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BusinessWeek: Nokia failed because it's in Finland

How Nokia Fell from Grace – BusinessWeek.

The author asserts that company success and failure are determined by the location of its headquarters. He also adds a bit of stupid manager theory to flesh out his thesis for Nokia’s failure.

I’ve already debunked the stupid manager theory here. So let’s look at what’s left.

The bad geography thesis is a far less common theory than the stupid manager theory but maybe it’s worth analyzing.

Here are the basic questions anyone can ask:

  1. When did Finland become a bad location, exactly? It was clearly a good location for Nokia when it was winning and growing. It seems to have become a bad location for Nokia around the same time its business began to slow down. That puts Finland at a geographic disadvantage around 2005 or so. As far as anyone can tell nothing changed with the population or intellectual capital of the country around then (if anything all the surveys seem to show it’s gotten better). So whereas Nokia was successful in Finland and unsuccessful in Finland and Finland did not change, Finland cannot be causal to the failure.
  2. If Finland had something to do with it, did companies in Finland succeed at the same time as Nokia and fail at the same time? I don’t have any evidence to confirm or deny this but I will say that the iPhone’s most popular application is written in Finland (Angry Birds by Rovio). So there are still creative and clever people around.
  3. If location in “hub” locations like Detroit for automobiles or New York for finance, ensures success… oh, never mind.
  4. Since Sony was successful in Japan in the 70′s and 80′s then should they also have moved in the last decade when their business turned? Is Japan also an isolated place for innovation?
  5. What about Microsoft? Seattle was the technology boonies when Microsoft moved there.
  6. Finally, when Hewlett and Packard started in the agricultural plains south of San Francisco, I’m sure the residents of electronics hubs of New Jersey and upstate New York pointed and laughed.

The hypothesis that location matters in success or failure of business models is so easy to disprove that it’s hardly sporting.

  • Petteri

    There are supporting studies showing that being located in an industry cluster has little relation to company's results both short and long term.

    http://www.strategy-business.com/article/10217c

  • Sälli

    This article (in Finnish) in Taloussanomat gives two possible reasons: the second one is the more-heard-of, that so called "good management" (based on hard numbers and facts) killed creativity and made Nokia miss the complete turnover of the industry (that Apple caused with the iPhone).

    The first reason is something I had never heard of. They say that financial compensation (option grants) is what killed the company. While that does work in the US, when it was brought to Finland (compensation of that level was something pretty new to the country at the time), it made some people jealous, while it made others lazy as their future was secured.

    I can't deny that I've heard of a number of people, who left Nokia because their financial future was secured, and now they were truly able to follow their dreams (participate in a few promising startups, etc).

    While I think that the working environment at Nokia becoming not inspiring enough might be the more probably driver for leaving the company, it is true that compared to many other countries, there is very little private money in here in Finland. Achieving a good compensation from a large corporation does put you in a somewhat unique position here.

    • http://www.asymco.com asymco

      Calling your boss to say that you're too rich to come to work is not a problem in Finland alone, but I suppose it came as much more of a shock.

      • Niilo

        "I can’t deny that I’ve heard of a number of people, who left Nokia because their financial future was secured, and now they were truly able to follow their dreams (participate in a few promising startups, etc)."

        I am not aware of anybody actually doing this– and I was a Nokia employee during the time when these folks got rich, though sadly joining a bit too late to really cash in. But you certainly saw some fine cars on the streets of Salo around the turn of millenium.

        I often feel like the company just kind of grew old. There was a huge hiring boom for graduates at Nokia from around 1997 to 2000, during the GSM boom. Humanities graduates were getting 6-week conversion courses to become embedded software engineers. After the dotcom crash the hiring slowed, but a lot of people still at Nokia joined around that time. Back then there was a lot of youthful energy about the place, now they (we) are all married, with kids and placing a higher priority on work-life-balance.

        (I'm not suggesting this is the root cause of Nokia's ills, just a personal observation).

  • Sälli
  • berult

    Having a runny nose is a symptom of having a cold.
    I should know for how can one have one permanent run in with a runny nose without having a cold.
    And Finland is the Land of the Cold, and I'm the man with the runny nose and I came in from the cold, so, who could dare tell me to my nose that Finland doesn't suffer from a runny nose?

  • ChuckO

    I think Nokia and RIM suffer from the same problem. They are primarily hardware companies that found themselves suddenly in the deep end of the software business. It's not easy to suddenly develop software expertise to rival Apple (or even Google) especially when that expertise needs to be in super sophisticated OS's. Apple is the perfect company for the future of digital devices. They are top notch at design, hardware, software, marketing. Nokia on the other hand has too many problems to go into in a comment.

  • ScottJ

    "So whereas Nokia was successful in Finland and unsuccessful in Finland and Finland did not change, Finland cannot be causal to the failure."

    Unless the market changed. My observation over the years is that some regions are stronger at hardware, weaker at software. If Finland is among those (I don't know, never been there), then as wireless telecom became more software centric, "Finland did not change" could well be the root problem.

  • http://www.electricprism.com/aeron Aeron

    I don't know that I disagree with your overall point, but in most of your examples you are comparing places within the US only – there is a big difference to being in the US… and being anywhere else. In the case of Japan, they failed when technology drifted away from appliances towards computers – as has been said elsewhere:

    http://blog.gatunka.com/2008/05/05/why-japan-didn

  • ChuckO

    Right, would Linux have grown as it did/has if it was open to only Finnish developers? And that still give’s you a much wider base of developers potentially than just folks working or potentially working for Nokia who are also Finnish.

    But absolutely in general it would seem Europeans are at a disadvantage to Americans not having companies like Apple, Google, Microsoft in a petri dish like silicon alley.

    If you were a European engineer where would you move to, Finland or the valley? Would that person be more likely to speak English or Finnish as a second language, etc?

  • Timo Kinnunen

    That is not true. The OS can cost You your shirt, if it is wrong one. Others smart-phones is the cause! If You choose an operating system for the phone that do not support applications as in smart-phones then you are out! It is not the "carismatic" leader or location that causes this.

  • Rachel

    Nokia failed because they are Finnish, but they didn’t fail. My partner is a Finn – Nokia trounced Ericsson, Ericsson are Swedish. What motivates Finns? Trouncing Sweden. With Sweden trounced the Finns have no reason to fight anymore, so off to the mökki for sauna and peace.

    Oho! Those Apple guys are taking our market share! Back to work, boys.