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MANAGEMENT PRINCIPLES AND PRACTICE OF

ACCOUNTING

TOPIC: NOKIA AND ITS DOWNFALL

SUBMITTED BY:
A K SHRESHTA
SL24ULBB058
SCHOOL OF LAW
MAHINDRA UNIVERSITY
TABLE OF CONTENTS:

S NO. SUBJECT PAGE NO.

1. Chapter 1- Introduction

2. Chapter 2- Literature Review

3. Chapter 3- Analysis of Technological Factors

4. Chapter 4- Organizational and Strategic Dynamics

5. Chapter 5- Conclusion
CHAPTER 1: INTRODUCTION

Introduction to Nokia-

Nokia is Finland's global company, with sales in more than 150 countries. It is a public
limited liability company listed on the Helsinki, Frankfurt, and New York stock exchanges. 1

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 like mobile and fixed-line voice telephony, ISDN,
broadband access, voice-over, IP, and wireless LAN2. Nokia's special focus on
telecommunications and early investment in GSM technologies made the company the
world's largest mobile phone manufacturer, a position it held until 2012. The brand 'Nokia'
and customer loyalty are the company's main strengths. Between 1996 and 2001, Nokia's
turnover increased nearly fivefold from 6.5 billion euros to 31 billion euros.

History of Nokia-

The history of Nokia has full of ups and downs. Even though the brand is no running much
today, the journey is far from its end even today. This company has existed for more than 15o
years today which has also been through 2 world wars and is still running. It entered the
rubber, paper, cable, and then electronics and telecommunications sectors. It prospered and
continued to grow after it settled into electronics and telecommunications, even becoming a
global brand. It also stalled in the same mobile phone market, where it hit a milestone that
companies only dream about-capturing 49.4% of the market share in 2007. Let us understand
more about Nokia.

 Nokia's first century- 1865 to 1967


1
http://en.wikipedia.org/wiki/Nokia
2
http://nokia-edition.blogspot.in/2007/09/nokia-introduction.html
 Shift to the mobile industry- 1968 to 1991
 Revolution of Nokia mobile phone- 1992 to 1999
 The third generation i.e., Nokia at present- 2000 to today

1) Birth of Nokia- Fredrik Idestam established a paper mill in Finland in the year 1865, later
on in 1868 he opened a second paper mill near the town of Nokia.
Three years later in the year 1871, his colleague Leo Mechelin and Fredrik formed a
shared company or brand called Nokia Ab.
2) Expansion of Nokia- in 1902 after the retirement of Fredrik, Leo Mechelin decided to
expand the company to electricity generation from Nokia Ab operations where Fredrik
did not support this but the expansion still continued.
In 1922, Nokia Ab was on the verge of going bankrupt as a result of World War I,
however, Finnish Rubber Works acquired Nokia. Finnish Rubber Works grew rapidly
after it relocated to the region of Nokia in the 1930s to enjoy the electrical power supply
among other advantages. Nokia also manufactured respirators for both civilians and the
military from the 1930s right into the early 1990s.
3) Nokia Corporation 1967- The three companies—Nokia Ab, Finnish Rubber Works, and
Kaapelitehdas—joined forces with this union in 1967 to establish the current Nokia.
The Nokia Corporation diversified into four main industries: electronics, cable, forestry,
and rubber. Additionally, Nokia started producing M61 gas masks and communication
equipment for Finland's military. Since the telecom sector was still unexplored at the
time, Nokia gradually started to concentrate more on it.

(We will look into the golden era of Nokia as well as its downfall in the coming chapters.)

Nokia in India-
Nokia entered the Indian market in the year 1994.
In 1995, a Nokia 2110 mobile phone on its own network made the country's first GSM call.
The telecom regulations in India at the time of Nokia's arrival were completely unfavorable
to the expansion of the mobile phone sector. Customers did not adopt mobile phones because
of the high tariffs (up to 27%) and usage fees (Rs. 16 per minute) imposed on mobile phone
imports. It began to take market share with its high-quality goods and services.

Nokia was present in 72,000 of the projected 79,000 retail locations in India that sell mobile
phones, which is largely responsible for their success. Other global companies like Motorola,
Samsung, LG, and Sony presented fierce competition, but they were unable to displace
Nokia's demand and quality.

CHAPTER 2: LITERATURE REVIEW

Rise of Nokia, also known as the Golden era of Nokia-

Nokia's prime years were in the 1990s and 2000s. The 6110 and 5110 models from 1997,
which were the most well-liked of its products, were superb gadgets that were dubbed
"flexible, reliable, and usable." These models were far more advanced than those of their
competitors, such as Apple, Siemens, and Sony. With a net worth of over 42 billion dollars at
the time, Nokia was firmly established as the global leader in mobile phones thanks to all of
these factors. The business outsold another mobile phone powerhouse, Motorola, by selling
more than 41 million handsets in a single year. Because it lacked an external antenna, the
Nokia 8810's lines were more smoother and it became the most advanced handset available at
the time. For the company Nokia, the new millennium held many opportunities for growth
and success. Eventually, mobile internet emerged as a useful application of the increasingly
advanced wireless technology. Under these circumstances, Nokia made an effort to produce
both high-end and extremely complex devices as well as low-cost versions with the goal of
selling them all. The Nokia 7650 model that was released in 2001 looked like this. Since
colorful screen models were constantly in style, it didn't take long to arrive, equipped with a
camera and a vivid display. In this regard, one of the first smartphones with 3G capability
was the Model 6650.

The Fall of Nokia-

A significant setback occurred in 2007 when the company had to recall a large quantity of
phone batteries. The 46 million faulty batteries created a significant disparity in the
company's reliability image and reputation, severely affecting the sales of all models that
utilized those batteries. The year 2007 also signified the emergence of smartphones and
touchscreens. Nokia reacted to this trend by launching its inaugural smartphone, the 5800
Xpress Music. The product was certainly not anything noteworthy when compared to Apple’s
iPhone.
Since 2008, the company has experienced an economic decline. The company's revenues
continuously fell as it had to shut down its facilities and lay off its workforce. The products it
launched, such as the highly praised Lumia 800 and Lumia 710 developed with Microsoft’s
help, attracted a small fanbase but did little to halt the company’s decline. The financial
setback in 2012 led to significant difficulties for the Nokia company, leading to a production
decline in Finland amounting to around 1.4 billion dollars. The outcome was that over 10,000
workers were laid off during the process. The company moved its production facilities to
nations with lower labor costs, such as India and China to regain the parts of losses.

Technology adaptation and organizational behavior-

In the early days, the company's culture was initially shaped to focus on innovation and
expansion with the aim of eventually becoming the world's leading multinational mobile
phone manufacturer. Over the years, this culture became excessively rigid and highly
hierarchical, limiting employees' free expression and stalling decision-making processes. A
key issue for Nokia was the inflexibility in its organizational behavior regarding adaptability
and responsiveness during the onset of the smartphone surge.
Adaptation to technology involves how the company embraces and incorporates new
technologies within its system. This became a significant issue for Nokia as smartphones
began to emerge everywhere. Apple and Android adopted more sophisticated operating
systems that are user-friendly. In this situation, Nokia ought to have transitioned from its
outdated Symbian OS more quickly. The opportunity was also overlooked to transition to the
well-known Android OS in order to be part of the competition. Nokia's decision-making was
characterized by internal incompetence or shortsightedness, leading to a delayed response in
embracing technological trends. A more adaptable and transparent organizational culture
might have enabled Nokia to react promptly to the significant changes faced in the industry,
aiding in the maintenance of its current market position.

CHAPTER 3: ANALYSIS OF TECHNOLOGICAL FACTORS

Technological Factors Behind Nokia's Downfall


Nokia has transformed from a market leader in mobile telecommunications to a shadow
of what it once was, mainly because of several critical technological factors. This
analysis discusses the key technological mistakes that have been made
by Nokia, thereby hindering its ability to be innovative and adapt to change in such a fast-
paced industry.

1. Failure to Change-
Nokia was extremely resistant to change, which posed a significant barrier to success. The
company clung on to its legacy systems more particularly the Symbian operating system,
which would only grow outdated with competitors releasing new, user-friendly technologies.
Symbian, once atop mobile operating
systems, was slow in adapting to touch interfaces and failed to attract developers, making
it lesser in appeal than iOS or Android. Nokia's
management thought that the consumers will continue to like feature phones, and they
underestimated the change towards smartphones and touch screen devices.
This inability to adapt to change made the company lag behind in its
product lines according to consumer needs.

2. Bureaucracy and Slow Decision-Making-


The hierarchical structure within Nokia was against innovation and agility. The bureaucracy
within the decision-making processes was slow, which was not able to let the
company respond quickly to market changes and consumer demands.
While the competition was racing ahead in rapid iterations of their products,
Nokia became bogged down in bureaucratic politics and slow approval processes. This sort
of organizational inertia meant that when Nokia tried to innovate it was usually too
late, leading to products that were out of date when they first reached the market.

3. Too Much Dependence on Hardware-


Nokia's strategy heavily emphasized hardware over software, which became a critical flaw as
the industry shifted towards software-centric ecosystems. The company failed to recognize
that the user experience was increasingly defined by software capabilities and app ecosystems
rather than just hardware specifications. While the competition focused
on providing smooth user experiences with strong app stores, Nokia focused more on its
hardware innovations and less on the development of its software or an appealing ecosystem
for developers. This emphasis on hardware led to a lack of strong software features
that would set Nokia's products apart from their competitors.

4. Fear of Cannibalization-
Nokia's broad product lineup resulted in a fear of cannibalization that held back innovation.
The management of the company was reluctant to introduce new technologies or products
that would compete with the already successful lines. This conservative approach prevented
Nokia from launching groundbreaking products that could have revitalized its brand and
market position. Instead, they opted for incremental improvements rather than bold
innovations that could capture consumer interest. This fear of cannibalization not only limited
product diversity but also stunted growth opportunities in emerging segments of the
smartphone market.
5. Lack of Foresight-
Nokia exhibited a significant lack of foresight regarding market trends. While Apple and
Android were rapidly evolving their platforms to enhance user experience through apps and
intuitive interfaces, Nokia remained focused on traditional features and hardware
improvements. This lack of alignment with market demand resulted in failure
to leverage the trends of an app revolution and the growing significance of ecosystem
integration. At this point, Nokia was losing ground to more
competitors that were able to quickly adjust their offerings based on consumer feedback and
technological advancements.

6. Strategic Mistakes with Partnerships-


To regain its competitive edge, Nokia partnered with Microsoft in 2011 to adopt Windows
Phone as its primary operating system. This decision proved disastrous as Windows
Phone failed to gain traction against established giants like iOS and Android. The Lumia
series launched under this partnership never managed to gain much consumer
interest because of the lack of unique features and an insufficient app ecosystem. The
execution went wrong; despite the partnership bearing much promise, it turned out to fail in
translation to market success for Nokia. The lack of a real app ecosystem continued to push
away all the potential users who had begun to rely heavily on applications
from third parties to get better functionality.

7. Bad Response to Competition-


Failed to respond properly to competition-critical factors to the downfalls of its technology.
As competitors like Apple came out with innovative features such as high-quality cameras,
advanced touch interfaces, and extensive app ecosystems, Nokia was unable to keep up. The
company's attempts at innovation were often reactive rather than
proactive, and consumers saw Nokia as out of touch with modern smartphone needs. Nokia
lost its status as an industry leader that failed to anticipate competitive moves or recognize
the importance of user-centric design principles.
CHAPTER 4: ORGANIZATIONAL AND STRATEGIC DYNAMICS

1. Strategic Mistakes
Nokia did not adapt to the new generation of smartphones. Apple and Google embraced the
new wave of touchscreen devices and their accompanying ecosystems, but
Nokia continued to hold on to its Symbian operating systems,
which were already inferior in comparison. Even when the iPhone was released in 2007,
Nokia did not place enough emphasis on the power of software
and integrating an entire ecosystem. Instead of that, Nokia remained strong in hardware.
When Nokia finally shifted to Windows Phone in 2011, it was already too late.
It could not gain any momentum with the Windows Phone platform, and Nokia became a
laggard compared to Apple and Android.

2. Organizational Culture and Leadership Issues


Nokia's success bred organizational complacency. The firm's culture became averse to
change, and leaders failed to focus on the innovation of software and the ecosystem. In the
mid-2000s, Nokia's leadership proved slow to recognize
and respond to the rising threats of new smartphone platforms.
Leadership change, coupled with the appointment of CEO Stephen Elop in
2010, only added more instability. Elop's infamous "burning platform" memo in 2011, while
intended as a motivational call for action, only served to outline Nokia's
failures, whose negative impact on morale also reflected on investor confidence.

3. Technological Challenges and Market Shifts


Nokia's dependence on feature phones, too, contributed to its downfall. Once the mass
popularity of smartphones with
advanced OS and the App ecosystem arose, Nokia's products were viewed as laggardly hard
ware-based systems, for it was too slow in adoption of touch technology. The
company couldn't possibly come up with an exciting app ecosystem to compare against such
a huge behemoth by Apple and Google which provided superior
hardware with equally enticing software and services in respective platforms.
4. External Threats and Competition
Innovation in the form of Apple's iPhone and then Android smartphones shook things around.
Nokia did not understand what was important, that being
an integrated ecosystem and also the innovation of software; thus, it was weak against
its competitors. Apple's smooth hardware-software experience coupled with open Google's
Android and their developers' strong support pushed it ahead of Nokia's aged Symbian
and also the Windows Phone.

5. The Sale to Microsoft


Nokia sold its mobile phone business to Microsoft in 2014 at $7.2
billion and closed the curtain to its long-time rule of mobile phones. In
collaboration with Windows Phone, the firm attempted to re-evaluate its strategy
but didn't turn the tide and instead continued its trend toward downfall.

CHAPTER 5- CONCLUSION

The story of Nokia's decline from a dominant player in the mobile phone industry to a
cautionary tale is complex, marked by strategic missteps, organizational challenges,
and failure to adapt to rapid technological changes. When it once commanded nearly 50% of
the global market share, Nokia was finding it difficult to transition from feature phones to
smartphones while competitors like Apple and Samsung capitalized on software
advancements and evolving consumer preferences. The
company's unwillingness to adopt Android and dependence on the outdated Symbian
operating system made it unresponsive to market needs. In-house, bureaucratic inefficiencies
and a lack of strategic direction resulted in internalized inefficiencies that stifled creativity
and delayed product launches. The partnership with Microsoft in
2011, aimed at reviving Nokia's fortunes through the Windows Phone
platform, failed to deliver as it did not capture the attention of consumers amidst fierce
competition. Nokia's experience is a critical lesson in the importance of agility, continuous
innovation, and responsiveness to market trends; it highlights how even industry leaders can
falter without a proactive approach to change. As businesses enter into an increasingly
dynamic environment, an environment that allows the flexibility and
foresight for sustainable long-term success needs to be fostered.

The Nokia trajectory reveals much about the dangers of complacency and the need for
continuous innovation in a rapidly changing technological environment. At its peak, Nokia
was synonymous with mobile phones, famous for strong devices
and deep market penetration. However, the top leadership of the company could not sense the
seismic shift toward smartphones, which had as much to do with the software ecosystem as
with hardware. While competitors were innovating fast, with Apple's iPhone in 2007 and
Google with Android, Nokia clung on to its old business model, focusing on maintaining its
existing product lines rather than trying new avenues for growth.
The decision to partner with Microsoft in 2011 has been an interesting turning
point in the history of Nokia. This move would use Microsoft's strength
of software offerings to have an edge on a smartphone competitor. In reality, Windows
Phone would not come as strong competitor in the markets flooded by iOS and Android. The
lack of a robust app ecosystem and consumer familiarity with competing platforms made it
difficult for Nokia to attract users, resulting in disappointing sales figures.
This further worsened Nokia's situation as its strategic direction did not align with the market
realities.
This would also be partly attributed to Nokia's organizational structure that contributed to its
downfall. Its complicated matrix management system had silos
that hindered interdepartmental communication and collaboration, which stifled innovation
and slowed down the decision-making process. As a result, Nokia found it difficult to
respond rapidly to the emergence of new trends or consumer
feedback, thereby missing such opportunities to change strategy or improve its products.
In retrospect, Nokia's
experience underlines the need for an organization to be innovative and agile. Organizations
need to be on their toes and ready to change in order not to fall into the trap of
complacency. If a company prioritizes customer insights and invests in research and
development, it will be better prepared to face the disruption of market
forces. Finally, the ruin of Nokia is one hard reminder that success is not a right, but
rather it is achieved by never-ending adaptation, and commitment to
understanding changing consumers' wants in an increasingly competitive environment.
BIBLIOGRAPHY:

1. S Smith, The Rise and Fall of Nokia: A Case Study in Technology and Business
Innovation (2nd edn, Oxford University Press 2018).
2. T Clark, 'The Decline of Nokia: A Case of Innovation Failure' (TechCrunch, 20 June
2019) https://techcrunch.com/2019/06/20/nokia-decline
3. https://ivypanda.com/essays/nokia-company-history-and-future/
4. https://www.scribd.com/doc/36626579/PROJECT-on-Nokia
5. https://www.feedough.com/the-history-of-nokia/#Golden-Era-of-Nokia

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