nokia of the market share. The disaster struck Nokia

nokia case study

Nokia, one of the
leading mobile giant of its time having a maximum
market share in the whole world is
now out of the market and not having even 1% of the market share. The disaster
struck Nokia when they were not receiving the signals of change in the market
due to the incapability of the new
recruited CEO Stephen Elop. Elop was a former Microsoft employee who joined
Nokia as new CEO replacing Olli Pekka Kallasvuo (2006-2010). By the time Elop
joined Nokia was the largest handset maker having 30.8% market share. This
tells the importance of the position of CEO in any organization and the
recruitment process to choose the right person for the company. In the present
competitive scenario choosing the capable person for demanding jobs. Nokia is
the correct example of the failure of the
recruitment process to choose right CEO
for them who could lead them and help them gain the position in the market.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

History of Nokia

Nokia is a Finnish company established in 1865 by Fredrik Idestam having
roots in paper pulp industry. Nokia got its name when it’s founder started
another mill on the banks of Nokianvirta river. He named the company Nokia AB. Nokia Corporation
was formed in 1967 by the merger of three
firms Nokia AB, Finnish Rubber Works and
Finnish Cable Works as a part of a diversification
strategy. By the end of 1980’s electronics accounted for 40% sales
revenue. The key businesses were communication, information technology and
consumer electronics.

In the year 1882 Nokia launched 10kg phone Mobira Senator, in the year
1984 Nokia introduced first car phone Nokia Mobira Talkman weighing 5kg and in
1986 debuted cellular phone which can be carried anywhere named Mobira CityMan
weighing 800gms. After purchasing Ericsson in 1988 they established largest
information

system. The benchmark in Nokia’s success came when Harri Holkeri in 1991
made the first GSM call using Nokia handset and became the first person on earth to make a GSM call.
First, they captured American and European markets and then the entered
developing economies like China, India etc. and captured huge market share.

The company employed 1,28,445 people in 120 countries. The Corporate
Development Office responsible for corporate strategy and exploring future
growth opportunities located in Espoo whereas R departments were located
in Japan and China.

 

Nokia Threats

Introduction of
I phone and Android in 2007 and 2008 in American and European markets
respectively caused a threat to Nokia and
sales began to go down in those markets but they were not realizing that the
market is shifting towards software rather than hardware. Soon market shift
towards China and smartphone manufacturing started with that it became the hub
of smartphone manufacturing. With their low-cost manufacturing techniques, they
started to enter various markets to sell their products and captured the whole world.

Now with that
Nokia faced strong competition and sales of Nokia phones declined in Asian
markets also. Nobody was interested in feature phones and shifted toward
android with Chinese low-cost smartphones for lower segments and ecosystem of
Android developed. Android and Google
were having applications and Nokia’s Symbian OS was not able to compete with
them. Due to heavy losses, Nokia lay off
many employees to reduce cost which also led to the dissatisfaction among
employees and reduction in workforce led
to the delay in the launch of other
operating systems.

 

Olli-Pekka Kallasvuo

Olli-Pekka Kallasvuo (2006-2010) was former CEO of the company before
Stephen Elop.

Prior to joining Nokia, Olli-Pekka Kallasvuo held a variety of positions
with the former Union Bank of Finland.

 

Kallasvuo’s involvement with Nokia began in 1980 when he was appointed
as Corporate Counsel. In 1987 he was appointed Assistant Vice President, Legal
Department, and in 1988 he was named Assistant Vice President, Finance. In 1990
he was promoted to Senior Vice President, Finance. From 1990 onward Kallasvuo
was a member of the Group Executive Board of Nokia.

 

In 1992, Kallasvuo was named Executive Vice President and Chief
Financial Officer. In 1997-1998 he served as Corporate Executive Vice
President, Nokia United States, during which period he held overall
responsibility for Nokia’s business operations in the US. In early 1999, he
returned to the position of Chief Financial Officer, the position he had held
prior to moving to the United States. From 2004-2005 Kallasvuo was Executive
Vice President and General Manager of Mobile Phones. On 1 October 2005, he was named President and COO. He then
served as President and Chief Executive Officer of Nokia Corporation from 1
June 2006 until he was succeeded by Stephen Elop on 21 September 2010.

During Kallasvuo’s term as CEO, Nokia’s share of the smartphone market collapsed
from 48% in 2006 to 31% by his departure in late 2010 (according to Financial
Times figures). During this period, Nokia’s management failed to respond to the
rapidly changing environment of the smartphone and wider mobile market, with
the lack of platform and UI development contributing to the decline of Nokia
from the world’s largest mobile manufacturer to a minor brand with less than 3%
of the smartphone market by the time its mobile phone division was bought out
by Microsoft in mid-2014. The slow pace of development and weak support of the
company’s own Maemo OS, subsequently known as Meego and featured on the N900
and N9 handsets, left the company with no platform to compete with Apple’s
iPhone or Google’s Android platforms, with key partner Intel abandoning the
Meego project in 2011 shortly after Kallasvuo’s departure from Nokia. Nokia
would subsequently turn to the Windows Phone platform with little commercial
success under Kallasvuo’s successor and former Microsoft executive Elop.

 

Entry of New CEO Stephen Elop

Elop was
appointed as CEO in mid-Autumn 2010 after Olli-Pekka. He was first non-Finnish
CEO in the organization.  Stephen Elop
(born 31 December 1963) is a Canadian businessman who has worked at Australian
telecom company Telstra since April 2016. He most recently served as the
Executive Vice President of the Microsoft Devices Group business unit until 17
June 2015. In the past he had worked for Nokia and later as Executive Vice
President, Devices & Services, as well as the head of the Microsoft
Business Division, as the COO of Juniper Networks, as the president of
worldwide field operations at Adobe Systems, in several senior positions in
Macromedia and as the CIO at Boston Chicken.

He is best known
for his ill-fated tenure as Nokia CEO from 2010 to 2014, which included
controversies such as the “burning platform” memo and the company’s
partnership with Microsoft, resulting in the move to Windows Phone software
exclusivity. He was criticised for some of his decisions, which resulted in the
company making massive losses financially and in the market. As then head of
the Microsoft Devices Group, Elop was in charge of Microsoft’s varied product
offerings including Lumia phones, Surface Pro 3, and Xbox One.

Series of Mistakes

After the entry of the new CEO, in 2011 a memo was circulated by Elop was
known as “Burning Platform” which quoted:

“We poured gasoline on our own burning platform. I believe we have
lacked accountability and leadership to align and direct the company through
these disruptive times. We had a series of misses. We haven’t been delivering
innovation fast enough. We’re not collaborating internally. Nokia, our platform
is burning.”

This was referring to the old operating systems Symbian in which Nokia
was working and MeeGo OS which was in an initial phase of development and only one
device was rolled out. But it attracted a lot of attention and was a best seller in only six months of development.

His one size
solution was to abandoned both Symbian and MeeGo and partnership with Microsoft
and opt their Windows operating system. The reason he gave that OS is the heart
of the mobile system and it takes a lot of effort to develop OS, and Elop was not
happy he immediately shut all the smartphone OS developed by Nokia and switched
to Microsoft. Which left all the people scratching their heads because Symbian
was selling well in the market and new
MeeGo OS developed in partnership with Intel was gaining attention. In February
2011 Windows phones were in the prototype stage and were not ready for public selling. A simpler OS Meltemi was put on hold indefinitely and
developers were fired under the premise of cost-cutting.
Which led Nokia with no operating system and fully dependent on Microsoft.

After the
circulation of the memo, an ex Nokia
employee characterized Elop conduct with two great failures Osborne effect and
Ratner effect.

 Back in 1981-1982,
the Osborne Computer Corporation was enjoying robust sales of its personal
portable computer, the Osborne 1. In 1983, founder Adam Osborne preannounced
several new next-generation models, touting how much better the new machines
were compared to their predecessor. As
these computers were yet to be manufactured, prospective customers would have
to wait before getting their hands on one. Immediately after the announced sales of the existing Osborne 1
plunged and revenue dried up to the point where the company was forced into
bankruptcy. Currently, the effect where the early announcements of unfinished
products lead to plummeting sales is known as the “Osborne effect.”27 

During the
public speech on April 23, 1991, attended by over 6000 business people and
journalists, Gerald Ratner, a co-owner and CEO of a large UK-based jewellery
business, negatively commented on the quality of his company’s wares. At that point, his company was posting record profits.
However, within a few hours of his speech,
the company lost around £ 500m in market capitalization and its sales
plummeted. The negative effect of top brass executives making derogatory
comments about the goods their companies produce is now known as the “Ratner
effect.”

In his “Burning
Platform” memo and during the weeks that followed Elop combined the downsides
of both Osborne and Ratner effects by criticizing the present generation of
Nokia phones and announcing a new generation.

Soon after the
introduction of new Windows phone, they
came to know the licencing cost of Windows which was around $23 to$30 which was
passed on to customers on the other hand Android was free and provided a wide
of applications and services. From this,
it was clear that this OS cannot be used in low-end
devices for which they developed by a 3rd party which faced
competition from Chinese low-end Android smartphones and soon dead.

Elop effect

Elop was a leader was with favourable skills and unfavourable will. He
was having high competence with low character. According to Forbes Elop knows
that Nokia should buy Android but he didn’t do that, he also knew that response
of MeeGo was good and they should continue it but he stopped all operations of
MeeGo. The reason is Elop wanted to become CEO of Microsoft and by merging Nokia
with Microsoft path to CEO becomes easy for him. He prepares the company for
selling and finally sell it to Microsoft.

This selling led to a huge loss to
Nokia and a global giant company sells only in 7 Billion Dollars which was not
the cost of the company. It should be sold at a much higher price.

By recruitment of the wrong CEO,
Nokia suffered heavy loss and lost its position in the global market and
competitors took over the Nokia’s share in the market. This is the importance
of the recruitment in any firm and because of which company spent so much money
on recruitment process to hire right people for them.