How Nokia Lost Market Share to Apple

Nokia’s Design and Governance Issues

Introduction

The challenge for Nokia is that the growth of the telecommunications industry and the stiff competition from its rivals has led to Nokia falling behind as an industry leader. Nokia is particularly behind in the area of 5G rollout, as the company is has lost key contracts in China to rivals like Ericsson (Amine, 2021). Price erosion and loss of market share have also presented problems for Nokia in recent years. Additionally, its organizational structure is in need of overhaul. However, the main issue for Nokia is that it lacked leadership to provide a centralizing force for the loose structure. This paper looks at the firm’s design and structure to help show why in spite of an innovative culture, Nokia needs leaders to help harness the firm’s energy and human resources to create new products.

Organizational Design

The specific organizational design at Nokia is horizontal and multidivisional so as to allow maximum flexibility within the company. The structure is less formal, and employees are given autonomy. This essentially leads to a blurry chain of command. Strategic planning is overseen by the board, but operational planning is essentially loosely overseen due to the lack of centralized control throughout departments. As Roberts (2007) explains, the problem of organizational design is that strategy should facilitate the activities of the organization in the environment in which the organization operates. Design is about making sure there is a good fit for the organization, its strategy, and its environment. For Nokia, the main reason it lost market sure to Apple and Samsung was because leadership made poor choices “in technology and organisational design that jointly constituted sufficient cause for the abandonment of the mobile phone business” (Lambert et al., 2021, p. 574). Instead of focusing on the rising platforms of the smart phone industry, Nokia chose to invest all-in on its own outdated Symbian software platform, essentially doubling down on a product that was not working and throwing good resources after bad. Nokia’s poor design choices emanated from its “dominant management philosophy of the era, called ‘strategic agility’” (Lambert et al., 2021, p. 576). The problem was that leadership lacked decision-making and proper guidance for lower level departments: “sluggish decision-making at the top and fierce internal competition between alternative technological platforms at the lower levels of the organization” (Lambert et al., 2021, p. 576). Vuori and Huy (2016) laid the blame on the company’s CEO, who had a hostile temper and a combative leadership style that caused many problems for the company. The current CEO now faces the challenge of repairing burned bridges and rebuilding a unified culture with direction and purposefulness.

Governance Structure

The organization structure of governance at Nokia is comprised of the board and its CEO who oversee strategies and operations. The governance of the firm is compatible with Finnish law, and the Board of Directors reports to shareholders, and the CEO and Board report to one another, and are both subject to internal and external auditing. The ultimate purpose is to create shareholder value since the firm is a public company (Leadership and Governance, 2022).

The new focus for Nokia is on the following strategies:

· New model to include four P&L-responsible business groups aligned with customer buying behavior

· New business groups are Mobile Networks, IP and Fixed Networks, Cloud and Network Services and Nokia Technologies

· New Customer Experience organization to strengthen customer relationships across all businesses

· Optimizes model for better accountability and transparency, increased simplicity and improved cost-efficiency (Nokia, 2020).

The new structure gives each of the four new groups a specific focus. However, there is no clear indication that leadership is in place to help bring Nokia a unified vision and approach to a highly competitive marketplace.

How the Problem Affects Nokia’s Strategies

Nokia is a company in need of visionary leadership, the way Jobs led Apple or the way Musk has led Tesla. To create shareholder value, Nokia has to create customer value, and not simply try to play catch-up to what others have already achieved in the field of cloud computing, 5G networks, mobile devices, and so on. In other words, Nokia is falling behind because its strategies are not supported by leadership that sees both the macro and micro perspectives needed for creating successful organizational design in the company.

One of Nokia’s problems with its own OS was that it wanted to control its own OS and not use Android by Microsoft. It wanted a product developed in-house. At the same time, it tried to copy what Apple was doing in terms of innovative development of the smart phone. As Lamberg et al. (2021) explain, “Nokia’s technology development stretched to many directions and lacked a clear strategic vision: the corporation was not in paralysis but just tried to do too much in a short period of time” (p. 598). Nokia suffered from a sloppy organizational design due to leadership lacking sufficient vision. Its CEO simply wanted results and did not have the sense to provide support for its various departments to bring them all into alignment and order. There were too many stop and go decisions being made, particularly with respect to alternative technologies (Lamberg et al., 2021). This led to inconsistency in organizational design decisions, which then led to path dependence and the continuation of sinking more money into the Symbian OS.

Moving forward, Nokia needs to be smart about what its vision is, and how its four groups can meld together to bring that vision to life. Leadership must be consistent but also visionary so that decision-making and organizational design are logical and supportive of the firm’s overall performance goals. More structured interaction among the groups and leadership, with a proper sense of what they are trying to achieve and why, will help the company.