Why Nokia's board backed the CEO in a stay-the-course strategy

Nokia chairman Jorma Ollila said the company’s management is fully supported by the board

via Nokia board backs CEO, new device strategy | Electronista.

In my assessment of Nokia’s competitive response to the mobile computing disruption I had anticipated an effective re-organziation to begin in 2013, so it came as no surprise that a stay-the-course plan is still being supported at this stage.

This is to be expected because a disruption, by definition, discourages a symmetric response from the incumbents.  Indeed, management would face serious scrutiny and probable dismissal if they did address the challenge head on. A symmetric response would begin with a declaration that the entire asset base of the company is a sunk cost to be written off.  That would include its products, distribution network, development processes, resources and priorities.  Such a response can only come about from a near-death experience.

You can certainly see the dilemma: It would be absurd for management to declare that their top rank position in the mobile phone market is an undesirable situation to be in.  It would be even more absurd if they suggested scrapping their entire world-leading volume business to re-focus on a new business–doing basically what Motorola has done when they were facing oblivion.  The chances are, however, that this is precisely what needs to be done, and the sooner the better.

So being sensible is the path always chosen.  Being bat-shit crazy is not an endorsable strategy.

Essentially, management is paid and incentivized to protect an eroding asset, not to destroy and replace it.

  • M

    Why not offer a competitor to the Iphone? If your argument is that it would compete against their own "dumb" phones, well, so do their other "smart" phones. I don't think they get what they are up against. I think it is a conscious decision to ignore what they don't know or understand, not a rational motive to protect their assets.

    It is a competition of visions and Apple's vision is broader. Nokia cannot expand their vision and objectives beyond simple cell-phones. Ie. the stupidity is much more ordinary than thought. It might be excusable in an Average Joe whose work or business is not connected with Apple, but not excusable in industry executives competing with this, and having the numerous data, studies, and blogs at their perusal.

  • Competition with the iPhone is more than making a look-alike copy. The iPhone is successful because it's an integrated, complete value chain. For Nokia to compete they would not only have to change the core product (software especially) but also how it's sold. More than half of Nokia's phones (including smartphones) are sold through resellers and Nokia has no control where they end up. They cannot enforce pricing, they cannot enforce the end user experience. They cannot control which products are still on the shelf at any time. In addition their vast portfolio is full of incompatible products. The platform is fragmented because they are seeking a maximum distribution solution not a platform cohesion.

    Distribution and portfolio management are just two of many other problems which are structural and which would affect the core business strategy (unit sales maximization vs. profitability and platform stability). Most focus is on execution (that somehow they are too stupid or lazy to build "good" phones) but that misses the bulk of the asymmetric approach that the iPhone represents.

    For Apple, this approach is natural and not at all a stretch. Coming as they did from the PC industry, the iPhone is in fact the only logical way of doing a phone. On the other hand, for Nokia, this approach would be akin to a revolution that would destroy more than it creates, at least in the near term.