace change front and center.
Overall, the world of work has become more complex More than ever before, knowledge,
learning and innovation are critical to an organization's sustainability, Further, with employees
often being widely distributed geographically, communication technologies and networks arc
essential for the accomplishment of a company's strategy.

Therefore, effective internal organizational communication is critical to actively engage

employees, foster trust and respect, and promote productivity'. Hence, communication between
employees and senior management is among the top five very important aspects of employee job
satisfaction.

Ideally, employees should not feel uncomfortable or afraid to pose questions, suggestions or
concerns to management. Therefore the internal communication strategy of an organization
should ask: "Can employees question the decisions of management without fear of
repercussion?" There are various mechanisms that can be used to encourage feedback and

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communication from employees to senior management (bottom-to-top), such as employee

attitude surveys. Employees can also meet with their supervisors to discuss any matters regularly
or as needed, and this process can be used as a means of upward communication.

According to Zikmund and Babin (2009), it is important that senior management communicate
directly with employees, so that employees understand the organization's business goals, policies
and vision, and arc apprised about what is going on in the organization. It can be particularly
challenging for large organizations to keep the lines of communication clear and employees in
the loop. Senior management can reduce these potential obstacles by keeping employees well-
informed through companywide meetings and the use of technology in top-to-bottom
communications e.g. CEO chat rooms, Town Hall Meetings, intranet mechanisms and e-mails.
Transparency in communication in the workplace, trust and respect between employees and
senior management, as well as the use of appropriate communication channels to facilitate top-
down and upward communication in the company and openness to employee voice, are some of
the most critical factors that can either contribute to or detract from effective internal
organizational communication and therefore the communication strategy should address these
issues.

Elashmani and Harris (1993) further argues that successful human resources communication is
achieved throughout the company by sending professional emails, memos and having face to
face or group meetings with employees. Human resources personnel must communicate in such a
way that the information they provide is factual, accurate and timely. Effective communication
within human resources plays a crucial role in attracting and maintaining the most qualified
employees. The growth and development of companies worldwide is dependent on attracting the
best and brightest job candidates.

They observed that motivating employees, especially part-time employees can be a difficult
challenge for managers. Their perspectives shed light on specific ways in which managers can
use communication as motivation. Communication can be utilized as a tool to enforce control as
well as way to negotiate and manage conflict. As seen at Red Robin, Inc., this problem can be
approached in a number of different ways. It is sometimes necessary to motivate employees,
especially part-time employees, through the use of coercion and managerial authority. It is
important to note that long-term use of a mechanistic approach to management is not beneficial
to employees. However, certain situations may call for the use of this type of managerial
communication. Communicating in a more open, respectful and collaborative way will produce
more positive motivation and thus more positive results.

It is a self-evident fact that organizational communication plays a vital role in employee

motivation and performance as real changes are taking place in modern organizations which
confront the new reality of tighter staffing, increased workloads, longer hours and a greater
emphasis on performance, risk-taking and flexibility. Employee communications have a crucial
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role to play in the management effort to reorient employees perplexed by changes, or inform and
motivate those who adapt more readily. Within this general need to communicate there exists the
specialized requirement for effective communication as an outcome of managing an
organization’s employee relations.

Today’s organizations are run by multi and cross-functional teams which show little tolerance
for unquestioned authority. To deal with this situation, the art of persuasion and the effort to find
the correct emotional match with your audience is necessary. This match means that it is not
enough for communication to be a one-way ticket (Torrington and Hall 1991). There has to be
downward and upward communication. Effective downward communication allows decisions
taken by the management of the organization to be converted into action by employees, also
boosts teamwork, trust, better relations, productivity and fewer chances of rumours and
miscommunication. Furthermore, it allows for a consistency of action, and it may stimulate a
greater commitment on the part of employees. Upward communication helps managers to
understand both business and personal issues that affect employees. In addition, creative
suggestions from employees help management in decision making and improvement of the
organization.

Torrington& Hall (1991) did a study on the effects of poor communication in organizations. He
established that in workplaces poor communication is a serious problem and can be costly to an
organization. The impact can be devastating to the parties involved. Some of the results include:
Loss of business, customers, products, goods, services, employee turnover, loss of productivity,
absenteeism, sabotage, injury and accidents, sick leave and so on. The main purpose of this study
is to identify the effects of poor communication on organizational performance and to find out
the strategies for improving on communication at the workplace so that employee motivation can
be enhanced. The specific objectives of the study included finding out the factors, levels, types
and effects of poor communication at the workplace.

The study was guided by the writings of Elashmawi and Harris, (1993) who have argued that a
fuller understanding of organizations is a vital ingredient at every forward step of the career
process, and that communication is a primary element for understanding how organizations
function and how members of the organization should, even must, behave in organizations if
they are to advance their careers.

RESEARCH METHODOLOGY
Research design
The research design that was employed in this study is descriptive survey method. According to
Kothari (2004) descriptive research studies are those studies which are concerned with
describing the characteristics of a particular individual, or a group. The writer further gives the
steps to be followed in this design as beginning with specifying the objectives of the study
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followed by designing the method of collecting data, selecting a sample as the third step
followed by collecting data, processing and analysing the data then reporting the findings as the
last two steps. The method was preferred since it is more precise and accurate since it involves
description of events in a carefully planned way to portray the characteristics of a population
fully.

Target Population
The population of study was 156 respondents comprising of senior managers, middle level
managers and support staff at Nokia Siemens Networks Kenya with its regional office in
Nairobi. The company is known to have fully fledged satellite offices within Africa, which rely
on decisions made from their head offices in Dubai. The total staff population stands at 156.
These are the people best placed to provide the required information.

Sampling Frame
Sampling is that part of statistical practice convened with the selection of a subset of individuals
from within a population to yield some knowledge about the whole population especially for the
purposes of making predictions based on statistical inference. A sampling frame is the source
material or device from which a sample is drawn. For this study, the sampling frame comprised
of all employees of Nokia Siemens Networks in Kenya.

Sample and Sampling Technique

Stratified random sampling was used basing the strata on the various management levels. This
was then put on a sampling frame, and from this the sub samples was chosen at random. The sum
of each of the sub samples gave the total sample size. The writer further adds that stratified
random sampling is the most powerful means of generalizing findings based on samples to
populations. According Kothari (2004), stratified proportionate random sampling technique
produce estimates of overall population parameters with greater precision and ensures a more
representative sample is derived from a relatively homogeneous population. Stratification aims to
reduce standard error by providing some control over variance. The choice of this technique was
governed by the benefits that accrue to the researcher in terms of increasing the sample’s
statistical efficiency, provision of adequate data for analyzing the various sub-populations and
that it will enable different research methods and procedures to be used in different strata.
According to Mugenda and Mugenda (2003), in order to obtain reliable information and for
generalization to take place, a sample of 10% to 30% of the target population would be sufficient
and so 30% is considered to be even better. The researcher thus selected 48 respondents from the
population at Nokia Siemens Networks Kenya.

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Instrumentation
Data in this study was collected using semi structured questionnaires. According to Harper
(2002), for questionnaire to provide useful results, the questions must be both valid and reliable.
The questionnaires were preferred in this study because respondents of the study are literate and
quite able to answer questions asked adequately. The researcher considered this method because
it was the most economical way of data collection compared to others in the sense that it can be
used to collect data from a big population within a small period of time that the researcher has
(Mugenda and Mugenda, 2003).

Data Collection Procedure

Both qualitative and quantitative data was collected focusing on the effects of communication on
employee motivation in Nokia Siemens Networks Kenya using the semi-structured questionnaire
with open and closed ended questions. In all the targeted departments, the researcher produced
the introduction letter issued by the college authorizing the collection of the data and, or assure
the target respondents confidentiality of the information she received by virtue of conducting the
study in that particular organization. The drop and pick later method was used in administering
the research tools.

Pilot test, Validity and Reliability

Reliability measures the relevance of the questions included in the questionnaires and validity
refers to whether the instrument is actually able to test what it is supposed to test. To ensure
validity and reliability of the questionnaire, the same was tested under field conditions. Pre-
testing enables the researcher to receive important feedback on how questions are to be recorded
or restructured. The questionnaire needs to be pre-tested under field conditions before it is ready
for the field. It is very important for the researcher to pretest research instruments to enhance
clarity of the instruments to be used. The purpose of enhancing clarity is to ensure collection of
accurate information and to correct any deficiencies revealed during pre-testing exercise
(Mugenda and Mugenda, 2003). The researcher pre-tested the questionnaire, which was not part
of the actual study since subjects in the actual sample should not be used for pre-testing. The
researcher selected a pilot group of 15 individuals from the target population to test the reliability
of the research instruments. Finally, the responses received from the questionnaires were attuned
accordingly and any area needing adjustments was done.

Data Analysis Method

Once the data is collected, the next step that the researcher took is the processing and analysis of
data. Data is processed via editing and coding (Zikmund and Babin, 2009). After the collection
of questionnaires from the respondents, the acceptability of questions was examined and coded
assigning numbers to each of the question.

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This study used the quantitative method of data analysis. The data was analysed by use of
descriptive statistics (mean score and percentages) and inferential statistics multiple regression.
Data was coded and thereafter analyzed using Statistical Package for Social Sciences (SPSS)
program version 21 and presented using tables and pie charts to give a clear picture of the
research findings at a glance. According to Denscombe (2007) descriptive statistics involves a
process of transforming a mass of raw data into tables, charts, with frequency distribution and
percentages which are a vital part of making sense of the data. Conceptual content analysis was
used to analyze data that is qualitative nature or aspect of the data collected from the open ended
questions. The information was displayed by use of bar charts, graphs and pie charts and in
prose-form. This was done by tallying up responses, computing percentages of variations in
response as well as describing and interpreting the data in line with the study objectives.

In addition, a multivariate regression model was applied to determine the relative importance of
each of the four variables with respect to employee motivation. Regression method was used due
to its ability to test the nature of influence of independent variables on a dependent variable.
Regression is able to estimate the coefficients of the linear equation, involving one or more
independent variables, which best predicted the value of the dependent variable (Coben, 2001).
This is what a correlation analysis cannot provide as compared to a regression analysis.
Consequently, based on these considerations, the multiple regression analysis was chosen as the
approach to analyze the data. The model specification was as follows:

Y=α+β1X1+β2X2+β3X3+β4X4+ε
Where:
Y= Employee motivation
X1= Employee Involvement in Decision Making
X2= The 7 C’s of communication
X3= Communication channels
X4= Information sharing
ε= error term
β=coefficient of determination
α= constant
Ethical Considerations
Ethics refers to rules of conduct and refers to the researcher’s conduct throughout the research
process. According to Mugenda and Mugenda (2003), researchers are people who are concerned
about other peoples’ quality of life. They must, therefore, be people of integrity who would not

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take research for personal gain or research that had negative effect on others. There are various
ethical issues that a researcher should avoid or practice when undertaking research such as
confidentiality and privacy, anonymity, Plagiarism and fraud among many others. Involvement
of human beings either directly or indirectly in almost all research give rise to ethical issues (Sim
and Wright, 2000). Hence, the researcher should make individuals involved assured of
confidentiality. Considering the ethical values, the participation of employees was confidential
and voluntary. There were no hard and fast rules to participate in the research process.
Questionnaire was distributed among employees who wish to fill them up. Since the
questionnaire did not contain any questions regarding full names or any identification, the
responses were confidential. The study collected sensitive information; therefore, the researcher
will have a moral obligation to treat the information with utmost modesty. The researcher
assured the respondents confidentiality of the information given to ensure that the respondents
were not reluctant to give the information as sought by the study.

RESEARCH FINDINGS
Factor Analysis
The communality table (Appendix III) helps the researcher to estimate the communalities for
each variance. This is the proportion of variance that each item has in common with other
factors. For example ‘reduced unexcused absence’ has 93.6% communality or shared
relationship with other factors. This value has the greatest communality with others.

In the total variance explained table (Appendix IV), the researcher used Kaiser Normalization
Criterion, which allows for the extraction of components that have an Eigen value greater than 1.
The principal component analysis was used and 13 factors were extracted. As the table shows,
these 13 factors explain 86.35% of the total variation. Factor 1 contributed the highest variation
of 20.629%. The contributions decrease as one move from one factor to the other up to factor 13.

The initial component matrix was rotated using Varimax (Variance Maximization) with Kaiser
Normalization. The component matrix results (Appendix V) allowed the researcher to identify
what variables fall under each of the 11 major extracted factors. Each of the 46 variables was
looked at and placed to one of the 13 factors depending on the percentage of variability; it
explained the total variability of each factor. A variable is said to belong to a factor to which it
explains more variation than any other factor.

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Karl Pearson’s Correlation Analysis

Table 1: Correlation matrix

Employee
Involvement
Employee in Decision The 7 C’s of Communication Information
motivation Making communication channels sharing

Employee Pearson 1
motivation Correlation
Sig. (2-tailed)
N 64
Employee Pearson .061 1
Involvement Correlation
in Decision Sig. (2-tailed) .033
Making
N 64 64

The 7 C’s of Pearson .003 .310* 1

communicati Correlation
on Sig. (2-tailed) .041 .013
N 64 64 64
Pearson .240 .045 .286* 1
Communicati
Correlation
on channels
Sig. (2-tailed) .036 .725 .022
N 64 64 64 64
Pearson .332* .072 .338* .293* 1
Information
Correlation
sharing
Sig. (2-tailed) .007 .574 .006 .019
N 64 64 64 64 64

Pearson’s correlations analysis was then conducted at 95% confidence interval and 5%
confidence level 2-tailed. The Pearson correlation in table 4.13 indicates that there is no
significant correlation between the independent variables. That is, none of the correlation
coefficients are greater than 0.5 hence no problem of multicollinearity. This means that all the
four predictor variables could be used.

REGRESSION ANALYSIS
In this study, a multiple regression analysis was conducted to test the influence among predictor
variables. The research used statistical package for social sciences (SPSS V 21.0) to code, enter
and compute the measurements of the multiple regressions

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Table 2: Model Summary

Std. Error of the

Model R R Square Adjusted R Square Estimate
1 0.8542 0.7297 0.7114 0.2867

R-Squared is a commonly used statistic to evaluate model fit. R-square is 1 minus the ratio of
residual variability. The adjusted R2, also called the coefficient of multiple determinations, is the
percent of the variance in the dependent explained uniquely or jointly by the independent
variables. 71.14% of the changes in the employee motivation could be attributed to the combined
effect of the predictor variables. This is in line with Elashmawi & Karris (1993) that good
communication is mandatory in any organization in order for the organization to survive and
sustain its competitive advantage.

Table 3: Summary of One-Way ANOVA results

Model Sum of Squares df Mean Square F Sig.

1 Regression 13.762 4 3.44 39.83 0.0001
Residual 5.097 59
0.09
Total 18.859 63

The probability value of 0.0001 indicates that the regression relationship was highly significant
in predicting how employee involvement in decision making, the 7 C’s of communication,
communication channels and information sharing affect employee motivation.

Table 4: Regression coefficients of the relationship between employee motivation and the
four predictive variables

Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 5.134 1.068 4.807 1.09E-05
Employee Involvement in 0.689 0.158 0.067
Decision Making 4.361 5.27E-05
The 7 C’s of 0.545 0.098 0.033
communication 5.561 6.83E-07
0.597 0.101 0.36
Communication channels 5.911 1.82E-07
Information sharing 0.78 0.131 0.453 5.954 1.54E-07

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The F calculated at 5% level of significance was 39.83 since F calculated is greater than the F
critical (value = 2.5252), this shows that the overall model was significant.

As per the SPSS generated table above, the equation (Y = β0 + β1X1 + β2X2 + β3X3 + β4X4+ ε)
becomes:
Y= 5.134 + 0.689X1+ 0.545X2+ 0.597X3+ 0.78X4
The regression equation above has established that taking all factors into account (employee
involvement in decision making, the 7 C’s of communication, communication channels and
information sharing) constant at zero employee motivation was 5.134. The findings presented
also show that taking all other independent variables at zero, a unit increase in the employee
involvement in decision making would lead to a 0.689 increase in the scores of employee
motivation and a unit increase in the scores of the 7 C’s of communication would lead to a 0.545
increase in the scores of employee motivation. Further, the findings shows that a unit increases in
the scores of communication channels would lead to a 0.597 increase in the scores of co
employee motivation. The study also found that a unit increase in the scores of information
sharing would lead to a 0.78 increase in the scores of employee motivation.

Overall, information sharing had the greatest effect on the employee motivation, followed by the
employee involvement in decision making, then communication channels while the 7 C’s of
communication had the least effect to the employee motivation. All the variables were significant
(p<0.05). This is in agreement with Testamicael (1997) that a modern organization, therefore,
cannot function effectively without a positive internal climate and well-functioning channels of
internal communication.

SUMMARY OF FINDINGS
Employee Involvement in Decision Making
This study revealed that employee involvement in decision making affects employee motivation
in Nokia Siemens Networks Kenya to a great extent as it makes individuals have a sense of
belonging increasing job satisfaction hence productivity, builds confidence in employees to take
up challenges, employees feel appreciated, creates a sense of responsibility and esteem, enables
picking up of leadership talents within employees, leads to faster acceptance of changes affecting
them, improves employees morale, commitment and team working and empowers employees to
know strategic direction of the company. The study deduced that the aspects of employee
involvement in decision making that affect employee motivation in Nokia Siemens Networks
Kenya to a great extent include substantive participation (employees have control over the work
process and be able to have a direct impact on their working life), consultative participation
(employees have the ability to make inputs to the work process, although not through formal
means such as boards) and representative participation (employees serving on boards, or some
other formal representation, in which employees are able to express their views). It was clear that

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employees with high levels of job involvement make the job a central part of their personal
character and focus most of their attention on their jobs.

The 7 C’s of communication

The study established that the 7 C’s of communication affects employee motivation in Nokia
Siemens Networks Kenya to a great extent. The study also found that the aspects of the 7 C’s of
communication that affect employee motivation in Nokia Siemens Networks Kenya to a great
extent include its clarity, courtesy, correctness, completeness, conciseness, consideration and
concreteness.

Communication Channels
The study further established that communication channels affect employee motivation in Nokia
Siemens Networks Kenya to a great extent. The communication channels that affect employee
motivation in Nokia Siemens Networks Kenya to a great extent include verbal communication,
written communication, visual communication (signs, symbols and designs, video clips) and
non-verbal communication (tone of the voice, touch, smell and body motion).

It was clear that proper communication leads to shared vision, goals, openness and trust within
individuals, teams and an organization, employees tend to have higher morale and are more
motivated in the workplace if all the channels of communication are open. The study also found
that in business communication self-confidence plays a vital role which when clubbed with
fluent communication skills can lead to success, good verbal communication is an inseparable
part of business communication, oral communication (face to face) is considered richer than
written communication due to its ability to carry larger loads of information and for its ability to
allow instant clarification of any message ambiguity, communication should always take into
consideration timing and the media and the organization’s structure has a significant impact on
the communication and strategy implementation process.

Information Sharing
The study found that that information sharing affect employee motivation in Nokia Siemens
Networks Kenya to a great extent as it gives employees clear direction and understanding of the
companies objectives and what’s expected of them, increases morale, makes employees feel
empowered and trusted, increases cohesion within a team, ensures easy decision making, creates
inter learning and also removes ambiguity and uncertainty as it creates a platform whereby top
management can clear up issues to the employees.

It was clear that good information sharing creates a unified corporate identity, understanding the
philosophy of the organization, good information sharing ensure that the impact extends to lower
levels of the organization, so that clarification can be decentralized, and therefore covers the
work of fortification and suggestions for improving the organization that the environment is one
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aspect of voice which the employees in the company enjoy. The study also deduced that internal
communication strategy in the firm is responsive to employee needs and concerns, ensuring that
everyone has a say in decisions that affect them is the basis for building better relationships
within workplaces, formation of groups enhance information sharing and thus motivation,
information sharing is one of the easiest and most effective management for the participation of
workers in firms and good information on organizational goals and objectives, new events,
activities and services reveal features of their employees from others.

Motivation
The study found that communication in the company creates a sense of loyalty in a competitive
environment, make the employees effective brand ambassadors for the company, enhances
positive attitude towards the job, creates a community at the workplace, improved morale and
increases employees' trust in the organization.

It was deduced that alignment with the organization’s strategies and goals, increases
organizational citizenship behaviours, increases passion for work, increases job satisfaction,
lowers attrition rate and higher talent retention, commitment to the organization, reduced
intentions to quit, high-energy working environment and reduced unexcused absences.

From the regression analysis, the study found that 71.14% of the changes in the employee
motivation could be attributed to the combined effect of the predictor variables. The findings
also show that information sharing had the greatest effect on the employee motivation, followed
by the employee involvement in decision making, then communication channels while the 7 C’s
of communication had the least effect to the employee motivation. All the variables were
significant (p<0.05).

CONCLUSIONS
From the findings, the study concludes that the degree of employee involvement in decision
making affects the employee motivation as it makes individuals have a sense of belonging,
creates a sense of responsibility and esteem and improves employees’ morale. Employees at
Nokia Siemens Networks Kenya have control over the work process and are able to have a direct
impact on their working life. The study further deduced that the 7 C’s of communication
especially clarity, courtesy, correctness and completeness affects the employee motivation at
Nokia Siemens Networks Kenya. The study also concludes that communication channels such as
verbal communication, written communication and visual communication affect employee
motivation in Nokia Siemens Networks Kenya to a great extent. Employees tend to have higher
morale and are more motivated in the workplace if all the channels of communication are open.
The study further deduced that information sharing affects employee motivation in Nokia
Siemens Networks Kenya to a great extent as it gives employees clear direction and
understanding of the company’s objectives and what’s expected of them, increases cohesion
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within a team and create a unified corporate identity. Internal communication strategy in the firm
is responsive to employee needs and concerns, ensuring that everyone has a say in decisions that
affect them is the basis for building better relationships within workplaces. The study finally
concludes that information sharing had the greatest effect on the employee motivation, followed
by the employee involvement in decision making, then communication channels while the 7 C’s
of communication had the least effect to the employee motivation.

RECOMMENDATIONS
From the study findings and conclusions, the study recommends that since employee
involvement in decision making affects the employee motivation, the company managers should
involve the employees of all cadres to enable them have experience on the intricates of running
the business. Since the study found that the 7 C’s of communication affects the employee
motivation to a great extent, it therefore recommended that the management should ensure there
is clarity, courtesy, correctness and completeness of any information shared. The study further
recommends that communication should always take into consideration timing and the
organization’s structure has a significant impact on the communication and strategy
implementation process. The management should there is good verbal communication in the
company especially oral communication (face to face) which is considered richer than written
communication due to its ability to carry larger loads of information and for its ability to allow
instant clarification of any message ambiguity. The study finally recommends that the
management should enhance information sharing as it makes employees feel empowered and
trusted, increases cohesion within a team and ensures easy decision making. Formation of groups
enhance information sharing and thus motivation, information sharing is one of the easiest and
most effective management for the participation of workers in firms and good information on
organizational goals and objectives, new events, activities and services reveal features of their
employees from others.

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Lamberg, Juha-Antti*, Lubinaite, Sandra*, Ojala, Jari*, Tikkanen, Henrikki** 1

The Cur se of Agility: Nokia Cor poration
and the Loss of Mar ket Dominance
2003-2013

Author biographies:
Dr. Juha-Antti Lamberg is a Professor of Strategy and Economic History at the University of Jyväskylä. His research focuses on strategy,
history of strategy, and industry evolution. He has published research in the Academy of Management Review, Strategic Management
Journal, the Journal of Management Studies, Industrial and Corporate Change, Academy of Management Learning & Education, as well as
other leading journals of the field. In recognition of quality of his research, Prof. Lamberg has won the Sloan Foundation’s Industry Studies
Best Paper Prize in 2008, the Carolyn Dexter Award in 2009 at the Academy of Management Conference, and the Outstanding Article of the
Year at the Academy of Management Learning & Education in 2015.

Sandra Lubinaite is a former student in the Master’s Degree Program in International Business and Entrepreneurship at the University of
Jyväskylä. Curretly she works as consultant at the Ernst & Young. Her research focuses on Nokia’s technology management in 2000-2013.

Dr. Jari Ojala is Professor of History and Chair of the Department of History and Ethnology. Prof. Ojala specializes in comparative
business history. His research has been published in journals such as the European Review of Economic History, Business History, Industry
and Innovation, Management & Organizational History, the International Journal of Maritime History, and the Journal of Management
History. He is the Editor-in-Chief of Scandinavian Economic History Review (2015 – 2018), has served as the Editor-in-Chief of the
Scandinavian Journal of History (2004–2009), is a member of the editorial boards of the International Journal of Maritime History and
Essays in Economic and Business History.

Dr. Henrikki Tikkanen has been Professor of Business Administration (marketing) at Aalto University School of Business (until 2010
Helsinki School of Economics) since 2004 and Stockholm University, Stockholm Business School since 2013. Prof. Tikkanen's academic
research covers strategy, leadership, strategic marketing and industrial business relationships and networks. He has published papers in the
best journals of these fields, such as Strategic Management Journal, Journal of Marketing, Long Range Planning, Journal of Management
Studies, Industrial and Corporate Change, European Journal of Marketing, Industrial Marketing Management, and Management &
Organisational History.

1
* University of Jyväskylä, Finland, ** Aalto School of Business, Finland. Correspondence: juha-
antti.lamberg (at) jyu.fi. Authorship is in alphabetical order.
The Cur se of Agility: Nokia Cor poration
and the Loss of Mar ket Dominance
2003-2013

Abstract

The literature on strategy and business history typifies business failures as originating in the
top management team’s cognitive biases, organizational capability gaps, and radical changes
in the competitive landscape. However, none of these firm-internal factors would be activated
without changes in the competitive landscape and the resulting inability of the firm to cope
with those changes. In this research, we investigate the complex interrelationship of firm-
external and firm-internal explanations by studying the fall of Nokia Corporation from its
position as a market leader in the global mobile phones market from 2003 to 2013. We
demonstrate that although Nokia had both the time to react to market changes and the
technological capabilities to counter-attack its challengers, it failed to do so despite an
organizational architecture that was designed to prepare Nokia to respond to market
disruptions. We explain this paradox by identifying the pitfalls related to organizational
agility and decision-making speed. As a result, we propose an orientation towards strategic
consistency and architectural coherence based on organizational routines.

Keywords: strategy, consistency, agility, decision-making, business history, Nokia.

DRAFT VERSION. PLEASE DO NOT QUOTE WITHOUT PERMISSION

One stream in the business history and strategic management literature focuses on erroneous

corporate choices in technology (Magee 1997; Christensen 1993), investments (Finkelstein

2006), internationalization (Burt et al. 2002) or market orientation (Tripsas and Gavetti 2000

Langlois 1992; Christensen 1993). On a higher level of abstraction, the reasons for erroneous

strategic choices fall into two groups. On the one hand, these choices are preceded by

exogenous dynamics that suddenly change the context in which the choices are embedded,

resulting in severe problems in corporate decision-making. Examples of such exogenous

dynamics are market changes (Tiffany 1984), new technologies (Arora, Branstetter and Drev

2013; Ghemawat 1991), or regulatory changes (Gruca and Nath 1994). On the other hand, the

literature recognizes several endogenous firm-internal factors such as managerial cognition

(Porac, Thomas and Baden-Fuller 1989), organizational capabilities (Teece 2007), and

organizational politics (Maitlis and Lawrence 2003) as potential antecedents of business

failures.

The research gap in the historically oriented literature on the deterioration of

competitive advantage addressed in this study is as follows. First, when looking at the entire

literature on erroneous strategic decisions it is clear that the background of scholars has a

strong attributional impact. Strategy scholars and organizational researchers attribute

erroneous choices to specific theoretical elements such as managerial cognition (Tripsas and

Gavetti 2000) or emotions (Vuori and Huy 2015). This makes analyses crisp and precise but

also highly biased and simplistic (Laamanen, Lamberg and Vaara 2015). Second, business

historians tend to emphasize comprehensive interpretative explanations for qualitative

problems (McCloskey 1973) or those that are related to technology change at the industry

level (Helper 1991; Cusumano et al. 1992; Langlois 1992; Christensen 1993; Galambos and

Sturchio 1998). Their narratives cover numerous aspects and dynamics without and within

the focal firm, where the central explanations to business failures are hidden within holistic
rich descriptions. Moreover, business history is per se more interested in business longevity

than failure; business historians prefer to study companies that have survived to those that

have failed (Cassis 1997; Hannah 1999; Fridenson 2004; Napolitano et al. 2015).

While it is not maintained here that there would be one optimal theoretical and/or

methodological solution to uncover the reasons for erroneous strategic choices, it is the

purpose of this paper to pinpoint some of the ways in which such a theory can be developed.

To understand the limitations of both extremely comprehensive and extremely focused

explanations of erroneous choices, we analyze the strategic technology management process

at the Nokia Corporation. How and why did Nokia fail to safeguard its strong market

leadership in the global mobile communications market between 2003 and 2013?

Although research on Nokia’s misfortunes has found both simple (e.g. Vuori and Huy

2015) and very complex answers (Risku 2010; Ollila and Saukkomaa 2013; Cord 2013) we

aim – in line with more generic studies on erroneous choices – for a solution that is both

theoretically sound and respects the historical realities from Nokia’s strong technology

dominance in the early 2000s to the divestment of its entire mobile phones business to

Microsoft in 2013. From this vantage point we make two analytical decisions. First, we

inquire into the company’s choice of key technologies. Why did Nokia invest so heavily in

the Symbian platform even after the major competing smartphone platforms – iOS and

Android – emerged in 2005-2007, and when Nokia had other options (Meego, Maemo,

Meltemi, Android etc.)? Focusing on this narrower and historically precise research aim helps

us to avoid the attributional bias of explaining success or failure (Laamanen, Lamberg and

Vaara 2015) while controlling for the amount of information due to reasons of research

economy.

Second, we construct the analytical narrative from the perspective of the strategic

business opportunities Nokia would have had at its disposal in its core technologies and in
capitalizing on possibilities in the rapidly changing mobile telecommunications market. We

were especially inspired by the multi-theory approach used in Danneels’ (2010) extended

case study of Smith Corona – formerly one of the world’s leading manufacturers of

typewriters, Jacobides’ (2007) study of a near-war between Greece and Turkey in 1996,

Allison’s (1969) classic study of the Cuban missile crisis, and Harvey’s (2012) counterfactual

analysis of Al Gore’s politics and the 2003 Iraqi war. The common denominator of these

studies is an emphasis on the sequential nature of decision-making embedded in historical

contexts. In other words, we focus on the organizational architecture that was conceived to

speed up decision-making and to make Nokia more agile than its competitors. In this process

the traditional mobile phone market matured rapidly, and the launch of smartphones brought

a strong and immediate disruptive innovation in the upper end of the market. Nokia itself was

the first mover and creator of this technological disruption. Consequently, a paradox

addressed in this study is that Nokia’s key strategic decisions prevented the corporation from

creating an ‘iPhone killer’ during the opportunity window it had between 2007 and 2009.

Thereafter, it was too late for Nokia to regain the ground that it had lost.

THEORETICAL BACKGROUND

Explanation of erroneous strategic decisions and business failures is an intriguing research

topic both in strategy and business history research. Since the early contributions in the 1980s

(e.g. Harrigan, 1982) researchers have turned their attention to failure cases in manufacturing

(e.g. Lorenz 1991; Magee 1997), service industries (e.g. Bakker 2005), and high-tech

industries (Cusumano et al. 1992; Langlois 1992) from a variety of perspectives. Recent

literature reveals a fairly balanced distribution of failure explanations attributed to exogenous

(market, government policies, competition) and endogenous (leadership, strategy, inferior

products, lack of capabilities, biased management cognition) factors.

 The quest for comprehensive explanations is a characteristic of the business history

literature. For example, in an article on the demise of Air Afrique (Amankwah-Amoah 2007),

the explanation consists of ten interrelated factors that were identified together as a sufficient

cause of failure. Similarly, in an article on the demise of Douglas & Grant Ltd. (Mackie

2012), the explanation combines several endogenous factors from strategic leadership to

organizational design.

Overall, the tendency to find systemic explanations embedded in historical narratives is

typical of business history research on corporate failures. Competition among rival

technologies has been used as a case to study both the decline and the rise of industries,

technologies and companies. Established incumbent firms are seen as especially slow to

make radical changes to their products (Christensen 1993). Beta vs. VHS is a classic case in

which customer needs (e.g. video renting and recording time) and ecosystem building were

the major determinants in the victory of VHS (Cusumano et al., 1992). In high-tech industries

the modularity of production has been a challenge to established companies that might have

found it difficult to change their supplier – customer relations quickly; they might become

captives of their suppliers and customers and failed to see the new, emerging markets and

technologies. (Christensen 1993).

Modularity refers to production in which complex products are built and developed

from sub-components and sub-systems, often by independent developers (Langlois 1992;

Schweizer 2005; Kraemer, Dedrick and Yamashiro 2000). Modularity enabled rivals to storm

the markets, which emphasised production efficiency, distribution, and logistics – as was the

case with the rise of the PC industry during the 1980s (Langlois 1992; Kraemer, Dedrick and

Yamashiro 2000).
 In the historically oriented strategy literature, the relationship between

theoretical explanatory categories and historical narratives is drastically different.

Researchers gravitate to particular theoretical explanations which they justify by historical

narratives. For example, the well-known case study on the demise of Polaroid (Tripsas and

Gavetti 2000) highlights the role of top management team cognition as a crucial impediment

to strategic renewal. Similarly, Siggelkow (2001) frames the near-failure of Liz Claiborne as

a problem of organizational design. This tendency to emphasize analytical clarity has resulted

in theoretically robust explanations at the expense of comprehensiveness. I

There is no dominant explanation for business failures as the stress on failure is

an attributional error in itself. As a consequence, many case studies and theoretical

explanations are causally weak. For example, Nokia’s loss of market dominance in mobile

phones has already attracted almost 20 publications, each offering at least one explanation

for its failure. The memoirs of Nokia’s former CEO Jorma Ollila (Ollila and Saukkomaa

2013) blame insufficient software skills and Ollila’s successor Olli-Pekka Kallasvuo’s lack of

leadership abilities; two management scholars collaborating with Kallasvuo (Vuori and Huy

2015) single out the organizational culture based on fear and Ollila’s aggressive behavior as

CEO. What is more, a book by the investigative journalists Salminen and Nykänen (2014)

reveals the dysfunctional strategy executed by the corporate headquarters. A review of the

literature identified more than 200 explanations of the rise and fall of Nokia’s market

dominance (Laamanen, Lamberg and Vaara 2015).

In analytical terms, most business failures are simple: competitive dynamics

change and a firm is unable to adjust. In a few cases, the failure is explained by an intra-

organizational problem yet the picture regresses to two key questions: does the firm have the

time and financial slack to cope with the changing dynamics? If so, does it possess the

organizational and – as in our case – technological capabilities to adjust its market offering to
match the new competitive situation? The other theoretically relevant research question is

how and why capable firms both with time and financial slack may still fail to adapt to

changing market dynamics.

The collection of concepts relevant for understanding business failure processes

focus on the nature of change processes on the one hand and the architectural antecedents of

such processes on the other. Some of the related concepts are highly deterministic. Path

dependence (Schreyogg and Sydow 2011), for example, is a descriptive assumption of the

sticky nature of knowledge and capabilities resulting in high degree of dependency of past

actions (cf. Collinson and Wilson 2006). Likewise, structural inertia (Hannan and Freeman

1984) assumes a host of organizational factors inhibiting radical change of core elements of

organizational forms. We propose the twin concepts of strategic coherence and strategic

consistency to be relevant for understanding efficient management of change process (or as in

our case inefficient management resulting in business failure).

Strategic coherence refers to “consistency of strategic choices across business

and functional levels of strategy” (Nath and Sudharshan 1994). The normative ethos of the

concept is to find structural solutions which minimize the frictions resulting from intra-firm

competition and politics. It is essentially a spatial concept that focuses on coherence between

organizational units and sub-groups. More recent literature has developed the initial idea

under the umbrella term of an organizational architecture (Jacobides 2006), which defines the

organizational structure and incentives as a composite concept. The structural element of

organizational architecture defines the boundaries of action and information flows related to

organizational activities whereas incentives define the motivational matrix driving

individuals and sub-units. Architecture thus is an elemental mechanism in the processes

which potentially result in failure as inefficient and/or non-coherent structures and incentives

may result in inconsistent decisions and actions.

 Strategic consistency refers to “[…] a firm’s actions conjoin both with changes

in the business environment (necessitating adaptation) and with the firm’s own history

(necessitating continuity). In a stable environment this would usually mean stable (unaltered)

competitive behavior over time, whereas in a dynamic environment, an appropriate level of

consistency would refer to the most efficient change in competitive actions in accordance

with new, intentionally identified strategic objectives and direction” (Lamberg at al. 2009:

46). In managerial practice, strategic consistency is achieved by orchestrating strategic

decisions and actions in such way that maximally avoids ‘drifting’ between alternative

strategic directions and postures.

Coherence (as a spatial construct) and consistency (as a temporal construct)

thus exhibit a direct causal one-directional relationship as we may assume lower coherence to

result in lower consistency. Thus, the architectural decisions by top management affect both

the inner workings of an organization and the efficiency of making strategic actions. That

said, we may assume architectural fluctuation and resulting strategic inconsistency to be an

important mechanism in business failure processes. Accordingly, our research question may

be formulated as follows: Assuming sufficient levels of capability, financial slack and

reaction time, which aspects of organizational architecture and strategic choices explain

inconsistency, leading to erroneous strategic choices and failure?

NOKIA: FROM MARKET LEADER TO LOSER

At the turn of the 1980s and the 1990s, Nokia Corporation faced severe crises and was forced

to make a significant corporate turnaround. In the process, the company eventually

concentrated on mobile phones and telecom networks, and by the mid-1990s had divested

dozens of other lines of businesses (Aspara, Lamberg, Laukia and Tikkanen 2011). By 1982

Nokia had introduced the world’s first car phone for the Nordic Mobile Telephone (NMT)
 analogical standard. In 1991 the GSM standard for digital cellular networks was adopted as

the pan-European digital standard – again, Nokia having had a key role in the related

technology development and standardization process. While mobile communications evolved

rapidly throughout the 1990s and the early 2000s, Nokia was able to establish itself as the

global market leader in mobile handsets with sales peaking in 2007, and remaining in that

position until the second quarter of 2008 (Table 1).

TABLE 1: Key Financial Figures of Nokia and its Mobile Phone Business Unit

Nokia Corporation 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Net sales (in millions EUR) 29 533 29 371 34 191 41 121 51 058 50 710 40 984 42 446 38 659

Operating profit (in millions EUR) 4 960 4 326 4 639 5 488 7 985 4 966 1 197 2 070 -1 073

Employees 51 359 55 505 58 874 68 483 112 262 125 829 123 553 132 427 130 050

Global mobile device market share 38% 32% 33% 36% 38% 39% 34% 32% 26%

Mobile phones business unit (Devices & Services business unit since 2008):

Net sales (% from total) 71 % 63 % 61 % 60 % 50 % 69 % 67 % 69 % 62 %

Operating profit % 28,3 20,4 17,3 16,6 21,7 16,6 11,9 12,2 3,7

In June 1998, Nokia, Ericsson, Motorola and Psion established Symbian Ltd. which became

the developer of the operating system Symbian OS.2 Nokia 9210 Communicator was the first

Symbian OS phone released in 2000. The adoption of Symbian as Nokia’s main software

platform is the starting point of our historical analysis as the early 2000s success of Nokia is

attributed to the success of this operating system.

The main strategic focus of the company during the early 2000s was to expand to

mobile voice market and consumer multimedia business. For example, in 2004 alone, Nokia

introduced 36 mobile device models (Nokia Corporation Annual report 2004, p. 31), in all

price ranges and with a wide variety of functional features. Market penetration was

2 http:/ / developer.nokia.com/ community/ wiki/ Symbian_OS [Retrieved 2.2.2014]

impressive – Nokia sold its billionth phone in 20053, and its peak global market share reached

39% in early 2008 (Table 2).

The year 2006 brought a shift in the company’s strategy. The top management team

saw that the success of the company might be threatened by the maturing mobile device

market and therefore identified a need to diversify the company’s activities. The new strategy

included expansion to consumer Internet services and network solutions, an increase in

enterprise services and in the existing mobile device market strategies. Thus, Nokia centrally

aimed to build a functioning business ecosystem on the Symbian software platform by

offering downloadable online content.

After the introduction of Apple’s iPhone in 2007 and Google’s announcement to form

an Open Handset Alliance for developing standards of mobile devices and, most importantly,

Android OS, the situation in the mobile phone device market quickly started to stir up. For

the first time in its recent history, in the latter half of 2008 Nokia’s global market share in

mobile devices started declining. In only two years, Nokia’s operating profits shrunk by more

than 40%, and in 2011 the corporation was in the red. The successful past performance in

established markets, thus, did not guarantee continued success in growing segments,

especially in smartphones. Though, in early 2008, Nokia was still the market leader in this

high-value market segment: its flagship smartphone device N95, launched in spring 2007,

had managed to outsell its rivals, primarily the first generation iPhone 3. In 2008 the Devices

& Services business unit accounted for almost 70% of the company’s net sales. By 2013, the

business unit’s revenue had contracted to a mere third compared to the peak year, but still

accounting for more than 40% of the total revenue. The mobile phone network unit, however,

did not face a similar decline in its business (Table 2).

3 http:/ / www.independent.co.uk/ news/ business/ analysis-and-features/ microsoft-buys-

nokia-150year-history-of-finnish-company-with-humble-beginnings-8795907.html [retrieved 31.1.2014]
 In 2008 Nokia’s top management also made the key strategic decision of acquiring the

full ownership of Symbian Ltd. which still was the world’s leading smartphone software

platform (Nokia Corporation press release December 2, 2008). Following what Google had

done with its Android software platform, Symbian OS became fully open source and

available royalty-free in February 2010. To launch its new products more rapidly, Nokia

significantly reduced the number of its smartphone models. Its main rival Apple only offered

its iPhone in a very few variants and in two colors. What is more, Nokia decided to leverage

its efforts to build an attractive business ecosystem and launched a public version of its OVI

store as a direct answer to Apple’s App Store and Google’s Play Store in early 2009.

Despite the quickly eroded market share in the high-end smartphone segment, Symbian

OS still retained the market leader position in the low-end mobile device market. Still

clinging to the Symbian platform, in 2010 Nokia launched another “iPhone killer”– the

flagship N8 which was the first product to run on the improved Symbian^3 OS. Moreover, in

February 2010 Nokia and Intel officially announced joint plans to build a new software

platform MeeGo that would support multiple hardware architectures (Nokia press release,

February 15, 2010).

In the autumn of 2010 the former head of Microsoft Business Division Stephen Elop

was appointed new CEO. The strategic intent of Elop’s new top management team was to

quickly regain leadership in the smartphone market and to retain the market leader position in

low-end mobile phones. The collaboration between Microsoft and Nokia was stepped up and

the companies announced plans “to form a broad strategic partnership that would use their

complementary strengths and expertise to create a new global mobile ecosystem” (Microsoft

press release, February 10, 2011). Contrary to earlier strategic decision, the decision was

made to adopt Windows Phone operating system as the primary smartphone platform for
Nokia devices for (at least) three years. This meant that the TMT publicly admitted that its

extensive focus on Symbian OS and later Meego had been major strategic mistakes.

At the same time, the top management team outsourced the development of Symbian to

Accenture and terminated further investments in MeeGo after the launch of the first and only

MeeGo flagship device (N9) in September 2011. Consequently, Nokia released its first

Windows Phone powered smartphones in autumn 2011 under the novel Lumia brand (Nokia

Corporation press release, October 26, 2011). In September 2013, after two years of close

cooperation between Nokia and Microsoft, the companies announced that Microsoft would

purchase Nokia’s Devices & Services business, license Nokia’s patents, and license and use

Nokia’s mapping services (Microsoft press release, September 3, 2013).

In summary, the descriptive account of Nokia’s history may be read as a pre-

determined tragedy or – as we argue – a history of decision-making points each offering a

host of alternative strategic trajectories. Why Nokia made the eventual strategic decisions and

not some others is the motivation for our following analysis and theorizing.

METHOD

Given the limited prior understanding of the structural mechanisms resulting in erroneous

decision-making and ultimately business failure, we engaged in explorative historical case

analysis. The strength of our approach is that it allows the use of predetermined concepts

from the organizational architecture and competitive action literatures, yet enabling us to

simultaneously build inductive theoretical propositions. The inductive theoretical work

essentially builds links between the conceptual constructs from which we started our

historical and case-based inquiry. Our approach helps us to focus on the entire longitudinal

process from market dominance to crisis in economic performance, and finally to the

transformed firm that divested its traditional core or legacy business. Our rich data helps us
deal with potentially biased retrospective interviews, and insufficient documentation which

potentially spoil qualitative case studies.

We study Nokia Corporation as an illustrative example of a corporation of in

which technology choices resulted in one of the biggest business failures of the early 2000s.

Nokia’s erratic strategic behavior and its inability to use the formative moment it possessed

before Apple and the Android camp took leading positions in the smartphone market

demands special attention from an architectural point of view. The most notable dynamics

occurred in the middle period of our interest (2007-2010), when the corporation still would

have had the time and capabilities to meet the competitive challenge posed by its emerging

smartphone rivals. Simultaneously, the changes in Nokia’s corporate architecture and its

strategic foci were as dramatic as the changes in the external environment. For instance,

Nokia launched several new technology platforms (Maemo, Meego, and Meltemi) while

trying to cope with altered competition with its mainstream low-market Symbian phones. In

addition, the corporate culture was narratively reframed as a strategically agile and focused

telecommunications market leader (Kosonen and Doz 2008), eventually resulting in the

paradox of a paralyzed corporation unable to survive without joining forces with Microsoft.

We focus on technology choices, as our initial research revealed that Nokia’s core problem in

2007-2010 was the inferiority of its phones in relation to individual consumer preferences,

and that Nokia had viable product prototypes and sufficient capabilities to launch

considerably better products (as it had done in the 1990s and the early 2000s) and to build its

own ecosystem. Overall, the Nokia case lacks straightforward generalizability but offers

conceptual representativeness to the extent that it can be seen as a legitimate research setting

to study business failure in theoretical terms.

Our data collection proceeded in two phases. As a part of a larger research

program, we started our inquiry by collecting over 80 academic publications on Nokia’s

history. This collection was used to create a timeline of the main historical events in Nokia’s

development, and to obtain an understanding of how other researchers have treated Nokia’s

technology management. At the same time, we collected newspaper articles, business

magazine reports, and other public material that we triangulated with the academic research

reports. After this initial phase of data collection, we pulled together all available public

material produced by Nokia. This material included the full series of annual reports, CEO

letters, and company internal magazines.

After having a solid collection of publicly available material, we entered in the

second phase of our data collection. We obtained limited access to the Nokia archives, and

received material from private archives. This archival material board meeting protocols and

memos, correspondence between corporate headquarters and business units, circular letters,

strategic planning documents, market analyses, and other materials from the corporate

archives. To complement our archival and public data, we interviewed 27 former Nokia

executives and experts from the telecommunication industry. Among our informants were

five former members of the executive board, 10 executives and vice-presidents from

corporate headquarters, five middle managers who had worked in important positions during

the Symbian era, and seven experts who had consulted or worked with Nokia in software and

application development. The interviews were semi-structured, from 60 to 180 minutes long.

The transcribed interviews were shared among the research group and analyzed inductively.

We started our analysis phase by writing a synthesis of Nokia’s history in

conjunction with the larger societal and market development. At the same time, we built a

chronological database of Nokia’s historical development focusing on key strategic decisions,

changes in the top management team, and changes in the corporate structure. In the secondary

phase of analysis, we mapped the evolution of Nokia’s technology development. In this work,

we held a workshop in which all members of the research team analyzed the same data by
reading the material, taking photographs, and photocopies of individual documents, and

finally drawing figures and system descriptions that resulted in an explicit understanding of

the characteristics of technology evolution across time periods and sub-units. We then

focused on the rhetoric and textual representations of technology related strategic decisions

by collecting key documents and interview transcripts that included explicit statements

relative to our framework. Finally, again in the context of a specific workshop, we

summarized our findings and insights in the form of a graphical illustration of the whole

failure process. The model was then used in our theoretical work, and produced a series of

descriptive observations and prescriptive statements that are potentially useful in future

studies and managerial practice.

ANALYSIS

Process #1: Market Dynamics

The emergence of the global smartphone industry can be described both as a market

disruption and as a convergence-based evolution. Smartphone was a new generation device

with built-in Internet access and applications provided considerably improved user

experience compared with regular cellular phones by converging early PDAs, Internet

services and cellular mobile phones. The technological disruption and the emergence of new

strong market players caused severe problems for Nokia – the smartphone market that had

originally been dominated by Nokia’s Symbian devices was taken over by Apple and

Android, relegating Nokia to the position of follower. What is more, other external factors,

such as cooperation with network operators and other ecosystem partners, were important

elements shaping the competitive situation.

Mobile communications market disruption in 2007 followed the textbook market

disruption pattern – the original Apple iPhone, launched in 2007, was technologically inferior
to many of the devices in the market. With a focused and fast-paced product development it

took only a few years for a new generation smartphones to become a dominant technology.

Nokia, which had innovations and technologies way ahead of its time, was unable to leverage

its first-mover advantage:

Originally all these inventions that relate to smartphone as far as the data transmission technology is
concerned, they were done […] in Tampere [location of Nokia R&D unit]. Also Apple and Samsung
have a lot to thank to the work that the people in Tampere did. (Ex-Nokian Executive)

During the late 1990s and the early 2000s Nokia enjoyed by far the most cost-efficient and

fastest time-to-market production system of mobile devices. Broad cooperation with Nokia’s

R&D centers, universities and research institutions mainly in Finland, Texas and Japan

contributed to the successful diversification strategy that led to extensive market penetration

in in both developed and developing target markets.

The shift in the industry happened when software became the dominant element of the

mobile device. In the 1990s and the early 2000s the hardware designs were evolving rapidly

and Nokia was able to bring the most advanced phones with integrated FM radio, music

player, color display and camera to market. Around 2005 downloadable content became more

important, although at the time it only meant customized ringtones and screen savers.

However, those developments also marked the shift in consumer preferences and paved a

way to the rise of customized software content, and applications. Thus, as good as the

hardware designs were, they lost their functionality if not coupled with attractive software.

There was a revolutionary power of the iPhone because it turned the picture upside down, that people
were willing to accept different type of devices and different type of thinking from computer maker, from
an IT vendor like Apple, than they were willing to accept from a trusted, reliable, sometimes boring
handset maker, such as Nokia. (Ex-Nokia Executive)

The original iPhone was technologically inferior to Nokia devices that were already in the

market – it did not have 3G, it only had a very poor camera, and a short battery life. The sales

of iPhone in 2007-2008 were not nearly as good as with Nokia devices:

[…] at Nokia when we were seeing this competitor coming to the market, people understood that this is
going to be the future, but then they were seeing the sales figures for the first year and they were thinking
 that “we have the right strategy – we are selling hundreds of millions and they are selling peanuts”. (Ex-
Nokia Executive)

The business that Nokia was involved in with Symbian phones being sold all over the world

and being extremely popular and profitable in emerging markets overshadowed the rising

problems in the high-end sector. Although it was apparent that technological convergence

was already occurring, the outstanding sales numbers created the impression that Nokia was

“too big to fail” and still at the forefront of current mobile trends:

And this was exactly what happened in Nokia that we knew exactly that Internet will be the dominating
platform and that services will drive the business. We had a lot of understanding on how it would
happen, but the businesses as they were, were so lucrative in that particular time that it didn't leave space
to sufficient strong investment in the Internet space. That would have led to real success in the same way
as Android and iOS were able to do that. (Ex-Nokia Executive)

Android rapidly became the low-cost operating system in the smartphone market and could

offer the same, if not better, features as Symbian for a much lower price. At the high-end

segment, Apple’s iOS gained market share and it became extremely hard for Nokia to choose

a correct market position. Though Nokia was enjoying sufficient sales in the low-end sector,

it was not willing to give up its position in the high-end market.

The real disruption of iPhone was caused by a new user experience. The iPhone

provided a package with high usability and customized content, which was later coupled with

fairly competitive hardware. Most importantly, the iPhone became an integral part of an

extensive ecosystem of applications and digital services that Apple and its network provided.

Nokia believed that coupling the devices with Symbian software would solve the most

burning compatibility issues. Symbian OS was not designed to support multiple devices or

provide a functional ecosystem, not to mention the binary break or lack of backward-

compatibility which were obstacles to cross-platform applications or operating system

updates that users wanted. So coupling the device with outdated software was just one part of

a bigger problem.

Another issue appeared with the rise of downloadable applications. As soon as Apple

introduced them to the mass market in 2007 and then brought in Android devices, they
became an instant hit among the consumers. With downloadable content it was not necessary

to specify the functionalities a phone should have – thousands of functionalities and

applications could be downloaded from app-stores. Apple had a strategy of launching one

product at a time, and therefore the company had fewer resources but a strong strategic focus,

whilst Nokia was still developing a great number of devices simultaneously. With the rise of

downloadable applications, Nokia’s traditional segmentation strategy with built-in apps

became wasteful and unattractive to customers.

For Apple and Google the external developer community was a great source of

innovation and resources. Applications developed worldwide could respond to consumer

needs in different markets. Nokia did not share the Symbian source code until 2010 and even

then not fully. Moreover, due to the legal procedures, delayed release dates and uncertainty of

the platform itself many developers preferred iOS or Android to Symbian.

[...] if you look at the successes of Supercell and Rovio [Finnish mobile game companies], they were all
based on the fact that they abandoned Symbian as a development platform and started to develop for
Apple and Android subsequently. (Industry expert)

Nokia’s symbiotic relationship with network operators was elemental in understanding its

position in the new competitive landscape. Historically, Nokia was heavily involved in

developing and building GSM, 3G and later on 4G networks in collaboration with the

operators. The Symbian ecosystem was thus driven by the manufacturer(s) and operators,

while the competing ecosystems (Apple and Android) were dominated by the application and

service providers. With the rise of the 3G standard the operators were in a dominant position

in the market. Nokia relied on operators as ecosystem partners yet network providers proved

unable to offer services and applications and therefore they lost their dominance in the

market.

Operators (e.g. AT&T, Verizon, T-Mobile, Vodafone) were in control of the device

market due to various certification and compliance procedures in Europe, USA, and other

markets. Therefore, the operators were the key channel to the consumers:
 [...] it mattered much more what type of a deal you had with the operator and the marketing force that the
operator had than it matters now. Now people mostly rely on second-hand information on the devices, or
they rely on the overall perception about certain devices much more than what they did in there [past]
[...] in the store you had much more opportunities to actually direct the consumer purchasing options than
you have today. (Ex-Nokia Executive)

The operators had had a significant impact of the perception and sales of a mobile phone

brand. They could select which features and applications to promote – driving consumer

preferences. However, this traditional logic changed when Apple entered the US market and

turned the power relations upside-down. Apple had an equitable brand and a highly desirable

product, appreciated by consumers.

[...] they [Apple] created such a demand that the operators were ready to destroy some of their
cornerstone parts of their customer relationship, which was for the first time in history of mobile – they
were willing to give a revenue share. And also Apple wasn’t greedy. (Industry expert)

However, this kind of strategic move probably would not have succeeded in Europe’s very

fragmented market with dozens of operators and national regulations in each country. In

contrast, the US market was more monolithic and Apple was able to reach outstanding sales

numbers and grow its ecosystem very quickly. Apple’s entry strategy was to select one

operator per country, and give it the exclusive rights to sell Apple devices. That created a

competitive advantage and a win-win situation for both the operator and Apple:

Apple iPhone was not fulfilling the requirements from the operators. So the functionality that Apple
offered was not according to technical specifications that the operators wanted. But they offered totally
different type of a user experience and that was the reason why operators, or AT&T especially, wanted to
give them an opportunity. (Industry expert)

There was such a hype around iPhone at the time when it was introduced to the market. So it's not just
technology, it's very much the question how do you introduce your products and services to the market
place and whether you can find an attractive solution and applications and revenue sharing agreements
with the key stakeholders. (Ex-Nokian Executive)

It is fair to say that Nokia saw key future trends, possessed the technological capability and

talent, and had the ambition and means to win even in the emerging smartphone market. The

important question for our analysis is why all this was not sufficiently taking into

consideration when Nokia had two or three years to respond to Apple’s and Google’s entries

to the smartphone market. In the following we offer an account of Nokia’s technological

capabilities and system as a partial answer.

Process #2: Technological Capabilities

The Symbian OS was the most successful and world leading mobile software platform in the

early years of the 21 st century. Due to the Symbian OS and its superior hardware Nokia was

able to introduce the best-performing smartphones and enjoy high market penetration in

many target markets. Symbian was one of the most successful mobile operating systems in

mobile history, reaching 70% of the global smartphone market in 2006. However, as

Symbian was created to comply with the telecom standards and not with modern Internet

protocols, Symbian software eventually became obsolete. With the rise of iOS and Android,

Symbian was quickly dethroned as the leading software platform, and Nokia was in desperate

need of a new software platform to answer to the increased competition. Nokia had two or

three years to accomplish this, and failed. We now focus on Nokia’s technology and

capability history as a potential explanation.

The development of Symbian software platform was perhaps the crucial technological

issue in the rise and fall of Nokia. Its development consisted of four interlinked features.

First, Nokia was locked to a strong path dependence with the Symbian software platform;

second, the Symbian software platform was not modular and thus not feasible for technology

and app developers; third, Nokia was a captive of its major telecom operator customers, and

thus, Nokia was not able to create its own ecosystem; and fourth, Nokia failed to develop an

attractive consumer interface on Symbian platform. We analyze each of these four features

below.

Symbian was an externally created operating system that was initially acquired by a

larger industry group that consisted of, among other firms, Samsung and Nokia. In its heyday

in the early 2000s, Symbian was the most advanced, efficient and power-saving mobile OS.

Thus, it quickly became the core element of Nokia’s R&D processes. This dependence was
strengthened in 2008 when Nokia acquired full ownership of Symbian Limited and initiated

plans to create an independent entity that would lead the development of the platform (Nokia

Corporation Annual report 2008).

They bought Psion <...> and Symbian Foundation was established after that. So at the time it looked like
a very wise move but you have to remember that the competition was basically calm. But yes, it was a
blessing and a curse, because it was already an old operating system. (Industry expert)

The good thing about the Symbian was that it used much less memory and resources than the other
operating systems. And due to selecting Symbian we were able to bring the smartphone to the market
place […]But I think that if we would have not selected Symbian, we would have not have even gotten
that far; we would have had much less knowledge on applications, software development kit, which
Symbian people were familiar with. They understood the market the same way as the corresponding
American companies.

Although Symbian OS was recourse-efficient, reliable and worked well with the early

smartphone devices and later with the devices for the developing markets, there were serious

impediments to Symbian’s success in the new competitive situation: limitations in creating

apps and the absence of an Apple-type app-store, the fragmented ecosystem, and poor user-

friendliness (zdnet.com, 2013). Moreover, before being acquired by Nokia, Symbian Limited

was licensed not only by Nokia but also by some other phone manufacturers and network

suppliers; and therefore had to comply with their regulations. Under the ownership of Nokia,

the Symbian ecosystem started to overcome most of these obstacles. However, changes took

too much time and efforts were not always as expected.

In the telecommunications industry, the modularity of the software platform became

crucial after smartphones with hundreds of applications emerged. Modularity enabled rivals –

especially firms making Android phones – to enter the markets quickly, undermining Nokia’s

production efficiency, distribution, and logistics. The central architectural problem with the

Symbian software was that it was not modular. Therefore the devices were tightly coupled

together with the specific release of each software version. The main difference between

Symbian and today’s most popular operating systems, such as Android or iOS, was that the

device development drove platform development – the product-specific software was in

many cases only compatible with that device. A built-in software upgrade function was not
available (the first Symbian Anna update of Symbian^3 was available only in 2011), as well

as developing and selling different parts of software. This way of organizing software

development was similarly reflected in Nokia’s organizational structure, which made

decision-making regarding key technological choices extremely complicated and slow, not to

mention resource-intensive.

Industry experts, ex-Nokians and developers interviewed for this research unanimously

agree that the biggest flaw of the Symbian OS was its fragmented architecture. Symbian was

never designed to support multiple devices or integrate different features at the same time,

which created intractable problems for the whole Nokia’s software development. Coupling

the software and device development may have led to perfectly tailored software for a certain

device, however by 2010 it proved to be inefficient and too resource-intensive. Tightly wired

and coupled development and matrix organizational structure led to a situation where no one

in the organization was able to speed up the development process independently:

Nokia wasn’t lacking the innovation, or the ideas, or even knowing what to do. It was just totally
incapable to deliver it – what it knew it was supposed to deliver. (Ex-Nokia Executive)

[…] it was very difficult to develop applications, generic applications for the Symbian platform. Because
there were so many product-specific releases and product-specific software that it was not at all sure that
when you developed an application it works across the whole Symbian product portfolio. (Software
developer)

From the developer perspective, developing applications on Symbian OS was not

substantially harder than on iOS or Android, for that matter. Nokia’s developer community

grew steadily until 2008 and involved some 8,500 developers, of which approximately 2,500

were independent subcontractors or developers (Research Institute of the Finnish Economy

2014). However, after 2008 the situation changed and as the more attractive open-source

systems became available Nokia was not able to maintain its developer community: device-

specific releases, uncertainty, and constant delays demolished the confidence of developers in

the Symbian OS.

 The developer problem partially explains yet another major reason why Symbian did

not prevail – Nokia failed to provide and nurture a functioning Symbian ecosystem. In the

telecommunications industry, the number of users determines the possibility of building a

credible ecosystem and, thus, the possibility to achieve network effects (Griva and Vettas

2011). Nokia’s early ecosystem-building attempts included close cooperation with network

operators. However, with the rise of the Internet-based services and ecosystems it became

apparent that operators were not able to provide that kind of service. Nokia and the operators

were constantly bickering over whose prerogative it was to create online stores, applications

and downloadable content:

The only difference what Steve Jobs understood is that neither Nokia, nor operators understand software.
Nokia was pretending, all the operators were pretending. All the operator’s CEOs were calling to Ollila
or Kallasvuo that “Nokia, do not do a product which has an application store” […] Typical
telecommunication ecosystem behavior in which operator is the king. And operator pretends to be a king
on things it does not understand either. (Ex-Nokian Executive)

As the industry dynamics changed after the iPhone revolution, the power of the

network operators plummeted. Downloadable applications and content for Nokia’s Symbian,

MeeGo and Series40 mobile devices became available at the Nokia Store. In March 2012, the

store offered more than 100,000 applications and was attracting more than 13 million

downloads a day (Nokia Annual Report 2011) as opposed to millions of applications in iOS

app store or Google Play store and billions of download count. Nokia’s clearly had lost the

app game.

Nokia’s management realized the value of downloadable content. The main obstacle to

generating more user content was that Symbian OS was not an open-source system requiring

loads of legal procedures for external developers to bring their apps to the market. In 2009

Nokia established the Symbian Foundation to make the platform open source and royalty-

free4 and shortly after that the Symbian OS became fully open source. However, complicated

4 http:/ / licensing.symbian.org/ [Retrieved 1.2.2014]

coding, lack of success stories and the blurry future of the Symbian OS in general made the

platform unappealing to the developer community.

Symbian ecosystem was driven by the manufacturers and the operators. While the other ecosystems
which then emerged were dominated by the applications and the service developers. That was the
fundamental difference. (Ex-Nokian Executive)

The end of the Symbian era came in February 11, 2011 when Nokia announced joining

forces with Microsoft and making Windows Phone its primary smartphone platform.

However, Nokia still continued to leverage its investments to Symbian and shipped the last

Symbian device in the summer of 2013. In 2011 Nokia outsourced the development of

Symbian to the management consulting company Accenture which was supposed to maintain

the OS until 2016 (www.pcworld.com, 2013).

Nokia’s dethronement and the downward spiral with Symbian are interesting as Nokia

had been a model for technology companies in terms of process optimization and product

cost management. For many years Nokia enjoyed extraordinary hardware designs, optimized

production, and superb logistics. Nokia still holds most of its patents in handsets and devices,

2G, 3G, and LTE networks. Nokia was in many ways ahead of its time – Symbian phones

were the first attempts to create a smartphone segment and Nokia had touch-screen phones or

tablets in its product portfolio long before its competitors did.

Nokia’s first touch-screen phone model 7710 was released in the fall of 2004. It was

clearly a prototype of today’s smartphones, while never reaching the mass market. The

device had many flaws in technological performance but it was also a signal of Nokia’s

technological capabilities to create new products – even product segments.

It was big, it was ugly and you tried to speak with it with the tilted way [laughs]. I would say that it
wasn’t about the touch UI. The touch UI wasn’t the problem and again I say that Nokia’s strength was
hardware design and the modeling of the phones. And that particular model [7710] was just disastrous, in
that way that it just didn’t appeal to the mass market. (Developer)

Nokia’s top management and technology specialists saw the challenges with Symbian

and the new ecosystem-based competition logic with early on. All the time there were

multiple options for a new technology strategy. One option that was widely discussed in the
media was whether Nokia should have taken the open-source Android operating system to

use and dismissed the ongoing development with Symbian – and in the end, not to have allied

with Microsoft at all. If Android had been selected, Nokia may have become the quality

leader, better than Samsung or HTC or any other vendors using the same software. However,

the top management tried to avoid becoming a software-agnostic hardware vendor at all cost

and thus wanted to avoid the open-source option. In 2010 one of Nokia’s top managers, Anssi

Vanjoki, made it clear5 that choosing Android OS would have solved only short-term

problems and would have not provided any solution to the company’s long-term strategic

problems. Even with Android, Nokia would not have had a dominant operating system under

its control.

The Windows Phone platform developed by Microsoft was selected as a primary

smartphone platform for Nokia’s devices in 2011. The Windows Phone was made the

exclusive platform for Nokia’s devices for a term of three years. Although the decision was

controversial, many of our informants agreed that it was a logical choice.

[...] the only alternative was the old archenemy Microsoft that had to get a credible platform to go into
the market. It wasn’t the perfect decision but in many ways it was the only decision that they could do.
(Industry expert)

Although Microsoft did not have the outstanding market share in the mobile phone

market it did possess the software muscle to push the development forward. What is more,

Microsoft had a strong presence in the enterprise sector, in which Nokia tried to win back lost

corporate customers. Meltemi, Meego, and newly coded versions of Symbian were options

before the Elop regime but they never got enough support to break in commercial sense.

However, the picture of Nokia’s technology strategy from 2003 to 2011 is confusing as in the

beginning Symbian became an endogenous element in practically all high-end phone

development, and later when its inferiority in the new competitive setting was realized Nokia

5 http:/ / www.engadget.com/ 2010/ 09/ 21/ ce-oh-no-he-didnt-anssi-vanjoki-says-using-

android-is-like-pe/ [retrieved 24.9.2014]
launched a series of development processes (new versions of Symbian, Maemo, Meego,

Meltemi, Nokia X, other prototypes with Android, Microsoft etc.) each requiring attention

and other resources and resulting in even fierce internal competition ‘between factions’ as

one of our informants described the last years of mobile phone production in Nokia.

Process #3: Administr ation Unfreezed

A basic theoretical assumption that is supported by numerous empirical studies and case

histories is that organizations evolve through long periods of relative stability punctuated by

sudden shocks typically originating in new technologies, increasing competition, and/or

regulative changes. A core proposition is that these periods of change may catalyze important

changes in organizational strategy and culture yet simultaneously these periods are fatal for

many firms. What makes this empirically supported theoretical assumption important for our

analysis is that Nokia’s evolution and especially of its top management’s manipulation of this

evolution was contrary to these predictions.

Especially since the early 2000s, Nokia’s managerial culture emphasized flexibility and

internal competition as the key antecedents of its competitiveness. This was duly

communicated in literature close to Nokia’s interests (e.g. Doz and Kosonen 2008; Steinbock,

2003) and the public speeches given by the firm’s top management:

Being fast is significantly more important than foresighting of what happens in the market. This is our
key competitive advantage” (CEO Olli-Pekka Kallasvuo in Suomen Kuvalehti, 10/2006)

So, on all three key dimensions of strategic agility – strategic sensitivity, collective commitments and
resource fluidity – Ericsson was outmaneuvered by Nokia when it came to the mobile communication
opportunity. (Doz and Kosonen 2008:4)

When looking at the years from 2006 to 2010, the dominant picture is that – mildly put

– these ideas materialized in a near-hysterical corporate climate. As the preceding sections

demonstrated, during the first severe encounter with the new type of competitors, Nokia was

by no means consistent in its reactions, launching numerous projects and strategies to

counter-attack its emerging rivals. We now turn to two key aspects of organization as
esplanade for the erratic strategizing of the Nokia Corporation: top management team

dynamics and strategy and corporate structure.

In a flattering report in Fortune magazine in 2000, Nokia’s success was centrally linked

to its experienced and tightly coupled executive team (CEO Jorma Ollila’s ‘dream team’) that

had a shared history going back to the early 1990s (Fortune, 2000). By 2010 most of these

executives were long gone, the firm was unable to match its competitors’ offerings in the

market, and the confidence of the first years of the the 2000s had turned to a near-panic

within a corporation that was registering heavy quarterly losses. One perspective to this

process is to see Nokia’s evolution as a series of severe management interventions regarding

both strategy and structure. To start with, the competitive challenge by Apple and Google

was not the only or even the dominant worry in the corporate headquarters in 2006-2008.

Figur e 1: The number of employees 2000-2015 and timing of major changes in the
organizational structure and executive team

As Figure 1 reveals, Nokia was in the midst of turbulence even without any external threat:

the turnover of its executive team, the structural and demographic changes that the merger of
Nokia’s networks business with Siemens in 2006 (to create Nokia-Siemens Networks) had

brought, and a series of strategic and structural changes. Accordingly, Olli-Pekka Kallasvuo

took over from Jorma Ollila in highly demanding situation given that the attention of top

management team is a key resource for any company. The changes in the corporate

headquarters, the other challenges beyond mobile phone competition, and the conservative

mentality of Kallasvuo produced in three problems: inadequate technological capabilities in

the top management team, a strategy almost solely based on investor expectations, and

conservatism in the launching and implementation of competitive counter-moves towards

Apple and Google.

Characteristically, one of the first decisions in the Kallasvuo era was to dissolve the

Future Technologies team, which analyzed future technology trends and opportunities. At the

same time, the position of the Chief Technology Officer disappeared from the Executive

Board around 2007, when Pertti Korhonen left the executive team with the long-term CEO

Jorma Ollila (Ollila remained chairman of the board). The executive team was reorganized

and the CTO position was reestablished in 2010 under the new CEO Stephen Elop but the

previous literature (e.g. Salminen and Nykänen, 2014; Cord, 2014) and our informants are

unanimous on the impossibility of running a technology company without strong tech-

specific leadership:

[…]at the same time as the CEO changed, a lot of technical skills disappeared from the top management
and it became more and more business – people with the business background and with no technical
skills. […] there was not enough understanding in the top-management or the layer underneath what is
realistic and where the real problems are. They were living in the bubble and very focused on the new
strategy on doing the services, and totally ignored the devices. Because it was “we are no. 1 in the world
and we don’t need to care about it”. (Ex-Nokian Executive)

There is no need for the CEO to be an expert in software development or technology. Instead, she or he
must be passionate to learn the basic technological logics; and willing and capable to find the right
people for the right positions. Nokia was not able to find managers who would have built it as a software
company. Nokia was phlegmatic and powerless with Symbian […] when Pertti Korhonen left Nokia in
2006 the software-specific understanding of business in the top management team decreased
dramatically. (Ollila and Saukkomaa, 2013:p.458)
The conclusion is different from saying that Nokia lacked technological capabilities – which

it did not – yet Kallasvuo and his strategy officers (Salminen and Nykänen, 2014) had quite

different objectives. Nor was Jorma Ollila particularly interested in technological details 6 but

he had a top management team that had hands-on experience in research and development

and technology strategy.

The diminishing emphasis on technological capabilities in Kallasvuo’s regime is

understandable from the strategy process point of view. Salminen and Nykänen’s (2014) and

Cord’s (2014) books reveals that Nokia had a huge strategic planning team in the

headquarters, comprising hundreds of people and roles. This team, however, was not

empowered to challenge the corporate strategy or to help the TMT to renew its strategic

focus. On the contrary, the team was a part of Nokia’s efforts to match investor expectations.

This logic permeated the organization and its culture:

Nokia was a product company where all the targets are set to product making and when these software
development kits and third-party ecosystem and apps, they are a second priority. We were pretending that
they are the first priority, but in the actual action and the actual target setting for people and the actual
compensation systems, they were not the primary target – they were the secondary target. And that was
pretty much due to the target setting of Mr. Ollila. It was completely inadequate to attack the iPhone.
(Ex-Nokian Executive)

There was no finance, no budget to keep the software platform good, and it was not analyzed as an
important business component. […] I can explain that the core target setting was how many new products
a year – I mean hardware products, new model numbers. (Ex-Nokian Executive)

The emphasis on keeping investors happy created a chasm between the corporate

headquarters and the teams working with technology development. An engineer in the

Symbian development later described a total communication breakdown between

organizational layers:

[…] the Nokia leadership responsible for the Devices unit’s execution of Symbian Open Source products
and initiatives was told directly that the ecosystem (consisting of manufacturers and suppliers) and our
efforts would falter if we didn’t have commitments to 1) relocate and improve developer tools under our

6
An excerpt from the Fortune magazine article illustrates Ollila’s attitude towards technological details:
“Jorma Ollila is standing before a small group of analysts and investors at the Mark Hopkins Hotel in San
Francisco, failing to answer some increasingly arcane questions about technological developments in the
wireless industry.”You beat me with the technical details there," the CEO tells one interrogator. "I'm sorry, my
mind was wandering," he says as he asks another to repeat his question. Then Mark McKechnie, a wireless
industry analyst at Bank of America Securities, asks about something that actually matters to Ollila: Will Nokia
extend its market-share lead this year? " (Fortune 1.5.2000)
 open model, 2) to have an effective App Store strategy, e.g. not one homegrown by Nokia alone, and 3)
to secure our operating budget. We asked for their direct support on all three…The Foundation and our
ecosystem initiatives didn’t get any support for those initiatives, despite sitting down with the leadership
at the key moment. Quite the opposite, the rug was pulled out from under us at almost every turn.”
(Interview with Lee Williams, Forbes, September 3, 2013)

Jorma Ollila left the company at its peak in terms of sales, and market share. Even the

global competition was minimal, as Nokia was miles ahead of its closest rivals. In this

situation, when the mobile phone business seemed to be in good shape and the more

demanding problems in corporate strategy – considering the Siemens integration – Olli-Pekka

Kallasvuo was a suitable candidate: a business and finance expert, who spent most of his

career in managerial positions at Nokia Corporation. The decision to appoint Kallasvuo as a

CEO of Nokia has since been debated yet at the time the decision was based on what the

internal and external stakeholders required. Nokia was a listed company and from an investor

point of view radical decisions were not desirable; investors wanted sustained market share

and stable returns:

All the different things put together: the inner culture, the demand for continuity and stability internally
and externally, all those were playing the cards in a way that you were looking for a candidate that would
fit into that profile. […] he [Olli-Pekka Kallasvuo] didn’t have the vision. I think the best times for Nokia
were those times when Ollila was the CEO and Pekka Ala-Pietilä was supporting him. Pekka had the
brains and Jorma had the muscles to put it into the practice. (Ex-Nokian)

Why was Kallasvuo unable or unwilling to change Nokia’s technology strategy in order

to act more aggressively against Apple and Google? The stream of strategic decisions from

2006 to 2010 manifested a strategy that was essentially conservative, that over-emphasized

share market reactions, and that neglected crucial technological issues. A key element in this

conservatism that earlier observers have neglected was that Kallasvuo and his team needed to

invest considerable amount of their precious time and resources to make the merger with

Siemens and the acquisition of Navteq work; and Kallasvuo was unable to abandon his

inherent CFO mentality. The outcome of these factors was the neglect of a comprehensive

but focused technology strategy. The strategic objective was money and market share:
 Nokia said a “substantial” portion of savings was expected to materialise in the first two years. “These
changes are expected to result in a headcount adjustment over the next four years in the range of ten to
fifteen per cent from the initial combined base of about 60,000.”(Financial Times, June 19, 2006)

It was extremely difficult to bring in any innovations or new business opportunities that did not align
with the mainstream Nokia strategy – unless it was pushed down from the top management. The top line
– Symbian devices – were showing outstanding sales figures and any activities that might have
threatened the existence of the top-selling line were considered cautiously. (Ex-Nokia Executive)

An elemental part of the ‘Nokia agility’ was to react to market changes by

changing the organizational structure. The threat by Apple and Google in 2007-2013 was not

Nokia’s first competitive challenge. In 2003 company had several competitors, such as the

slim and appealing RAZR phone by Motorola or by cheap component producers in Asia,

which resulted in a drop of market share from 35.8% in 2002 to 30% in 2004 (McCray et al.

2011). As a response, Nokia‘s top management, led by Jorma Ollila, restructured the

company and optimized its production process resulting in significantly reduced costs and

time-to-market, and also increased the spectrum of devices produced. The new decentralized

matrix structure brought about positive changes and helped to boost Nokia’s sales. In 2004,

Nokia’s Chairman and CEO Jorma Ollila said: “We are energized by our reorganization into

four business groups, which better reflect our strategy to expand mobile voice, drive

consumer mobile multimedia and mobilize enterprise solutions” (Nokia press release, 2004).

Accordingly, combined with the requirements that the Siemens merger and Navteq

acquisition brought about, it was logical that Kallasvuo’s response was to engage in another

round of major organizational change and restructuring. This time, however, the changes

degraded Nokia’s competitiveness and resulted in the fatal slowness in Nokia’s counter-

moves against the new competitive threats in the smartphone market.

The first problem in Nokia’s habitual use of organizational restructuring as a

way to change or implement a novel strategy was the high frequency of such changes.

Between 2000 and 2013 Nokia launched three bigger changes in its organizational structure

and practically every year some major adjustments. As a consequence, the importance of

informal organization grew exponentially as routine development ground to a halt and was
manipulated by top management. In some sense, the more hierarchical organization structure

from the 1990s continued through the organizational changes but without centralized power:

[…] we decided to become a global company that would be open to those new ideas and therefore we
introduced this matrix organization. But in practice it became very difficult to implement. Because
people tend to think still in terms of hierarchy, they tend to think in terms on silos and in their own terms
and agendas and it’s difficult. It fights against some of the basic things how people behave. (Ex-Nokian
Executive)

I would say that [organizational structure – SL] wouldn’t have been a problem if there would have been
enough coordination between the different business units. So there was no sufficiently strong
technological leadership in a context where the different business units were driving into different
directions. (Ex-Nokian Executive)

Another problem in the way in which Nokia’s top management redesigned the

organizational structure was that the matrix organization consisted of a changing number of

business units (e.g. Mobile Phones, Multimedia, Networks ja Enterprise Solutions in the 2004

corporate architecture) on the one hand and horizontal units linking and serving functional

units on the other. While the core rationale behind this decision may have been sound and in

line with Nokia’s agile image, the result was the emergence of two serious functional

problems: a cannibalistic internal competition between business units and development

projects, and a highly complex decision-making environment sensitive to politicking.

Internal competition was hard-wired into Nokia’s organizational culture. Nokia

typically nurtured dozens of competing product programs and focused on product-specific

software designs and a wide diversification of market segments. This policy created tensions

between functional and development project managers, scattered authority and blurred

responsibilities. This appears not only in management, but also in execution where employees

ended up with more than one functional supervisor and became frustrated with reporting and

fulfilling other heterogeneous requirements that did not serve their core responsibilities. What

is more, the matrix generated some new working practices, the formation of virtual teams and

increased tele-work, the creation of decision-making teams based on a concrete problem and

of project teams in a temporary, ad hoc fashion. However, the scattered and ambiguous chain

of command required more meetings and internal bargaining which, in turn, resulted in
considerably longer procedures for any minor decision. Finally, the matrix only aggravated

the fragmentation of Symbian development as different organizational units started to

concentrate on certain defined characteristics for the Symbian operating system. This meant

that different product development programs needed additional adjusted software which

resulted in product-specific software releases coupled with certain devices:

Having 3 business units made no sense. They all made the same stuff and that just increased internal
competition […] And the other thing was that the technical skill was so low that the top management
couldn’t specify any technical criteria how the Enterprise product or the Multimedia product would be
different. There were no technical guidelines to the Research and Development people due to the laziness
of the top management and not understanding even products themselves. (Ex-Nokian Executive)

Nokia's problem was that Nokia had three competing factions inside the company: MeeGo faction,
Symbian faction and Series 40 faction. And all these other factions they tried to harm the MeeGo faction.
Because you don't want even your internal competitor to survive, your objective is to kill them. And it’s
also that these low-level managers or medium-level managers were left to do is that the management
didn’t understand anything about the software[…] So MeeGo failure is completely in-house politics
because they were not allowed to put the telephone in. They were not allowed to put the chip that had the
telephone into the product. (Ex-Nokian Executive)

Internal competition was intensified by the aggressive incentive scheme for managers

and the constant changes in corporate structure. What is more, the complex organizational

architecture resulted in an increasingly slow and difficult decision-making environment. The

earlier agility of the corporation slowed down. Although Nokia’s top management was aware

of the competitive threats it faced, there were not many opportunities to make major strategic

interventions without risking even more organizational dysfunction. Furthermore, the

employees of Nokia were already frustrated with the organization and its dysfunctional

horizontal decision making. The reasons for that lay in the scattered and unclear chain of

command when the organization removed some levels of hierarchy. Some employees felt

they had no influence over important decisions or vice versa – some less significant matters

were over-influenced and negotiations on petty details consumed too much effort. Forming

cross-functional project teams was a productive way of moving forward, but only as long as it

was supervised by a strong chain of command. At Nokia, the lack of technological

capabilities in the top management team, the complex and unclear organizational structure,
and the culture of internal competition resulted in slow and inefficient decision-making and

finally in the inability to catch up with the competitors’ novel offerings. Nokia had sown the

seeds of its own destruction.

Because of the structure, all the product projects developing some device they were always dependent on
some other program or platform. They were not able to develop anything by themselves. (Ex-Nokian
Executive)

DISCUSSION: WHY THE UNHAPPENED DID NOT HAPPENED?

As our preceding historical analysis demonstrates, Nokia had a two- or three-year window of

opportunity to defeat Apple and Google in the mobile phone market and the excess

technological capabilities to create one product and the ecosystem to match its competitors’

offering. Evidently, Nokia failed to use its resources in a timely manner. The reasons for this

failure originate in the organizational architecture and strategy of Nokia and its top

management. Figure xxx depicts this failure process and the mechanisms resulting in the end

of one competitive era.

FIGURE 2: Process model of Nokia’s failure to stay competitive in the global mobile phone
business

A central conclusion of our historical study and theorizing is that Nokia Corporation,

operating in a rapidly maturing global mobile phones market, tried to make itself more agile

through continuous large adjustments to its corporate structure. At the same time, a growing

and highly competed smartphone segment was created. During our period of analysis, this

meant adopting a complex matrix structure in which, however, the business units were

competing internally against each other. In other words, these functional units did not fulfill

the traditional criteria of an independent business unit (i.e. own distinct business with its own

goals, and independence in management). Moreover, the larger and more complex

organization (after the Siemens merger, the number of Nokia employees practically doubled)

did not have a clear chain of command and responsibilities in some key areas became blurred.

It was also not easy to see who would be the ‘owner’ of all the organizational changes that

were continuously implemented.

At the same time, paradoxically, Nokia’s originally entrepreneurial culture had evolved

into a machine bureaucracy, in which all organizational processes and procedures were

explicitly defined and monitored. All this resulted in slow decision making and

implementation during the Kallasvuo regime. In retrospect, it is easy to say that Kallasvuo’s

structural rearrangements went seriously wrong, especially in re-creating the complicated

matrix structure. However, the evolution had started during the Ollila regime. All in all, when

the failed organizational arrangements were coupled with weak strategic leadership and

technological incompetence of its top management team, Nokia lost its grip on the mobile

phones business surprisingly quickly. In business history, we can think of very few other

cases in which such an overwhelmingly dominant market leader was dethroned so quickly

and forcefully by new competitors (comp. Langlois 1992; Christensen 1993). It seems that all

of Nokia’s major strategic moves towards the end of our period of analysis (most importantly
its organizational restructuring to a global matrix, and the inability to focus on some

technology able to create the ‘iPhone’ killer) just made the situation worse and aggravated the

company’s plight. Finally, the decision to sell the mobile phones business – Nokia’s legacy

business -- to Microsoft in 2013 for a relatively good price in a situation in which the

business had been in the red for quite a while seems to have been the only logical strategic

choice.
APPENDIX 1: Timeline of the events in Nokia Cor poration and the mobile
communications industr y

Year Nokia Corporation Industry

2000-2001 Nokia 9210 Communicator – best-selling PDA iTunes released

First network operators in South Korea and the USA adopt 3G

2002 Nokia 7650 – first smartphone with Symbian OS (S60)
standard

Motorola Razr
2003 N-Gage gaming phone (S60)
BlackBerry convergent smartphone

Matrix reorganization
2004
Nokia 7710 – first touch-screen smartphone

2005 Internet tablet 770 (Maemo) Google acquired Android Inc.

Olli-Pekka Kallasvuo appointed as CEO

CTO position discontinued
2006 46 new device models in a year
Nokia Content Discoverer
Nokia Music Recommenders

Nokia N95 – Symbian OS (S60) First generation iPhone

2007 Nokia Siemens Networks (merger) Google announced Open Handset Alliance (initiated plans to
develop Android OS)

Nokia acquired Trolltech (Qt framework)

N-Gage purchase/download store
Symbian Foundation iPhone 3G
2008 Symbian^1 HTC Dream – first Android powered phone
Nokia acquired NAVTEQ (location-based services & Android market launched (later Google Play Store)
maps)
OVI store

iPhone 3GS
LTE standard (4G) deployed in Europe
2009
Samsung, LG, Sony Ericsson, HTC, Motorola, Huawei
manufacturers deploy Android OS

Symbian becomes open-source

Apple iPad
MeeGo officially announced
USA shift to LTE networks (4G)
Symbian^3
2010 Samsung Galaxy S
Nokia N8
Nexus smartphones and tablets (Google) iPhone 4
Stephen Elop appointed as CEO
Anssi Vanjoki leaves Nokia

Burning platform memo

Windows Phone made primary platform
Smart Devices and Mobile Phones separated
OVI services discontinued
Symbian upgrades released (Symbian Anna, Nokia Belle) 39% of all the devices sold were powered by the Android OS
2011 Nokia N9 – first and only MeeGo smartphone Samsung Galaxy S II
Symbian software and development outsourced to Samsung Galaxy Note “phablet”
Accenture
Lumia 800, Lumia 710
Meltemi OS introduced

Lumia 900 for the US market iPhone 5

2012
Meltemi development stopped by top management Samsung Galaxy S III

2013 Handset business sale to Microsoft announced Samsung Galaxy S4

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 Nokia and the Adaptive Cycle of Change
Arne Beentjes
Universiteit van Amsterdam

Keywords. Nokia, adaptive cycle of change

Introduction

The first mobile phone I ever laid eyes on was the Nokia 3310. At that time (somewhere
around 2002) Nokia was, in my eyes, the only manufacturer of mobile devices. Also in
the beginning of time of the smartphones, Nokia was a market leader. I remember saying
to a friend: “Wow! Nokia must be the biggest company in the world” (I was very young
at that time). Yet today, you rarely see a Nokia smartphone. This is a great opportunity
to dig into the history of Nokia in the past decennium and see where they made good and
bad choices when it comes to their mobile phones. This paper describes the last 10 years
of the Nokia mobile phones in the terms of the Adaptive Cycle of Change through the
eyes of (a) consumer.

1. Equilibrium

When Nokia launched the Nokia 1100 handset in 2003 it was both the best-selling mobile
phone of all time as well as the best-selling consumer electronic product [1]. Nokia
created small, robust and cheap devices; catchy because of the simplicity. At this stage
there were a lot of companies developing mobile phones (LG, Motorola, Ericsson) so the
competition was high. Because of the fast growth of technology Nokia knew, even
though in a state of equilibrium, that they had to move forward. Staying with simple cell
phones would lead to a decrease in market value. They focused on changing the look of
cell phones and penetrated the smartphone market. In the first years of the smartphone
era Nokia was by far the biggest smartphone vendor [2] but this state of equilibrium
changed because of the fast growing competition.

2. Crisis

Because of the big competition in the cell- and smartphone market Nokia was trying all
kinds of new developments. This change of state is marked by the shift from quadrant 1
to 2, the state of crisis.
The first action taken place in this state were the unusual forms of the cell phones.
This failed to excite the market completely. They also tried to combine gaming with the
use of cell- and smartphones. This also failed because of the high competition (mainly
due to Gameboy) [3].
After these attempts there were 2 other major events which changed the market
position of Nokia completely; the introduction of the iPhone in 2007 and the rise of the
Samsung smartphones [4]. Nokia saw a fast rising of competitors mainly because of the
operation system they used on their smartphone (cellphones were almost entirely swiped
from the market by smartphones by now). Because of the lack of the operation system
Nokia uses, they established a Windows Phone partnership. This would be the new
combination to bridge the gap between Nokia and Apple and Samsung.

3. New Combinations

The partnership with Windows Phone backfired on Nokia. After the partnership
announcement in 2011 Nokia’s share price fell about 14% [5]. While being the world’s
largest smartphone vendor in the beginning of 2011 they fell to a tenth position in 2 years
[6]. So what was planned as the ultimate new combination turned out to be a mistake
which brought Nokia back (well actually kept Nokia) into the state of crisis.

4. End of Nokia’s Mobile Devices

In September 2013 Microsoft announced that it would acquire Nokia’s mobile device
business which is the end of the Nokia mobile devices [7]. In terms of the adaptive cycle
you could see this as a new combination or as the end of Nokia. I personally consider
this as the end of the Nokia mobile device business.

5. Reflection

You can see clearly in the above description that Nokia failed to create a positive
situation in the state of crisis. They have tried it with many different options but the
competition was too much at the end. Eventually it led to a complete take-over of Nokia’s
mobile device business. While Nokia was the market leader in the mobile device business
they are almost completely vanished within a timeframe of 3 years.
This short case description shows the importance of the second and third stage of
the adaptive cycle of change. If you are unable to create a positive situation in the state
of crisis your business is bound to fail.

6. Notes

In the case of Nokia there are a lot of different factors which has led them to this position.
This case description is written through the eyes of the consumer. A full case description
of the last 10 years of Nokia could have the size of a master thesis.

References

[1] Virki, Tarmo (5 March 2007). "Nokia's cheap phone tops electronics chart". Reuters. Retrieved 14 May
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[2] "Gartner Says Worldwide Smartphone Sales Reached Its Lowest Growth Rate With 3.7 Per Cent Increase
in Fourth Quarter of 2008". Gartner. 11 March 2009. Retrieved 3 September 2013.
[3] Saylor, Michael (2012). The Mobile Wave: How Mobile Intelligence Will Change Everything. Perseus
Books/Vanguard Press. p. 304.
[4] "Gartner Says Worldwide Smartphone Sales Reached Its Lowest Growth Rate With 3.7 Per Cent Increase
in Fourth Quarter of 2008". Gartner. 11 March 2009. Retrieved 3 September 2013.
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Bloomberg.
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The Verge. Vox Media. Retrieved 3 September 2013.
Portland State University
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Nokia Phones: From a Total Success to a Total

Fiasco
Ahmed Alibage
Portland State University

Charles Weber
Portland State University, [email protected]

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Citation Details
A. Alibage and C. Weber, "Nokia Phones: From a Total Success to a Total Fiasco: A Study on Why Nokia
Eventually Failed to Connect People, and an Analysis of What the New Home of Nokia Phones Must Do to
Succeed," 2018 Portland International Conference on Management of Engineering and Technology
(PICMET), Honolulu, HI, 2018, pp. 1-15.

This Article is brought to you for free and open access. It has been accepted for inclusion in Engineering and
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 2018 Proceedings of PICMET '18: Technology Management for Interconnected World

Nokia Phones: From a Total Success to a Total Fiasco

A Study on Why Nokia Eventually Failed to Connect People, and an Analysis of
What the New Home of Nokia Phones Must Do to Succeed

Ahmed Alibage, Charles Weber

Dept. of Engineering and Technology Management, Portland State University, Portland, Oregon, USA

Abstract—This research intensively reviews and analyzes the management made various strategic changes to take the
strategic management of technology at Nokia Corporation. Using company back into its leading position, or at least into a
traditional narrative literature review and secondary sources, we position that compensates or reduces the losses incurred since
reviewed and analyzed the historical transformation of Nokia’s then. These strategic changes included the replacement of the
core business, leadership strategies, business architecture, R&D
policy, innovation strategy, product lunch, and smartphones
CEO in 2010 to deploy new strategies. Nonetheless, Nokia’s
recognition and demonstration. We identified various strategic deterioration was consistent, year after year [3, 4, 6, 7].
gaps that the previous analytical studies seemingly have missed to According to [3], Nokia’s market capitalization dropped from
identify and generalize. Therefore, we add to the literature a 110 to 15 billion euros in 2012, which led the company to close
bundle of the lessons learned that chronologically explain how various factories and R&D facilities, in addition to laying off
Nokia failed to create and sustain competitive advantages, many of its employees. Further, in September 2013, Microsoft
particularly in the smartphone market. We concluded that the officially announced the purchase of Nokia’s business unit of
problem at Nokia was not the lack of innovation, but rather, it devices and services for 3.79 billion euros [3, 4] and patent
was the lack of a precise technology forecasting, and license for 1.65 billion euros [8]. However, Microsoft as well
misunderstanding that the needs in smartphone market were not
just about demonstrating a mobile phone that makes calls, texts
couldn’t make any success in the space of smartphone market,
and connects to the web, but also the platform that operates all and later in May 2016, the feature phone assets were sold to
these functions together. Since Nokia’s brand name is recently FIH Mobile Ltd., a subsidiary of Taiwanese firm Foxconn
back in the market through a newly licensed firm (HMD Global), Technology and a newly-established firm HMD Global for
we further discuss how likely the new Nokia’s smartphones will $350 million [9, 10]. To this end, this research aims to answer
possibly compete and plausibly succeed in a very well-established the following questions;
market.
1. What are the strategic gaps at Nokia Corporation that
I. INTRODUCTION led to its collapse, particularly in the smartphone
market, despite it was one of the world’s great corporate
Peter Drucker urges that the mission statement of any success stories?
business is what defines the starting point of its strategies and
plans [1]. The mission statement of Nokia was simple and 2. How likely is the new home of Nokia phones, namely
straightforward; “Connecting People” [2, p. 10]. Nokia was (HMD Global) would succeed in the smartphone
focused on building its brand worldwide and achieving the market?
credibility and market leading, which it once had. In 1994, the In this research, we intend to present that the story of a
company successfully made the shift from a Finnish company significantly successful business may end up in a total fiasco,
to a global payer and became during the 1990s and early 2000s particularly when the strategies and plans deviate from the
one of the world largest mobile phone firms in terms of business mission and objectives. The business eventually fails
volume, sales, market share and profit [3]. The introduction of regardless of how high its market share or how superior its
its first smartphone N95 and the Symbian OS in Spring 2007 leading position when the leadership fails to forecast the right
has fostered the company leading position proved by the jump time of the technology to market, and underestimates and/or
of its overall market share from 36% in 2006 to 38% in 2007 misunderstand the total capabilities of the rivals, the market
[4]. In fact, Nokia made another dominance, particularly in size and demand, the customer wants and needs, and the
smartphones industry with a market share of 70% in 2007 [3], industry eco-system. Although the failure of a company such as
leaving its competitor far behind. However, Nokia’s story of Nokia was too painful and extremely expensive yet, it can be
success started to fade away shortly after the introduction of the the perfect lessons learned to rethink the strategies for creating,
Apple iPhone in the third quarter of 2007 [4] and the achieving and sustain competitive advantages.
breakthrough Human-Computer Interaction HCI, which set the
standards for the user experience [3]. Although the overall II. RESEARCH METHODOLOGY
market share reached 39% in 2008 [4] yet, all the financial
figures of Nokia started to decline. For instance, net sales Our interest is to acquire a wider and deeper understanding
dropped by (-1%), operating profit by (-38%), and profit of why and how successful high-tech firms fail to create and
attributable to equity holders by (-45%) [5]. As a result, senior sustain competitive advantages. We choose Nokia as a
renowned story of success and a market leader for more than a

978-1-890843-37-3 ©2018 PICMET

decade, but eventually suffered a persistent declination until it However, Nokia’s success did not last longer than 2007, as the
has completely failed to compete in the smartphone market. company went through a journey of a persistent declination of
Therefore, we follow a historical posture in solving issues and its financial performance as illustrated in figure 1 below [4].
interpreting ambiguities by collecting evidences that produce a
comprehension of the processes, mechanisms, and outcomes.
Our goal is to conduct a rigorous examination of the relevant
data (desk-research or secondary sources) using traditional
narrative literature review to summarizes the available body of
literature and draws conclusions regarding the issue in
question. This type of literature review is used to provide a
comprehensive background for understanding the current
knowledge of the problem and highlighting the implications of
new research. We started gathering data from multiple sources
by looking for information regarding the social, economic and
industrial history of Nokia between the late of the 1970s and
the present. The information was gathered focusing on Nokia’s
history, including published academic research, magazine and Figure 1 - Key data of Nokia mobile phones business unit – Source [4]
journal articles, conferences preceding, as well as the firm’s
According to [16], Nokia’s collapse from the top of the
official history and annual reports. Moreover, we considered
smartphone pyramid is due to three factors; (1) less technical
the use of the available statistical data and logical reasoning to
capabilities compared with the rivals’ (e.g. Apple), (2) high
cope with the potential subjectivity of the qualitative analysis
level of complacency, and (3) failure of the leadership to see
of the previous studies. The review comprises Nokia’s
the upcoming disruption, particularly Apple’s iPhone. Another
successive leaderships and strategic changes, business
perspective views the factors to failure were; (1) the inability of
architecture, R&D policy, innovation strategy, products’ lunch,
the executives to grasp the market accurately, (2) deviation in
and smartphones’ recognition. In the final analysis, we
the business tactics, and (3) lack of teamwork [8]. However, to
employed multiple data sources to understand; (a) how Nokia
identify and define the gaps in Nokia’s previous strategies that
has transformed its business model and greatly succeeded
led to its disappearance from the mobile phone industry,
during the1990s and early 2000s, and (b) how its story of
multiple aspects will be discussed in the following sections.
success continued until it started to decline in 2008. Moreover,
our review and analysis extend to further our understanding of
how likely the new Nokia’s smartphones by the newly licensed IV. LEADERSHIP AND STRATEGIC CHANGES
firm (HMD Global) possibly compete and plausibly succeed in For around eleven years (1977-1988), Kari Kairamo was
a very well-established market. the CEO of Nokia. During his leadership, the company was
transforming from a conglomerate to an internationally large
III. COMPANY OVERVIEW multi-industry firm with an emphasis on telecommunication
devices [3], mainly network equipment and digital switches for
Nokia is Finnish multinational communications and IT
the telephone exchange [13]. This period has been considered
corporation, which was founded in 1865 by Fredrik Idestam
as the era of growth, represented by the remarkable joint
under the name of Nokia Katabolic [3, 13]. The company went
venture with Salora to develop the radio telephone company
through various changes over its history [6]. Its business model
Mobira Oy in 1979, followed by the acquisition of ten large
has been transformed from different industries; rubber, paper,
electronic and telecommunication companies [17]. As a result,
and cable company to mobile handsets and mobile
Nokia became the largest electronics company in Scandinavia,
telecommunication infrastructure [7, 13]. The most prominent
particularly after the introduction of the Mobira Senator in
change happened between 1990 and 1996 when a fruitful
1982, which was the first true mobile phone in box form with a
transformation of the business model has been made to save the
network standard of 1G [13]. Later in 1984, Nokia introduced
company from near bankruptcy and settled it on the path of
the Mobira Talkman, a portable car phone, which was featured
becoming one of the world’s great corporate success stories for
to be recharged from the car’s cigarette lighter socket, followed
more than a decade and a half [6]. According to [14], the
by the introduction of Nokia Mobira Cityman brick-form
success of Nokia during that time was achieved based on
mobile phones in 1987 [17]. Kairamo has always been cited as
various factors, namely; economic, cognitive, organizational,
the driving force behind Nokia’s rise. This process of shifting
and institutional. Furthermore, Nokia’s dominance viewed as it
and transforming the company to this type of industry was
was behavioral rather than structural [15]. In other words, it
considered very successful, yet it did not complete due to his
was based on factors such as culture and diversity, which
sudden death in 1988 [3]. However, Simo Vuoriletho
articulated in corporate accountability, and development of
succeeded him and led the company as a CEO till 1992.
shared values, management of human resources besides, the
Vuoriletho changed Nokia’s strategy from an aggressive buyer
strength and unique characteristics of its senior management. In
to a seller of the basic industrial units [18]. This was considered
addition, the R&D within Nokia was a crucial factor that
not strategic since all Nokia’s businesses were divested [19].
explains the development of new products and businesses [14].
This strategy left the company with internal and external U.S. company in that respect” [21, p. 12]. With his vision and
conflicts, particularly with the two main shareholders at that background, Kallasvuo was considered the right CEO to deal
time, the Union Bank and Kansallis Osake Pankki [3]. The with the financial markets and production optimization, but he
company then failed to turn around among the unrestrained was not a fit in managing the market changes and the
changes in the world between 1988 to 1991 [18]. innovation disruption [22]. This gap has reflected on his vision
towards the smartphones disruption, which obviously caused
In 1992, Jorma Ollila has appointed as the CEO and since
the downward spiral in the overall Nokia’s market share. In
then, the era of modern Nokia has begun [3]. Ollila led the era
fact, Nokia’s market share fell from 39% in 2009 to 28% by the
of the digital GSM expansion and refocused Nokia by the
end of 2010 [2] (see figures 1&2). Apparently, this was the
strategic choice for mobile technology and wireless business
reason that led to replacing Kallasvuo with Stephen Elop in
[7, 19]. Despite the process of restructuring at Nokia started at
2010, who was the first CEO from outside Nokia and was
the time when Vuoriletho was the CEO however, Ollila has
expected due to his capabilities as the former head of Microsoft
continued this phase [18], particularly during 1994-1995,
business division to be the best fit to turn around Nokia [3].
where the company witnessed a cultural change, namely the
Elop reformed the team of the executive board management
value-based leadership and management [3, 17]. Trust, loyalty,
and the company structure, splitting devices and services
and commitment were the key values within Nokia under
business units into separate smart devices and mobile phones
Ollila’s leadership, while employees enjoyed a freedom and
units [4]. However, the famous “Burning Platform” memo and
took responsibility [3, 20]. Ollila in fact geared Nokia’s
the metaphor he used to compare the company with the burning
strategy towards; “internal product development based on
oil platform considered a controversial choice of the statement
concentration of intangible assets in know-how, skilled people
[4]. Elop by that expressed his lack of trust in the company’s
and filling of critical patents, while operations were based on
core products, particularly the Symbian, and MeeGo platforms,
coherent and efficient process architecture, and strong customer
and therefore, he developed a strategic partnership with
orientation offering that was integrated with technical
Microsoft to adopt Windows Mobile OS instead [2, 3]. Elop’s
consumer-focused solutions” [3, p. 5]. Moreover, in 1994,
strategic intent was to gain a quick lead in the smartphone
Nokia 2110 DCT/GSM handset was brought to the market with
market and retain Nokia’s leading position in the low-end
(618,000) units sold [20], making the shift from a Finish
mobile phones. Obviously, Elop as well has failed to
company to a global payer [3]. Figure 2 illustrates the number
understand the users’ wants and needs in term of the platform
of mobile phones produced and sold per year for Nokia and its
that operates the products. Microsoft mobile OS was not the
rivals during 1990-2012, which reflects the upward streaming
right fit to compete with Apple’s iOS and Google Android. In
by Nokia starting in 1994. Ollila’s leadership led Nokia to be
fact, this strategy led the stock price of Nokia to be dropped by
the number one mobile phone manufacturer in the world by
62%, the mobile phone market share dropped by 50%, the
1998 [17] and continued in the lead until he left in 2006 [4].
smartphone market share dropped from 33% to 3%, and the
cumulative loss reached 4.9 billion euros [24]. The reflection of
Elop’s strategies can be clearly seen in the downward
performance as depicted in figure 3 below.

Figure 2 - Mobile phones produced per year – Source [3]

Olli-Pekka Kallasvuo who was Nokia’s CFO has succeeded

Ollila in 2006. He implemented another cultural change by
focusing on control due to the logistic crises and shifting the
ownership from traditional Finnish investors to international Figure 3 - Elop’s strategy – Source [23]
investors, and to American mutual funds with short-term profit
expectations as well as aggressive and active policies [3]. This V. LOGISTIC AND BUSINESS ARCHITECTURE
strategic change was Kallasvuo’s vision since he was the CFO To control the logistics and cope with the increasing
as he once said; “there is no way on earth this country demand on mobile phones, Nokia developed a strategy of
[Finland] could own Nokia. Even if every penny of every market segmentation based on the distinction among the
investor in Finland was put into Nokia stock, the Finnish could technologies, high-end and low-end markets, and entertainment
hold perhaps 25 percent of the company. So, we had to go to and mobile services [3]. This strategy, in fact, has augmented
the biggest capital market in the world and really become a the layers of the management (over 300 VPs and Senior VPs
globally) and built a complicated organizational structure that and software solutions [3]. Figure 5 shows the upward
has caused considerable delays in the decision-making streaming of Nokia’s number of patents filed during 1990-
processes [25]. With this excessive organizational complexity 2013, making the highest number of patents in 2008.
and bureaucracy, decisions regarding each product were taking Importantly, prior to 2008, Nokia has been collaborating much
months if not years to be made. Therefore, the responsiveness more through joint R&D, outsourcing, and standardization
to the rapid-changing mobile market has been significantly consortia, but has at the same time managed to develop and
affected [26]. According to [27], the greatest barriers to growth maintain a strong brand name and corporate identity [31]. At
are often caused by a dynamic called the “Growth Paradox”, the end of 2006, 31% of the employees worked in R&D,
which is the buildups of complexity and bureaucracy. This although largely in product development [24].
paradox caused for the case of Nokia; “the loss of the internal
metabolism, speed, self-awareness, sense of urgency, and
general bloat of staff instead of any outside factors they may
have missed” [27, p. 2].

VI. R&D STRATEGY

The major focus of the R&D within Nokia was on product
development, while the only minor portion was on basic
research [3]. During the 1990s, the R&D efforts were mostly
focused on the basic development of both mobile phones and
mobile data communications, however, the focus on product Figure 5 - Number of Patents at Nokia (1990-2013) – Adopted from [3]
development was incremental rather than radical [21]. Nokia
conducted most of the R&D in-house (i.e. Nokia Research VII. INNOVATION STRATEGY
Centre NRC), as well as in 44 international research centers
located in 12 countries [3, 21]. The NRC was closely Nokia is a technology-intensive firm therefore, it has
associated with schools in Finland as part of the open massively invested to the R&D as discussed before. This huge
innovation policy, represented by partnerships with the investment led to release dozens of mobile devices every year
Tampere University of Technology as the core partner besides, to meet the dynamic and rapid changing in the consumers’
Aalto and Oulu Universities [3]. In addition to partnerships preferences and desires for additional and more features and
with top American schools such as MIT and Stanford as well as settings, which required rigorous input and innovation [4].
Chinese schools such as BUPT and Tsinghua [3]. Nokia spent a Many people think that Nokia’s failure is rooted in the lack of
huge sum of its revenues and 10% of its sales on R&D [28, 29]. innovation however, this company had a great portfolio of
The majority of the NRC funding sourced from the business innovations and patents, explained in figure 5. For example, in
divisions and researchers were asked to explain what they were 2002, Nokia demonstrated a prototype of 3D user interface,
doing by getting buy-in from the technology users [21]. which means five years before its rivals brought it to the
According to the Bernstein Research [30], Nokia spent around market [25], while in 2004, it has demonstrated a smartphone
$3.9 billion in 2010 on developing its mobile phones, which is prototype with a large touch screen, or in other words, three
almost three times the average of its rivals spending, while years before the Apple iPhone was launched. Furthermore, the
third of the total spending on R&D for the same year went to leadership at Nokia was mindful of having a well-defined
the development of Symbian OS. Figure 4 below explains advanced technology and competitive advantages based on
Nokia’s spending on R&D from 1990-2012. high-tech products [3]. When the leadership team reflected on
Nokia’s innovation record in the 1990s, it was clear that
Nokia’s engineers had excelled at the technological innovations
needed to improve the existing product categories [21, p. 15].
The concept of the open innovation has been early and
effectively adopted [3, 31] as the company embedded its efforts
in both local and international innovation networks [31].
During 1997-2002, (i.e. the beginning of the third generation
(3G) of mobile telecommunications), or in other words, the
advent of the Universal Mobile Telecommunications Service
UMTS, Nokia was able to develop 48 agreements of strategic
alliance, as 25 of which were joint development agreements, 16
co-production contracts, 6 joint ventures and one
standardization consortium [31]. Furthermore, the company
Figure 4 – Nokia’s R&D spending in euros – Adopted from [3] adopted an ambidextrous approach to ensure both exploitation
Nokia’s spending on R&D has produced a remarkable list predominant and existing technologies as a significant and
of innovations that consist of a variety of products ranging ideally a cost-effective basis with high volumes in one hand,
from network components to handset features, digital camera and exploration by establishing a venturing fund on the other
hand [3]. In addition, Nokia adopted an acquisition strategy deterioration, which started in early 2008 and lasted until when
that led to acquiring more than 50 companies and/or businesses Nokia sold its mobile devices and services business in early
during 1997-2013 [32]. These acquisitions included advanced 2014.
technologies (e.g. Sega.com, Intellisync Corporation), product
1) Early Stage – Nokia’s Dominance
concepts (e.g. MetaCarta), access to content (e.g. music:
Since an early stage, Nokia strongly acknowledged that the
Loudeye Corporation; maps: Navteq). However, this strategy
development of smartphones and the software platforms were
was not very successful since many ideas, projects, and plans,
the new path for mobile communications industry [4]. In 2003
with few exceptions, did not materialize [3].
Nokia released its first smartphone based on Symbian OS v7.0
kernel software, the Nokia 6600, although its screen was a TFT
VIII. PRODUCT SEGMENTATION
“non-touch” [3]. Moreover, in 2004 the company introduced
One explanation how Nokia succeeded in becoming the Nokia 7710 (feature-packed multimedia smartphone with pen
choice for the majority of the users is the clear identification of input and handwriting recognition), as the first TFT resistive
the users’ segmentation and the development of distinctive touchscreen, Symbian OS powered smartphone, which might
value propositions to meet each segment’s wants and needs, be defined as the early prototype of today’s smartphones [40]
which was a strategy that has been adopted since the era of as shown in figure 7. However, according to various
Nokia’s Talkman and Cityman [33]. This strategy was technological defects, this smartphone was not made
developed to cope with the market expansion, portability, commercially available in the market [4]. According to [42], in
design, style, and services as shown in figure 6, which 2005, Nokia brought together some researchers from NRC and
illustrates the segmentation based on three generations; academia to brainstorm the future of sensor networks. Within
technology G1, lifestyle G2, and functionality G3 [34]. Nokia this brainstorming, the researchers discussed how the phone
launched a variety of mobile phones devices that have been could serve as a user interface and an entry for existing sensor
innovated to meet the strategy for market segmentation. In networks [42]. In fact, the category of smartphones as part of
2007 and 2008, a new segmentation structure was developed to the Nokia’s strategy regarding mobile phone business unit was
comprise 12 user categories strategized along two dimensions; officially announced in the 2005 annual report due to the
higher involvement-lower involvement, and rational- adaptation of various features and rapid evolvement of mobile
aspirational [35]. devices [43].
Table 1 in Appendix A lists all the feature phones series
and smartphones that Nokia has developed and released. This
outstanding list proves how various and innovative products
Nokia has delivered to the world [36]. Importantly, Nokia
released 406 different models during 1995-2013, making the
highest number in 2008 by releasing 47 different models,
followed by 44 in 2009, 28 in 2010, 36 in 2011, 30 in 2012,
and 25 in 2013. However, Nokia’s strategy represented by
launching so many products every year and the development of
this type of detailed segmentation have led to an
overabundance of product-market combinations, which has
been criticized as a lack of product focus, and a main reason
why Nokia couldn’t develop and release the one product that
would compete with its rivals’ [3].

IX. RECOGNITION OF SMARTPHONES

The question that often been asked is what makes a
smartphone is a smartphone? However, a smartphone is a
mobile phone that offers more advanced computing ability and
connectivity than a contemporary basic feature phone [37]. In
other words, a smartphone is a handheld device that integrates
mobile phone capabilities with the more common features of a
handheld computer or PDA [38]. A smartphone allows users to
store information, send and receive e-mails, install programs,
socialize and browse online, and along with using a mobile
phone in one device [39]. We will intensively discuss Nokia’s
recognition and demonstration of smartphones (both hardware
Figure 6 - Nokia mobile phones development – Adopted from [35]
and software) based on two stages. The early stage, or the stage
of Nokia’s dominance, which started in the early 2003 and
lasted until early 2008, and the disruption stage, or the stage of
 Figure 7 - Nokia 95 - Source [45]
Figure 6 - Nokia 7710 smartphone prototype in 2004 – Source [41]
2) Disruption Stage – Nokia’s Deterioration
The emergence of mobile phones new features, which In June 2007, Apple launched its first iPhone 3G [3, 4], to
meant that the new generation of the mobile phones would be make obvious differences in the technical specifications
capable of running computer’s applications such as email, web compared with Nokia N95’s [13]. The N95’s features such as
browsing and enterprise software in addition to the capabilities the small and non-touchscreen, complicated interface, slow
of having built-in features such as music players, video Symbian OS, non-user-friendly app customization compared to
recorders, mobile TV and other multimedia features [4]. In those of the iPhone have proved that the iPhone outperformed
2006, Nokia released 35 mobile phones [3] included the release [36]. Although the iPhone was criticized for the lack of 3G
of the traditional products; the 4-digit series, as well as the support and poor camera quality, however, its big touchscreen
release of both N and E-series [44]. During the same year, the and the iOS platform have caught the users’ imagination, and
market trends have marked the shift in Nokia’s strategy to therefore, it thoroughly shortened the time to compete and
diversify the activities of the company to further the focus on surpass [47]. Obviously, Nokia failed to recognize that the
consumer internet services, network solutions and the increase users were no longer interested in power, but instead in the ease
in professional and enterprise services [4]. In fact, 2006 of use [48]. However, by Q4 of 2007, Nokia’s market share
considered as a milestone for Nokia’s development in Asia, regarding smartphones was still the largest compared to Apple
particularly in China, where the annual sales and exports in this and other major players as shown in figure 9 below [49].
country reached more than 10 billion euros, marking China as
the largest market for Nokia globally [8].
The release of Nokia’s N-series (i.e. Nokia smartphones),
enabled the users to send and receive emails over multiple
networks, and enjoy the Universal Plug and Play, mobile TV,
music, photo sharing, and games, have all reflected the
convergence in the market strategies and product developments
[3]. In Spring 2007, Nokia released N95 (see figure 8) as an
early smartphone [46], which was equipped with an
accelerometer and GPS (i.e. Nokia maps) [3, 46]. The N95 was
a flagship smartphone that was developed to beat its rivals’ [4].
It was also a complete multimedia computer with a list of
functionalities that have never integrated before into a single,
pocket-sized device [47]. This version of Nokia’s smartphones
had a high-end rear and front-end camera for video calls, play Figure 8 – Q4, 2007 Smartphones Market - Adopted from [49]
audio and video and included business applications [3]. The threat of Apple’s iPhone and the release of the first
However, its operating system “Symbian” and Java Micro Google’s Android version 1.0 in 2008 forced Nokia to respond
Edition (JME) virtual machine rather limiting since they both strategically by introducing Nokia 5800 Xpress Music with
have been developed to use a limited portion of the memory Symbian OS and first touchscreen [13, 25]. Although around 8
and computational resources [46]. Two months later, Nokia million units of this model were sold [50] yet, this smartphone
global market share has jumped from 33% to 36%, while the did not manage to compete with the quality of the iPhone, since
smartphone market share reached around 70% [3]. A year later, it was designed based on Series 60 5th Edition, which was later
Nokia announced that more than 7 million units of this model criticized for its user interface as it was not optimized for a
were sold worldwide [47]. touchscreen and was nowhere comparable to Apple’s iPhone
[25]. As a result of this new failure, Nokia’s profit by Q3 of
2008 dropped by 30% and sales by 3.1% [13]. On the contrary,
iPhone’s sales increased steeply and quickly by around 330 %
during the same period [50]. However, Nokia continued to the best-selling smartphones in many countries as well as at
lunch new smartphones (e.g. N97 in 2009), which was Amazon.com [25]. Nonetheless, there is a debate about the
designed to take over the iPhone, but according to one of competitiveness of this model. In one hand, some reviewers
Nokia’s top managers, this smartphone was a total fiasco [16]. viewed this model as a high-quality build, good camera
Taking into the consideration that Nokia did not penetrate in features, and a top-notch suite of integrated apps [13]. In fact,
the North American market, even after the competition became Lumia 920 helped Nokia to become profitable during Q4 of
fierce with Apple [3]. Yet, Nokia’s battle continued, and hence, 2012 (+ 202 million euros) after six consecutive quarters of
an “iPhone Killer” and a flagship N8 powered by the improved huge losses [60]. It also helped to make a very slight increase
Symbian^3 [4] with AMOLED capacitive touchscreen [51] of the smartphone market share in Q2 of 2013 (see figure 10)
was introduced in Spring 2010. Nonetheless, 2010 witnessed [53]. On the other hand, users of this smartphone lost the
the introduction of two remarkable smartphones; iPhone 4 and interest due to many factors such as the lack of third-party
Samsung Galaxy S1[25]. In fact, the introduction of these applications support, the device weight and dimensions,
smartphones caused Nokia’s smartphones market share to overheating issue, battery life when using GPS or Maps, blurry
decline from 38% in 2009 to 27.6% by the end of 2010 [2, 52, captured images, slow picture taking, and difficulty to transfer
53] as shown in figure 10, while the mobile devices market video to YouTube, in addition to a relatively high price for
share as well has dropped from 34% in 2009 to 32% in 2010 such specifications [61]. In a short, Lumia 920 failed to
[4]. Nokia persistently struggled to release a smartphone that compete with the Apple’s iPhone and Samsung’s Galaxy [13].
either matches its rivals’ high-end smartphones (e.g. Apple, Therefore, Nokia’s sales by the end of 2013 dropped to more
Samsung, HTC) or competes with much cheaper manufacturers than half of its sales in 2012, making only 12.7 billion euros
such as ZTE or Huawei [52]. [58], and the company started to make losses again during the
entire 2013 [60]. In the 2013 annual report, Nokia justified the
In June 2011, Nokia introduced a new smartphone, N9 with
declination in smartphone’s net sales primarily to lower
an AMOLED capacitive touchscreen and powered by MeeGo
volumes, which affected by the competitive industry dynamics
1.2 [54, 55]. Yet, the operating system of this smartphone was
including the strong momentum of competing for smartphone
a hybrid that is mainly built on Harmattan, the legacy Maemo 6
platforms, in addition to the transitioning portfolio from
code base that Nokia closed when it committed to MeeGo 1.2.
Symbian products to Lumia products [62].
This means that the distinction will be little more than an
implementation detail as far as users and application developers X. SMARTPHONE’S OPERATING SYSTEMS
are concerned [56]. In fact, N9 was developed to be the only
Nokia’s MeeGo smartphone [25, 57]. However, in October The era of smartphones goes beyond just the product
2011, Nokia launched Lumia 800 and Lumia 710 to be innovation to significantly comprise the innovations of the
powered for the first time by Microsoft Windows Phone 7.5 operating systems OS that operating them [63]. In other words,
Mango [25, 57]. Nevertheless, these Lumia smartphones did to integrate both hardware and software in the making of one
not make any success, but instead, they have incurred Nokia successful product. Originally, Nokia’s phones were powered
more losses regarding its smartphone market share, which by Nokia’s OS, which lasted until 1998 when the company
dropped to 12.2% by the end of 2011 [53]. Not surprisingly, started the Symbian initiative; a platform launched by Psion, a
net sales dropped from 38.66 billion euros by the end of 2011 PDA-provider as an alternative to its branded OS [3]. Nokia
to 30.80 by the end of 2012 [58], while the market share fell has extensively exploited two options; first, to continue the
extremely to (2.9%) as shown in figure 10. development of its Symbian OS, and second, to develop a new
MeeGo capability before turning to Windows Phone OS in
2011 [4]. In this chapter, we will review the smartphones’
operating systems at Nokia; Symbian, MeeGo and Windows
Phones.
1) Symbian OS
As discussed before, Nokia approached the smartphones’
market since 2003 by introducing the Nokia 6600, but its N95
in 2007 was considered as the first real smartphone, powered
by Symbian OS and Java Micro Edition (JME), as both were
developed to use limited portion of the memory and
computational resources [46]. However, Nokia’s dominance of
the market till the end of 2007 was principally due to the
Symbian OS [3]. As listed in table 1 in Appendix A, most of
Nokia’s phones series (i.e. both featured phones and some
smartphone) were developed to be powered by Symbian OS.
Figure 9 - Nokia’s market share, Q1,2007 - Q2, 2013 - Reproduced from [53] Although the core strengths of the Symbian powered devices
Later in 2012, Nokia released Lumia 920 [59], which is characterized in its technological dominance, such as better
powered by Microsoft Windows Phone 8, and became one of camera, Bluetooth, 3G connectivity, and GPS features (Nokia’s
map) however, they did not offer such exciting user interface as
Apple’s iOS and Google’s Android have had [4]. Furthermore, open-source software platform, was announced in 2010 by
although Apple’s iOS and the Linux based Android open merging the Maemo team (renamed again in 2010 to be the
platform became major threats to Nokia’s Symbian since 2007 MeeGo team [3]) with Intel’s Moblin to jointly create the
[3] yet, the Symbian was the most popular smartphone OS on a MeeGo OS [3, 4]. According to 2011 annual report, the MeeGo
worldwide level until the end of 2010 [64]. According to [65], was expected to be a winning platform in the smartphone
the Symbian OS made a market share of (32.3%) by Q4, 2010, market and a direct competitor to Apple’s iOS and Google’s
followed by Android (30.5%) and Apple iOS came third with a Android [57]. While Nokia N9 was launched successfully to
global market share of (15.8%) as shown in figure 11 below. the market to be powered by the MeeGo OS for the first time as
a Nokia’s smartphone [57], which was considered as a peak of
MeeGo development [4] however, the eco-system around the
MeeGo platform never went beyond Nokia and Intel [3]. In
other words, the platform has not been supported, neither by
the hardware providers, nor the operators. The announcement
of Nokia’s new strategy in February 2011 and decision made to
choose Microsoft Windows Phone as the new operating system
for Nokia’s smartphones turned the MeeGo to be a project of
an open source mobile operating system, which in the long
term, would be used for market research on next-generation
devices, platforms, and user experiences [70]. Anyway, the
strategic partnership with Microsoft has ended Nokia’s
involvement in the MeeGo OS [3, 4, 25]. As mentioned before,
Nokia released only one MeeGo smartphone (i.e. N9) as an
Figure 10 – Smartphones’ OSs (Q4, 2010) - Reproduced from [65] outcome of two years of the platform development [70]. In fact,
Elop has made a clear decision that there is no returning to
However, the Symbian OS failed in creating an ecosystem MeeGo, even if N9 significantly succeeded [71]. Moreover,
and providing enough applications for its users, since its two aspects should be taken into the consideration; first, Nokia
developers did not understand that the basic functions were not did not launch the N9 in the United States [72, 73], which
enough in the growing smartphone market, adding to that the means that there was no chance for the MeeGo to be tested and
technical problems with the operating system, which was used in the North American market, and second, Nokia did not
slowed down the developers of the applications [2, 3, 4, 66]. release the market share that the MeeGo has made, and there is
The problem behind the failure of the Symbian OS urged to no clear information even about how many units have been
be the fragmentation of the software architecture [4]. In sold worldwide. Moreover, the development of the MeeGo has
addition, the Symbian in the early stage was written to run on been in parallel with the development of the Symbian, which
very low power CPUs, which led to even less processing power considered a highly resource consuming, especially that these
than for instance, the Linux OS or iOS in achieving similar two operating systems were not the only platforms that Nokia’s
tasks [64]. The Symbian has not been developed to support R&D was investigating [4]. For that, some urged that the
several devices or integrate different features at the same time, “Burning Platform” metaphor of Elop was not incorrect [3].
which led to creating complicated issues for the whole Nokia’s 3) Windows Phone OS
software development. According to [4], “the biggest In February 2011, Nokia announced a partnership with
difference between Symbian and the most popular operating Microsoft to bring together the respective corresponding assets
systems today, such as Android or iOS, was that the device and expertise of both parties to build a new global mobile
development was driving the platform development-the ecosystem for smartphones [57]. This partnership, under which
product-specific software was in many cases only compatible Nokia adopted and licensed Windows Phone from Microsoft as
with that certain device” [4, p. 33]. Furthermore, according to the primary platform [69]. However, at the time when this
[67, 68] the Symbian failed due other reasons such as; outdated strategic partnership was announced, the market share of
interface, lack of applications, perpetual hanging, and outdated Windows Phone OS was only 2.6%, whereas Symbian’s was
browser. However, in February 2011, the Symbian era and its 27.7%, and the Android’s was 36.4% as shown in figure 12.
development have come to an end, particularly when Nokia These apparent variances in the platforms market shares have
announced the partnership with Microsoft in making Windows created a debate around Nokia’s decision to abandon the
Phone as the smartphones’ primary platform [3, 4, 25]. Yet, Symbian OS and to favor Windows phone OS on Android. In
Nokia continued to ship devices based on Symbian [69] until one hand, many technologists urged that the steady pace
the last Symbian device has been shipped in Summer 2013 [4]. whereby Nokia develops new hardware would have made
2) MeeGo OS perfect sense to have chosen Android [74], or it might have
Under the name of Open Source Software Operations, the leveraged the investment on the Symbian OS. Yet, Nokia’s
MeeGo development team was formulated and started in 2005 CEO at that time justified the decision to choose Windows
to explore alternatives for the Symbian OS [4], which was Phone OS since Nokia would have been a late entrant into the
renamed in 2007 as the Maemo team [3]. The Linux-based, Android space, while many strong rivals were already in there
[75]. Elop added that his leadership was concerned that a one XI. THE NEW NOKIA (2014-PRESENT)
hardware manufacturer (implicitly meant Samsung) could have
By April 2014, Nokia has completely closed the business of
dominated Android OS due to its resources and vertical
the mobile devices and services after it has been substantially
integration.
sold to Microsoft [77, 78]. This deal was originally announced
in September 2013, and it has included license patents to
Microsoft. Nokia considered the year 2014 as a new
transformation and a start of various essential changes,
particularly the appointment of Rajeev Suri as the President
and CEO, in addition to the allocation of five billion euros as a
capital structure optimization program [78]. The company has
newly emerged from the transaction with a firm financial
footing and three strong businesses; Nokia Networks, HERE
and Nokia Technologies [77, 78]. Each of these businesses is a
leader in its respective field, proved by the global presence of
the R&D facilities in Europe, North America, and Asia, while
the sales started to take over in 140 countries [78]. Nokia in
fact started to make profits in Q2, 2014 [60], although it has
decreased in the subsequent quarters yet, this change has been
considered a major positive transformation resulted from the
Figure 11 - Smartphones’ OSs (Q1, 2011) - Reproduced from [65] new leadership and converged strategies. According to [77], the
On the other hand, others viewed the alliance with reflection of this transformation can also be seen in the
Microsoft as a strategy to penetrate the US and North company financial performance (net sales, gross profit,
American market since this market is a core for Windows [3] dividend per share, and net cash in million euros) during 2014,
and was important but untapped for Nokia. Yet, the Nokia 2015 and 2016 [79]. Furthermore, as a part of the new
Lumia came about and the OVI store was integrated with the transformation and strategies, Nokia announced a strategy to
Windows Phone Store and since then Nokia has collapsed [3]. create new businesses and licensing opportunities in the
Indeed, Nokia Lumia by all its models proved that the decision consumer eco-system [77]. Indeed, in May 2016, a strategic
to switch to Windows Phone OS was a misguided strategic brand and intellectual property licensing agreement were
decision, which illustrated by the losses Nokia has incurred signed to grant HMD Global Oy (HMD), a newly-established
since Q1, 2011 as shown in figure 13 below [58]. The failure in Finnish private venture based in Helsinki, Finland an exclusive
nailing the smartphones’ market based on the strategic global license to create Nokia branded mobile phones (both
partnership with Microsoft is in fact associated with the failure feature phones and smartphones) and tablets for the next ten
of the Windows Phone OS itself. From figures 11 and 12 years [11, 12]. The agreement entered into effect on December
above, the market share of Windows phone OS has never 1st, 2016, allowing HMD to begin the operations as the new
exceeded (3.6%) at best. In fact, this share continued to drop home of Nokia phones [77]. HMD and FIH Mobile Ltd., a
quarter by quarter until it was (0%) market share by Q1, 2016. subsidiary of Taiwanese firm Foxconn Technology have
According to [76], there were several reasons why Microsoft's bought the feature phone assets from Microsoft for $350
Mobile Business failed to take off, especially that Microsoft million euros [9, 10]. The deal included brands, software and
was too late to the game, and the emerging market didn’t services, customer contracts and supply agreements as well as
respond the way Microsoft designed, planned and expected. the transfer of 4,500 employees [80]. Nokia also announced
that the remainder of Microsoft feature phone business assets,
including manufacturing, sales, and distribution, would be
acquired by FIH Mobile Ltd, while Nokia Technologies and
HMD have signed an agreement with FIH to establish a
collaboration framework to support the building of a global
business for Nokia-branded mobile phones and tablets [12].
This agreement gave HMD Global full operational control
of sales, marketing, and distribution of Nokia-branded mobile
phones and tablets, with exclusive access to a prominent global
sales and distribution network to be acquired from Microsoft
by FIH, access to FIH world-leading device manufacturing,
supply chain and engineering capabilities, and to its growing
suite of proprietary mobile technologies and components [12].
However, in order for HMD to complete its portfolio of Nokia
branding rights, the company has conditionally agreed to
Figure 12 - Nokia's net profit/loss from 2009 to 2014 – Source [58]
acquire the rights to use the trademark of Nokia on feature
phones until 2024 from Microsoft, and to design rights relating this industry (e.g. Apple, Samsung, Huawei, HTC, etc.) are
to Microsoft feature phone business, where these agreements already having powerful brands, which have been built
will make HMD the sole global licensee for all types of Nokia according to their high-quality and high reliability products for
branded mobile phones and tablets [11]. Importantly to long period of time. Therefore, creating and sustaining
mention that Nokia is not an investor in HMD Global, but it competitive advantages will require not only financial
has a representation on its board and will receive a royalty on capabilities and R&D strategies, but also strong brand names,
every Nokia branded device that HMD Global makes and sells and customer base, experience and loyalty. Nonetheless,
[77, 81, 82]. Nokia’s brand name is currently having no market share (see
figure 14), but it has a powerful brand name as well as a long
XII. NOKIA PHONES ARE BACK and outstanding history in the mobile phone industry regardless
On December 1st, 2016, HMD has officially announced its of the failure in nailing the smartphone market caused by the
entry to the market to bring Nokia-branded phones [83]. A strategic gaps discussed in this research.
week later, HMD announced the introduction of its first mobile
phone; Nokia 150 and Nokia 150 Dual SIM phones, and they
would be officially available in the Market by January 2017
[84]. Later in February of the same year, the very famous
Nokia 3310 (new look) has been announced and then released
in May at a price of 49 euros [85]. However, no clear
information available about how many units have been sold
from both Nokia 150, and Nokia 3310 to date, and how was the
impact of these new versions on the market of the feature
phones. Furthermore, in January 2017, HMD launched its first
Android-based smartphone (Nokia 6) into China, explaining
that the Chinese market was selected preliminary to reflect the Figure 13 – Smartphones’ market shares, Q4, 2009 to Q2, 2017 - Source [94]
company’s desire in meeting the real world needs of consumers
in different markets around the globe [86, 87]. HMD viewed Furthermore, the smartphone market is a very price
the Chinese market as the best option based on the increasing sensitive with customers seek out the best value for money.
number of the users with over 552 million in 2016 and HMD strategy in setting low prices is reflecting a high
expected to grow to more than 593 million by 2017 [87]. This consideration of this critical factor. Generally, the smartphones
was considered an important strategic decision since premium market is highly competitive as the number of options is
design and quality are highly valued by Chinese consumers considered significant, which is creating a high power for the
[87]. However, during the Mobile World Congress, which held smartphones’ users to compare, select and eventually make
in Barcelona in February 2017, HMD announced a new era for decisions regarding which brand they select to meet their
Nokia smartphones by launching Nokia 6 globally [88]. wants, needs, desires, and budget. According to [95], the users
Perhaps, it was the 100,000 units sold of this smartphone in one of products such as smartphones in fact, make their decisions
minute in a flash sale in China for approximately $250 per unit regarding the brand based on many factors that involve not
[89, 90] what really encouraged HMD to launch this model only how appealing is the product, but also on factors that drive
globally. According to [91], “While we are not sure how many their emotions and engage them for long time as loyal
units actually were available, it is not entirely surprising given customers, particularly the drivers of the product and brand
that the handset had received over a million registrations for its experiences [95].
first flash sale”. During the same event, HMD unveiled that a
new generation of Nokia smartphones would be released; XIII. CONCLUSION
Nokia 5 and Nokia 3. This announcement remarked the new It is obvious that Nokia’s story of success has negatively
standard in design, quality, and user experience throughout the impacted its later strategies and performance since success
range. Nokia 5 would be retailed at an average global retail adversely developed a high level of complacency, that is
price of 189 euros [92] while Nokia 3 for 139 euros [93]. In clearly seen in underestimating the rivals’ capabilities.
Appendix B, Nokia 5 and Nokia 3 are shown in figures 15 and However, we have concluded that Nokia did not miss the
16 and briefly described in tables 2 and 3 respectively. The new opportunity of the smartphones as it was fully aware of its
range of Nokia smartphones all run Android™ Nougat disruption. The huge investments in R&D, the variety of
and offer a pure, secure and up to date experience and will all inventions and innovations, and the market research and
feature Google Assistant. [88]. performance are all proving that the company was very well
It is early to review and analyze the users’ desirability prepared for this disruption. Indeed, the problem at Nokia was
based on the performance of these smartphones and to judge not the lack of innovation, but rather, it was the lack of
whether they would compete strongly although they are forecasting the right time to market. In addition, Nokia during
operated by Android and would be sold for highly competitive the time when smartphones became a necessity in people’s
prices. However, the smartphones industry is a very well- lives, has misunderstood that the market needs were not just
established and has a very advanced technology. The players in about a mobile phone that makes calls, texts and connects to
the web, but also about the platform that operates all these strategic-brand-and-intellectual-property-licensing-agreement-enabling-
hmd-global-to-create-new-generation-of-nokia-branded-mobile-phones-
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quarter 2007 to 2nd quarter 2013," Statista – The portal for statistics, of the launch," Nokia Experts: Everything Nokia, S60, and more!, 2011.
2017a . [Online]. Available: [Online]. Available: http://nokiaexperts.com/nokia-announces-n9-
https://www.statista.com/statistics/263438/market-share-held-by-nokia- meego-device-part-launch/. [Accessed 2017].
smartphones-since-2007/. [Accessed 2017]. [73] C. Ziegler, "Nokia plots Windows Phone future for US: 'no plans' to
offer N9, Symbian, or feature phones stateside," The Verge, 2011.
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windows-phone-future-north-america-no-plans-offer-n9-symbian-series- Corporation, 2017b. [Online]. Available:
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[74] A. Saxena, "Nokia CEO explains why they chose Windows Phone over [86] Nokia Phones, "Nokia 6," Nokia Corporation, 2017a. [Online].
Android," Gadgets 360, 2013. [Online]. Available: Available: https://www.nokia.com/en_int/phones/nokia-6. [Accessed
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chose-windows-phone-over-android-394274. [Accessed 2017]. [87] HMD Press Release , "HMD Global launches first smartphone, the
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https://www.theguardian.com/technology/2013/jul/12/elop-explains- 2017].
nokia-android. [Accessed 2017]. [88] HMD Press Release , "A new era for Nokia smartphones," HMD Global,
[76] D. Reisinger, "10 Reasons Microsoft's Mobile Business Has Failed to 2017b. [Online]. Available: https://www.hmdglobal.com/press/2017-02-
Take Off," eWeek.com , 2016. [Online]. Available: 26-a-new-era/. [Accessed 2017].
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has-failed-to-take-off. [Accessed 2014]. piece in China," TechWorm , 2017. [Online]. Available:
[77] Nokia Corporation, "Nokia in 2016: Review by the Board of Directors https://www.techworm.net/2017/01/100000-nokia-6-gone-60-seconds-
and Nokia Annual Accounts," Nokia Corporation, Espoo, Finland, 2017. flash-sale-china.html. [Accessed 2017].
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and Nokia Annual Accounts," Nokia Corporation, Espoo, Finland, 2015. 2017. [Online]. Available:
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The portal for statistics, 2017e. [Online]. Available: minute-in-china/. [Accessed 2017 ].
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2006/. [Accessed 2017]. 2017. [Online]. Available:
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for $350M to Foxconn, HMD," CNBC - Tech- Mobile , 2016. [Online]. day-news-22843.php. [Accessed 2017].
Available: http://www.cnbc.com/2016/05/18/nokia-phones-are-back- [92] Nokia Phones , "Nokia 5," Nokia Corporation, 2017b. [Online].
after-microsoft-sells-mobile-assets-for-350-million-to-foxconn- Available: http://www.nokia.com/en_int/phones/nokia-5. [Accessed
hmd.html. [Accessed 2017]. 2017].
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smartphones-coming-soon-693048/. [Accessed 2017]. [94] Statistia, "Global market share held by leading smartphone vendors from
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bringing-nokia-phones-back-1633189. [Accessed 2017]. smartphone-vendors-since-4th-quarter-2009/. [Accessed 2017 ].
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[Accessed 2017]. ntext=studentsymposium. [Accessed 2017].
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2017].
 APPENDIX A

TABLE 1 - NOKIA PRODUCT SERIES BASED ON GSMERENA.COM AND WIKIPEDIA.COM (1996-2017) – ADOPTED FROM [36]
Nokia Series Year(s) Descriptions

Nokia 1xxx 1996–2010 Most affordable phones. Mostly targeted towards developing countries and users needing only calls and
SMS, alarm clock, and reminders.

Nokia 2xxx 1994–2010 Entry-level phones. More advanced features than the 1000 series, newer models with color screens and
some feature cameras, Bluetooth and even A-GPS.

Nokia 3xxx 1997–2009, 2017 Mostly mid-range phones. Later targeted towards the youth market.

Nokia 5xxx 1998–2010 Similar in features to the 3000 series. Often more features towards active individuals, extra features for
music playback.

Nokia 6xxx 1997–2010 Mid-range to high-end phones. High number of features, conservative, unisex designs, business use.

Nokia 7xxx 1999–2010 Targeted towards fashion-conscious users, especially women; consumer-oriented; fancy design, test
features.

Nokia 8xxx 1996–2007 Ergonomics and attractiveness; exclusive, high-end materials.

Nokia 9xxx 1996–2007 Communicators prior E90 (the latest Communicator)

C-series 2010–2011 Affordable series optimized for social networking and sharing; OS Series 40 and C-5xx Symbian 60 5th
ed., C-6/7 Symbian^3.

E-series 2006–2011 Enterprise-class, business-use; Symbian S60 and E7 Symbian^3.

N-series 2005–2011 Highly advanced smartphones, with strong multimedia and connectivity features; mainly S60 3rd, but
Maemo in N900, MeeGo in N950, N8 Symbia^3.

X-series 2009–2011 Targeted to a young audience with a focus on music and entertainment; OS mainly Series 40, but X5
(updated) and X6 with S60 and X7-00 with Symbian^3.

3-digit series 2011–2012 Since the Nokia 500, Nokia has changed the naming rule for Symbian^3 phones.

Asha - Series 2011–2014 Affordable, optimized for social networking and sharing, meant for first time users.

Lumia- Series 2011–2014 Smartphones running Windows Phone. It also includes the Nokia Lumia 2520, a Windows RT-
powered tablet computer. The series was sold to Microsoft in 2014 who branded these products under the
name Microsoft.

X Family 2014 A range of Android smartphones from Nokia. These were the first ever Nokia phones to run on Google's
Android OS.

3-Digit - Series 2011–2016 Those phones are entry-level, classic mobile phones platform (with long work on battery). The series was
feature phones sold in 2014 to Microsoft which continued branding these products under Nokia. Microsoft sold this series
to HMD Global in 2016 which also continues branding these products under Nokia.
 APPENDIX B

TABLE 2 - NOKIA 5 TECHNICAL SPECIFICATIONS - SOURCE [92]

Nokia 5 - Technical Description

Launch Announced: February 2017

Status: Released June, 2017
Body Dimensions: 149.7 x 72.5 x 8 mm
SIM: Single SIM (Nano-SIM) or Dual
SIM
Display Type: IPS LCD capacitive touchscreen,
16M colors
Size: 5.2 inches
Platform OS Android 7.1.1 (Nougat)
Memory Card slot: microSD, up to 256 GB
Internal: 16 GB, 2 GB RAM
Camera 13 MP, f/2.0
Features Fingerprint, accelerometer, gyro,
proximity, compass

Battery Non-removable Li-Ion 3000 mAh battery

Colors Tempered Blue, Silver, Matte Black,
Copper
Figure 14 - Nokia 5 - Source [92]

TABLE 3 - NOKIA 3 TECHNICAL SPECIFICATIONS - SOURCE [93]

Nokia 3 - Technical Description

Launch Announced: February 2017

Status: Released June, 2017
Body Dimensions: 143.4 x 71.4 x 8.5 mm
SIM: Single SIM or Dual SIM
Display Type: IPS LCD capacitive touchscreen,
16M colors
Size: 5.0 inches
Platform OS Android 7.1.1 (Nougat)
Memory Card slot: microSD, up to 256 GB
Internal: 16 GB, 2 GB RAM
Camera 8 MP, f/2.0
Features Accelerometer, gyro, proximity, compass

Battery Non-removable Li-Ion 2650 mAh battery

Colors Silver White, Matte Black, Blue, Copper

Figure 15 - Nokia 3 - Source [93]

See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/329013855

Nokia: It’s Not Over Yet, A Come Back in 2016

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NOKIA: ITS NOT OVER YET, A COME BACK IN

2016

Ms. Rajni Bala*

Dr. D.P. Singh**
ABSTRACT

The case discusses the downward spiral of the once leading mobile handset company,
Nokia, in India. The case discuss the Marketing mix of Nokia to tap the Indian
market & its SWOT analysis. It highlights the Challenges faced by Nokia in the
Indian market. The case study Examine the various factors which led to Nokia losing
its position in the market. It discuss how the acquisition of Nokia by Microsoft would
impact its Indian operations & to analyse whether Nokia would be able to regain its
customers' trust or not.

Key Words: Nokia, Marketing Mix, SWOT , Microsoft, Acquisition

*
Research Scholar, I.K. Gujral Punjab Technical University, Jalandher
**
Director, GGS College of Modern Technology, Kharar
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INTRODUCTION

The Indian telecommunications industry is one of the fastest growing in the world.
Government policies and regulatory framework implemented by Telecom Regulatory
Authority of India (TRAI) have provided a conducive environment for service
providers. This has made the sector more competitive, while enhancing the
accessibility of telecommunication services at affordable tariffs to the consumers.

Currently the mobile economy in India is worth USD 130 Mn (INR 1.27L), this
means that by 2020 it is going to take a leap of 408%. There are currently 900
million mobile connections, which make up 25% of the total mobile connections in
Asia Pacific region. This clearly indicates the high demand of mobile phones in the
country. The penetration of mobile phones is 72% and is continually increasing.1
According to the recently released report by GSMA, made in collaboration with
BCG, Indian mobile economy is growing rapidly and will contribute approximately
USD 400 billion to the country‟s GDP and is going generate 4.1 million employment
opportunities. Indian mobile services sector contribution towards national GDP is
estimated to reach 8.2 per cent or Rs 14 lakh crore by 2020.2 As per The Mobile
Economy: India 2015 report, the industry accounted for 6.1 per cent of India's GDP
in 2014 with a total contribution of rs. 7.7 lakh crore to the economy.3

Based in Finland, Nokia entered India in 1994. From then till 2007, it had been
leading the Indian mobile market. Nokia had been popular for introducing low cost
phones catering to the needs of low income consumers. It customized its products for
the Indian market and offered Indian ringtones, user menu in local languages, and
sturdy phones that could withstand the extreme weather and dust in India.

However, after 2007, Nokia failed to sense that trends were changing. It ignored the
changing demands and needs of the customers. Also, its inability to cope with the
severe competition and its dependence on a more complex operating system,
Symbian, made its position shaky in India. Since 2008, Nokia has been left behind by
its rivals in the growth oriented Smart phone market.

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OBJECTIVES

The case is structured to achieve the following objectives:

Marketing mix of Nokia to tap the Indian market

SWOT analysis of Nokia in the Indian market
Examine the various factors which led to Nokia losing its position in the market.
Discuss how the acquisition of Nokia by Microsoft would impact its Indian
operations.

NOKIA : NET SALES, OPERATING PROFIT, PBT R&D

EXPENSES4

Devices & Services : Net Sales

2007 2008 2009 2010 2011 2012 2013 2014

Net sales ( Nokia) 51058 50710 40984 42446 38659 15400 12709 12732

Operating profit 7985 4966 1197 2070 -1073 -821 519 170

Profit before 8268 4970 962 1786 -1198 -1179 243 -237
taxes/Loss

Research and 5647 5968 5909 5863 5612 3081 2619 2493
development
expenses

1
http://www.iamwire.com/2013/11/mobile-sector-india-contribute-usd-400-bn-
gdp2020-generate-4-1-mn-jobs-gsma/22073
2
http://economictimes.indiatimes.com/articleshow/24707613.cmsutm_source=conten
tofinterest&utm_medium=text&utm_campaign=cppst
3
http://www.thehindu.com/business/mobile-sector-to-account-for-8-per-cent-of-gdp-

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by-2020-study/article7919415.ece

.4http://company.nokia.com/en/system/files/download/investors/nokia_results_2014_
q4_e.pdf

MARKETING MIX OF NOKIA

Product

In every series of Nokia there are large numbers of sets thus large variety.

Nokia gain brand personality and market shares of 35% because of its quality.

Nokia sets are of various designs such as flip sets, Flat sets, Slide sets, Sets with
rotating Camera etc.

Each set of Nokia has its own features.

Price

Prices start from mere Rs.1200 to more than Rs.50, 000 to suit all class of people.

Nokia also offer cash allowances

It uses skimming price strategy

Promotion

Advertising – Through TV, Sign boards, Bill boards, Radio and Newspaper,
Broachers, Posters Dummies and display stands

Personal selling – By product training to Distributor.

Sale promotion – Gift like Yamaha bike, Philips TV, Mitsubishi split AC, watches
and digital diary, With N73 mobile offer 2500Rs original Blue tooth free With
6220 offer leather Wallet, With 6300 offer caps and shirts.

Public relation – Nokia spot light.

Road shows – N-gage.com for game lovers, Nokia football crazy.

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Place

Nokia products are available at Nokia gallery.

Established mobile phone dealership such as Car phone warehouse & Link.

Retailers like Dixon & other electrical products suppliers

NOKIA: SWOT , 2014

Strengths

Many consumers often opt for Nokia more than any other brand because of the
reliability, durability, and creativity their phones provide.
Largest Distributor of the mobile phone in the mobile phone industry
Most of Nokia‟s highly qualified personnel have teamed up with Microsoft‟s
experts as a part of the acquisition deal.
The phones provided by Nokia have a much higher re-sale value compared to other
mobile phone brands.
Many of Nokia‟s products are easy to use and are usually coupled with a variety of
handy accessories.
Products offered by the company are available in all price ranges.

Largest network of selling & distribution

Weakness

Took a long time to enter the highly productive and booming smart phone market.
Nokia is slow in reaction to new rivalry. As a result the company lost a lot of its
once huge market share.
Some of Nokia‟s products are not affordable for middle and lower class consumers,
which often affects their searches negatively.
The Finnish mobile company has made comparatively lower profits due to drop in
sales that result from tough competition. According to statistics, the company‟s
profits have fallen by 7% in the second quarter of 2014.
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There are slumps in the company‟s development with its Windows Lumia range of
smart phones because of constant competition from rivals Android and iOS.

Less stylish in low priced products & Poor design of smart phones
Opportunities

The Microsoft-Nokia deal is a win-win situation for both companies. The deal
possesses great opportunity if both utilize resources in a proper way.

To expand with a wide range of products, features & different price range to suit
different people.

Opportunities to bring in new features and applications on to Windows OS.

Threats

Strong competition from other smart phone companies will make it hard for Nokia
to maintain and expand their market share.

Low-cost threats by China mobile companies and others can cause big problems.

In the selection of handset consumers are becoming more complicated in the choice
of Handset. They need stylish & Fashionable mobile phones.

To regain the position as a market leader as Nexian, Micromax, Samsung etc have
come to stand a tough competition with Nokia.

To identify the opportunities and deliver innovative products timely

NOKIA: LOSING THE GRIP

Nokia was the undisputed leader in India‟s mobile market till 2007. It was the leader
in the feature phone market and entry level mobile phone market. Nokia Corporation
has made connectivity truly ubiquitous. It has emerged as a world leader in mobile
technology and progressively moving towards the company's vision of creating a
world where everyone is connected.

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The introduction of Symbian series by Nokia in 2002 had a good market response.
But with the introduction of Apple IOS in 2007 and Android in 2008, the OS race
was completely taken over by the two giants. Symbian OS lagged behind in mobile
applications and user interface, though efforts were made by Nokia to improve the
Symbian OS but still it could not come to pace with other operating systems and
hence the collapse of market for Symbian OS and declining market share for Nokia.
Moreover, too much reliance on Windows platform proved another costlier step to
Nokia. Nokia required product innovation to recapture the market. But lack of
innovation resulted in late introduction of various software and even hardware
features by Nokia while other palyers had already launched products in the market
which were highly apprised by the mobile users and thus customers switched over
from Nokia to competitive brands. While Nokia was loosing charm in high end
phones, at the same time players like Micromax, HTC gave it a stiff competition in
lower segment as well. In India, local brands stole the lead on dual SIMs, low-end
Qwerty and long-battery-life phones. While Apple was designing the iPhone and
Nokia was selling half a billion phones each year, Google bought a company called
Android and announced an Open Handset Alliance, a grouping of industry players
who would come together to build an open source OS for smartphones. Nokia was
invited to join but refused to demean itself. In 2009, Nokia/Symbian also launched an
Apps Store, Horizon and its own Apps and Content store – Ovi, in 2009. But Nokia
had no real platform experience to compare with Apple‟s. The platform was shaky
and it tried to launch simultaneously in 35 countries but it faced a gale of criticism
for the first time

Secondly, In mid-2007 Nokia encountered a problem with the malfunctioning of its

handsets due to faulty batteries which might get overheated, especially the BL-5C
batteries which were used in most of Nokia's low-end models. The Finnish company
was sourcing these batteries from the Matsushita Battery Industrial Co Ltd.
(Matsushita) of Japan and several other suppliers On August 13, 2007, Nokia issued
a warning over its BL-5C batteries across the world, stating that these batteries may
get overheated while charging. It said that about hundred such incidents of

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overheating had been reported globally but there were no reports of the batteries
being associated with any serious injuries or damage to property. A product defect
related to BL-5C batteries used in many Nokia mobile phones has put Nokia in a
crisis management mode. Due to which the market capitalization of Nokia had fallen
from €110 billion in 2007 to €14.8 billion in may 2012.5

REASON FOR NOKIA'S CRISIS IN INDIA

Complacency
As a market leader for over a decade, Nokia didn‟t really plan for the future as it
seemed a bit complacent with its products. When Apple launched the iPhone in 2007,
the first touch phone, Nokia was still priding in its E-series by when the definition of
smart phone had undergone a tremendous change. That was least expected from the
pioneer in the smart phone market.

The success of iPhone didn‟t have any significant impact on Nokia, unlike Samsung,
which experimented with off-the-shelf technologies and managed a transition to
smart phones much faster than expected. And Nokia, which had launched its first
smart phones through its Symbian series 60 in 2002, remained a pioneer with no
better future prospects. Nokia failed to anticipate, understand or organize itself to
deal with the changing times.

Lack of Innovation

Nokia‟s Windows phone which came in 2011 lacked some basic technology
essential to drive its sales. Nokia‟s Lumia series was launched with a bang, but didn‟t
click. Reasons can be its design, which wasn‟t as attractive as Samsung phones or
the iPhone. Today the sale of phones is dependent on how shiny or trendy it looks.
Leave aside the looks, Nokia phones didn‟t have the front camera, which makes it
not even 3G enabled. And we are on the threshold of entering the 4G era. So,
Nokia‟s latest phones were feature ready, but not future ready.
5
http://www.termpaperwarehouse.com/essay-on/Nokia-Brand-Image-
Declining/255371

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From Symbian to windows

Nokia was solely dependent on Symbian till it entered into a partnership with
Microsoft recently. But its shift to Windows was considered too late as by then
Apple and Samsung had established their dominance. The operating system space
was nearly occupied by Android and iOS leaving not much role for Windows.

NOKIA: A COME BACK IN INDIA

The Acquisition

In September 2013, Nokia, announced that it would sell a part of its business to the
US-based Microsoft. Microsoft acquired Nokia‟s handset business for € 3.79 billion
and licensed its patents for ten years for € 1.65 billion.6

Microsoft acquired not only Nokia‟s Devices and Services Business with the mobile
phone and smart devices segments but also the industry leading design team, its
operations along with Devices and Services – related sales and marketing activities
and related support functions. Microsoft also provided € 1.5 billion of „immediate
financing‟ to Nokia, when the latter‟s debt was downgraded to „junk‟ status.7

While Nokia would retain its patent portfolio, Microsoft could be gifting Nokia
reciprocal rights to use Microsoft‟s patents in its HERE services and in turn became a
strategic licensee of the HERE platform. Nokia-Microsoft could competitively
position its low-cost smartphones in such a low teledensity market. Analysts were of
the view that through cost synergies on licensing, patents, and intellectual property
and support of Microsoft‟s R&D, the new Nokia could bring out better equipped
phones at a lower price.

FUTURE PLANS OF NOKIA

The partnership with Microsoft led to Nokia switching over from Symbian platform to
Windows
platform, which has become the primary smartphone opertaing system for Nokia. Nokis's
hardware quality and Microsoft's software experience enabled the launch of variety of windows
based smartphones from Nokia incorporating features like dual sim, enhnaced mapping,
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navigation, location based services etc in varying screen sizes and affordable ranges. Nokia is
also planing to foray into „ambitious technology product space‟ including virtual reality. Nokia
will now shift its focus to its main business arms Nokia Solutions and Networks (NSN), HERE
Navigation Apps, and Advanced Technologies.8

Nokia is now in process to build a developer ecosystem and that can pro actively give
incentive to App developers to adopt the platform.

Nokia Solutions and Networks (NSN): NSN is by far the largest of Nokia‟s
secondary businesses, and “accounts for about 90% of the new Nokia‟s revenue.”
NSN CEO Rajeev Suri sees only “flat to modest growth” for the future of the
networks industry, and has subsequently made mobile broadband the linchpin of his
group.

HERE, the second largest of Nokia‟s non-handset businesses, develops navigation

systems that wind up in cars.

Advanced Technologies will be licensing the many patents that Nokia has secured
over the past several decades as well as coming up with new ideas for the company
at large.

CONCLUSION

A brand is quickly forgotten if it is absent from the consumer business. "The brand
will not help much if the product is similar to what is already being sold out there.
But if there is something new and interesting to it, the old heritage may be helpful.

„Nokia is a company that is not going away‟ and „people will be blown away if some
of the stuff he saw comes to market‟."The fact is that the Nokia brand remains strong,
well-known for its affordable range of cellphones, especially in developing countries
such as India, where you will find a large number of old-time Nokia users who have
grown up using Nokia mobiles

There could be potential threats of Microsoft and Nokia deal. Hence, both need to be
attentive to such threats and manage the partnership to be aligned to their long term
objectives. Combination of complementary assets and technical skills of Nokia and
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Microsoft may provide a differentiated (mobile) product portfolio as against the
rivals. Significant investments in R& D, hiring expertise, technology, outsourcing,
market exploration etc. may be required to innovate and grow successfully.

Nokia needs to scan the environment for the upcoming trends, identify the
opportunities and deliver innovative products timely. It will be interesting to see how
acquisition between Microsoft with the reputation for software & Nokia with the
strong hardware aspect will shape up the mobility landscape?

6
https://news.microsoft.com/2013/09/03/microsoft-to-acquire-nokias-devices-services-
business-

license-nokias-patents-and-mapping-services/
7
http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy/Nokia%20Lo
sing%20Ground%20in%20India-Excerpts.htm
8
http://www.rapidvaluesolutions.com/whats-the-impact-of-microsoft-nokia-
acquisition-on-the-smartphone-world/

QUESTIONS

1. Identify & compaire the challenges that the company is facing as it is trying to
maintain their image & market share.

2. Do you think that it was a good time to collaborate for Nokia? If it is yes then
how it is going benefit them in future.

3. If you are purchasing a new phone, what factor might you consider when making
your decision?

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BIBLIOGRAPHY/REFERENCES

1.http://engage.synecoretech.com/marketing-technology-
forgrowth/bid/137780/Market-Positioning-Case-Study-How-Nokia-Fell-From-
Number-1

2.
http://www.ibscdc.org/Case_Studies/Strategy/Troubled%20Times/TRT0093IRC.htm

3. http://www.slideshare.net/PreetiGulati2/nokia-crisis

4. http://en.wikipedia.org/wiki/Nokia

5.http://tech.firstpost.com/news-analysis/good-old-nokia-plans-a-comeback-to-
mobile-market-in-2016-report-264217.html

6.http://www.ibtimes.co.uk/will-nokia-launch-new-trademarked-smartphones-2016
after-lock-period-microsoft-ends-1471858

7. http://www.docstoc.com/docs/20145441/Nokia-SWOT-Analysis

8.http://www.marketing91.com/marketing-mix-nokia/

9.http://www.ciol.com/three-reasons-nokia-failed/

10.http://www.citehr.com/281610-case-study-lessons-nokia-downfall-pdf-
download.html

11.http://www.6300phones.com/nokia-company-information-history-and-their-
future/ nokia fall

12.http://timesofindia.indiatimes.com/business/india-business/SCALING-DOWN-
Nokia-crisis-haunts-Sriperumbudur/articleshow/44678023.cms

13.http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy/BSTR447.
htm

14.International Research Journal of Commerce Arts and Science

http://www.casirj.comCASIRJ Volume 5 Issue 6 [Year – 2014] ISSN 2319 – 9202

15.http://marketingmixx.com/marketing-basics/swot-analysis-marketing-basics/161-
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Indexed & Listed at: Ulrich's Periodicals Directory ©, U.S.A., Open J-Gage as well as in Cabell’s Directories of Publishing Opportunities, U.S.A.
International Journal of Management, IT and Engineering
http://www.ijmra.us
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February
2016
IJMIE Volume 6, Issue 2 ISSN: 2249-0558
________________________________________________________
nokia-swot-analysis.html

16.The Forbes, 2013, ―Apples rise and Nokias fall highlight platform strategy
essentials‖

17.http://www.iamwire.com/2013/11/mobile-sector-india-contribute-usd-400-bn-
gdp-2020-generate-4-1-mn-jobs-gsma/22073

18.http://www.slideshare.net/manigarg211/nokia-connecting-people-or-
disconnecting-customers-a-case-study-on-nokia

19.https://creately.com/diagram/example/g86yb88e3/SWOT%20Analysis%20o%20
Nokia

20. http://www.hajarian.com/esterategic/tarjomeh/2-90/ebrahimzadeh1.pdf

21.http://company.nokia.com/en/news/press-releases/2013/08/07/nokia-completes-
the- acquisition-of-siemens-stake-in-nokiasiemens-networks

22. http://www.forbes.com/sites/haydnshaughnessy/2013/03/08/apples-rise-and-
nokias-

fall-highlight-platform-strategy-essentials/2/

23.http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy/Noki %20
Losing%20Ground%20in%20India-Excerpts.htm

24.http://company.nokia.com/sites/default/files/download/investors/2013_nokia_full
_form_20-f_bmk.pdf

25.http://www.icmrindia.org/casestudies/catalogue/Marketing/Crisis%20Managemen
t-Product%20Crisis-Marketing%20Case%20Studies.htm

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 Business History

ISSN: 0007-6791 (Print) 1743-7938 (Online) Journal homepage: https://www.tandfonline.com/loi/fbsh20

The curse of agility: The Nokia Corporation and

the loss of market dominance in mobile phones,
2003–2013

Juha-Antti Lamberg, Sandra Lubinaitė, Jari Ojala & Henrikki Tikkanen

To cite this article: Juha-Antti Lamberg, Sandra Lubinaitė, Jari Ojala & Henrikki Tikkanen (2019):
The curse of agility: The Nokia Corporation and the loss of market dominance in mobile phones,
2003–2013, Business History, DOI: 10.1080/00076791.2019.1593964

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Business History
https://doi.org/10.1080/00076791.2019.1593964

The curse of agility: The Nokia Corporation and the loss of

market dominance in mobile phones, 2003–2013
Juha-Antti Lamberga , Sandra Lubinaitėb, Jari Ojalac and Henrikki
Tikkanend
a
Jyväskylä School of Business and Economics, University of Jyväskylä, Jyväskylä, Finland; bTELIA Corporation,
Vilna, Lithuania; cHistory and Ethnology, University of Jyväskylä, Jyväskylä, Finland; dMarketing, Aalto
University School of Business, Espoo, Finland

ABSTRACT KEYWORDS
We investigate how and why the Nokia Corporation failed to develop Strategy; technology
a successful strategic response to the threats of Apple and Google in management; decision-
the smartphone business and instead worsened its situation through making; business history;
several badly timed decisions. We identify key choices in technology oral history; Nokia
and organisational design that jointly constituted sufficient cause for
the abandonment of the mobile phone business. By focusing on choices
instead of attributes (e.g. fear or hubris), we make progress in strategic
failure research and simultaneously emphasise the strength of oral his-
tory methods and the philosophy of history as fruitful starting points
for such an inquiry.

In business history, we can think of very few other cases in which new competitors so quickly
and forcefully dethroned an overwhelmingly dominant market leader (cf. Langlois, 1992;
Finkelstein, 2006, Van Rooij, 2015) as the case of the Nokia Corporation between 2007 and
2013. Nokia was by no means a passive follower of the novel competitive landscape domi-
nated by the emergence of the smartphone. Nevertheless, its major strategic decisions
towards the end of the period of analysis made the situation worse and aggravated the
company’s plight. In this article, we provide an historical analysis of the strategic deci-
sion-making process at the Nokia Corporation. Considering its technology and organisational
design choices, we examine how and why Nokia failed to safeguard its strong market lead-
ership in the global mobile phone market between 2007 and 2013. Earlier research on Nokia’s
misfortunes has found both simple answers (Vuori & Huy, 2016) and very complex ones
(Cord, 2014; Doz & Wilson, 2017; Risku, 2010) to this question. Following Van Rooij’s (2015)
lead, we aim to find a solution that is both theoretically sound and respects historical reality
from Nokia’s strong technological dominance in the early 2000s – being global market leader
with almost 40 per cent share from mobile phone markets in 2008 (see Appendix 3) – to the
divestment of its entire mobile phone business unit to Microsoft in 2013.
Our empirical focus is thus on technology choices and decisions concerning organisa-
tional design. By technology choices, we refer broadly to stop-go decisions concerning spe-
cific technologies and research and development processes and by organisational design
we refer to choices concerning organisational structure and incentives. With respect to

CONTACT Juha-Antti Lamberg [email protected]

© 2019 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group
This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives License
(http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits non-commercial re-use, distribution, and reproduction in any
medium, provided the original work is properly cited, and is not altered, transformed, or built upon in any way.
2 J.-A. LAMBERG ET AL.

technology choices, we ask the following question: Why did Nokia invest so heavily in its
own more or less outdated Symbian software platform even after major competing smart-
phone platforms – iOS and Android – emerged in 2005–2007 and quickly proved themselves
hugely successful? Subsequent question – if and when Symbian development was so difficult
and expensive – is the reason why Nokia at the same time also invested in other platform
options (at least MeeGo, Maemo, Android, and Meltemi platforms)? Further, all this happened
during the critical years after iPhone’s emergence and would have required building exten-
sive technological capabilities to implement any of these alternatives accordingly.
Regarding organisational design choices, we focus on Nokia’s dominant management
philosophy of the era, called ‘strategic agility’ – and its antecedents and consequences. Doz
and Kosonen (2010) define this concept largely based on their experience at Nokia through
the organisational capability to quickly change strategic direction using strategic sensitivity,
resource fluidity, and top management leadership unity. The paradox we address is that
mentally, Nokia’s top management was fully prepared to meet new competitors with an
‘agile’ mentality and willingness to keep the organisation in a constant state of ‘structured
chaos’ (Brown & Eisenhardt, 1997). However, the organisation actually regressed to sluggish
decision-making at the top and fierce internal competition between alternative technological
platforms at the lower levels of the organisation. Nevertheless, we want to emphasise that
Nokia’s failure in the mobile phone market is not a story of defunct leadership at the top of
the corporation per se. On the contrary, we see Nokia as a prime example of the performative
aspects of contemporary management thinking in its search for an agile organisational form
and its use of top-tier professors and prominent management consultants as catalysts in
the process. However, sometimes an organisation is ill prepared for this type of novel think-
ing, and the resultant new ways of working may severely distort the functioning of some of
the core processes of the organisation, in this case technology management (including more
traditional research and development activity). This tension makes the history of the corpo-
ration very interesting as a natural experiment of the performative effects of strategic man-
agement ideas and fashions (Abrahamson & Fairchild, 1999).
Our research makes two contributions. First, it joins earlier critiques of causal inferences
in case studies by showing the complex nature of strategic failure processes and the conse-
quences of that complexity. Essentially, without access to company archives, all research on
Nokia (or any other corporation) remains tentative. This is not a problem if we realise the
limits of our research, but most of the similar case studies published even in top management
journals ignore these limitations when seeking theoretical explanations, contributions and
‘being interesting’ (Barley, 2016; Davis, 1971). Second, we identify key choices in technology
and organisational design that jointly constitute sufficient cause for the abandonment of
the mobile phone business. By focusing on choices instead of attributes (e.g. fear or hubris),
we make progress in explaining strategic failure research and simultaneously emphasise the
strength of oral history methods and more broadly the philosophy of history as fruitful
starting points for such an inquiry.

Literature review
One key question in both business history and strategic management is to understand why
firms differ in their investment choices and subsequent performance (Kornberger, 2013).
Consequently, firms’ failure to make choices that result in long-term positive economic
 Business History 3

performance is a central research topic. Ever since some seminal contributions (Ghemawat,
1991, Mokyr, 1990; Henderson & Clark, 1990), researchers have turned their attention to
different industries and analysed cases of failure, for example, in manufacturing (Lorenz,
1991; Magee, 1997), service industries (e.g. Bakker, 2005), and high-tech industries (Cusumano,
Mylonadis, & Rosenbloom, 1992; Langlois, 1992). The research on failed technology adap-
tation and erroneous technology choices typically frames incumbent firms as particularly
slow in making radical changes to their products (Ansari, Garud, & Kumaraswamy, 2016;
Christensen, 1993). The Beta vs VHS video standard is a classic case in which customer needs
(e.g. video rentals and recording time) and ecosystem building were the major determinants
in VHS’s victory over its competitor (Cusumano et al., 1992).
Beginning by explaining performance problems through hindsight is problematic in terms
of causal explanations. For example, the well-known case study on the demise of Polaroid
(Tripsas & Gavetti, 2000) highlights the role of top management cognition as a crucial imped-
iment to strategic renewal. Similarly, Danneels (2011) frames the failure of the typewriter
manufacturer Smith Corona to adapt to computer-based word processing as a cognitive
problem – managers of Smith Corona could not adapt their mindsets to the new techno-
logical era. Both case histories have been important in developing our theoretical under-
standing of strategic failures; however, they are problematic as causal explanations (see
Cornelissen and Durand (2012) for a thorough discussion; Denrell, 2003; Rosenzweig, 2008).
First, by stating that biased or narrow ways of thinking by the top management team (i.e. in
managerial and organisational cognition) resulted in organisational collapse is not the same
as inferring a bullet or a shooter pulling the trigger caused a person to die in a shooting
incident. In the shooting case, A causes B, but in both the Smith Corona and the Polaroid
cases, we know that A (top management team cognition) and B (organisational collapse)
may co-occur, but this has little to do with a causal explanation and probably not even with
a causal inference (see Mahoney, 2000; Pearl, 2000).
In general, causal reasoning is especially challenging in disciplines such as business history
or strategic management. The challenge originates from the philosophical difficulty of mak-
ing theoretical generalisations from empirical findings (Ketokivi & Mantere, 2010). In prin-
ciple, all inductive reasoning is speculative, as researchers cannot control all alternative
explanations (Mahoney, 2003) or run a counterfactual analysis (Morgan & Winship, 2015),
which is the strongest test of causality. In single case studies in which the motivation for the
study is to explain backwards from the outcome, causal inference becomes very difficult, if
not impossible. Thus, studying Nokia’s unfortunate years in 2007–2013 with the CEO and
Chairman of the Board, Jorma Ollila, or some other absent factor would pose a great analytical
challenge, excluding simulations (compare Harvey, 2012). However, this type of approach
would be the only way to arrive at the causal conclusion that Nokia was managed deficiently.
As Ketokivi and Mantere (2010) describe, scholars have taken different positions as a
consequence of the dilemma of causal inference in inductive studies. One group of scholars
has adopted an explanatory viewpoint, emphasising the value of theoretical explanations
in science. For example, a study may be valuable because it is interesting and provokes new
ideas (Davis, 1971), even though its empirical grounding is not solid. In contrast, a Spartan
view starts from a premise that truth (Seale, 1999) or the search for truth-like explanations
(Danermark, Ekström, & Jacobsen, 2005) is the only acceptable virtue in science. This approach
motivates the critical realists in business history (Kipping & Lamberg, 2016) and social sci-
ences in general (Mahoney, 2000) and is something that our research aims to achieve.
4 J.-A. LAMBERG ET AL.

Literature on Nokia’s drift towards the divestment of its mobile phone business in 2013
is a miniature of the problems related to retrospective causal inference in general. At the
end of 2018, ex-managers, journalists, business scholars, and other writers published at least
ten (see Appendix 2) articles, reports, teaching cases, and books offering specific explanations
for Nokia’s failure to maintain its competitive position in mobile phones. The explanations
fall into two broad categories. On the one hand, some publications (e.g. Van Rooij, 2015;
Ali-Yyrkkö et al., 2013) see the process as a relatively deterministic evolutionary struggle
during which Nokia tried but failed to adapt to the new competitive situation catalysed by
players such as Apple and Google. On the other hand, the remaining basket of books and
articles (e.g. Cord, 2014; Salminen & Nykänen, 2014; Doz and Wilson, 2017) focus on Nokia’s
internal leadership problems as causing the failure. From this category of studies, Vuori and
Huy’s article in Administrative Science Quarterly (Vuori & Huy, 2016) was the first to blame
Jorma Ollila, the CEO (1992–2006) and Chairman of the Board (1999–2012). Ollila’s aggressive
temper and confrontative managerial style was presented as the root cause of many internal
misfunctions and Nokia’s ultimate failure to renew itself. Siilasmaa’s (2018) (member of the
Nokia board of directors since 2008 and chairman of the board since 2013) recent book
echoes Vuori and Huy’s (2016) results and frames Ollila’s ultra-formal way of managing the
board as an important factor in Nokia’s failure. Likewise, Ollila’s memoirs (Ollila & Saukkomaa,
2013) blame his successor, Olli-Pekka Kallasvuo (as CEO in 2006–2010), for failing to manage
the process of strategic renewal. Overall, the publications focusing on Nokia’s internal strug-
gles mainly belong to the explanatory view of inductive reasoning. The main aim of these
studies is to offer a dominant theoretical explanation such as fear, faulty management, or
challenging organisational design (Doz & Wilson, 2017), not to study Nokia’s history to dis-
cover more robust causal relations between doings and undertakings on the one hand and
key organisational outcomes on the other.1
Historical research is relatively distinct from theory-motivated case studies in the man-
agement field (Decker, Kipping, & Wadhwani, 2015), especially in terms of causal reasoning.
As Mahoney, Kimball, and Koivu (2009, p. 124) characterise, ‘Historical explanations […]
explain the specific past occurrences; the question of whether and how the resulting expla-
nation might then be generalised is a secondary concern. Accordingly, if generalisability is
not the primary driver of research, it needs to be the primary driver of how causal inferences
are made. Most historical reasoning works with INUS conditions,2 referring to how ‘[…] mul-
tiple causal factors combine together to produce particular outcomes. The individual causal
factors are neither necessary nor sufficient; rather, they are part of an overall combination
that is sufficient for the outcome (Mahoney et al., 2009, p. 129)’. Accordingly, the research
motivation is to find combinations of factors that are sufficient but not necessary to explain
the outcome (e.g. inability to build a better phone in our case). For example, it is possible
that there may be some other explanation (such as CEO Elop truly being a Microsoft mole
who engaged in a disguised plot to cause trouble for Nokia), of which we do have evidence
and cannot predict. We essentially follow these principles and Van Rooij’s (2015) lead in
looking for a more balanced and causally believable explanation for strategic failure based
on an understanding that there is no necessity for one or even few explanations:
Success may be due to chance and luck in this perspective—and failure outside a firm’s control.
Consequently, we are left with irony: a good-humoured fatalism that puts success and failure
in business down to a bit of luck and perhaps some hard work—but as something outside
management’s control. (Van Rooij, 2015, p. 203)
 Business History 5

Our mission is to move towards a more analytical and causally plausible understanding
of Nokia’s loss of market dominance in mobile phones. We ask why the corporation was
unable to make a transformation from feature phones (with a tactile keyboard and static
software) to smartphones (with a touchscreen and dynamic software, including numerous
new functionalities for the use of a phone). Compared to the above-identified problems in
earlier research, ours aims to be less subjective and certainly less emotional, and it aims to
follow the principles of causal inference in judging the strengths of the identified causal
mechanisms. These principles are all features of good historical research, and in this sense,
we offer nothing more or less than an analysis of Nokia’s evolution based on evidence, an
understanding of ex ante causal factors, and the strengths and limits of causal inference.
Likewise, before the Nokia archives open to researchers, the best we can do is to follow the
advice of Collingwood (1951) to first study choices (i.e. the outer realm) before rushing to
understand the behavioural and motivational factors driving these choices (i.e. the inner
realm). Accordingly, we hope that our study will serve as a model for business history scholars
who will have the archival access currently lacking or who identify similar turning points in
other contexts. We start our inquiry with a short reading of Nokia’s recent history.

A short history of Nokia3

At the turn of the 1980s and the 1990s, Nokia Corporation faced a severe crisis and was
forced to make a corporate turnaround. In the process, the company quickly concentrated
on mobile phones and telecom networks and by the mid-1990s, had divested itself of dozens
of other lines of businesses. By the late 1990s, mobile phones clearly produced the majority
of both the net sales and the operating profit of the company (Appendix 3). In 1982, Nokia
introduced the world’s first car phone for the Nordic Mobile Telephone (NMT) analogical
standard. In 1991, the GSM standard for digital cellular networks was adopted as the pan-Eu-
ropean digital standard – again, Nokia played a key role in the related technology develop-
ment and standardisation process (Manninen, 2002). While mobile communications evolved
rapidly throughout the 1990s and the early 2000s, Nokia was able to establish itself as the
clear global market leader in mobile handsets, with sales peaking in 2007 and remaining in
that position until the second quarter of 2008 (Appendix 3).
The success of Nokia in the early 2000s and its technology development was linked to
the Symbian operating system. In June 1998, Nokia, Ericsson, Motorola, and Psion established
Symbian Ltd., which became the developer of the operating system Symbian OS.4 The com-
pany’s main strategic focus during the early 2000s was to expand to both the mobile voice
market and the multimedia business. As we will see below, these targets were sometimes
conflicting rather than complementary in terms of technological and organisational choices
and strategies. For example, in 2004 alone, Nokia introduced 36 mobile device models5 in
all price ranges and with a wide variety of functional features. Market penetration was impres-
sive – Nokia sold its billionth phone in 2005,6 and its peak global market share reached 39%
in early 2008 (Appendix 3).
After the introduction of Apple’s iPhone in 2007, Google’s announcement that it had
formed an Open Handset Alliance to develop standards for mobile devices and, most impor-
tantly, Android OS, the situation in the mobile phone device market quickly began to agitate.
For the first time in its recent history, in the latter half of 2008, Nokia’s global market share
6 J.-A. LAMBERG ET AL.

in mobile devices declined. In only two years, Nokia’s operating profits shrank; by 2011, the
corporation as a whole was unprofitable.
In 2008, Nokia’s top management made a decision to acquire the full ownership of
Symbian Ltd., which was still the world’s leading smartphone software platform.7 In 2010,
Nokia launched an ‘iPhone killer’ – the flagship N8, which was the first product to run on the
improved Symbian^3 OS, but with no success in challenging iPhone. Moreover, in February
2010, Nokia and Intel officially announced joint plans to build a new software platform,
MeeGo, which would support multiple hardware architectures.8 In the fall of 2010, the former
head of the Microsoft Business Division, Stephen Elop, was appointed as the new CEO of
Nokia. The strategic intent of Elop’s new top management team was to regain product lead-
ership in the smartphone market and to retain the market leader position in low-end mobile
phones. To do so, Elop and Nokia announced a collaboration between Microsoft and Nokia
‘to form a broad strategic partnership that would use their complementary strengths and
expertise to create a new global mobile ecosystem’.9
Contrary to its earlier strategy, Nokia decided to adopt the Windows Phone operating
system (OS) as the primary smartphone platform for Nokia devices for (at least) three years.
This decision also meant the end of the development of Symbian OS, MeeGo, and other OS
projects an area in which literally thousands of software developers and engineers were still
working at full steam. In September 2013, after two years of close cooperation between
Nokia and Microsoft, the companies announced that Microsoft would purchase Nokia’s
Devices and Services business.10 In hindsight, the Microsoft acquisition was only a cosmetic
change to the market battlefield, as the Android camp and to a lesser extent, iOS/Apple had
seized the dominant position (Figure 1).

Figure 1. Smartphones sold globally according to their operating systems, 2009–2015, million units.
Source: https://www.statista.com/ (retrieved 15 September 2016).
 Business History 7

Method
Our study is a part of a larger oral history programme called ‘Memory of Nokia’ (for similar
programmes see, e.g. Alexander, 2015; Giertz-Martenson, 2012; Kroeze & Keulen, 2013). We
started a research and oral history collection after several (technology) managers who had
worked at the Nokia Corporation contacted us as researchers and urged us to start collecting
the memories of Nokia’s former employees. We started data collection in 2010 first by arrang-
ing manager and expert interviews and continuing with an analysis of the rapidly accumu-
lating accounts on social media, where former Nokia employees often share their memories.
For the purposes of this study, we primarily use the first set of interviews conducted in
2010–2014.
We followed best practices of oral history research tradition, emphasising that oral history
is both a (subjective) research methodology (conducting interviews) and a result of the
research process (see especially Abrams, 2010; Portelli, 1998). According to the Oral History
Association’s guidelines,11 we started our inquiry by collecting academic publications on
Nokia’s history (see also Friedlander, 1998; Heehs, 2000). We used this collection to create a
timeline of the main historical events in Nokia’s evolution and to obtain an understanding
of how other researchers have approached Nokia’s technology management and key organ-
isational choices. At the same time, we systematically collected hundreds of newspaper
articles, business magazine reports, and other public material that we triangulated with the
academic research reports. After this initial phase of data collection, we assembled all avail-
able public material produced by Nokia. This material included the full series of annual
reports, CEO letters, and internal company magazines. All of these data have been deposited
in a specific research repository available to other scholars.
After creating a solid collection of publicly available material, we entered into the second
phase of our data collection. We interviewed 28 former Nokia executives and experts from
the telecommunications industry. Our informants included six former members of the top
management team and/or board of directors, 11 executives from corporate headquarters,
five middle-level managers who had worked in important positions during the Symbian era
and seven experts who had consulted for or worked with Nokia in software and application
development. The selection criteria for whom we wanted to talk with were as follows. First,
following the guidelines of the oral history research process (Friedlander, 1998), we looked
for technology experts with a long tenure either at Nokia or in its proximity (at supplier
companies, consulting companies, etc.). All of our informants (one board member excluded)
had considerable Nokia experience and knowledge since the early 1990s and even earlier
from the Mobira era in the 1980s (for the history of Mobira see Aspara, Lamberg, Laukia, &
Tikkanen, 2011). Long tenure was crucial, as we were interested in the ‘life-stories’ of each
individual (László, 2008; Portelli, 2010). Second, we focused on people with a strong tech-
nological background. Executives have already had many opportunities to tell their versions
of the process (starting with CEO Jorma Ollila’s memoirs and widespread media attention
since 2013); we primarily wanted to talk with middle managers and technology experts who
understood (a) the strategic challenges of the corporation and (b) the limits of Nokia’s internal
technological competencies to build better smartphones. This allowed us to avoid the ‘nar-
rative imperialism’ (Maclean, Harvey, & Stringfellow, 2017) and intersubjectivity problems
prevalent in earlier research on Nokia and in the oral history tradition more generally
(Summerfield, 2000). Finally, we had no personal links with the informants. This is important
8 J.-A. LAMBERG ET AL.

since many compatible longitudinal studies are based on ‘casual ethnography’ (Westney &
Van Maanen, 2011) – that is, they are conducted by scholars who are familiar with the context
and are even friends with the key actor-informants (see, e.g. Burgelman, 1994; Doz &
Wilson, 2017).
In the interview process, we again followed the guidelines of oral history research. We
started with questions concerning personal background and attributes (e.g. the length of
tenure at Nokia, education, and other similar information). However, we primarily provided
an opportunity for informants to freely tell their life histories concerning the Nokia
Corporation and the mobile phone business in general. Interview sessions lasted from two
to three hours and were recorded and transcribed. Our analytical strategy built on the
strength of the oral history method (compared to, for example, in-depth interviews). As
Hesse-Biber and Leavy (2005) describe, this allows the study of processes instead of attributes
and understanding processes in a holistic way:
What is really underlying the strength of the method is that you can study process. If you are
studying a woman’s life from childhood through college in order to understand her body image
issues at the present time, what you will learn about is not only what she is currently experi-
encing and her perspective on that, but the process that lead her there. Likewise, historical
processes and circumstances will underscore her narrative in ways that help us understand
individual agency within the context of social and material environments. So, while oral history
focuses on the individual and her narrative, it can be used to link micro- and macrophenomena
and personal life experiences to broader historical circumstances. Accordingly, oral history is
a critical method for understanding life experiences in a more holistic way as compared with
other methods of interviews. (Hesse-Biber & Leavy, 2005, p. 153)

In this spirit, we aimed to document Nokia’s final 10 years in the mobile phone business
as it was told to us while simultaneously being conscious of the problems of subjectivity
and intersubjectivity. Accordingly, we weighted all information against other sources and
the narratives we had accrued, attempting to avoid ‘ready-made’ narratives given, for exam-
ple, in earlier research and popular media texts. We started our analysis phase by synthesising
Nokia’s history with the larger societal and market evolution. At the same time, we built a
chronological database of Nokia’s historical evolution, focusing on key strategic decisions,
changes in the top management team, and changes in the corporate structure. In the second
phase of our analysis, we mapped the evolution of Nokia’s technology management. During
this process, we held a workshop in which all members of the research team analysed the
same data by reading the material, taking photographs and making photocopies of individ-
ual documents, and finally drawing figures and system descriptions that resulted in an
explicit understanding of the key characteristics of technology evolution over time and
across organisational sub-units. Consequently, we focused on the rhetorical and textual
representations of strategic technology-related decisions by analysing key documents and
interview transcripts that included explicit statements related to our research framework
focusing on technology choices and organisational design (see Vaara & Lamberg, 2016). We
report our findings in the following pages. The interview excerpts are intended to demon-
strate the personal memories and narratives of our informants rather than to be interpreted
as ‘evidence’. Our reasoning is based on our extensive historical work based on source trian-
gulation and represented, for example, in numerous timetables, figures, and depictions of
key decision-making points along the evolutionary processes analysed in our study.
 Business History 9

Analysis
Technology choices concerning new business challenges
In the following, we focus on two causal factors that we argue combined with organisational
design decisions as a sufficient cause of Nokia not producing a better smartphone between
2007 and 2013. The two factors are (1) continuing with Symbian and (2) deciding to abandon
Maemo and build an alliance with Intel to develop MeeGo, among other software experi-
ments. Together these two factors – making one decision slowly and others too fast – are
sufficient cause – we argue – for why Microsoft OS in 2010 was the only available option
after Symbian became outdated and MeeGo and Meltemi were not ready for commercial
use. These technological choices were part of the company’s internal decisions – and, to a
certain extent, internal political struggles – regarding its future technological focus areas.
Figure 2 presents the causal structure of this argument in graphical format and Table 1 lists
the OS projects in which Nokia invested between 2007 and 2013.
Earlier literature lists the development of the Symbian software platform as the most
crucial technological issue in the rise and fall of Nokia’s mobile phone domination.12 Nokia
was locked into a strong path dependence,13 ‘[…] outcome in any period depends on history
and can depend on their order’ (Page, 2006, p. 97), with the Symbian software platform and
hardware development simultaneously being a captive of the company’s major telecom
operator customers. However, the evolution and importance of the Symbian OS cannot be
understood without considering the interdependence between software and hardware
development – and the targets of technology development from the perspective of strategic
marketing. Our informants suggest that throughout the early millennium (approximately

Figure 2.  Causal structure of technology choices.

10 J.-A. LAMBERG ET AL.

Table 1. Nokia’s (known) operating system projects after iPhone launch in 2007.
Operating Application
system Description Life cycle compatibility Heritage
Symbian After the acquisition of 2001–2012 Practically no Symbian development
Symbian Foundation in compatibility across effectively stopped with
2008, Nokia launched three Nokia OS Stephen Elop’s burning
Symbian generations, ^1, environments and platform speech and
^2, and ^3. Rumours of limited compatibility subsequent outsourcing
Symbian ^4. Used in between Symbian of Symbian
high-end mobile phones. generations and development to
modifications. Accenture in 2011.
Maemo Linux-based open source 2005–2010 In the beginning, no Maemo project was
project which resulted in compatibility with stopped and the
few commercial products any Symbian OS resources transferred to
(especially N900 in 2008). varieties. Potential the MeeGo project.
Targeted to high-end compatibility with
smartphones. Android, MeeGo, and
Meltemi (due to
shared Linux-kernel)
and at least through
cross-platform
software (QT).
MeeGo Linux-based OS development 2010–2011 Potential compatibility Nokia withdrew from the
project in alliance with Intel with Android and MeeGo project when it
Corporation. Resulted in Maemo and decided to solely use
one commercial product designed Windows OS in its
(N9) and one product only compatibility with smartphones. Jolla and
targeted for developers Meltemi (from its Sailfish OS were
(N950). Targeted to Meltemi to MeeGo). successors of MeeGo
high-end smartphones. OS. Members of the
MeeGo development
team switched to
Meltemi as did large
parts of the code.
Meltemi Linux-based OS running on 2010–2012 Designed compatibility Nokia’s top management
top of modified Android with MeeGo and planned Meltemi to be
kernel and targeted to potential a competitive
low-end phones (less than compatibility with complement to
$100). Never officially Symbian through Windows OS in the
released yet pictures of cross-platform low-end feature phones
prototypes exist. Targeted software (QT). yet the project never
to low-end mobile phones. resulted in any
commercial products.
ASHA OS that built on low-end S40 2012–2014 No compatibility with Asha was the successor of
(Symbian) OS and received other OS versions. S40 and to some extent
features from Meltemi and Meltemi and produced
MeeGo. few commercial
products.
Windows OS built originally by Microsoft 2011–2016 (last three No compatibility with Windows became the sole
Corporation and later years in Microsoft) other OS. smartphone OS in 2011
designed in Nokia for the and was used in a
Lumia series. Targeted to variety of commercial
high-end smartphones. products until Microsoft
divested the business
line entirely.
Android Nokia built prototypes of 2010–2014 (the exact Compatibility with High-end Android phones
Android phones both for start of the Android apps. did not enter into the
high-end Lumia hardware development project commercial market. The
and low-end Asha is unclear but low-end X family
hardware of which the probably started resulted in few products
latter project resulted in before the Windows while soon stopped by
the Nokia X family. decision was made) the new owner,
Microsoft.
Sources: Press releases, SEC filings 2007–2013; oral history database; technology oriented web-collections such as http://
mynokiablog.com/2014/11/25/mythbusting-nokias-meltemi-part-1-n9-elop-android-safest-best/ [retrieved 25 July 2018].
 Business History 11

from 2001 to 2010), hosts of high-level executives engaged in intra-firm competition to

direct the corporation’s technology strategy. This competition regressed in three alternative
directions: (1) whether the company should maximise profits by lowering costs (the ‘low-cost’
strategy); (2) whether the aim should have been to develop software and hardware to enable
high-end features (the ‘smartphone’ strategy); and (3) whether the company should empha-
sise security and target emerging business markets (the ‘enterprise solution’ strategy). Over
time, these three competing strategies led Nokia to establish separate units with conflicting
interests within the company:
There were no gaps in know-how or competence—it was all about choosing between three
options: optimizing costs and volume, maximizing performance, or maximizing security. And
we moved toward optimizing costs. The hardware decisions based on cost optimizing made it
impossible to achieve performance in software. (Ex-Nokia executive)

After the appearance of iPhone and Android phones, the rivalry culminated between
low-cost and high-end phones. At the time, the key rival technologies were Series 60 and
Series 90 (and their variants) – and, again, in practice, the two technology views of the com-
pany: whether to focus on Series 60 (which required less expensive hardware) or on high-end
smartphones (which would have been better enabled by Series 90 than by S60). The low-cost
strategy won in 2010 and was driven by Nokia’s top management for economic and organ-
isational reasons: low-cost mobile phones brought in the bulk of Nokia’s revenues, and the
corporation’s centralised software development wanted to concentrate on one main plat-
form instead of two with their different variants.
The very beginning of the tripod strategy among low cost, smartphones, and enterprise
solutions occurred when three major mobile phone producers (Nokia, Ericsson, and Motorola)
and Psion founded Symbian in 1998. Symbian’s governance structure was peculiar, consid-
ering its role as the leading mobile operating system before 2007. Each company had the
same number of shares in Symbian, but at the same time, each had its own strategic agenda.
Our material emphasises that the ownership structure made it impossible to strategically
develop Symbian during its first years, as the owners had different views on the basis for this
development. These differences of opinion resulted in three different types of Symbian oper-
ating systems and their varieties. In practice, this rivalry continued for ten years, until Nokia
bought Symbian in 2008. As one of our informants concluded, ‘Symbian was handicapped
from the beginning due to this fracturing [between owners]’.
The major problem for Nokia was to simultaneously pursue three objectives with the
same platform. Over time, these divergent development processes resulted in a situation in
which the software was complex and difficult to manage while the hardware was kept as
inexpensive and simple as possible. This was satisfactory for ordinary phones, but impossible
for high-end products that required maximal performance. For Apple and Android, devel-
opment was performance- and feature-driven from the beginning in terms of both hardware
and software. The computational power of CPU is not the only story involving what makes
some phones better than others. However, the comparison below (Figure 3) illustrates the
result of Nokia’s decision to focus on cost instead of excellence: Nokia lagged behind in
computational power, which had concrete effects on the features and functionality that the
company could offer to the high-end market segment.
It is wrong to demonise Symbian in hindsight. In its heyday in the early 2000s, Symbian
was the most advanced, efficient, and power-saving mobile OS, and it quickly became the
12 J.-A. LAMBERG ET AL.

Figure 3.  CPU speed of high-end smartphones (Nokia, iPhone, Samsung/HTC).23 Source: http://www.
gsmarena.com/ (information retrieved 12 October 2016).

core element of Nokia’s R&D processes. This dependence became stronger in 2008, when
Nokia acquired full ownership of Symbian Limited and initiated plans to create an indepen-
dent entity that would lead the development of the platform.14 In other words, one of Nokia’s
reactions to the changing market situation was to accelerate the development of Symbian:
They bought Psion <…>, and Symbian Foundation was established after that. So, at the time,
it looked like a very wise move, but you have to remember that the competition was basically
calm. But, yes, it was a blessing and a curse because it was already an old operating system.
(Industry expert)

The good thing about the Symbian was that it used much less memory and resources than
the other operating systems. And, because we selected Symbian, we were able to bring the
smartphone to the marketplace […] But I think that if we had not selected Symbian, we would
have not have gotten that far; we would have had much less knowledge of applications and the
software development kit that Symbian people were familiar with. They understood the market
in the same way as corresponding American companies. (Industry expert)

Although the Symbian OS was recourse-efficient, reliable, and worked well with the early
smartphone devices and later with devices for developing markets, there were serious
impediments to Symbian’s success in the new competitive situation: limitations in creating
apps and the absence of an Apple-type app store, the fragmented ecosystem, and poor user
friendliness. Under Nokia’s ownership, the Symbian ecosystem aimed to overcome these
obstacles. However, changes took too long and efforts were not always as expected. The key
challenges with Symbian were, first, its complicated structure, which made development
difficult, and, second, the fact that there were numerous versions of Symbian.
In the telecommunications industry, the modularity of the software platform became
crucial after smartphones with hundreds of applications emerged. Modularity enabled rivals –
especially firms making Android phones – to enter markets quickly, undermining Nokia’s
production efficiency, distribution, and logistics. The central architectural problem with the
Symbian software was that it was not modular. Therefore, devices were tightly coupled with
the release of each software version and the performance enabled by the hardware. At the
same time, dozens of different Symbian software versions were available, but they were not
entirely compatible with one another. Thus, there was de facto no common platform. The
main difference between Symbian and today’s most popular operating systems, such as
 Business History 13

Android or iOS, was that device development drove platform development – the prod-
uct-specific software was only compatible with that device in many cases. A built-in software
upgrade function was not available (the first Symbian Anna update of Symbian^3 was only
available in 2011), and different parts of the software could not be developed and sold. This
method of organising software development was similarly reflected in Nokia’s organisational
structure, which made decision-making about key technological choices complicated, slow,
and resource-intensive.
The question of software design was interlinked with decisions about CPU features and
prices. Around 2007, Nokia’s top management needed to choose between two competing
hardware (microprocessor architecture) solutions: Nomadik and Rapuyama. Nomadik was
the choice of managers willing to focus on high-end products, whereas Rapuyama was
optimal for the low-cost strategy. Top management (Olli-Pekka Kallasvuo and his inner circle)
opted for Rapuyama. As a result, only Nokia N96 used Nomadik microprocessors in 2008,15
whereas the bulk of Nokia phones were based on Rapuyama architecture. The decision
resulted in a situation in which Nokia attempted to offer the same features (cameras, etc.)
as its rivals with less powerful CPUs and inferior software.
At the same time, when Nokia’s top management clashed when choosing the optimal
OS/CPU combination, the development of the new Maemo OS had already started, although
according to our informants, resources were still mainly allocated to Symbian:
The best people applied for the Maemo developing team [around 2007/8], as they saw it as a
future. This further messed up the Symbian development. (Ex-Nokia executive)

Coupling software and device development may have led to perfectly tailored software
for a certain device; however, by 2010, it proved inefficient and overly resource-intensive.
The tightly wired and coupled development and matrix organisational structure, which was
changed constantly, led to a situation in which no one in the organisation was able to speed
up the development process independently:
[…] it was very difficult to develop applications, generic applications for the Symbian platform.
Because there were so many product-specific releases and product-specific software, it was
not at all sure that when you developed an application, it worked across the whole Symbian
product portfolio. (Software developer)

[By 2003,] as a group of organisational development people, we realized that the Symbian
development was too heavy. It was inflexible; it was not doing what the software would be
doing. (Consultant)

According to our informants, developing applications on the Symbian OS was substan-

tially more difficult than on iOS or Android. Nokia’s developer community grew steadily until
2008 and involved some 8,500 developers, approximately 2,500 of whom were independent
subcontractors or developers.16 However, after 2008, the situation changed, and as more
attractive open-source systems became available, Nokia was unable to maintain its developer
community: device-specific releases, uncertainty, and constant delays destroyed the confi-
dence of Symbian OS developers.
The developer problem partially explains another major reason why Symbian did not
prevail – Nokia failed to provide and nurture a functioning Symbian ecosystem. In the tele-
communications industry, the number of users determines the possibilities for building a
credible ecosystem and, thus, the possibility for achieving network effects (Griva & Vettas,
14 J.-A. LAMBERG ET AL.

2011). Nokia’s early ecosystem-building attempts included close cooperation with network
operators. However, with the rise of Internet-based services and ecosystems, it became
apparent that operators were unable to provide that kind of service. Nokia and the operators
were constantly bickering over whose prerogative it was to create online stores, applications,
and downloadable content:
The only difference in what Steve Jobs understood is that neither Nokia nor operators under-
stood software. Nokia was pretending; all the operators were pretending. All the operators’
CEOs were telling Ollila or Kallasvuo that ‘Nokia does not do a product that has an applica-
tion store’ […] Typical telecommunication ecosystem behavior in which operator is the king.
And the operator pretends to be the king of things it does not understand either. (Ex-Nokia
executive)

As the industry’s dynamics changed after the iPhone revolution, the power of network
operators plummeted. Downloadable applications and content for Nokia’s Symbian, MeeGo,
and Series40 mobile devices became available at the Nokia Store. In March 2012, the store
offered more than 100,000 applications and attracted more than 13 million downloads per
day,17 but the iOS app store and Google Play store offered millions of applications and
attracted billions of downloads per day. Nokia lost the app game, as it was not able to build
an attractive business ecosystem. Nokia was and remained a telecom company, unlike its
rising rivals Apple and Google – with origins in computing and the Internet – and thus
presented a different view of the industry. This difference was also continually noted by the
informants in this study:
I think it (Internet services) was disruptive, but the smartphone itself – I don’t think that was the
actual thing. It was the mobile Internet that came before the smartphones. And probably the
second disruptive things were the applications that came on top of that. (Supplier)

Again, the issue was not one of the capability to understand trends: Nokia’s management
realised the value of downloadable content early on: by the turn of the 21st century, Club
Nokia services were available and offered products such as ringtones and background pic-
tures – but they were not applications in the sense that was common to smartphones a
decade later. The main obstacle to generating more user content was that Symbian OS was
not an open-source system; external developers had to wade through numerous legal pro-
cedures to bring their apps to the market. Even after Nokia made the Symbian OS fully open
source, the platform was unappealing to the developer community:
The Symbian ecosystem was driven by the manufacturers and the operators, while the other
ecosystems that emerged then were dominated by the applications and the service develop-
ers. That was the fundamental difference. (Ex-Nokia executive)

The end of the Symbian era came on 11 February 2011, when Nokia announced that it
was joining forces with Microsoft and making Windows Phone its primary smartphone
platform.
It is important to note that Nokia’s top management and technology specialists rec-
ognised rather clearly and realistically the challenges of the Symbian OS and the new eco-
system-based competition logic. Management discussed multiple options for a new
technology strategy in terms of both software and hardware. One option that was widely
discussed in the media was whether Nokia should have used the open-source Android
operating system and dismissed the ongoing development with Symbian – and, in the end,
 Business History 15

not allied itself with Microsoft at all. If Android had been selected, Nokia could have become
the quality leader, better than Samsung, HTC, or any other manufacturers using the same
software. However, top management attempted to avoid becoming a software-agnostic
hardware vendor at all costs and thus wanted to avoid the open-source option. In 2010, one
of Nokia’s top managers, Anssi Vanjoki, made it clear that choosing Android OS would have
solved only short-term problems and would have not provided any solution for the com-
pany’s long-term strategic problems.18 Even with Android, Nokia would not have had a
dominant operating system under its control. Accordingly, although the decision to adopt
the Microsoft platform was controversial, many of our informants agreed that it was the
logical choice.
[…] the only alternative was the old archenemy Microsoft, which had to get a credible platform
to go into the market. It wasn’t the perfect decision, but in many ways, it was the only decision
that they could make. (Industry expert)

Although Microsoft did not possess an outstanding market share in the mobile phone
market, it did – in theory – possess the software muscle to push development forward.
Additionally, Microsoft had a strong presence in the enterprise sector in which Nokia
attempted to win back lost corporate customers. MeeGo, Maemo, Meltemi, and newly coded
versions of Symbian were options before the Elop regime, but they never obtained enough
support and network effect to break in commercially.
In summary, the picture of Nokia’s technology strategy from 2003 to 2013 is confusing.
In the beginning, Symbian became an endogenous element in practically all high-end phone
development, and when its inferiority in the new competitive setting was later recognised,
Nokia launched a series of development processes (new versions of Symbian, Maemo, MeeGo,
Meltemi, Nokia X, other prototypes with Android, Microsoft, etc.), each requiring attention
and other resources and even resulting in fierce internal competition ‘between factions’, as
one of our informants described the last years of mobile phone production at Nokia.
As the above narrative and Table 1 demonstrate, Nokia executives made many peculiar
decisions concerning the technology strategy of the corporation. For example, Nokia had
already launched a number of commercial products using Linux-based Maemo OS (e.g. the
Nokia N900). For unknown reasons, the development of Maemo was stopped and switched
to the MeeGo project in 2010 and simultaneously to the Meltemi project. MeeGo was a joint
operation between Nokia and Intel and proceeded slowly. It is possible that Maemo had
such technological challenges that it came to a dead end. However, the decision to enter
into the mentioned alliance in a situation in which urgency was very high is unusual because
of the well-known risks of inter-firm alliances. It is possible that the competitive threat was
not seen as a true strategic challenge, as Nokia had already succeeded in besting its com-
petitors’ innovative new products with its superior production capacity and logistics – or
simply by copying products (such as the Motorola Razr and the RIM Blackberry earlier). Thus,
management clearly thought that copying the iPhone would also be possible, for example,
by using the emerging MeeGo platform, but it was not ready yet to compete without having
developers and applications for MeeGo devices:
I think it was a classical type of thing that Symbian was hoping that MeeGo would come earlier
and MeeGo was hoping that Symbian would last longer, and kind of neither happened. And
there was a clear mismatch of what was needed in the market and what was available from
Nokia. (Ex-Nokia engineer)
16 J.-A. LAMBERG ET AL.

[The dismissal of MeeGo] …was basically because it was felt at that time that there was not a
proper ecosystem supporting MeeGo—to make MeeGo successful in a global marketplace, you
would have needed these 4.5 million application developers. And there was not a single one
at that point when it was introduced to the markets. And the overall development was slowed
down in the latter part of 2000. (Ex-Nokia executive)

Overall, Nokia’s technology development stretched to many directions and lacked a clear
strategic vision: the corporation was not in paralysis but just tried to do too much in a short
period of time. We are left with two open questions important for our understanding of how
and why Nokia was left behind in the OS competition: (1) Why did specialists and deci-
sion-makers in Nokia believe and invest in Symbian for such an extended period of time;
and (2) why and how did key decision-makers engage in making a series of stop-go decisions
concerning alternative technologies in a situation that would have required focused action?

Organisational design both unfrozen and disunited

In the previous section, we identified two causal conditions (Symbian and the number of
alternative technologies) as having a direct causal relationship with the effect that Nokia
was unable to produce a competitive smartphone after iPhone and before the business was
divested. Next, we demonstrate the inconsistency in Nokia’s organisational design that log-
ically affected the two conditions related to technology management. Because we do not
have data, for example, on individual-level movement from one business unit or R&D project
to another, we do not know the exact causal mechanism, but we assume that the causal
conditions are not separate. Instead, they jointly configure a set of conditions that explains
the ‘no iPhone killer’ effect. Our material also highlights the role of political conflicts. However,
this condition remains a latent condition, as it is neither necessary nor sufficient to directly
explain any of the other conditions and effects. Figure 4 illustrates this causal reasoning in
graphical format:
Our inquiry into changes in Nokia’s organisational design starts from the observation that
Nokia attempted to be a modern, flexible (aka agile) company. Since the early 2000s, Nokia’s

Figure 4.  Causal relationship between organisational design and technology choices.
 Business History 17

managerial culture specifically emphasised flexibility and internal competition as the key
antecedents of its competitiveness. This agility principle was duly communicated in the
literature associated with Nokia’s interests (Doz & Kosonen, 2010; Steinbock, 2003, 2010) and
in public speeches given by the firm’s top management:
Being fast is significantly more important than foreseeing what happens in the market. This
is our key competitive advantage. (CEO Olli-Pekka Kallasvuo in Suomen Kuvalehti, 10/2006)

So, on all three key dimensions of strategic agility – strategic sensitivity, collective commit-
ments, and resource fluidity – Ericsson was outmanoeuvred by Nokia when it came to mobile
communication opportunities. (Doz & Kosonen, 2010, p. 4)

When examining the period of 2006–2010, the dominant picture is that these ideas mate-
rialised in a near-hysterical corporate climate. As the preceding sections have demonstrated,
during the first intense encounter with a new type of competitor, Nokia was inconsistent in
its reactions, launching numerous projects and strategies to counterattack its emerging
rivals. We now turn to two key organisational aspects that correlate with the erratic top-level
strategising at the Nokia Corporation: top management team dynamics and decisions on
strategy and corporate structure.
In a flattering report in Fortune magazine in 2000, Nokia’s success was centrally linked to
its experienced and close-knit executive team (CEO Jorma Ollila’s ‘dream team’), which had
a shared history at the corporation going back to the early 1990s. By 2010, most of these
dream-team executives were long gone, and Nokia’s strong self-confidence in the early years
of the 21st century had turned into near panic at the top of the corporation, which was
registering heavy quarterly losses. One interpretation regards Nokia’s evolution as a series
of unrelenting management interventions regarding both strategy and structure. The com-
petitive challenge posed by Apple and Google was not the only, or perhaps even not the
foremost, worry at Nokia’s corporate headquarters during the formative smartphone years
of 2006–2008.
As Figure 5 illustrates, even without considering external competitive threats, Nokia seems
to have experienced high internal turbulence. There was a high rate of turnover in its top
management team, post-merger integration challenges related to the amalgamation of
Nokia and Siemens’ telecom networks businesses in 2006 were obvious and far-reaching (to
create a unified Nokia-Siemens network), and the corporation consequently undertook a
series of major strategic and structural changes. Accordingly, the new CEO, Olli-Pekka
Kallasvuo, took over from Jorma Ollila in a highly demanding situation, given that the atten-
tion of the top management team is a key resource for any company (Joseph & Ocasio, 2012).
Changes at corporate headquarters, business-related challenges other than mobile phone
competition, and Kallasvuo’s conservative leadership mentality produced three outcomes:
inadequate technological understanding among the top management team, a corporate
strategy heavily based on investor expectations (including, e.g. considerable stock buybacks),
and cost-focused conservatism in the launch and implementation of competitive count-
er-moves against emerging competition from smartphone players such as Apple and Google.
Symbolically, one of the first decisions in the Kallasvuo era was to dissolve the Future
Technologies team, which had focused on analysing future technological trends and
related business opportunities and threats. At the same time, the position of the Chief
Technology Officer (CTO) disappeared from the top management team around 2007, when
18 J.-A. LAMBERG ET AL.

Figure 5. The number of employees from 2000 to 2015 and the timing of major changes in the organi-
sational structure and executive team.

Pertti Korhonen19 left the executive team with long-term CEO Jorma Ollila (although Ollila
chose to remain chairman of the board until 2012). The top management team was con-
sequently revamped, and the CTO position was re-established in 2010 under new CEO
Stephen Elop; however, some of the earlier literature (Cord, 2014; Salminen & Nykänen,
2014; Risku, 2010) and our informants are almost unanimous regarding the impossibility
of running a technology company without strong tech-specific leadership at the top of
the corporation:
[…] at the same time the CEO changed, a lot of technical skills disappeared from the top man-
agement, and it became more and more businesspeople with business backgrounds and no
technical skills. […] there was not enough understanding in the top management or the layer
underneath about what is realistic and where the real problems are. They were living in the
bubble and were very focused on the new strategy of doing the services and totally ignored the
devices. Because it was ‘we are No. 1 in the world, and we don’t need to care about it’. (Ex-Nokia
technology manager)

It is an exaggeration to say that there was no technical know-how in the top management
team, even during the turbulent years; that simply is not true. However, Kallasvuo was not
knowledgeable in technology. (Ex-Nokia executive)

There is no need for the CEO to be an expert in software development or technology. Instead,
she or he must be passionate about learning the basic technological logics and willing and
capable to find the right people for the right positions. Nokia was unable to find managers who
would have built it as a software company. Nokia was phlegmatic and powerless with Symbian
[…] when Pertti Korhonen left Nokia in 2006, the software-specific understanding of business
in the top management team decreased dramatically. (Ollila & Saukkomaa, 2013, p. 458)
 Business History 19

The interpretation here is not that the Nokia of the era lacked technological capabilities
per se – rather, Kallasvuo and his closest strategy officers had quite different strategic objec-
tives. They wanted a streamlined corporation that would look good to investors and other
financial market actors. This was necessary since the gross revenues of the corporation had
been flat due to the saturation of the (non-smartphone) handset markets for a couple of
years. They were convinced that Nokia would outcompete its rivals with its operational
excellence in the future. Earlier, Jorma Ollila had not been particularly interested in techno-
logical detail either,20 but he had a top management team that had hands-on experience
both in research and development and in technology strategy.
The diminishing emphasis on technological capabilities in Kallasvuo’s regime is under-
standable from a strategy process perspective. Salminen and Nykänen (2014) and Cord
(2014) reveal that Nokia employed a colossal strategic planning team in its Espoo head-
quarters that involved hundreds of people in various roles. However, this team was not
empowered either to challenge the corporate strategy or to help the top management
team renew its strategic focus. In contrast, the team was part of Nokia’s unrelenting efforts
to match investor expectations – ‘to produce marketing materials for the stock market’, as
one of our informants described the role of the strategy staff. This logic permeated the
organisation and its culture:
Nokia was a product company, where all the targets were set to product making and these soft-
ware development kits and third-party ecosystem and apps were a second priority. We were
pretending that they were the first priority, but in the actual action and the actual target setting
for people and the actual compensation systems, they were not the primary target—they were
the secondary target. And that was pretty much due to the target setting of Mr. Ollila. It was
completely inadequate to combat the iPhone. (Ex-Nokia executive)

There was no finance, no budget to keep the software platform good, and it was not analyzed
as an important business component. […] I can explain that the core target setting was why
many new products appeared each year—I mean hardware products, new model numbers.
(Ex-Nokia executive)

The emphasis on keeping investors happy created a chasm between corporate head-
quarters and the technology development teams lower in the organisational hierarchy. Most
importantly, emerging substantive conflicts particularly affected software. An engineer in
the Symbian development later described a total communication breakdown between
organisational layers:
[…] the Nokia leadership responsible for the Devices unit’s execution of Symbian Open Source
products and initiatives was told directly that the ecosystem (consisting of manufacturers
and suppliers) and our efforts would falter if we didn’t have commitments to 1) relocate and
improve developer tools under our open model, 2) to have an effective app store strategy,
e.g. not one homegrown by Nokia alone, and 3) to secure our operating budget. We asked for
their direct support on all three…The Foundation and our ecosystem initiatives didn’t get any
support for those initiatives, despite sitting down with the leadership at the key moment. Quite
the opposite, the rug was pulled out from under us at almost every turn. (Interview with Lee
Williams, Forbes, 3 September 2013)

Why was Kallasvuo unable or unwilling to change Nokia’s technology strategy to more
aggressively counter the ascension of Apple and Google? The stream of strategic decisions
from 2006 to 2010 illustrates an essentially conservative strategy that emphasised stock
20 J.-A. LAMBERG ET AL.

market reactions and neglected crucial technological issues, which would have been essen-
tial for the generation of powerful feature phones in the emerging smartphone market. Key
reasons for this conservatism were that Kallasvuo and his team had invested a considerable
amount of their time and energy to launch and implement major structural changes. A key
outcome was the neglect of a comprehensive but focused technology strategy. The tanta-
mount strategic objectives were financial performance and market share:
Kallasvuo was absolutely the best possible CFO, but he was unfortunately the CEO at a time
when technological decisions were more important (Ex-Nokia executive)

Nokia said a ‘substantial’ portion of savings [from the merger with Siemens network] was
expected to materialize in the first two years. [Kallasvuo:] ‘These changes are expected to result
in a headcount adjustment over the next four years in the range of ten to fifteen per cent from
the initial combined base of about 60,000’. (Financial Times, 19 June 2006)

It was extremely difficult to bring in any innovations or new business opportunities that did
not align with the mainstream Nokia strategy—unless it was pushed down from the top man-
agement. The top line—Symbian devices—were showing outstanding sales figures and any
activities that might have threatened the existence of the top-selling line were considered cau-
tiously. (Ex-Nokia executive)

An elemental part of ‘Nokia agility’ involved reacting to changes in the market by changing
the company’s organisational structure. The threat by Apple and Google from 2007–2013
was not the first competitive challenge Nokia had repelled during the 2000s. In 2003, the
company faced increased competition, such as Motorola’s slim and appealing Razr phone
using cheap component producers in Asia, resulting in its market share dropping from 35%
in 2002 to 31% in 2004 (Appendix 3; see also McCray, Gonzalez, & Darling, 2011). In response,
Nokia’s top management, led by Jorma Ollila, restructured the company and further opti-
mised its production and logistical processes, which significantly reduced costs and time-
to-market while increasing the range of devices produced.21 Moreover, new models and the
introduction of the first Symbian 60 series phone with a camera returned Nokia rather quickly
to its previous market leader position in most target markets globally. The new decentralised
matrix structure brought about positive changes and helped boost Nokia’s sales. In 2004,
Nokia’s Chairman and CEO Jorma Ollila stated, ‘We are energized by our reorganization into
four business groups, which better reflect our strategy to expand mobile voice, drive consumer
mobile multimedia and mobilize enterprise solutions’.22 However, even in 2003 and 2004, ideas
about the matrix organisation were questionable; one of our informants claimed that the
organisational changes in 2003 and resulting insufficient investments in marketing were
the main reason for this market share decline, not the appearance of competitors such as
Razr (compare Doz & Wilson, 2017).
The idea of the value of constant structural changes, however, was deeply rooted in Nokia’s
management culture. Accordingly, combined with the requirements of the Siemens merger
and the Navteq acquisition, Kallasvuo’s response to engage in incessant rounds of major
organisational changes and restructuring was logical. However, this time, the changes dam-
aged Nokia’s competitiveness and resulted in increased slowness in Nokia’s competitive
actions against the new competitive threats in the smartphone market. The most apparent
problem with Nokia’s habitual use of organisational restructuring to change or implement
a novel strategy was the high frequency of such changes. Between 2000 and 2013, Nokia
launched three larger changes in its organisational structure, and practically every year
 Business History 21

included some major adjustments. As a consequence, the importance of the informal organ-
isation grew exponentially as organisational process development ground to a halt and was
constantly manipulated by top management. In some sense, the more hierarchical organi-
sation structure from the 1990s continued during these organisational changes, but without
centralised power:
[…] we decided to become a global company that would be open to those new ideas, and
we therefore introduced this matrix organisation. But, in practice, it became very difficult to
implement. Because people tend to still think in terms of hierarchy, they tend to think in terms
of silos and in their own terms and agendas, and it’s difficult. It fights against some of the basic
ways that people behave. (Ex-Nokia executive)

I would say that [the organisational structure] wouldn’t have been a problem if there had been
enough coordination between the different business units. But there was no sufficiently strong
technological leadership in a context where the different business units were driving in differ-
ent directions. (Ex-Nokia executive)

The manner in which Nokia’s top management redesigned the organisational structure
presented another problem: the matrix organisation consisted of a constantly changing
quantity of business units (Mobile Phones, Multimedia, Networks, and Enterprise Solutions
in the 2004 corporate architecture, for instance) on the one hand and numerous horizontal
units that linked and served functional units on the other hand. While the core rationale for
this decision may have been sound and in line with Nokia’s agile image, the result was the
gradual emergence of serious functional problems: cannibalistic internal competition
between business units and even individual development projects, fierce rivalry between
competing technologies (especially between Symbian and Maemo/MeeGo), and a highly
complex decision-making environment that was sensitive to politicking.
Internal competition was hard-wired into Nokia’s organisational culture. Nokia typically
nurtured dozens of competing product programmes and focused on product-specific soft-
ware designs and the wide diversification of market segments. This policy created tensions
between functional and development project managers, scattered authority, and blurred
responsibilities. These negative outcomes appeared not only in strategic planning but also
in execution, in which employees ended up with more than one functional supervisor and
became frustrated with reporting and fulfilling heterogeneous requirements that did not
serve their core responsibilities in the organisation.
The matrix organisation generated novel practices in the workplace such as the formation
of virtual teams and increased telework, along with the creation of decision-making teams
based on a concrete problem and project teams formed in a temporary, ad hoc fashion.
However, the scattered and ambiguous chain of command required more meetings and
internal bargaining, which resulted in considerably longer procedures for any minor decision.
Most importantly, the matrix only aggravated the fragmentation of technology development,
as different organisational units began to concentrate on certain defined characteristics of
the operating systems, which meant that different product development programmes
needed additional adjusted software, resulting in copious product-specific software releases
linked with certain devices:
Having three business units made no sense. They all made the same stuff, and that just increased
internal competition […] and the other thing was that the technical skill was so low that the
top management couldn’t specify any technical criteria for how the Enterprise product or the
22 J.-A. LAMBERG ET AL.

Multimedia product would be different. There were no technical guidelines for the Research
and Development people due to the laziness of the top management and their lack of under-
standing of even products themselves. (Ex-Nokia executive)

Nokia’s problem was that Nokia had three competing factions inside the company: the MeeGo
faction, the Symbian faction, and the Series 40 faction. And all these other factions tried to
harm the MeeGo faction. Because you don’t want even your internal competitor to survive;
your objective is to kill them. And it’s also that these low-level managers or medium-level man-
agers were left to do is that the management didn’t understand anything about the software
[…] So, the MeeGo failure is completely in-house politics because they were not allowed to
put the telephone in. They were not allowed to put the chip that had the telephone into the
product. (Ex-Nokia executive)

Internal competition was intensified by the aggressive incentive scheme for middle and
top managers (Palmu-Joronen, 2010) and constant formal changes in corporate structure.
In addition, the complex organisational architecture resulted in an increasingly slow and
arduous decision-making environment. The agility-based management ideology simply
stopped working when serious competitive threats emerged. Although Nokia’s top man-
agement was acutely aware of the major competitive threats that it faced, it is paradoxical
that few opportunities were available to make major strategic interventions without risking
even more organisational dysfunction (Jacobides, 2007). Furthermore, Nokia employees
were already frustrated with the organisation and its dysfunctional horizontal decision-mak-
ing. The reasons for this frustration lay in the dispersed and unclear chain of command when
the organisation removed some levels of the hierarchy:
Because of the structure, all the product projects developing some device were always depen-
dent on some other program or platform. They were not able to develop anything by them-
selves. (Ex-Nokia executive)

Some key employees felt that they had no influence whatsoever over important decisions
or vice versa – they had too much influence on less significant matters, and negotiations on
petty details required too much effort. Forming cross-functional project teams was a pro-
ductive way of moving forward, but only as long as they were supervised by a strong chain
of command. At Nokia, the lack of technological capabilities in the top management team,
the complex and unclear organisational structure, and the culture of internal competition
resulted in slow and inefficient decision-making and ultimately in an inability to catch up
with competitors’ novel offerings, which were often superior from the perspective of the
consumer. The remaining questions for future research focus on the process resulting in
these outcomes and decisions: Why and how did Nokia’s executives make the decisions they
made and what was the role of internal (e.g. a strategic planning task force) and external
(e.g. consulting firms and investment bankers) advisers in this process; and what were the
specific mechanisms that transferred inconsistency in organisational design to technology
management issues and processes?

Discussion and conclusions

The key lesson of our study can be summarised as follows: there can be no short cuts in
explaining complex causal processes. Nokia did not lose its market leader position because
 Business History 23

of middle manager fear and anxiety, internal politics, or because of deteriorating top leader
competence. Such simple explanations originate from the strong tendency to formulate
compacted narratives and novel theoretical explanations in both academic management
research and popular management literature (Barley, 2016).
The initial motivation for our study was to collaborate with Nokia engineers to collect
oral histories focused on software development and the ill-fated Symbian platform. This
article is a by-product of that project, with the goal of critically analysing the related evolu-
tionary process as studied by business historians with a philosophical background in critical
realism. While we do not argue that we found the truth concerning Nokia’s history (or a piece
thereof ), our study should be seen as a step towards cumulative knowledge about Nokia’s
loss of market leadership and similar failure cases (cf. Finkelstein’s 2006 study on Motorola).
Consequently, our key finding was the causal relationship between choices concerning
technology and organisational design, as illustrated in Figure 6:
The above causal model illustrates that the agile management philosophy materialised
in a constant flow of changes in organisational structure, allowing multiple incompatible
technology platforms and development projects to compete for resources at the same time.
The organisational outcome was a profound inability to use the still-abundant resources
Nokia possessed effectively and efficiently to retain market leadership. We have to remember
that during our period of analysis, Nokia used almost €19 billion for its own share buybacks
instead of investing this enormous sum in the development of new technologies, products,
processes or entirely new businesses (Hämäläinen, 2012).
There are many questions that our study could not answer: why was the development of
the Maemo platform halted and the resources transferred to a risky joint project with Intel;
why did top executives believe in the future prospects of the Symbian platform for so long;
and how did Nokia use external advisers in making various platform decisions? Naturally, our

Figure 6.  Causal model of the process ending in Nokia’s inability to produce better smartphones.
24 J.-A. LAMBERG ET AL.

main argument is not that agility would be a strategic management concept generally and
univocally harmful for corporate performance in all possible contexts or that organic evolu-
tion and incremental learning would be beneficial for each and every firm. What we aimed
to demonstrate through the Nokia case is that the corporation chose the worst possible time
for the simultaneous implementation of both strategic agility and high evolutionary variation
in its technologies. Speedy decision-making (Stieglitz, Knudsen, & Becker, 2016) accompa-
nied by ruthless, effective and efficient architectural product innovation (Henderson &
Clark, 1990) would have been required to win the smartphone game (if that could have been
won at all, cf. Roiij, 2015). The logic underpinning this somewhat counterintuitive notion is
the need for fast and ruthless response to the quickly emerging competitive threat that would
have been best achieved by relying on established routinised technology management pro-
cesses. Nokia’s history clearly demonstrates the earlier superiority of its technology manage-
ment and product rollout processes. However, during the critical opportunity window to
beat the competition in 2007–2010, these processes were essentially broken.
Our historical study reported in this article gives rise to a few important avenues for future
research. First, Nokia is among many failed telecom companies: Motorola, Ericsson, Sony
and many of the pioneers of the 1980s also dropped out of the competitive struggle. An
obvious topic for a comparative historical study would be to focus on the anatomy of these
failures. Second, and relatedly, the regimes of the successive CEOs Ollila, Kallasvuo and Elop
and their top management teams should be investigated more in depth from the viewpoint
of exercising strategic leadership. More generally, the question of top management regimes
as an explanation for organisational evolution would open important theoretical and empir-
ical avenues of research. Third, we hope that our work could be used as a sample of how oral
historical methods can be used in cases in which archives are either non-existent or non-ac-
cessible. This might be of utmost value in future when massive digital archives become
available; namely, to be able to use those archives (i.e. ‘ask the right questions’), one might
first have to pursue oral historical methods to make sense of the organisation (i.e. to be able
to ‘ask the right questions’). This might turn the process of oral history upside down, as
current methodological guides usually emphasise the need to familiarise oneself with the
object before beginning interviews.

Notes
1. For example, Huy, the senior member of the research team of Vuori and Huy (2016), had stud-
ied emotions and fear in organisations long before doing fieldwork at Nokia (see e.g. Huy,
1999, 2011) so the hammer existed before the nail.
2. INUS refers to ‘Insufficient but Necessary part of a condition which is itself Unnecessary but
Sufficient for the result’ as defined by Mackie (1965) (cited in Mahoney et al., 2009).
3. Nokia’s history has been written many times. We essentially built on Häikiö’s (2001) commis-
sioned history, Lindén and Nykänen’s (2016) analysis of Nokia’s societal impact, Aspara et al.’s
(2011, 2013) studies of the company’s 1990s corporate turnaround, the meta-analysis by
Lamberg, Laukia, and Ojala (2014) and Laamanen, Lamberg, and Vaara (2016), Van Rooij (2015),
and Ollila’s memoirs (Ollila & Saukkomaa, 2013). In terms of facts and figures, we mainly use
Nokia’s SEC filings and annual reports. On popular histories of Nokia during the 1990s and
early 2000s, see especially Bruun and Wallén, (1999), Steinbock (2001), Häikiö (2002), and
Skippari and Ojala, (2008). Appendix 1 summarizes the main developments of Nokia.
4. http://developer.nokia.com/community/wiki/Symbian_OS [Retrieved 2.2.2014]
5. Nokia Corporation Annual report 2004, p. 31.
 Business History 25

6. ht t p : / / w w w. i n d e p e n d e nt . co. u k / n e ws / b u s i n e s s / a n a l ys i s - a n d - fe at u re s / m i c ro -
soft-buys-nokia-150year-history-of-finnish-company-with-humble-beginnings-8795907.html
[retrieved 31.1.2014]
7. Nokia Corporation press release, 2 December 2008.
8. Nokia press release, 15 February 2010.
9. Microsoft press release, 10 February 2011.
10. Microsoft press release, 3 September 2013.
11. See http://www.oralhistory.org/about/principles-and-practices/. Retrieved on 14 August 2018.
12. The central role of Symbian is described in almost all of the ten Nokia studies listed in Appendix 2.
13. The literature on path dependence is extensive. Our work is based on conceptual research in
organisation studies and applied mathematics. See, for example, Sydow, Schreyögg, and Koch,
(2009); Page (2006); Arthur (1994).
14. Nokia Corporation Annual Report 2008.
15. https://en.wikipedia.org/wiki/Nomadik.
16. Research Institute of the Finnish Economy 2014.
17. Nokia Annual Report 2011.
18. http://www.engadget.com/2010/09/21/ce-oh-no-he-didnt-anssi-vanjoki-says-using-android-
is-like-pe/ [Retrieved 24.9.2014]
19. CTO Pertti Korhonen worked at Nokia in different positions from 1986 to 2006 and was a key
actor in numerous essential technology development projects.
20. An excerpt from the Fortune magazine article illustrates Ollila’s attitude toward technological
details: ‘Jorma Ollila is standing before a small group of analysts and investors at the Mark
Hopkins Hotel in San Francisco, failing to answer some increasingly arcane questions about
technological developments in the wireless industry. “You beat me with the technical details
there,” the CEO tells one interrogator. “I’m sorry, my mind was wandering,” he says as he asks
another to repeat his question. Then Mark McKechnie, a wireless industry analyst at Bank of
America Securities, asks about something that actually matters to Ollila: Will Nokia extend its
market-share lead this year?’ (Fortune 1.5.2000).
21. Nokia’s governance model was such that even major shareholders could not effectively inter-
vene in the strategic management of the corporation. According to the official SEC filing de-
scription ‘…the control and management of Nokia is divided among the shareholders at a gen-
eral meeting, the Board of Directors (or the “Board”), the President and the Group Executive
Board chaired by the Chief Executive Officer’. For example, in 2008 Jorma Ollila was the
Chairman of the Board (having previously also been both CEO and Chairman for many years)
and CEO Kallasvuo was a member of the board. What is more, the board was a mix of internal
and external members and in practice strengthened the power of both Ollila and Kallasvuo,
the latter of whom also acted as the President of the Group of Directors. This situation changed
only in 2010 when Risto Siilasmaa became the Chairman (i.e. being the first ‘outsider’ Chairman
since 1999) with Stephen Elop as the CEO and President of the Group of Directors.
22. Nokia press release, 2004.
23. We counted N95, N96, N97, N8, n9, Lumia920, Lumia 1520, and Lumia 929 as Nokia’s flagship
phones. For Android, every new variant of the Galaxy series was included, except for 2008–
2009, for which we used HTC’s best models.

Acknowledgements
We gratefully acknowledge the comments received at the 2016 Industry Studies Conference and the
feedback from Jukka Luoma. The project has been funded by the Academy of Finland project ‘Learning
from the past for the future’, which focuses on the narrative explanation and causal inference of failures
of large telecommunication firms and especially Nokia, Apple, Motorola, and Ericsson.

Disclosure statement
No potential conflict of interest was reported by the authors.
26 J.-A. LAMBERG ET AL.

Funding
Academy of Finland, Kulttuurin ja yhteiskunnan tutkimuksen toimikunta.

Notes on contributors
Dr Juha-Antti Lamberg is a Professor of Strategy and Economic History at the University of
Jyväskylä. His research focuses on strategy, the history of strategy, and industry evolution. He has
published research in the Academy of Management Review, the Strategic Management Journal,
the Journal of Management Studies, Industrial and Corporate Change, the Academy of Management
Learning & Education, and other leading journals of the field. In recognition of the quality of his
research, Prof. Lamberg won the Sloan Foundation’s Industry Studies Best Paper Prize in 2008,
the Carolyn Dexter Award in 2009 at the Academy of Management Conference, and the
Outstanding Article of the Year at the Academy of Management Learning & Education in 2015.
Sandra Lubinaite is a former student in the Master’s Degree Program in International Business
and Entrepreneurship at the University of Jyväskylä. Currently, she works at the Telia Corporation.
Her research focuses on Nokia’s technology management from 2000–2013.
Dr Jari Ojala is a Professor of History and a Chair of the Department of History and Ethnology.
Prof Ojala specialises in comparative business history. His research has been published in jour-
nals such as the European Review of Economic History, Business History, Industry and Innovation,
Management & Organisational History, the International Journal of Maritime History, and the
Journal of Management History. He is the Editor-in-Chief of Scandinavian Economic History Review
(2015–2018), has served as the Editor-in-Chief of the Scandinavian Journal of History (2004–2009),
and is a member of the editorial boards of the International Journal of Maritime History and Essays
in Economic and Business History.
Dr Henrikki Tikkanen is a Professor of Business Administration at Aalto University School of
Business (until 2010, Helsinki School of Economics) since 2004. Prof Tikkanen’s academic research
covers strategy, leadership, strategic marketing, and industrial business relationships and net-
works. He has published papers in the leading journals in these fields, such as the Strategic
Management Journal, the Journal of Marketing, Long Range Planning, the Journal of
Management Studies, Industrial and Corporate Change, the European Journal of Marketing,
Industrial Marketing Management, and Management & Organisational History.

ORCID
Juha-Antti Lamberg http://orcid.org/0000-0003-3173-0199
Jari Ojala http://orcid.org/0000-0002-4348-8857
Henrikki Tikkanen http://orcid.org/0000-0002-6802-1524

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Appendix 1: Timeline of the events at Nokia Corporation and the mobile

communications industry
Year Nokia Corporation Industry
2000–2001 Nokia 9210 Communicator – best-selling PDA iTunes released
2002 Nokia 7650 – first smartphone with Symbian OS First network operators in South Korea and the
(S60) USA adopt 3G standard
2003 N-Gage gaming phone (S60) Motorola Razr BlackBerry convergent
smartphone
2004 Matrix reorganisation Nokia 7710 – first
touchscreen smartphone
2005 Internet tablet 770 (Maemo) Google acquired Android Inc.
2006 Olli-Pekka Kallasvuo appointed as CEO CTO
position discontinued 46 new device models
in one year Nokia Content Discoverer Nokia
Music Recommenders
2007 Nokia N95 – Symbian OS (S60) Nokia-Siemens First generation iPhone Google announced the
Networks (merger) Open Handset Alliance (initiated plans to
develop Android OS)
2008 Nokia acquired Trolltech (Qt framework) N-Gage iPhone 3G HTC Dream – first Android powered
purchase/download store Symbian phone Android market launched (later
Foundation Symbian^1 Nokia acquired Google Play Store)
Navteq (location-based services & maps) OVI
store (to share Symbian software products)
2009 iPhone 3GS LTE standard (4G) deployed in
Europe Samsung, LG, Sony Ericsson, HTC,
Motorola, Huawei manufacturers deploy
Android OS
2010 Symbian becomes open source MeeGo officially Apple iPad USA shift to LTE networks (4 G)
announced Symbian^3 Nokia N8 Stephen Samsung Galaxy S Nexus smartphones and
Elop appointed as CEO Anssi Vanjoki leaves tablets (Google) iPhone 4
Nokia
2011 Burning platform memo Windows Phone made 39% of all devices sold were powered by the
primary platform Smart devices and mobile Android OS Samsung Galaxy S II Samsung
phones separated OVI services discontinued Galaxy Note ‘phablet’
Symbian upgrades released (Symbian Anna,
Nokia Belle) Nokia N9 – first and only MeeGo
smartphone Symbian software and
development outsourced to Accenture Lumia
800, Lumia 710 with MS OS Meltemi OS
introduced
2012 Lumia 900 for the US market Meltemi iPhone 5 Samsung Galaxy S III
development stopped by top management
2013 Handset business sale to Microsoft announced Samsung Galaxy S4
Appendix 2: Earlier literature focused on Nokia’s fall
Publication Type Scope and depth Material used Key results
Alcacer, Khanna, and Teaching case Relatively narrow Public sources and interviews Being a teaching case, nothing decisive.
Snively (2014)
Ali-Yrkkö et al. (2013) Report Relatively narrowPublic sources and accumulated Nokia’s collapse was a result of increasing competition and the rise of superior offerings by
company-specific knowledge Apple and the Android producers.
of the authors (recognised
industry specialists)
Cord (2014) Book Complex and broad Interviews and public sources Being a book with a narrative structure, explanations are many from the emergence of new
competition to the internal struggles of Nokia.
Doz and Wilson Book Broad but theoretically Interviews, public sources, and The explanation is built on the co-evolution of culture, cognition, and other factors from the
(2017) focused first author’s personal theoretical framework, ending in an empathetic, but deterministic account of the
knowledge on the company’s complexity and difficulty of strategic renewal, especially with respect to social tensions on
recent history the top management team.
Ollila and Book Broad Memoirs of Jorma Ollila Reasons for Nokia’s problems originate in Ollila’s book as mistakes and misunderstandings of
Saukkomaa the new management combined with the magnitude of the problems they faced after
(2013) Apple’s coming to the market.
Risku (2010) Book Broad Autoethnography and memoirs Risku’s book identified many of the problems resulting in Nokia’s collapse before that collapse
by the author, who had was publicly recognised. The problems listed in the book are many, starting with a lack of
worked at Nokia in different capabilities in consumer marketing and design and ending in structural and cultural
managerial positions. factors preventing any attempts to obtain radical changes.
van Rooij (2015) Peer-reviewed Relatively narrow Public sources and especially use Rooij’s interpretations is that Nokia failed to respond to new competitive threats primarily
article of the theoretical framework because of its success in feature phones (i.e. the ‘wrong segment’ after 2007) and lack of
of the article. strategic alternatives (i.e. new businesses other than phones and networks).
Salminen and Book Complex and broad Interviews and public sources Salminen and Nykänen’s book primarily focuses on Nokia’s internal struggles during and after
Nykänen (2014) Kallasvuos’s regime: complex decision-making chains, internal competition, and other
factors directing Nokia’s focus to the wrong elements instead of facing the competitive
threat.
Siilasmaa (2018) Book Complex and broad Memoirs of Risto Siilasmaa (Chair Siilasmaa’s main thesis is that with Nokia’s resources and knowledge, the only logical
of Nokia board) explanation must be bad management, especially how Jorma Ollila had organised the
working of the corporate board to insulate board members from knowledge about Nokia’s
problems.
Vuori and Huy (2016) Peer-reviewed Narrow and focused Interviews and public sources Vuori and Huy’s article focuses on the negative effects of emotional dynamics in Nokia’s
article middle and top management. In particular, they emphasise the poisonous effect of Jorma
Ollila’s aggressive temper and the subsequent control of information flows inside the
corporation.
Business History
31
32 J.-A. LAMBERG ET AL.

Appendix 3. Key financial information of Nokia and its mobile phone

­business unit
Mobile phones business unit
(Devices & Services business unit
Nokia Corporation since 2008) share (%)
Operating N of Global mobile device Operating
Year Net sales profit employees market share Net sales % profit %
1994 30,177 3,596 28,593 N/A 36 49
1995 36,810 5,012 33,784 N/A 44 35
1996 39,321 4,226 31,723 N/A 55 34
1997 56,612 8,453 36,647 19 49 45
1998 79,231 14,799 44,543 23 61 62
1999 19,772 3,908 55,260 27 67 79
2000 30,376 5,776 60,289 31 72 85
2001 31,191 3,362 53,849 35 74 135
2002 30,161 4,780 51,748 35 77 109
2003 29,533 4,960 51,359 35 71 28
2004 29,371 4,326 55,505 31 63 20
2005 34,191 4,639 58,874 33 61 17
2006 41,121 5,488 68,483 35 60 17
2007 51,058 7,985 112,262 38 50 22
2008 50,710 4,966 125,829 39 69 17
2009 40,984 1,197 123,553 36 67 12
2010 42,446 2,070 132,427 29 69 12
2011 38,659 −1,073 130,050 23 62 4
2012 30,176 2,303 112,256 19 51 −7
2013 12,709 519 59,333 14 – –
Source: Nokia Annual Reports 1994–2014; for market share: Statista.com (accessed 29 September 2018).
Notes: Million Finnish Marks 1994–1998 and Million Euros 1999–2013; for year 2013 excluding those businesses which
were sold to Microsoft.