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The Evolve series of articles in Wise Advice usually features inspirational stories of businesses that successfully navigated winds of change and wisely evolved with times, to not only remain relevant, but indeed grow stronger. This is a story with a difference: it's a story of a business that led change for years, that kept raising the bar over the years which competition found hard to keep pace with. Yet, it failed. A giant fell, though it really didn't do anything wrong. Except that it grew complacent after years of success, and preferred to rest on its laurels rather than continue running hard. And that, caused its downfall. In the story of the rise and fall of Nokia, there are many useful insights for established players in our own business. Resting on past laurels, refusing to heed the winds of change, and remaining in one's own comfort zone are recipes for disaster - as the Nokia story clearly shows.
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Paper to electronics
The Nordic company has a long distinguished history and began in 1865 as a paper mill in south-western Finland. The building of the second mill on the banks of the Nokianvirta river inspired the founder, mining engineer Fredrik Idestam, to name the company as Nokia. After three decades, the company ventured into electricity generation. By 1967, there were four divisions under the Nokia umbrella - paper, electronics, rubber and cable. The company produced a range of products from toilet paper to rubber footwear and tires to communication cables and military equipment.
In 1979, Nokia took its first steps to cellular history with Mobira Oy, a radio telephone company born through a joint venture with a leading Scandinavian TV manufacturer Salora. With this new joint venture, Nokia started to dabble in cellular systems. Within a few years, Nokia launched the first international cellular system. The Nordic mobile telephone network linked Sweden, Denmark, Norway and Finland. With a cellular system in place, the company launched the world's first car phone which weighed in around 10 kilograms.
In 1984, Nokia bought out Salora and renamed its mobile cellular division as Nokia-Mobira Oy. The company launched the world's first transportable phones which could be used in and outside the car. It weighed around 5 kilograms. In 1987, the company launched the world's first mobile phone - the MobiraCityman 900. An iconic photo of Soviet Union president Mikhail Gorbachev using the phone to make a phone call to Moscow during a press conference in Helsinki in October 1987 led to the phone nicknamed as the Gorba. Despite a hefty price tag of about $5800 and weighing 800 grams, the Gorba proved to be highly popular and sold very well.
In 1989, Nokia-Mobira was renamed as Nokia Mobile phones. In the 1990s, the company took a momentous decision to focus solely on the telecommunications market. Over the next few years, Nokia sold off its data, power, television, tire and cable units and Nokia became exclusively a telecommunications company. Nokia continued to innovate and its mobile phones got smaller, elegant and even started to have features like games and radio. With each new phone that was launched, the technology also improved and there was improved talk time that was impressive to customers. These innovations continued to put Nokia on top of the telecommunications pyramid and Nokia led the wave as the market leader.
The giant falls
In the early 2000s, the mobile phone market slowed down and this impacted Nokia's profits. The company recovered but in 2007, 46 million batteries had to be recalled. Unfortunately, these batteries were used in a wide range of Nokia phones and this had a negative impact on its portfolio.
With the advent of the smart phone in 2008, the market dynamics were about to change dramatically. Nokia underestimated the appetite for smart phones and was slow to react. The company tried to compete by adding touchscreen capability onto it existing Symbian operating system software but the phones did not offer customers the experience that rival phone makers did. Struggling with keeping the company afloat through a series of job cuts as well as innovation, the company just couldn't keep up with the market.
Taking a risk, the company in 2011 signed a deal with Microsoft to use the Windows software as its primary mobile operating system. Hoping to boost developer interest, the company announced the move seven months before the hardware was even ready. This killed the sales of the existing phones based on the old Symbian operating system before Nokia could offer alternatives.
Even the arrival of the Windows-based Nokia phones could not make enough of a dent or pick up traction. Nokia was known for its hardware and the phones continued to be innovative on that end with features like camera resolutions that were far better than its competition. However, Nokia did not recognize that customers were also now looking at experience which was more defined by software applications. The lack of variety of applications in comparison to its rivals diminished the appetite for the new Nokia phones despite the sophistication of some hardware features.
In 2013, Nokia was forced to accept its journey was over.The once market leader was acquired by Microsoft in a $7.17 billion deal in September 2013. At the announcement, Nokia's CEO Stephen Elop ended his speech with these now famous words: "We didn't do anything wrong, but somehow, we lost."
Content is prepared by Wealth Forum and should not be construed as an opinion of HDFC Mutual Fund.
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Wise Advice: Evolve