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Way back before phones had apps, touchscreens, or cameras, one Finnish brand led the mobile phone revolution.
Renowned for its indestructible build and multiday battery, Nokia swiftly captured market share by promoting mobile phones as fashion accessories. Just like with watch straps, users could swap cover colors, turning a cellphone into a fashion statement.
By 1998, Nokia overtook Motorola to become the world’s largest mobile phone brand.
At its pinnacle in 2007, Nokia had 51% of global market share in mobile phones. To put that into context, Apple now has roughly 25% of global market share.
From the highs of global dominance to the lows of nearing bankruptcy, Nokia’s phone business culminated in a sale to Microsoft for $7.2 billion in 2013.
“We didn’t do anything wrong, but somehow, we lost” — Stephen Elop, former Nokia CEO
Nokia’s Mistakes
The brand’s downfall stems from numerous factors — both controllable and uncontrollable. Either way, they certainly messed something up.
Here are four key mistakes that lead to the company’s decline:
1. Only Focusing on Hardware
Building a physical device such as a mobile phone is undoubtedly a feat. However, without good software in it, it wasn’t going to stick.
By the time they realized it, Android and Apple already had the first-mover advantage into the app-based software (iOS and Android) that is now widespread in the phone industry.
Nokia’s operating system was called Symbian. While iOS and Android were app-based, Symbian was device-based. Basically, they were headed in the wrong direction. By 2009, Nokia was using 57 different and incompatible versions of its operating system — a complete nightmare for the company.
It must be for a reason there’s a huge buzz about software engineers, yet you hardly hear about “hardware engineers.”
2. Reluctance to Change Operating Systems
Image of Microsoft CEO Steve Ballmer and Nokia CEO Stephen Elop
Microsoft CEO Steve Ballmer and Nokia CEO Stephen Elop. Image by BI.
As Google entered the market in 2008, many competitors jumped ship to the Android operating system. Among them were soon-to-be bestsellers Samsung, Motorola, and Huawei. While competitors enjoyed an increasing share of the market, Nokia was reluctant to switch operating systems.
In 2011, Nokia finally took the leap. Except they didn’t change for Android. They partnered with Microsoft to implement Windows Phone as Nokia’s primary operating system.
This move proved to be catastrophic for the company, with Nokia effectively surrendering its market-leading position in 2013. To put this mistake into context, Android now dominates the OS market with over 80% of the smartphone operating systems, while Windows Phone is now discontinued.
Finally, in 2014, Nokia came to its senses and made the switch to Android, but it was all too late.
3. Dysfunctional Organization
Image of an Engineering Matrix Structure
Engineering Matrix Structure. Chart by PMI
While Nokia operated using a standard hierarchical organization through to the early 2000s, company executives decided to reorganize into a matrix structure in 2004, with the hopes of increasing innovation.
With the reorganization, conflicts began to arise. Among the disadvantages of having a matrix structure is that several managers have equal authority, which inevitably leads to power struggles. Inevitably, this also led to the departures of key members of the executive team.
While Nokia was dwelling with internal conflict, Apple — its biggest threat — was managed by a laser-sharp Steve Jobs, and was swiftly gaining market share through meticulous design, branding, and execution.
4. Missing the Smartphone Wave
Image of the first iPhone in 2007
The first iPhone back in 2007. Note the 4–16GB storage options; how times have changed. Image by iPhoneLife
In the mid-2000s, when smartphones began to emerge, Nokia sat comfortably on the cellphone throne. They were established, popular, and profitable.
Blinded by their success, they missed out on the first-mover advantage for smartphones. Given their resources, Nokia could have gained a serious lead over competitors in this area. Instead, they focused on producing durable, affordable, and traditional cellphones; the exact opposite of what most consumers were looking for.
Catapulted by the sleek iPhone, smartphones swiftly took over, kicking Nokia out of the mobile phone podium.
