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Nokia’s Dilemma

Buried in a long, long piece about Stephen Elop’s challenges at Nokia, is the following characterization of the balancing act that might undo his efforts:

Georgina Prodhan and Tarmo Virki, Welcome to Nokia, Mr. Elop

Nokia has an enormous number of older, more basic phones in circulation, and it likes to make new features back-compatible for the mass market, taking up valuable research and development time and money.

That presents a dilemma: on the one hand, Nokia needs to focus its efforts more closely on the top end of the market, the high-spending North Americans and the Europeans who have traded their Nokias for iPhones and BlackBerrys; on the other, it is enormously proud of its size and the trust it commands among the 1.2 billion people who use Nokia phones and the more than one million people a day who buy a Nokia — more than its three nearest rivals combined.

Any move to slash the portfolio or take resources away from the bottom end of the market would cut at the heart of what many Nokians believe in and work for. That means that even as he goes after Apple and Google, Elop will have to celebrate and build on the company’s successes elsewhere.

"Nokia needs to Americanize while simultaneously protecting its assets in the rest of the world. An injection of Silicon Valley attitude will play well in the United States, but the company must take care not to unsettle staff in Europe and elsewhere," says Neil Mawston, analyst at research firm Strategy Analytics.

There’s the nub. Nokia has built its mission around delivering billions of low-cost ‘dumb’ phones to the world market, largely missing the surge in smartphones in the US and elsewhere. These are high cost, full featured micro computers, and Nokia doesn’t have a place at that table.

But this is the future. The world’s masses of, say, five years from now will be using phones that resemble today’s top-of-the-line smartphones, not today’s bottom-of-the-barrel dumbphones. They will have web browsers, GPS, touch screens, streaming video, cameras, and book software: tomorrow’s phones they won’t be used principally for telephone calls.

Unless Nokia wants to wink out of existence, Elop is going to have to make a sudden right turn, and a lot of Nokia’s management team — and the corporate DNA — will have to be jettisoned.

Kevin O’Brien, Nokia’s New Chief Faces Culture of Complacency

A few years before Apple introduced the iPhone, research engineers at Nokia prepared a prototype of an Internet-ready, touch-screen handset with a large display, which they thought could give the company a powerful advantage in the fast-growing smartphone market.

The prototype was demonstrated to business customers at Nokia’s headquarters in Finland as an example of what was in the company’s pipeline, according to a former employee who made the 2004 presentation in Espoo.

But management worried that the product could be a costly flop, said the former employee, Ari Hakkarainen, a manager responsible for marketing on the development team for the Nokia Series 60, then the company’s premium line of smartphones. Nokia did not pursue development, he said.

[…]

His [Elop’s] biggest obstacle, according to Mr. Hakkarainen, as well as two other former employees and industry analysts, may well be Nokia’s stifling bureaucratic culture. In interviews, Mr. Hakkarainen and the other former employees depicted an organization so swollen by its early success that it grew complacent, slow and removed from consumer desires. As a result, they said, Nokia lost the lead in several crucial areas by failing to fast-track its designs for touch screens, software applications and 3-D interfaces.

In 2004, one said, the company rejected an early design for a Nokia online applications store — an innovation that Apple, Nokia and other handset makers adopted three years later. Nokia also did not improve its Symbian operating system, needed to support a more sophisticated smartphone. And though it introduced the industry’s first touch-screen devices in 2003 — the 6108 and 3108 phones, which worked with a stylus — it did not perfect the technology to fingertip precision before Apple did.

Nokia still lacks a convincing response to the iPhone. Last week it announced that software errors would delay shipments of its long-awaited N8 touch-screen phone.

It doesn’t matter if the company was once worth $250B, and sells 1 million crappy phones a day. There must be five companies in China doing that right now. Maybe ten.

It is unclear if Elop’s Nokia can turn on a dime and challenge Apple, Google, Microsoft and RIM.

My advice for Elop would be to acquire RIM, and leverage its brand in the professional world, while expanding its cachet as a texter’s device. But I bet he’s going to get sucked into a Nokia design-from-the-bottom-up approach, though.

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Notes

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