In Nokia’s 3rd quarter investor conference call in October, 2007, the CFO was immensely proud that they posted record revenue and profit by achieving record sales of their low end phones. Also, he enthusiastically noted that even though the average price of those phones dropped 10%, they retained the same profit margin. The stock price hit a record $39/share. It was also 2007 when Apple introduced the iPhone and Google launched the Android smartphone operating system which was quickly adopted by Samsung and others.
In the past six years since those record profits and stock price, it has been all downhill for Nokia, with their low end cell phones losing market share while having a very weak smartphone offering. In early 2011, Nokia hired a new CEO and he focused 100% of his effort launching a competitive smartphone, while ignoring Nokia’s low end cell phone business.
As a result, in the first quarter of 2013, Nokia’s low end cell phone revenues were off -21%, and while their smart phone business was up 27%, it is quite small (less than a 5% market share). For perspective, in the quarter, Nokia sold 55.8 million low end cellphone units, but only 5.6 million smartphone units. Net, Nokia took its eye off its big volume business while it focused on its new Lumia smartphone which is so late to market it is having minimal impact. Its current stock price is in the $3 range, off that $39 high in 2007.
Net, Nokia seems incapable of doing two things at once; keeping the low end phone business growing while aggressively trying to catch up in smartphones.
What is the problem here? Basically when a leader has two efforts that deserve major attention, they need to do the following:
1.) Organize for Success – If there are two major efforts, have two separate organizations with a strong leader for each. For example, if you are Nokia, you need to have a hard-charging low-end cell phone organization with a very strong leader and you need a separate organization and leader to successfully launch the Lumia. In Nokia’s case, the CEO became the smartphone leader and he obviously gave inadequate attention to low end cell phones.
2.) Let the Market Determine the Winners – Each effort should take a “no-holds-barred” approach to winning in the marketplace, even if means cannibalizing some or all of each other.
These lessons apply just as well to middle and lower level managers. Do a great job with your current responsibilities while aggressively launching your change initiatives independently.