Who Killed Nokia? Nokia Did | INSEAD Knowledge

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Who Killed Nokia? Nokia Did

Quy Huy , INSEAD and Timo Vuori , Aalto University

22 Sep 2015

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Who Killed Nokia? Nokia Did

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Despite being an exemplar of strategic agility, the fearful emotional climate prevailing at Nokia during the rise of the iPhone froze coordination between top and middle managers terrified of losing status and resources from management. The company was wounded before the battle began.

Nokia’s fall from the top of the smartphone pyramid is typically put down to three factors by executives who attempt to explain it: 1) that Nokia was technically inferior to Apple, 2) that the company was complacent and 3) that its leaders didn’t see the disruptive iPhone coming.

We argue that it was none of the above. As we have previously asserted , Nokia lost the smartphone battle because divergent shared fears among the company’s middle and top managers led to company-wide inertia that left it powerless to respond to Apple’s game changing device. In a recent paper , we dug deeper into why such fear was so prevalent. Based on the findings of an in-depth investigation and 76 interviews with top and middle managers, engineers and external experts, we find that this organisational fear was grounded in a culture of temperamental leaders and frightened middle managers, scared of telling the truth.

Deer in the headlights

The fear that froze the company came from two places. First, the company’s top managers had a terrifying reputation, which was widely shared by middle managers—individuals who typically had titles of Vice President or Director in Nokia. We were struck by the descriptions of some members of Nokia’s board and top management as “extremely temperamental” who regularly shouted at people “at the top of their lungs”. One consultant told us it was thus very difficult to tell them things they didn’t want to hear. Threats of firings or demotions were commonplace.

Secondly, top managers were afraid of the external environment and not meeting their quarterly targets, given Nokia’s high task and performance focus, which also impacted how they treated middle managers. Although they realised that Nokia needed a better operating system for its phones to match Apple’s iOS, they knew it would take several years to develop, but were afraid to publicly acknowledge the inferiority of Symbian, their operating system at the time, for fear of appearing defeatist to external investors, suppliers, and customers and thus losing them quickly. “It takes years to make a new operating system. That’s why we had to keep the faith with Symbian,” said one top manager. Nobody wanted to be the bearer of bad news. However, top managers also invested in developing new technological platforms that they believe could match the iPhone platform in the medium term.

“Top management was directly lied to”

Top managers thus made middle managers afraid of disappointing them—by intimating that they were not ambitious enough to meet top managers’ stretched goals. One middle manager suggested to a colleague that he challenged a top manager’s decision, but his colleague said “that he didn’t have the courage; he had a family and small children”.

Fearing the reactions of top managers, middle managers remained silent or provided optimistic, filtered information. One middle manager told us “the information did not flow upwards. Top management was directly lied to…I remember examples when you had a chart and the supervisor told you to move the data points to the right [to give a better impression]. Then your supervisor went to present it to the higher-level executives. There were situations where everybody knew things were going wrong, but we were thinking, “Why tell top managers about this? It won’t make things any better.” We discussed this kind of choice openly.”

This shared fear was exacerbated by a culture of status inside Nokia that made everyone want to hold onto power for fear of resources being allocated elsewhere or being demoted and cast aside if they delivered bad news or showing that they were not bold or ambitious enough to undertake challenging assignments.

Innovation impotence

The high external fear among top managers and high internal fear among middle managers led to a decoupling of perceptions between the two groups of top and middle managers about how quickly Nokia could launch a new smartphone and develop advanced software to match the iPhone. Given the optimistic signals coming from the middle managers, top managers had no qualms about pushing them harder to catch up with Apple—after all, top managers were only stretching targets. Fearful that Nokia would lose its world dominance and post weak financial results, top managers exerted pressure on middle managers to deliver a touchscreen phone quickly. They acknowledged this in...