Problems Associated with Innovation and Change: of Nokia - Case Study Example

Problems Associated with Innovation and Change. Case Study: Nokia Introduction In the contemporary global business environment, every organisation has to change and innovate to survive (Brahmankar, 2012). Even large organizations which have established and cemented market leadership positions are no exception. In the mobile phone industry, Finnish mobile phone manufacturer Nokia had occupied the position of the world’s largest vendor of mobile phones from 1998 to 2012. However, faced by stiff competition from rivals Samsung and Apple, Nokia ended its fourteen year run as the world’s largest mobile phone manufacturer as sales dropped from 27 percent in the first quarter of 2011 to 21 percent a year later (Troianovski & Grundberg 2012). The decline of Nokia and loss of market leadership by what was once the world’s largest and most recognized mobile phone brand has been attributed to several strategic decisions taken by senior Nokia management regarding funding for research and development and which product lines to prioritize in an effort to consolidate market share. Specifically, several analysts have pointed at the decision by senior Nokia management to diversify from the successful Symbian-operated smartphone and the dismissal by Nokia engineers and executives of touch screen technology and the as the strategic blunder which allowed competitors such as Apple, Research in Motion and Samsung Electronics to eat into Nokia’s market share and dislodge it as the most valuable mobile phone brand (Smith 2009, O’Brien 2009, Hill 2013). This case study will analyse some of the challenges associated with innovation and change by focusing on some of reasons why Nokia lost its leadership position in the mobile phone industry. The case study will analyse these challenges by focusing on three areas: funding and prioritization, implementation and change management. Under funding and prioritization, the case study will argue that Nokia’s executives made several strategic blunders by not dedicating the organization’s existing capacity to the development of smartphones and as a result were left lagging behind rivals Apple despite having had the capacity to introduce devices with features similar to Apple’s iPhone. Under implementation, it will be demonstrated how most of the ideas, prototypes and concepts generated by Nokia simply never made it to the end consumer as they were not turned into products (devices) which would have helped maintain the company’s competitive edge. Finally, under change management, it will be shown how Nokia’s complex bureaucratic corporate culture has been a barrier to the change management process and resulted in Nokia losing market share to its more entrepreneurial and pro-active rivals Apple. Funding and Prioritization Analysts have often referred to Nokia CEO Stephen Elop’s 2010 “Burning Platform” memo as one of the most destructive management decisions which saw Nokia lose its dominant lead in the smartphone market to Apple and Samsung. In the “Burning Platform” memo, Elop suggested that Nokia’s market leadership in the smartphone market based on its line of Symbian operating system phones was vulnerable and that competitors such as Apple (which had released the iPhone in 2007) were gaining ground on Nokia (Elop 2011, Lomas 2012). Subsequently, Nokia would undertake a series of strategic changes which involved a strategic partnership with Windows to develop a third mobile operating system to challenge Apple and Android. At the time, Nokia was spending more than €5 billion a year on research and development, approximately a third of the industry total and cumulatively more than four times what competitors such as Apple spent (Troianovski & Grundberg 2012). However, despite occupying the leadership position in the smartphone market, Nokia’s funding for research and development, over $38.6 billion over a decade, was not productive as it did not result in any new devices which significantly challenged Apple’s iPhone. This has been attributed to internal rivalries and competition in senior management who were divided over the strategic decision the company should take and resulted in Nokia lagging behind as its competitors rolled out new devices such as the iPhone that eventually supplanted Nokia at the helm (Troianovski & Grundberg 2012, Smith 2009). Nokia had actually offered touchscreen technology to its consumers well ahead of its competitors- prior to the release of Apple’s iPhone. In the late 1990s, Nokia had developed prototypes for touchscreen devices and even tablet computers with features such as wireless connections and a touchscreen. This is evidence that Nokia, through innovation, had accurately forecasted the direction the market and the industry was headed. Some of the prototypes launched by Nokia in the late 1990s and early 2000s actually had, in a rudimentary form, most of the features of subsequent devices by competitors such as the iPhone and the iPad (Troianovski & Grundberg 2012, Lomas 2012). In 2003, Nokia pioneered touch screen devices in the industry with the introduction of the stylus-operated 6108 and 3108 phones (O’Brien 2010). However, Nokia senior management did not prioritize the rolling out of such devices but instead focused on increased spending in research and development to try and develop a new mobile operating platform and services to compete with Apple. Apple would capitalize on Nokia’s reluctance and fine-tune touch screen technology to fingertip precision with the introduction of the iPhone. It was even reported that Nokia had rejected an early design for a Nokia online applications store, an innovative feature that Apple would later capitalize on with its Apps store (Lomas 2012). When the iPhone was launched, Nokia’s engineers and executives actually dismissed it on the basis of its design and functionality and did not consider it a serious threat to its high end line of mobile phones (Troianovski & Grundberg 2012). Consequently, Nokia would lag behind Apple and Samsung in the smartphone market as consumers showed an increasing preference for touchscreen smartphones over the traditional keypad mobile phones in which Nokia had an almost unassailable advantage in production and sales (Lomas 2012, Hill 2013). Implementation As demonstrated, Nokia had accurately projected market trends in the mobile phone industry. Its prototype devices released well ahead of its competitors had most of the features that drive demand for consumers in the contemporary smartphone market. For example, the Nokia 9000 communicator offered features such as email and wireless connectivity which are the staple of today’s smartphones. Nokia had even released several prototypes of touchscreen devices prior to the launch of the iPhone. Fuelled by its massive budget in research and development, which included consumer research, Nokia had also filed numerous patents in several key areas of mobile telephony which were estimated to be worth over $6 billion by 2012 and form the bulk of the value of the entire company (Virki 2013). However, the problem in Nokia’s case was that despite massive spending on research and development which enabled them to develop such devices, there was a disconnect in the execution or implementation of this strategy as these devices and their features were either never rolled out into the market or were released too late after competitors had already eaten into Nokia’s market share (Cheng 2012). Most of the ideas, prototypes and concepts generated by Nokia simply never made it to the end consumer as they were not turned into products (devices). This has been attributed to divisions among senior Nokia management over the strategic direction that the firm should take (Troianovski & Grundberg 2012). Despite the efforts of their research and development teams, executives were not convinced of the viability of touchscreen devices. In addition, while one team of executives focused on developing an alternative operating system (MeeGo) to compete with Apple, another focused on trying to revamp the Symbian operating system (Troianovski & Grundberg 2012). Therefore in terms of implementation, it is important for the senior managers of any organization to rally support for innovation and change (Daft & Marcic 2010). In Nokia’s case, the division over the strategic direction the company should take resulted in internal competition for the support and attention of executives which negatively affected the company’s research and development operations or the execution of the strategy which would have enabled it to roll out devices into the market and maintain its leadership position (Troianovski & Grundberg 2012). Change Management As a company operating in the communication and information technology market, effective change management is crucial for Nokia. Rapid technological innovations in the communication and information technology industry demand that firms become responsive and manage these changes effectively so as to maintain their competitive edge in the market. Technological innovation through the introduction of a new product or service by one industry player often leads to a decrease in the demand of products produced by competitors or rivals (Loewe & Dominiquini 2006, Loewe 2010). In Nokia’s case, the introduction of the iPhone powered by Apple’s operating system and with distinctive features such as its touchscreen and extensive range of applications available online negatively affected demand for its Symbian operated cell phones. This is despite the fact that as early as 2004, a Nokia researcher had presented to the senior management a prototype of a unique type of mobile phone which connected to the internet, had a large bright screen and operated through a touch screen- essentially the features which would essentially drive Apple’s success in smartphones (O’Brien 2010). As the industry transitioned from traditional mobile phones to smartphones, Nokia lagged behind its main rivals. Instead of introducing their innovations to consumers, Nokia continued to mainly focus on mobile phone devices or hardware. Consequently, the product life cycle of Nokia shortened as other industry players like Apple and Samsung gained competitive advantage due to their responsiveness to the changes in the market (Cheng 2012). Brahmankar (2012) notes that, in the face of unwarranted and unpredictable changes organisations must rely on ingenuity and pro-activeness in order to keep up. Therefore, according to Brahmankar (2012) pro-activeness and innovativeness are important in order to realise effective change management. In the case of Nokia, it is evident that their shortcoming when it comes to change management lies in ingenuity and pro-activeness. One of the key challenges to innovation and change is leadership and the corporate culture. Leadership plays a critical role in overseeing the implementation of change processes and is instrumental in the realisation of effective change management (Olsen & Eoyang 2001, Cameron & Green 2012). Despite commanding a leadership position in the smartphone market in 2010, Nokia CEO Stephen Elop led the proverbial jump of the “burning platform” (Lomas 2012). In addition, Nokia’s organizational culture has been described as conservative and devoid of an entrepreneurial spirit. It was referred to as having a “stifling” bureaucratic culture with former employees depicting it as an organization which had become “swollen by its early success” and had grown “complacent, slow and removed from consumer desires. (O’Brien 2010)”. If Nokia had pressed ahead to roll out its concepts in the form of new devices, they may have retained their competitive edge in the fast-growing smartphone market. However, senior management at Nokia decided that the risks of the product failure were too high thus the product was declined (Denning 2011). Therefore, in Nokia’s case, its complex bureaucratic corporate culture has been a barrier to the change management process (Loewe & Dominiquini 2006). Conclusion Despite being the world’s largest mobile phone manufacturer for fourteen years and commanding considerable advantage as well as a research budget four times larger than its nearest rival, Nokia was dislodged by Apple and Samsung primarily as a result of several challenges related to the management of innovation and change. Specifically, Nokia’s reluctance to forge into the smartphone market despite having had the capacity to do so resulted in Nokia playing catch up to rivals Apple. From Nokia’s case, there are several clear illustrations of the problems or challenges associated with innovation and change. Leaders must clearly outline the strategic direction of their companies and anticipate changes to the market. Subsequently, they should prioritize keeping up market trends rather than reacting to them and dedicate funding to innovations which show promise in the market (Loewe & Dominiquini 2006). They should also build on their advantages and approach innovation incrementally, as opposed to Nokia’s approach of diverting focus on developing a competitor to Apple and Android as opposed to improving its Symbian platform or retaining a focus on mobile phones at the expense of smartphones. In addition, an organization’s corporate culture is crucial to innovation and change. Bureaucracy and conservativeness in an organization’s corporate culture, as shown in the case of Nokia, act as barriers to innovation and change management. References Brahmankar, Y. 2012, “Change Management through Productive Social Networking”. Journal of Business and Management, Vol. 1, No. 1, pp.1-5. Cameron, E & Green, M 2012, Making sense of change management: A complete guide to the models tools and techniques of organizational change, Kogan Page, New York. Cheng, R 2012, ‘Nokia on the edge: Inside an icon's fight for survival’, Cnet, December 18. 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Retrieved on May 2, 2013 from < http://techcrunch.com/2012/12/31/nokias-long-drawn-out-decline/ > O’Brien, K 2010, ‘Nokia’s New Chief Faces Culture of Complacency’, The New York Times, September 26. Retrieved on May 2, 2013 from < http://www.nytimes.com/2010/09/27/technology/27nokia.html?pagewanted=all&_r=0 > Olsen, E & Eoyang, GH 2001, Facilitating Organization Change: Lessons from Complexity Science, London: John Wiley & Sons. Schein, EH 2010, Organizational Culture and Leadership, 4th Edition, New York: Jossey Bass Publishers. Smith, A 2009, ‘Nokia Plays It (Not Too) Smart’, TIME, August 24. Retrieved on May 3, 2013 from < http://www.time.com/time/magazine/article/0,9171,1916296-1,00.html> Troianovski, A & Grundberg, S 2012, ‘Nokia's Bad Call on Smartphones’, The Wall Street Journal, July 18. Retrieved on May 3, 2013 from < http://online.wsj.com/article/SB10001424052702304388004577531002591315494.html > Virki, T 2013, ‘Ailing Nokia falls back on patents legacy’, Reuters, May 13. Retrieved on May 3, 2013 from < http://www.reuters.com/article/2012/05/13/us-nokia-patents-idUSBRE84C04K20120513 > Read More