Inside Nokia: Part 2 rebuilt from within

One day in early February, Samuli Nyyssonen of Nokia boarded a plane in Bangalore working for one company and disembarked in Helsinki working for another.

While the software engineer was in the air on February 11, Stephen Elop, the company’s chief executive, had told its 130,000 employees about a sharp change of strategic direction. Nokia would ally with Microsoft in smartphones, while at the same time boosting the group’s basic phone business in an effort to reach the “next billion” users.

In the airy, wood-trimmed staff restaurants at Nokia headquarters in Espoo, just outside Helsinki, thousands of staff gathered to listen to Mr Elop’s address broadcast live from a London hotel. When the press release was issued a few minutes before he spoke, employees overloaded the company intranet in their attempts to read it. Instead, they had to cluster round printouts of the official e-mail.

In Tampere, nearly 200km north of Espoo, the full implications of a plan that would eventually phase out Nokia’s Symbian operating system in favour of Microsoft’s Windows dawned on thousands of developers based there. “You could feel in the air this kind of anxiety and then ... when the press release went on to the web, everyone caught their breath,” says one who was in Tampere.

Jo Harlow, head of smart devices and in charge of the Symbian team, made the follow-up address to the Tampere workforce in person. Staff listened in near-silence. Some drifted away before she had finished. A month later, she tells me: “I’ve encountered anger and sadness ... Our ability to change from being device-led to being software-led as the industry changed hasn’t been fast enough. A lot of anger has come from the fact that we could have been in a different position if we had been able to make the transition more quickly.”

Strip out bureaucracy

Mr Elop’s plan to make Nokia faster, more transparent and more accountable aims to restore the old agility. He wants to capitalise on the strengths of a company that, in spite of the vast challenges it faces, remains the world’s leading handset manufacturer in terms of share of phones shipped. While some people interviewed for this series questioned his choices, all said change was unavoidable. But how to implement it?

The chief executive boiled down the failings of the old structure in his “burning platform” memo, when he quoted a Nokia employee who had half-joked that Chinese manufacturers of cheap handsets were “cranking out a device much faster than ... ‘the time that it takes us to polish a PowerPoint presentation’.”

Mary McDowell, who, as head of the mobile phones division has the task of seeing off the Chinese challenge, says Nokia had become clogged with bureaucracy: “Somewhere along the way, the process became the product.”

A series of committees, boards and cross-functional meetings held up decisions. A “brand board” discussed branding decisions. A “capability board” looked at information technology investments. A “sustainability and environment board” monitored Nokia’s green credentials.

Most of these boards have been swept away. Even the “GEB” – the group executive board, whose acronym on memos had become, in the words of one ex-manager, “a symbol of incompetence” – has evolved into the NLT, the Nokia leadership team, with the emphasis on “leadership”. Decisions are now pushed up to the appropriate leadership team member or down to the team that knows the relevant market.

“Too many things were coming through headquarters before they were going back out,” says Mr Elop, adding that local staff e-mailed him to say: “Look, I’m right here in the region. I can make this simple little decision, [but] I’m waiting for someone who is 10 timezones away and has three bosses of their own.”

Pushing decision-making down to local teams will be particularly important to Ms McDowell as she tries to inject more pace into handset development in emerging markets. Mr Elop says a lot of commentators have been “sucking each other’s exhaust” about the challenges in the smartphone sector, where Apple’s iPhone exposed Nokia’s device-led approach. He says they have ignored the opportunity for his company to exploit its strong share in developing markets. Nokia made nearly two-thirds of its device and services sales in 2010 outside North America and Europe.

It is also in these markets that the limitations of Nokia’s centralised structure were most evident. In India, for example, where Nokia remains the most trusted brand in mobile phones, local teams suffered from Espoo’s unwillingness in 2008-10 to provide them with a “dual-Sim” device tailored for Indian users who want to switch Sim-cards for the country’s many different regional providers.

Too often, Ms McDowell says, logical decisions to streamline or speed up the process were negated by other requirements. For example, while Nokia got other manufacturers to make the chip-sets that sit at the heart of a mobile phone to speed up production, the company then insisted on complicating and slowing down the process by adding its proprietary software. “We outsourced the chip-sets, but we didn’t change how we worked with the silicon,” she says.

Ms McDowell is one of the senior executives who is now directly accountable for strategic decisions that would previously have drifted between internal committees and boards. She likens the old structure and approach to a Disney ride, in which the passengers cannot deviate from the route. “Now it’s a bit more like being in a canoe,” she says. “There are rocks and white water, but you’re a little bit more in control.”

Managers below the leadership team say the emphasis on autonomy and accountability has improved the tone of meetings. Steven Robson, vice-president in Nokia’s finance and control team, says: “Always, someone in the room turns round and asks ‘Who’s accountable for this?’ Before it was ‘Let’s discuss this’, ‘Who’s going to decide this?’ and then it would be passed to the next level up.”

Mr Elop says such changes should improve results. “Part of the reason I have confidence in our ability to change gears,” he explains, “is bec­ause when you look at the things that slow you down – like length of decision-making, confused missions bet­ween teams – those are problems we can solve... We were in a leadership team meeting and someone said ‘OK, we’ve got this issue to deal with: what’s the expected date?’ And someone else said, ‘Well, that’s probably going to take three or four weeks’. It’s like ‘Hey, guys, we can’t take three or four weeks on this one. We need to be looking at it in seven days’ – so that’s what we’re going to do.”

Nokia has also made the goals and incentives for the leadership team more transparent. Top executives know, for the first time, about the specific targets their peers must hit. “People aren’t doing contradictory things,” says Juha Akras, head of human resources. “With this transparency, we are more aligned.”

Some have questioned whether Mr Elop’s reshuffle of senior executives went far enough. The average tenure of his leadership team, excluding himself, is about 10 years. “We think this reflects the fact that the new CEO is somewhat dependent on Nokia’s experienced executives to ensure that its final Symbian products are delivered,” Goldman Sachs analysts wrote in March. “We expect he is giving executives the opportunity to prove themselves under a different leader.”

But Jorma Ollila, Nokia’s chairman, says the board gave Mr Elop a free hand to make changes – and to re­adjust the top team in future if necessary. “We told him, ‘If you aren’t happy with the performance, please come to us sooner rather than later’ because clearly it will need refreshing and shaking up in the years to come.”

Informed decisions

Even critics admit Mr Elop prepared the ground well for the strategy review. One Nokia developer, who objected to the Microsoft link so strongly that he quit after February 11, says that in one-on-one meetings in January, Mr Elop asked “good, detailed, technical and operational questions, showing that he understood ... There was no possibility of his making a misinformed decision”.

Mr Elop briefed 200 senior managers below the leadership team in a two-day meeting at a hotel in Windsor, near London, before the announcement. Handsets running Windows were distributed so they could demonstrate the software to their teams. (Within days, Windows phones sold out in Finland as Nokia staff sought to experiment with the Microsoft operating system.)

When he landed in Helsinki, Mr Nyyssonen, who headed a 300-strong team working on Symbian, read the official e-mails, made some phone calls he had set up in advance, and watched the company videos. Microsoft was always the most likely choice, he says now, but still he had concerns. “People are thinking about long-term options, about whether they want to stay at Nokia. As a team leader, when the announcement came out, that was my worry,” he says.

Two weeks ago, he was handed a new role running one of the Windows Phone engineering programmes. How many are in his team now? “Just me, at the moment,” he replies.

Once the Microsoft deal is finalised – expected later this month – Nokia will tackle these concerns in detail, start to add to the teams working on the smartphone alliance and drive the investment in emerging markets. Re­building a durable platform for Nokia in the fast-moving mobile phone market is one of the most daunting tasks in modern business. Mr Elop and his team know that transparency, simplification, delegation and accountability are merely the tools – and that the job has only just begun.

- Financial Times, 13 April 2011