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Leadership in crisis

In these tough and turbulent times all leaders need to look very closely at not only themselves, but also those around them and make hard, challenging decisions that may well be actually about the survival of the business.

It's not often you get to see the deliberations and the acting out of this process, but below I have pulled together an insight into something happening right now.

Nokia CEO Stephen Elop rallies troops in brutally honest 'burning platform' memo to ALL Nokia 60,000 global employees

Hello there,

There is a pertinent story about a man who was working on an oil platform in the North Sea. He woke up one night from a loud explosion, which suddenly set his entire oil platform on fire. In mere moments, he was surrounded by flames. Through the smoke and heat, he barely made his way out of the chaos to the platform's edge. When he looked down over the edge, all he could see were the dark, cold, foreboding Atlantic waters.

As the fire approached him, the man had mere seconds to react. He could stand on the platform, and inevitably be consumed by the burning flames. Or, he could plunge 30 meters in to the freezing waters. The man was standing upon a "burning platform," and he needed to make a choice.

He decided to jump. It was unexpected. In ordinary circumstances, the man would never consider plunging into icy waters. But these were not ordinary times – his platform was on fire. The man survived the fall and the waters. After he was rescued, he noted that a "burning platform" caused a radical change in his behaviour.

We too, are standing on a "burning platform," and we must decide how we are going to change our behaviour.

Over the past few months, I've shared with you what I've heard from our shareholders, operators, developers, suppliers and from you. Today, I'm going to share what I've learned and what I have come to believe.

I have learned that we are standing on a burning platform.

And, we have more than one explosion – we have multiple points of scorching heat that are fuelling a blazing fire around us.

For example, there is intense heat coming from our competitors, more rapidly than we ever expected. Apple disrupted the market by redefining the smartphone and attracting developers to a closed, but very powerful ecosystem.

In 2008, Apple's market share in the $300+ price range was 25 percent; by 2010 it escalated to 61 percent. They are enjoying a tremendous growth trajectory with a 78 percent earnings growth year over year in Q4 2010. Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range.

And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100. Google has become a gravitational force, drawing much of the industry's innovation to its core.

Let's not forget about the low-end price range. In 2008, MediaTek supplied complete reference designs for phone chipsets, which enabled manufacturers in the Shenzhen region of China to produce phones at an unbelievable pace. By some accounts, this ecosystem now produces more than one third of the phones sold globally – taking share from us in emerging markets.

While competitors poured flames on our market share, what happened at Nokia? We fell behind, we missed big trends, and we lost time. At that time, we thought we were making the right decisions; but, with the benefit of hindsight, we now find ourselves years behind.

The first iPhone shipped in 2007, and we still don't have a product that is close to their experience. Android came on the scene just over 2 years ago, and this week they took our leadership position in smartphone volumes. Unbelievable.

We have some brilliant sources of innovation inside Nokia, but we are not bringing it to market fast enough. We thought MeeGo would be a platform for winning high-end smartphones. However, at this rate, by the end of 2011, we might have only one MeeGo product in the market.

At the midrange, we have Symbian. It has proven to be non-competitive in leading markets like North America. Additionally, Symbian is proving to be an increasingly difficult environment in which to develop to meet the continuously expanding consumer requirements, leading to slowness in product development and also creating a disadvantage when we seek to take advantage of new hardware platforms. As a result, if we continue like before, we will get further and further behind, while our competitors advance further and further ahead.

At the lower-end price range, Chinese OEMs are cranking out a device much faster than, as one Nokia employee said only partially in jest, "the time that it takes us to polish a PowerPoint presentation." They are fast, they are cheap, and they are challenging us.

And the truly perplexing aspect is that we're not even fighting with the right weapons. We are still too often trying to approach each price range on a device-to-device basis.

The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren't taking our market share with devices; they are taking our market share with an entire ecosystem. This means we're going to have to decide how we either build, catalyse or join an ecosystem.

This is one of the decisions we need to make. In the meantime, we've lost market share, we've lost mind share and we've lost time.

On Tuesday, Standard & Poor's informed that they will put our A long term and A-1 short term ratings on negative credit watch. This is a similar rating action to the one that Moody's took last week. Basically it means that during the next few weeks they will make an analysis of Nokia, and decide on a possible credit rating downgrade. Why are these credit agencies contemplating these changes? Because they are concerned about our competitiveness.

Consumer preference for Nokia declined worldwide. In the UK, our brand preference has slipped to 20 percent, which is 8 percent lower than last year. That means only 1 out of 5 people in the UK prefer Nokia to other brands. It's also down in the other markets, which are traditionally our strongholds: Russia, Germany, Indonesia, UAE, and on and on and on.

How did we get to this point? Why did we fall behind when the world around us evolved?

This is what I have been trying to understand. I believe at least some of it has been due to our attitude inside Nokia. 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.

We are working on a path forward — a path to rebuild our market leadership. When we share the new strategy on February 11, it will be a huge effort to transform our company. But, I believe that together, we can face the challenges ahead of us. Together, we can choose to define our future.

The burning platform, upon which the man found himself, caused the man to shift his behaviour, and take a bold and brave step into an uncertain future. He was able to tell his story. Now, we have a great opportunity to do the same.


I have also found some feedback about the above memo from an employee within Nokia which reads:

I can't comment too much as I work for Nokia but I read the original memo – it was front page of the intranet and I've seen Mr Elop speak. He really is an excellent speaker, honest, intelligent, engaging and has taken the temperature of Nokia at all levels – I.e. Not just senior management. He uses social media to talk directly to 60,000 global employees, he blogs and he invites and answers emails. Quite honestly, Nokia couldn't have a better CEO for the turbulent and fast changing environment in technology sectors.

So the leadership challenge continues...

Indeed, what's happened next in this real life 'Leadership in Crisis' challenge was discussed by Matt Warman, Consumer Technology Editor, The Telegraph who wrote on 12 Feb 2011

So when Nokia's new chief executive Stephen Elop stood on a stage at London's Intercontinental Hotel to announce that Microsoft would be Nokia's new partner for smartphones, he was not talking to the punters in Carphone Warehouse. This was an announcement aimed squarely at the stock market. Nokia's share price plunged by 13 per cent.

In essence, Mr Elop's decision acknowledged, however, what every interested amateur has known for two years: Nokia's current phones are already outdated and the company was treading a long and winding road to obscurity. In a quickening technology cycle, a company's lifespan is getting ever shorter, and constant reinvention is a necessity.

Mr Elop said that the company had talked extensively to Google, the other candidate for a deal, but that there was insufficient opportunity for Nokia to "differentiate" its products from others such as those made by Motorola – a Google-only smartphone manufacturer – or HTC or Samsung. There was also, with Google's strength in mapping, little chance for Nokia to get much out of its own strength in maps.

So Mr Elop acknowledged that Google didn't need Nokia, and that Nokia could not add much to Google. Looking at Windows Phone 7, however, Nokia can offer Microsoft's offering a much needed focus on hardware, he said, and it can also enhance the mapping powers of Microsoft's Bing search engine. Although Nokia will have to pay Microsoft a licence fee, it will also have new access to potential revenue streams, such as advertising.

So Nokia's pact with Microsoft was not really a choice. Earlier this week, Mr Elop wrote an internal memo comparing his company to a man standing on a burning oil platform: by jumping into the icy waters of the sea, the man saved his life, he said. What's most revealing about that analogy

Mr Elop's analysis of his problems, therefore, is astute. The changes that need to be made to Nokia seem to be in progress: Marko Ahtisaari, the company's head of design, now reports directly to Elop, for instance.

But that's not to say there are not still profound problems: it had pinned its hopes on MeeGo, which was a new operating system being developed in partnership with Intel. It was so bad it had become an industry joke, yet Mr Elop said yesterday that the Nokia engineers who had built it would be the ones who would build the future of Nokia and plan the next "major disruption" in the technology industry.

Later, Mr Elop said to analysts and investors that doing a deal with Google would have felt "a little bit like giving up and not enough like fighting back". Yesterday, as rumours of a cheaper iPhone model spread, a prominent investor said that "Nokia is taking the risk; Microsoft get the free upside. Meanwhile, Apple takes the middle market and the Chinese the low end. RIP Nokia".

That nightmare scenario may not happen – Mr Elop certainly knows what he's dealing with. More than 1.3 billion people today use a Nokia device – now the company will focus on "the next billion". David McQueen, principal analyst at Informa, said "The more competition there is in the smartphone space, the greater the innovation, the better the devices that emerge. Ultimately it will be users who choose what phones they want to buy." So far, fewer people are choosing Nokia or Microsoft than the two companies need. Mr Elop acknowledged that he was "taking a bet".

He's a brave man, gambling with billions.

While this was interesting to read, yesterday a posting from Michael Schrage, a research fellow at MIT Sloan School's Centre for Digital Business provides a certain (American) take on the current dilemma for Nokia.

Nokia's technology isn't a root cause of its current crisis. Don't blame its engineers and designers either. The company still knows how to innovate. There's a simpler and more strategic explanation for why this once-perennial market leader became second-rate.

Nokia ignored America. The company simply refused to compete energetically, ingeniously and respectfully in the U.S. America was treated as an innovation afterthought. Nokia tried to get away with preserving its market dominance in Europe and growing its leadership in Asia. The richest country in the world was, literally and figuratively, a third-class priority for the Finnish giant.

In scarcely five years, the disruptive emergence of Apple's iPhone and Google's Android revealed the magnitude of this strategic blunder. You can't be a genuine global innovator if you're a loser in America. Look at the numbers: From 2009 to 2010, Nokia's global share of the smartphone market dropped from almost 47% to roughly 38%. Nokia's North America numbers are even more eye-opening: Those numbers dropped from not quite 3.5% to under 3%. Nokia is barely a marginal smartphone player in America, where it accounts for barely 7% of Nokia's smartphone business. That's made the U.S. a poor platform for innovation.

The iPhone's global share now approaches 16%. Android's global smartphone share has shot from 4% in 2009 to almost 23% in 2010. In the U.S., their shares are 24% and 39% respectively. Each of Nokia's most ruthless rivals has roughly 10 times more share of America's market than it does.

Although China, India, and Latin America are undeniably huge potential markets, companies ignore the world's richest country, its consumers, and its innovators at their peril. Nokia's unwillingness or inability to bring its best game to America has undermined its brand as both a technical and market leader. Marginalizing America allowed two of Nokia's most dangerous competitors to swiftly, safely, and smartly out-innovate it.

If an American global market leader treated India, China, or Brazil so dismissively, its top management would (rightly) be excoriated as insular and arrogant. But Nokia's strategic choices have left it with a comparable outcome: an inability to learn, grow or profit in a market demonstrably hungry for mobile innovation. Behaving as if America doesn't matter takes a peculiar ignorance or arrogance. It's not an accident that Nokia'a (relatively) new CEO is a Noth American.

While celebrating 'reverse innovation' as a way to import novelty into posi-industrial markets may be popular and politically correct, America's entrepreneurs and consumers surely deserve at least as much attention as their Asian and European counterparts. America's wealth of ideas remains greater than the wealth of its households. Only a foolish firm thinks otherwise.

Nokia's new deal with Microsoft may or may not be the beginning of an essential turnaround. But the larger lesson here goes well beyond mobile technology and underserved geography. Real leaders do well wherever there's real competition. They don't de facto abandon the world's wealthiest markets because they think they can do better elsewhere. Most important, they respect the inarguable reality that, while global innovators can emerge from anywhere, they are still most likely to emerge from the place where Google, Apple, and Facebook began. Techno-entrepreneurs who want to win in the world still need to win in America.

It's interesting to reflect on the author's view of the world or indeed the whole issue of totally disruptive technologies that may yet come from the Far East?

The important messages throughout this story still stand the test of time and as importantly really do matter to large corporate organisations no matter what industry in any country.

This real life story continues...

While these are extracts following a story – it goes without saying that none of us really knows the true/full picture. However, the issues, responses and how the crisis is played out on a global arena are parallels and lessons for each of us, should a similar leadership 'crisis' arise. I would be very interested in your personal views on 'leadership in crisis' and any similar experiences.

Peter Buckley

I coach and develop individuals and businesses, in the private and public sector, Internationally and in the UK at board C-Suite and operational levels. Acknowledged outstanding results delivered through bespoke individual and team coaching, mentoring and leadership development to enable performance and productivity improvement with positive team dynamics and sustainable enhanced morale.

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