What Happened to Nokia?
The first cell phone that I owned was the Nokia 3310. It was sleek and compact, with smooth edges and a satisfying, squishy number pad. With a durable design and long lasting battery life, it quickly became an integral part of my life. I was a happy customer, and by no means was I alone — the 3310 sold more than 120 million units and it was one of a series of blockbuster products released by Nokia in the late 1990’s and early 2000’s. By 2007, Nokia held a dominant 50% market share of the worldwide cell phone market.
And then the iPhone was released.
From 2007 to 2012, the iPhone initiated, and then accelerated, powerful waves of disruption that decimated Nokia’s market position. Why did the company that owned the mobile phone market underestimate the existential threat posed by Apple? And once the threat was understood, why couldn’t the company react fast enough?
Transforming Nokia, by Risto Siilasmaa, seeks to answer these questions. Siilasmaa joined Nokia’s board in 2008 and led the company through colossal change from 2008 to 2017. It is one of the best business books I’ve read, and here are my top 3 takeaways that can be applied for teams of any size:
- Drive candor
- Focus on leading indicators
- Become a paranoid optimist
Drive Candor:
Siilasmaa joined the board in 2008, when Nokia was on top of the world. At the beginning of the book, he describes his first board meeting. He recalled receiving a thick package of financials and a packed list of agenda items, but Apple was not on the agenda, and the iPhone never came up as a discussion point.
He goes on to describe a culture where the board was expected to listen to reports from management without debate and accept the outcome of mistakes without drilling down to the root cause. In fact, any attempt to hone into the root cause of an operational blunder by board members was slapped aside by the chairman in a rush to get to the next agenda item. As the market evolved at warp speed, Nokia’s board passively absorbed reports that papered over the cracks in Nokia’s market position — cracks that soon became chasms too deep to cross.
My main takeaway from this part of the book is the importance of driving candor in every business meeting. Being candid means having a clear idea of current status, target status, and the steps to get from current status to target status, for each agenda item. In a candid culture, problems aren’t papered over; they are brought to the surface, diagnosed accurately, and put on the path to remediation. It is also better to have a short agenda, focussed on a few high priority topics, than to dilute the attention of meeting participants with medium and low priority topics.
Focus on leading indicators:
Every business should have key performance indicators (KPI’s). As vital signs like heart rate and blood pressure measure the health of the human body, good KPI’s can quickly communicate the health of a business.
By and large, there are two forms of KPI’s: lagging indicators and leading indicators. Lagging indicators are the familiar metrics of business success: market share, revenue, profit. They are the output of the business and drive its valuation. Leading indicators, on the other hand, are the inputs variables that drive the outputs, and the best leading indicators are predictive of a given outcome and controllable by the management team.
In 2008, Nokia was a phenomenally successful company by every conventional lagging indicator, with record market share and revenue. The problem was that its leading indicators, like product innovation and customer satisfaction, were trending in the wrong direction and were not being scrutinized by the board. In a memorable part of the book, Risto describes visiting New York in 2009. He walked into the Nokia store, and had the entire shop to himself; he walked into the Apple store, and could barely move amongst the throng of iPhone enthusiasts. The leading indicator of low customer excitement rapidly flowed into the lagging indicator of lower sales and lower market share for Nokia, and vice versa for Apple.
The lesson is clear for any team: choose your KPI’s wisely, and focus on leading indicators more than lagging ones. Running a team based on lagging indicators alone is like driving a car by looking in the rear view mirror, instead of keeping your eyes on the road directly in front of you.
Be a paranoid optimist:
Siilasmaa was promoted to become chairman of Nokia’s board in mid-2012. The company’s situation was desperate. Its products failed to get traction, market value had collapsed, and employee morale was low. Siilasmaa worked through these issues by adopting the mindset of the paranoid optimist. At first glance, the phrase seems to be a contradiction: isn’t paranoia the opposite of optimism? Upon deeper inspection, however, Siilasmaa explains that true optimism can only be achieved if one is paranoid about the worst case scenario. It is through evaluating different outcomes and preparing contingency plans that a leader can be clear eyed and confident about the future. Any other form of confidence is delusion, and much of Nokia’s failure to adapt was a result of undue optimism about its market position.
When leading our own teams, it is useful to ask: what could go wrong? How do we know that this is the right decision? What would we do if the outcome of this decision doesn’t go the way we intend?
It is through understanding what can go wrong that we can make sure the plan goes right.
Conclusion:
I haven’t owned a Nokia phone in more than a decade. Neither has anybody that I know. Nokia’s rapid fall from dominance is by no means unique in the business world: Kodak, Toys R Us, and Blockbuster, are all examples of companies that were too distracted by their past success to recognize the seeds of future failure.
Disruption comes for all businesses and all careers; the question is if we can recognize change and adapt to it. Transforming Nokia, with its lessons on driving candor, focussing on leading indicators, and becoming a paranoid optimist, provides a good framework for not just adapting, but thriving, in a world of rapid change.
