http://disruptiveinnovation.se/?cat=16

Christian Sandström

FROM HIS BLOG (ACCES

CATEGORY ARCHIVES: M

Nokia’s decline in figures

Posted on April 22, 2013 by admin

Reply

I collected som key statistics on the performance of Nokia during the period 2004in further detail, a glimpse at them still gives a good idea of what has happened.

The first graph depicts Nokia’s sold volumes, both in emergiAmerica) and their total sold volume. It is worth noticing how large share of their volumes were actually sold in developing countries.

Interestingly, the decline is much steeper in developed cpercent of its volume from 2008 to 2012 as compared to 22 percent in emerging economies.

The following graph shows Nokia’s financial performance in terms of revenues and operating profit:

http://disruptiveinnovation.se/?cat=16

FROM HIS BLOG (ACCESSED 13 MAY, 2013)

CATEGORY ARCHIVES: MOBILE PHONES

Nokia’s decline in figures

key statistics on the performance of Nokia during the period 2004-2012. While these figures need to be analyzed in further detail, a glimpse at them still gives a good idea of what has happened.

The first graph depicts Nokia’s sold volumes, both in emerging markets (China, Asia Pacific, Middle East, Africa and Latin America) and their total sold volume. It is worth noticing how large share of their volumes were actually sold in developing

Interestingly, the decline is much steeper in developed countries (Europe and the United States) where the company lost 47 percent of its volume from 2008 to 2012 as compared to 22 percent in emerging economies.

The following graph shows Nokia’s financial performance in terms of revenues and operating profit:

2012. While these figures need to be analyzed

ng markets (China, Asia Pacific, Middle East, Africa and Latin America) and their total sold volume. It is worth noticing how large share of their volumes were actually sold in developing

ountries (Europe and the United States) where the company lost 47

Needless to say, the company’s market share has declined significantly. It peaked around 40 percent in 2007. In the years up the introduction of smartphones, Nokia gained market share on a growing market.Needless to say, the company’s market share has declined significantly. It peaked around 40 percent in 2007. In the years up the introduction of smartphones, Nokia gained market share on a growing market.

Needless to say, the company’s market share has declined significantly. It peaked around 40 percent in 2007. In the years up to

Decreasing volumes have implied collapsing

Another, perhaps more important explanation of Nokia’s problem is related to the decline in Average Selling Price. If each sophone generated 110 euros of revenue in 2004, then getting only 45 euros per phone incompany.

For sure, parts of the decline in Average Selling Price can be explained by increasing volumes in developing countries, but inevertheless clear that price competition has been fierce in these years.

Nokia has been squeezed from two ends margins and in the Western world Nokia has been forced to cut prices due to an outdated product portfolio.

It is truly amazing how a company can appear so solid and competitive and then fall apart within only a couple of years.

Posted in Mobile phones | Tagged collapse

Decreasing volumes have implied collapsing operating margins, as illustrated below:

Another, perhaps more important explanation of Nokia’s problem is related to the decline in Average Selling Price. If each sophone generated 110 euros of revenue in 2004, then getting only 45 euros per phone in 2012 is of course a tragedy for the

For sure, parts of the decline in Average Selling Price can be explained by increasing volumes in developing countries, but inevertheless clear that price competition has been fierce in these years.

ia has been squeezed from two ends – in emerging economies, cheaper, local manufacturers have eroded the company’s margins and in the Western world Nokia has been forced to cut prices due to an outdated product portfolio.

can appear so solid and competitive and then fall apart within only a couple of years.

collapse, figures, market share, Nokia, smartphones, statistics | Leave a reply

Another, perhaps more important explanation of Nokia’s problem is related to the decline in Average Selling Price. If each sold 2012 is of course a tragedy for the

For sure, parts of the decline in Average Selling Price can be explained by increasing volumes in developing countries, but it is

in emerging economies, cheaper, local manufacturers have eroded the company’s margins and in the Western world Nokia has been forced to cut prices due to an outdated product portfolio.

can appear so solid and competitive and then fall apart within only a couple of years.

eave a reply

Nokia quarterly presentations 2007

strategy remains valid and intact”

Posted on April 8, 2013 by admin

4

Apple’s IPhone was first revealed in January 2007 and available for consumers in June the same year in the United States, then progressively launched globally in 2008. Out of curiosity I pondered through Nokia’s quarterly presentation slides in the yea2007-2010 in order to get a better idea about how they related to the ongoing shift from feature phones to smartphones. While such a brief and shallow review will not give the full picture of Nokia’s response, it might still reveal something.

Going through these slides it is striking to what extent Nokia emphasizes the strength of its ever larger product portfolio. In the years 2007-2008, virtually every slidestack contains at least two full slides crammed with all new product launches. The images below come from some of these presentations.

Nokia quarterly presentations 2007-2010: “Nokia’s longer term

ains valid and intact”

was first revealed in January 2007 and available for consumers in June the same year in the United States, then progressively launched globally in 2008. Out of curiosity I pondered through Nokia’s quarterly presentation slides in the yea

der to get a better idea about how they related to the ongoing shift from feature phones to smartphones. While such a brief and shallow review will not give the full picture of Nokia’s response, it might still reveal something.

t is striking to what extent Nokia emphasizes the strength of its ever larger product portfolio. In the 2008, virtually every slidestack contains at least two full slides crammed with all new product launches. The images

these presentations.

2010: “Nokia’s longer term

was first revealed in January 2007 and available for consumers in June the same year in the United States, then progressively launched globally in 2008. Out of curiosity I pondered through Nokia’s quarterly presentation slides in the years

der to get a better idea about how they related to the ongoing shift from feature phones to smartphones. While such a brief and shallow review will not give the full picture of Nokia’s response, it might still reveal something.

t is striking to what extent Nokia emphasizes the strength of its ever larger product portfolio. In the 2008, virtually every slidestack contains at least two full slides crammed with all new product launches. The images

It is also noteworthy how little is said in these years concerning technological change and the emergence of smartphones. Mosof the information is related to market growth, Nokia’s market share, gross margins etc. Towards the2*2 matrix with threats and opportunities is presented. With no exceptions, this slide is very unspecific and the term ‘Compefactors in general’ is frequently used.

Here, there seems to be a symbiotic and destructive relanalysts care about the big numbers (revenues, market growth, market share), these notions fit neatly into their spreadsheetsand number crunching exercises. Technological change cannot beorganizational impact. Top management therefore happily focuses on the aforementioned issues and this inevitably makes them pay less attention to changes of a more discontinuous nature. Associate Profeshown that stock market analysts virtually ignored Kodak’s and Polaroid’s digital efforts in the 1990s, while they paid a lotattention to (and praised) their product launches based on photochemical film (rea

Also, a slight sense of (Finnish) optimism is communicated. In the Q1 report from 2008, the following statement is made

“Nokia continues to expect industry mobile device volumes in 2008 to grow approximately 10% from the approximately 1.14 billion units Nokia estimates for 2007.” (the presentation can be found

In Q2 2008 the following is written about the future:

“Nokia mobile device market share: increase sequentially”

Being present in a growing market can be highly deceptive because growing demand might obscure the fact that a technology is about to become obsolete, thus sending a false message to incumbent firms that things are actually going well. This was indeethe case with film sales for Kodak in the late 1990s and for analog CCTV companies in the 2000s. The market kept growing and an increasing demand concealed the fact that the technology was going to die, thus reducing the incumbent firm’s sense of urgency.

In 2008, slides are still filled with launches of new feature phones. However, there is an increased focus on software services and specific phones:

It is also noteworthy how little is said in these years concerning technological change and the emergence of smartphones. Mosof the information is related to market growth, Nokia’s market share, gross margins etc. Towards the end of each presentation, a 2*2 matrix with threats and opportunities is presented. With no exceptions, this slide is very unspecific and the term ‘Compe

Here, there seems to be a symbiotic and destructive relationship between established firms and the stock market. Financial analysts care about the big numbers (revenues, market growth, market share), these notions fit neatly into their spreadsheetsand number crunching exercises. Technological change cannot be easily quantified, nor fully assessed in terms of its organizational impact. Top management therefore happily focuses on the aforementioned issues and this inevitably makes them pay less attention to changes of a more discontinuous nature. Associate Professor Mary Benner at Minnesota University has shown that stock market analysts virtually ignored Kodak’s and Polaroid’s digital efforts in the 1990s, while they paid a lotattention to (and praised) their product launches based on photochemical film (read more here).

Also, a slight sense of (Finnish) optimism is communicated. In the Q1 report from 2008, the following statement is made

“Nokia continues to expect industry mobile device volumes in 2008 to grow approximately 10% from the approximately 1.14 (the presentation can be found here).

In Q2 2008 the following is written about the future:

“Nokia mobile device market share: increase sequentially”

ing present in a growing market can be highly deceptive because growing demand might obscure the fact that a technology is about to become obsolete, thus sending a false message to incumbent firms that things are actually going well. This was indee

se with film sales for Kodak in the late 1990s and for analog CCTV companies in the 2000s. The market kept growing and an increasing demand concealed the fact that the technology was going to die, thus reducing the incumbent firm’s sense of

8, slides are still filled with launches of new feature phones. However, there is an increased focus on software services

It is also noteworthy how little is said in these years concerning technological change and the emergence of smartphones. Most end of each presentation, a

2*2 matrix with threats and opportunities is presented. With no exceptions, this slide is very unspecific and the term ‘Competitive

ationship between established firms and the stock market. Financial analysts care about the big numbers (revenues, market growth, market share), these notions fit neatly into their spreadsheets

easily quantified, nor fully assessed in terms of its organizational impact. Top management therefore happily focuses on the aforementioned issues and this inevitably makes them

ssor Mary Benner at Minnesota University has shown that stock market analysts virtually ignored Kodak’s and Polaroid’s digital efforts in the 1990s, while they paid a lot of

Also, a slight sense of (Finnish) optimism is communicated. In the Q1 report from 2008, the following statement is made:

“Nokia continues to expect industry mobile device volumes in 2008 to grow approximately 10% from the approximately 1.14

ing present in a growing market can be highly deceptive because growing demand might obscure the fact that a technology is about to become obsolete, thus sending a false message to incumbent firms that things are actually going well. This was indeed

se with film sales for Kodak in the late 1990s and for analog CCTV companies in the 2000s. The market kept growing and an increasing demand concealed the fact that the technology was going to die, thus reducing the incumbent firm’s sense of

8, slides are still filled with launches of new feature phones. However, there is an increased focus on software services

At this point it seems that the company is recognizing that software is becoming more important and that phones are used for wide range of different purposes. But the response is to do more of the same, i.e. launch more feature phones with different functionalities and hanging on to the by now outdated operating system Symbian.

By late 2008, special attention is of course given to the financial crisis. Still no statements about the shift to smartphonefor this amazing piece of denial (Q4 2008): “Nokia’s longer term strategy remains valid and intact”

In Q1 2009, the company announced that it will launch Ovi Store and that its music services have been launched in Australia and Singapore. Still no sense of urgency communicated.

Bearing all the above in mind and especially the quote from Q4 2008, the slide below from Q2 2009 comes as quite a surprise:

At this point it seems that the company is recognizing that software is becoming more important and that phones are used for wide range of different purposes. But the response is to do more of the same, i.e. launch more feature phones with different

tionalities and hanging on to the by now outdated operating system Symbian.

By late 2008, special attention is of course given to the financial crisis. Still no statements about the shift to smartphonefor this amazing piece of denial (Q4 2008):

“Nokia’s longer term strategy remains valid and intact”

In Q1 2009, the company announced that it will launch Ovi Store and that its music services have been launched in Australia and Singapore. Still no sense of urgency communicated.

in mind and especially the quote from Q4 2008, the slide below from Q2 2009 comes as quite a surprise:

At this point it seems that the company is recognizing that software is becoming more important and that phones are used for a wide range of different purposes. But the response is to do more of the same, i.e. launch more feature phones with different

By late 2008, special attention is of course given to the financial crisis. Still no statements about the shift to smartphones, except

In Q1 2009, the company announced that it will launch Ovi Store and that its music services have been launched in Australia

in mind and especially the quote from Q4 2008, the slide below from Q2 2009 comes as quite a surprise:

All of a sudden, it is stated that the industry is undergoing some major change, something that has not been communicated at all previously (at least not on the slides). In this presentation, even more attention is given to software and Ovi Store. For the first time, Nokia now also stated that it will try to “adjust our services businesses and open up for greater opportunities fparty partner services”. Thus, about two years after the launch of the IPhone and the shift towards an open model with application developers, the company finally announces that it is going to do something at all. In a digital world, two years very long time.

In Q4 2009, devices (mobile phones) and services (software) are no longer reported separately but rather on one slide where numbers and events are more aggregated:

All of a sudden, it is stated that the industry is undergoing some major change, something that has not been communicated at not on the slides). In this presentation, even more attention is given to software and Ovi Store. For the

first time, Nokia now also stated that it will try to “adjust our services businesses and open up for greater opportunities frvices”. Thus, about two years after the launch of the IPhone and the shift towards an open model with

application developers, the company finally announces that it is going to do something at all. In a digital world, two years

009, devices (mobile phones) and services (software) are no longer reported separately but rather on one slide where numbers and events are more aggregated:

All of a sudden, it is stated that the industry is undergoing some major change, something that has not been communicated at not on the slides). In this presentation, even more attention is given to software and Ovi Store. For the

first time, Nokia now also stated that it will try to “adjust our services businesses and open up for greater opportunities for third rvices”. Thus, about two years after the launch of the IPhone and the shift towards an open model with

application developers, the company finally announces that it is going to do something at all. In a digital world, two years is a

009, devices (mobile phones) and services (software) are no longer reported separately but rather on one slide where

As businesses, they still remained unintegrated mainly since Nokia still refused to do anything aoperating system.

The following quote can also be found in the slides from Q4 2009:

“4Q showed Nokia’s ability to ramp up new, more compelling offerings, despite a tough competitive environment” In Q1 2010 (below), the company states:

“Nokia continued to show solid smartphone momentum in lower price points”.

While the word ‘momentum’ communicates something else than actual results, this is still a choice of words that clearly doesnmirror the seriousness of the situation – espealso the first time the word smartphone is used at all:

As businesses, they still remained unintegrated mainly since Nokia still refused to do anything about its underperforming

The following quote can also be found in the slides from Q4 2009:

“4Q showed Nokia’s ability to ramp up new, more compelling offerings, despite a tough competitive environment”

tes:

“Nokia continued to show solid smartphone momentum in lower price points”.

While the word ‘momentum’ communicates something else than actual results, this is still a choice of words that clearly doesnespecially bearing in mind the results that were delivered in the coming years. This is

also the first time the word smartphone is used at all:

bout its underperforming

“4Q showed Nokia’s ability to ramp up new, more compelling offerings, despite a tough competitive environment”

While the word ‘momentum’ communicates something else than actual results, this is still a choice of words that clearly doesn’t cially bearing in mind the results that were delivered in the coming years. This is

In Q2 2010, Nokia is for the first time communicating that it is doing something about its old software. Words sucspeed” and “innovation” are used below, but the fact of the matter is that the company is still doing more of the same, they’trying to compete with cars by developing a faster horse.

By Q3 2010, the big slides featuring Nokia’s h2011 and went down 25 percent in Q3 the same year. In late 2010 and 2011, the presentations become so meager and dry that it hardly made sense to look at them.

In Q2 2010, Nokia is for the first time communicating that it is doing something about its old software. Words sucspeed” and “innovation” are used below, but the fact of the matter is that the company is still doing more of the same, they’trying to compete with cars by developing a faster horse.

By Q3 2010, the big slides featuring Nokia’s huge (and obsolete) product portfolio are gone. Sales declined 20 percent in Q2 2011 and went down 25 percent in Q3 the same year. In late 2010 and 2011, the presentations become so meager and dry that

In Q2 2010, Nokia is for the first time communicating that it is doing something about its old software. Words such as “increased speed” and “innovation” are used below, but the fact of the matter is that the company is still doing more of the same, they’re still

uge (and obsolete) product portfolio are gone. Sales declined 20 percent in Q2 2011 and went down 25 percent in Q3 the same year. In late 2010 and 2011, the presentations become so meager and dry that

Having researched similar cases in other industries and given speeches about how established firms respond to technological change, I usually argue that these firms often recognize the threat but that their responses are not the right ones. Firms doall not act in isolation, they attend fairs where new products are exhibited and usually pay attention to what competitors are doing. I therefore frequently and rather easily make a point in busting the “oversleeping myth”.

Having reviewed the material above, one hardly geoverslept and top management did not realize the urgency of the situation until suddenly it is stated in Q2 2009 that the mobile indusmade two quarters after the legendary quote “Nokia’s longer term strategy remains valid and intact”. And once the problems were recognized, the response was for many years the faster horse stof Symbian, an operating system that was never designed to be used on smartphones.

One can only marvel at the amount of people who have lost their jobs and how much shareholder value has been the complacency of Nokia’s top management in these years.

All the above material can be found at Nokia’s Investor Relations website (

Posted in Mobile phones, Uncategorized

Explaining the Collapse of Nokia

Posted on April 7, 2013 by admin

Reply

In 2005, Nokia was the fifth most valuable branprofit of 8 billion euros, the company’s market share had climbed well above 40 percent.

At this point, most mutual funds had invested significant shares of their funds in Nokiavis-à-vis the stock market index. As a consequence, the company’s stock was traded around P/E 15considering the size of the firm and its meager growth prospects. When this is the case, stock, it is usually the beginning of a collapse. This holds true for IBM in the late 1980s, Ericsson in the late 1990s and b2006-2007.

In these years, politicians around the world argued that their country needed “a new Nokia” it fuels an entire economy’s growth over many years. Well, today anyone can have a Nokia. The final sign of things to come waa statement in BusinessWeek 2007: ”Nokia’s dominance in the global cell

The firm collapsed in the coming years its new CEO Stephen Elop stated in 2007 that ”the first iPhone shipped in 2007, and westill 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”.

similar cases in other industries and given speeches about how established firms respond to technological change, I usually argue that these firms often recognize the threat but that their responses are not the right ones. Firms do

olation, they attend fairs where new products are exhibited and usually pay attention to what competitors are doing. I therefore frequently and rather easily make a point in busting the “oversleeping myth”.

Having reviewed the material above, one hardly gets the impression that this was the case with Nokia. The company clearly overslept and top management did not realize the urgency of the situation – the slides do not communicate any major issues until suddenly it is stated in Q2 2009 that the mobile industry is undergoing rapid technological change. This statement was made two quarters after the legendary quote “Nokia’s longer term strategy remains valid and intact”. And once the problems were recognized, the response was for many years the faster horse strategy – better feature phones and eventually an upgrade of Symbian, an operating system that was never designed to be used on smartphones.

One can only marvel at the amount of people who have lost their jobs and how much shareholder value has been the complacency of Nokia’s top management in these years.

All the above material can be found at Nokia’s Investor Relations website (here).

| Tagged feature phones, incompetence, Nokia, shift, smartphones

Explaining the Collapse of Nokia

In 2005, Nokia was the fifth most valuable brand in the world. With a turnover of 51,1 billion euros in 2007 and an operating profit of 8 billion euros, the company’s market share had climbed well above 40 percent.

At this point, most mutual funds had invested significant shares of their funds in Nokia, probably in order to balance the portfolio vis the stock market index. As a consequence, the company’s stock was traded around P/E 15-20, a rather high number

considering the size of the firm and its meager growth prospects. When this is the case, and financial institutions keep buying a stock, it is usually the beginning of a collapse. This holds true for IBM in the late 1980s, Ericsson in the late 1990s and b

In these years, politicians around the world argued that their country needed “a new Nokia” – a company which does so well that it fuels an entire economy’s growth over many years. Well, today anyone can have a Nokia. The final sign of things to come wa

statement in BusinessWeek 2007: ”Nokia’s dominance in the global cell-phone market seems unassailable.”

The firm collapsed in the coming years its new CEO Stephen Elop stated in 2007 that ”the first iPhone shipped in 2007, and wet 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”.

similar cases in other industries and given speeches about how established firms respond to technological change, I usually argue that these firms often recognize the threat but that their responses are not the right ones. Firms do after

olation, they attend fairs where new products are exhibited and usually pay attention to what competitors are

ts the impression that this was the case with Nokia. The company clearly the slides do not communicate any major issues

try is undergoing rapid technological change. This statement was made two quarters after the legendary quote “Nokia’s longer term strategy remains valid and intact”. And once the problems

better feature phones and eventually an upgrade

One can only marvel at the amount of people who have lost their jobs and how much shareholder value has been destroyed by

smartphones | 4 Replies

d in the world. With a turnover of 51,1 billion euros in 2007 and an operating

, probably in order to balance the portfolio 20, a rather high number

and financial institutions keep buying a stock, it is usually the beginning of a collapse. This holds true for IBM in the late 1980s, Ericsson in the late 1990s and banks in

a company which does so well that it fuels an entire economy’s growth over many years. Well, today anyone can have a Nokia. The final sign of things to come was

phone market seems unassailable.”

The firm collapsed in the coming years its new CEO Stephen Elop stated in 2007 that ”the first iPhone shipped in 2007, and we t that is close to their experience. Android came on the scene just over 2 years ago, and this week they

How can such a sharp decline be explained? And why has Nokia struggled to develop a competitive sm

Technology S-curves provide a good starting point for addressing this issue. The Stechnology is initially slow. Once a breakthrough occurs, performance increases rapidly until a particular solution has rlimits of what is possible within a certain paradigm. At this point, the Svulnerable and likely to be substituted by another technology S

Nokia essentially surfed on the S-curve related to hardware and feature phones. Over the years, new functions were crammed into thinner and cheaper phones: radios, cameras, music players, recording capabilities, etc were added. Along this SNokia could fend off competitors easily. Being lthanks to its financial resources and engineering capabilities related to hardware.

While the pace of development has been stunning for feature phones in the 2000s, it all happenetechnological trajectory. As long as competition centered around offering a broad portfolio of feature phones, Nokia was in control. In this sense, Business Week was right when stating in 2007 that “Nokia’s dominance in the global ceseems unassailable”.

Approximately at this point in time, the S-valuable technological features or create additional consumer benefits along this traWhy then has Nokia been so slow in its shift to the next S

Nokia’s main problem is probably related to the fact that the competencies it developed in the feature phone era were not onlless useful for developing smartphones –

Nokia had never been a software company. Competencies were more related to hardware. Its operating system, Symbian, was essentially designed for phones used for calling and sending text poor. A smartphone is much more about software and online compatibility than a feature phone. Hence, Nokia was in fact ill equipped to develop smartphones as its competencies were more related to

Having an established set of competencies related to feature phones, it became financially rational to continue along this trajectory and capitalize on these skills. A large company with a large established market where customer needs are known usually struggle to allocate resources to breakthrough innovations. Such a firm faces a high opportunity cost and therefore itnot able to renew itself. Big companies think big, but all novelties, bydefinition, start as something small.

How can such a sharp decline be explained? And why has Nokia struggled to develop a competitive sm

curves provide a good starting point for addressing this issue. The S-curve theory posits that the advance of a technology is initially slow. Once a breakthrough occurs, performance increases rapidly until a particular solution has rlimits of what is possible within a certain paradigm. At this point, the S-curve levels off and the technology becomes increasingly vulnerable and likely to be substituted by another technology S-curve.

related to hardware and feature phones. Over the years, new functions were crammed into thinner and cheaper phones: radios, cameras, music players, recording capabilities, etc were added. Along this SNokia could fend off competitors easily. Being late with the introduction of camera phones, the company could still catch up thanks to its financial resources and engineering capabilities related to hardware.

While the pace of development has been stunning for feature phones in the 2000s, it all happened along an established technological trajectory. As long as competition centered around offering a broad portfolio of feature phones, Nokia was in control. In this sense, Business Week was right when stating in 2007 that “Nokia’s dominance in the global ce

-curve for feature phones started to level off. It now became increasingly difficult to add valuable technological features or create additional consumer benefits along this trajectory. Why then has Nokia been so slow in its shift to the next S-curve related to smartphones?

Nokia’s main problem is probably related to the fact that the competencies it developed in the feature phone era were not onl– they were probably downright destructive for such attempts:

Nokia had never been a software company. Competencies were more related to hardware. Its operating system, Symbian, was essentially designed for phones used for calling and sending text messages, the online functionality of Nokia phones remained poor. A smartphone is much more about software and online compatibility than a feature phone. Hence, Nokia was in fact ill equipped to develop smartphones as its competencies were more related to hardware.

Having an established set of competencies related to feature phones, it became financially rational to continue along this trajectory and capitalize on these skills. A large company with a large established market where customer needs are known sually struggle to allocate resources to breakthrough innovations. Such a firm faces a high opportunity cost and therefore it

not able to renew itself. Big companies think big, but all novelties, by

How can such a sharp decline be explained? And why has Nokia struggled to develop a competitive smartphone?

curve theory posits that the advance of a technology is initially slow. Once a breakthrough occurs, performance increases rapidly until a particular solution has reached its

curve levels off and the technology becomes increasingly

related to hardware and feature phones. Over the years, new functions were crammed into thinner and cheaper phones: radios, cameras, music players, recording capabilities, etc were added. Along this S-curve,

ate with the introduction of camera phones, the company could still catch up

d along an established technological trajectory. As long as competition centered around offering a broad portfolio of feature phones, Nokia was in control. In this sense, Business Week was right when stating in 2007 that “Nokia’s dominance in the global cell-phone market

curve for feature phones started to level off. It now became increasingly difficult to add

Nokia’s main problem is probably related to the fact that the competencies it developed in the feature phone era were not only

Nokia had never been a software company. Competencies were more related to hardware. Its operating system, Symbian, was messages, the online functionality of Nokia phones remained

poor. A smartphone is much more about software and online compatibility than a feature phone. Hence, Nokia was in fact ill

Having an established set of competencies related to feature phones, it became financially rational to continue along this trajectory and capitalize on these skills. A large company with a large established market where customer needs are known sually struggle to allocate resources to breakthrough innovations. Such a firm faces a high opportunity cost and therefore it is

Rumors abound that Nokia was considering the development of a touch screen smartphone five years ago. The inability of large companies to invest in unknown technologies and unknown needs is probably the reason why Nokia never did so.

Looking ahead, Nokia is facing formidable competition and the company is still not prepared for it, considering that its competencies are still largely stuck in the feature phone paradigm. At first glance, the collaboration with Microsoft makes a lot of sense as Nokia lacks the required software skills. However, Microsoft has never been a dominant player in mobile operating systems.

Bearing in mind that Nokia’s smartphone Lumia will have significantly fewer applications available for its customers also means that the company is in trouble. Small installed base of customers means that fewer companies are willing to develop applications for Lumia, which in turn means that fewer customers are willing to buy a Lumia, which in turn means… Vicious circle.

Warren Buffett once said “turnarounds don’t turn”. This is probably the case for Nokia.

Summing up: competencies have become incompetencies. A fish is very well suited for survival in the water. Now put it on land and see what happens.