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Saturday, 4 May 2013

Nokia Losing It Day By Day

In Greek mythology, there were two Titan brothers: Prometheus and Epimetheus. Prometheus means "fore-thinker," and Epimetheus "after-thinker." Prometheus, who gave humans fire, represents the progress of civilisation, while Epimetheus represents backward thinking, staleness and indecision. Nokia used to be, and can be again, a fantastic example of what Prometheus symbolises. Nokia originated in 1865 as a pulp-making enterprise, far removed from its present occupation. But you will appreciate the foresight of its founders. Nokia entered the sphere of modern technology in 1902 with electricity generation. In 1992, it redesigned its logo to include the iconic words "Connecting People." This is when they exited from all other businesses except one — telecommunications, which they pioneered.

Low-priced Lumia?
For the next 14 years, Nokia ruled the globe as the leading mobile phone manufacturer. In 2000, its market cap touched a staggering $245 billion, but unfortunately that marked the end of the Prometheus phase for Nokia. It is hard to believe that the current market cap of Nokia is just $11.95 billion.

If it had changed its orientation from being a "product company" to a "services company" in the early 2000s, as it is attempting now, then perhaps the current crisis could have been avoided. An obsession with cost reductions and rapid growth helps explain how Nokia, long revered for quality and foresight, got itself hijacked by number oriented management and lost the character necessary to maintain a customer-first focus. Under Stephen Elop, who joined Nokia as its CEO from Microsoft in September 2010, Nokia commenced the migration from Symbian to Microsoft's Windows (Lumia) not a day late. After losing money in six previous quarters, Nokia finally delivered an operating profit of $557 million in Q4 2012. It slipped into losses again in Q1 2013 but it narrowed down its operating loss to $196 million from $1.7 billion a year earlier — not out of the woods yet, but not sliding into oblivion either.

The fact that the Lumia sales grew by 27% in Q1 2013 over Q4 2012 and the mobile phones sales declined by 30% for the same period indicate that MS-based Lumia is not growing fast enough. An inability to be guided by a healthy fear of bad consequences is a disastrous flaw and Nokia needs to come out of it by launching low-priced, Android-based Lumias and thus grow their business by two to three times. Even as Nokia is fighting the touchscreen smart phone battle, it probably realises that future competition might not be with other device manufacturers, but with, hold it, Google. But first Nokia has to address its continued loss of market share in emerging markets like India and China.

India is Nokia's second largest market but the company's revenues have declined by 25% since 2010. More worrisome is China, where its revenues have declined by 65% in the same period. These markets need best-in-class talent, long-tenure leadership teams and consumer understanding to manage the changing demographic profile. The resignation of D Shivkumar as Nokia India MD could negatively impact the execution.

Nokia can regain the consumer franchise it lost, all it needs to do is to manage five contradictions:

1) Global Integration vs Local Adaptation,
2) Efficiency vs Creativity,
3) Control vs Autonomy,
4) Explicit vs Tacit Knowledge,
5) Economies of Scale and Scope vs Economies of Speed and Persistence

What Nokia needs is "both/and," not "either/or." As NassimTaleb writes in Antifragile, when someone has more upside than downside in a certain situation, he is anti-fragile and tends to gain from randomness, errors, uncertainty. This does seem the case for Nokia — it has the advantage of hindsight as well as the much needed foresight.

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