Complacency implausible argument for Nokia’s slow-down
An interesting article in the International Herald Tribune dated 27/09/2010 explores the reasons why mobile phone leader Nokia slowed down, letting RIM’s Blackberry and Apple’s iPhone take the technology lead.
In this case as in many others, analysts are quick to put complacency at the top of the list: managers would have rested on their laurels, arrogantly confident that past successes would guarantee future successes. At the risk of being complacent about the risk of complacency (!) I do not buy the argument. Nokia is a bluechip company with lots of talents evolving in the fast paced world of consumer electronics. They do not need to be told that the day they become complacent and stop competing, they don’t slow down, they die. Complacency is an easy but implausible argument.
A lot more compelling is the argument that as success drove the company to a phenomenal size (40% market share; 129,000 staff), it developed ever higher expectations about the minimum size and profitability of new projects. This argument has been explored in details by Christensen and Overdorff in the Harvard Business Review in March-April 2000. Projects that in the infancy of a company would have been seen as significant growth prospects with attractive profitability, now appear too small to register on the radar and cannot sustain the overheads that have come with the enterprise growth. They are therefore mercilessly dumped in the early stages of the innovation process. Smaller competitors who do not have the same minimum thresholds then grab the opportunity a lot more eagerly and nimbly.
Symptomatically, a spokesperson for Nokia chose to rebut the argument that innovative ideas got killed too quickly by citing the number of patents that Nokia has filed in recent years. The problem with using number of patents as an innovation metric is that it ignore the hard truth of the Innovation = creativity x execution equation. The hard truth is that even if a highly creative Research & Development force drives the number of patents sky-high, the outcome of the innovation endeavour will remain null if none of the patents leads to a project that is executed all the way to successful commercialisation. So Nokia’s staff have got the ideas; they are simply not selected.
Nokia’s problem has become one of self-image: to be able to bet on new, disruptive ideas that appear very modest today in comparison to the size of its core business, Nokia needs to shed – in its own eyes – its image of dominant leader in the handset market. It needs to re-invent itself. The odds are good though: a company that re-invented itself from paper mill to cable maker to mobile phone manufacturer has re-invention in its DNA.