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Nokia Saw iPhone Coming - So What Went Wrong? · The Innovation Show

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Imagine speaking to the person who presented to the leadership team about
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the threat of the iPhone and what it felt like and how the leadership
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reacted because we have that person.
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I found the document, it appeared on the web about three years ago, the iPhone
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document that a team of strategists and market intelligence researchers inside
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Nokia presented to leadership team.
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And we're joined today by a strategy professor from Adelphi
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University just outside New York.
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Timo Partenen.
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Welcome to the show.
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Thank You.
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Aidan I am happy to be here.
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It's great to have you with us, and thanks for agreeing to do this.
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I know you're friends and you've listened to the rest of the show with Timo and Quy.
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Maybe let's share the context of what you're doing now and
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what you were doing back then.
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Before we start to explore the document,
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Well, as you said, currently I'm a professor in Adelphi University,
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just outside New York City.
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But before that, and the reason why I'm here is that I worked for Nokia
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in their strategy, in their market intelligence organization in different
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roles, approximately 2001, 2009.
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So during the period when iPhone was launched.
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let's share a little bit about how it felt for you as well.
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I mean, Nokia was doing so well.
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What was bubbling?
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What was happening?
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What was changing at the time when the iPhone came out, because also,
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you were starting to see the decline of companies like Blackberry, , but
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it didn't appear all of a sudden.
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So I'd love to really get inside the atmosphere inside the organization
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because so many people who are in that position in the company don't
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realize it when it's upon them.
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And I'd love you to share the kind of conversations that was happening, the kind
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of temperature inside the organization and just what people were talking about.
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as in your previous shows, it has become obvious, many people had a
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very different perception there.
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So iPhone didn't come out of blue.
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We had had a signs that Apple is preparing iPhone, so.
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They had acquired, was it 2005 a company that developed a multitask interfaces that
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was Finger Works or something like that?
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They had been recruiting wireless engineers for several years.
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So putting all this together, it was pretty easy to see that.
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Yeah, they are coming to our domain we got pieces of information
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from there and there and there.
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So we had been communicating to top management of Nokia or Nokia's
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different product divisions about the threat of Apple for several years.
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So as such, the announcement of the iPhone, the slides said that we
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are probably going to talk to today more wasn't the big news as such.
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It was very much expected.
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Something like this is coming out one day.
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At the same time, there were other trends as you names and for example,
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the usability of Nokia phones that had been of our competitive advantages,
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say earlier five years before that had been eroding quite badly.
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That was a constant message that we were getting from customers
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from market research and so on.
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And it was well recognized.
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It was well observed that the, touch screen devices not only phones but also
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other kind of devices like MP three players and so on are coming to market and
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they are user friendly and people at them.
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We had, for example, in the last in the couple of earlier years,
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flat top that screen as our first competitive issue the coming years.
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We had that sort of the list that what keeps us awake during the night.
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And touch screen had been like 2005, 2006.
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The top issue for that.
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So when the iPhone was launched the device itself didn't surprise us.
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What surprised us was the ecosystem that Apple was able to build around
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it, especially Cingular the American operator currently known as AT&T
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they were collaborating with Apple very closely with that.
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And I think you, that's the point with Nokia's issue with American
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operators in the previous podcasts.
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We had not been able to get into American operators with our smartphones, and
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then they suddenly go all in with Apple.
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That was a surprise.
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That was a bit of the surprise there, as well as how I think that Google and Yahoo.
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We're on board with that in, so they really came up as a big coalition
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rather than a single product launch.
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So that ecosystem perspective was something that took us by surprise.
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I love that you're sharing this, and it's so interesting.
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I, I was reading recently and we've a episode coming soon in the show.
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It's about Steve Jobs NeXT years.
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It's a book by Geoffrey Cain and it talks about how he failed in a way to
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build an ecosystem around app developers.
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, and what you kind of see is it was almost like the lessons he learned that
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he paid forward and brought to Apple when he came back the second time.
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And you can see it there with stuff like the ecosystem
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it's actually interesting to notice this there, that initially
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iPhone was closed ecosystem.
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The apple Store was not open for the outside developers at the beginning,
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but very soon they realized they need that developer ecosystem there.
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And then as you mentioned his previous experience and
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connections played well there.
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I'm sure somebody reminded 'em.
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I mean, the, the, the whole idea of history is written by the victors is
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very annoying for somebody who was there.
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And I wondered about that, that some of the myths you hear
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and have heard over the years.
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I'm sure it hurts sometimes when people talked about Nokia as a failure
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and, oh, they didn't see it coming.
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And many, many people make that mistake.
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And that's why it's so great to talk to somebody who was there because, I have
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a huge amount of empathy for you and your colleagues at the time because of
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things like the Cingular surprise that.
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You tried to do these things before and the carriers were pushing
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back all the time, so it wasn't as if you didn't think about it,
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you thought about so many things.
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nokia's working mentality at that time was very much about the hardware,
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hardware specifications and so on, and also in the intelligence functions.
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Primarily our job was to try to scout that, what kind of the features
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our competitor devices will have, what kind of the competencies
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they are building and so on.
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So while we saw those things and while we didn't come, we maybe not surprised about
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the hardware of iPhone and probably we can talk about that in a second bit more.
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we didn't necessarily understand that well or the size, a business side of
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the aspects that they were developing, their partnerships, their collaboration
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agreements and so on, and that that was a blind spot for us in the intelligence.
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And when you tried to do those things, was there a resistance?
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Because you mentioned about how it took Nokia a long time to
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break into America in a way.
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And I read that it, we covered a book called Losing the Signal
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about Blackberry a few weeks ago, and it talked about how Blackberry
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basically fooled Nokia with Blackberry Connect for a long period of time.
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And there was a lot of resources wasted with that partnership.
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And it kind of, in a way marked Nokia where you had this bad experience and
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it was difficult to break America.
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I'm not an expert of all the discussions that were going on
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at that time with the operators.
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And indeed that might have been one of the challenge for Nokia, that we were
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a very European focused company and we didn't have a big enough presence
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in America, actually was trying to relocate some top management and so on
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to America Exactly for that purpose.
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But generally my understanding is that at that point of time when internet
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was still relatively young thing and mobile internet was non existing.
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everyone was trying to think how to strategically position that they
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can control the mobile internet.
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And American telcos were relatively bigger in the technology industry
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at those days than they are now.
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they wanted to be in control.
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And Nokia being the world leader in cell phones was seen as a
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threat that if they let Nokia in.
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Nokia is going to take over, is going to provide different kind
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of the mobile internet services.
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While they're working with relatively smaller companies in that domain, like
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Blackberry or probably what they assumed about the Apple was seen as their way
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of bringing in these smaller partners that they can use to fight Nokia.
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I don't, I haven't done research that I don't have kind of the evidence.
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I haven't been talking to the boards of the American telcos in those days,
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but that's my assumption how it went.
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before we get into the document, the famous document, and I don't want to
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be bringing up old pains in any way, I wondered about the Symbian investment.
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So had it started at this stage, so this is the operating system for those
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people that don't know what Symbian is.
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Had it started before Apple or was it triggered by Apple and the whole
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that whole period of time, because.
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From the three part series we did with Quy Huy and Timo Vuori What you see is that
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people didn't want to talk about it not being very good and they knew it wasn't
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very good and you in market intelligence must have known compared to competitors.
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It wasn't where it needed to be, and I just wondered what the atmosphere
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was about that inside Nokia.
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Good question.
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So first about the intelligence function, that we are usually looking outside, we
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are looking the external information.
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I've been wondering afterwards should we have had kind of the
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internal intelligence, someone who would been the kind of the truth
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teller about our own competencies.
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So yes, we were telling that the competitors are coming with
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a certain kind of innovations.
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They are recruiting certain kind of de competencies and so on.
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We had some sort of vision that what they might be doing.
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We didn't actively benchmark that against our own development.
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So while we are presenting that, say touchscreen is important, and
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it seems that we are not currently in very good position with that.
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If somebody from the organization who is responsible about say, touch,
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touch screen UI development, comes and says that we will fix this.
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We have plans for it.
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We didn't challenge that.
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That's really interesting.
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, That's the thing that comes across most from the research on emotions is
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that it wasn't safe to be that person.
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It wasn't safe to be the truth teller, and you suffered from
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the shoot, the messenger bias.
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Is there anything you'd like to share about that?
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Because it sounds to me like you were that type of character , especially if you're
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doing strategic work, that you knew these things, but if you shared them, it was
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almost like a black mark on your resume.
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Now let's think about my previous role where I was heading our
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long term market forecasting.
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So I go a little bit back from the iPhone era now.
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There were product categories that Nokia was trying to pursue in the market, and
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our long-term forecasting team didn't see really future server that sort of
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the specific products in the market.
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And I, we in the long-term market forecast, 10 forecasted if not a
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declining or vanishing market, but at least significantly less growth
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than those business units wanted.
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And that created quite a bit of conflicts with the heads of those business
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units whose business we were ruining with our two pessimistic forecasts.
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So yeah, there was that kind of the using black mark in my CV in those
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days, but that was worth a quantitative market forecasting, which then
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leads to the planning that how much we will be able to sell and so on.
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So when I moved to head the market intelligence function, which is
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more qualitative in that sense we became easier to ignore.
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So if you are telling messages that don't resonate with the managers,
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yeah, they listen to us 'cause we are institutionalized bearer of that
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messages, but they don't act on those.
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So there was some parts of the organization which perhaps ignored,
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but I think the top management mostly listened what we said and
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mostly took things quite seriously.
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it seemed to me again, and, and it's, it's, it's very, it's, it's great
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to talk to you because there's parts of the documentation where there,
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there're people who shared their experiences with Timo and Quy, but you
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still don't know what that was like.
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So say for example, you're presenting to the, to the board,
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to the senior leadership team about these oncoming threats.
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Okay.
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They think they've made the message clear to the product managers to actually
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do something about it, but the product managers aren't doing something about it.
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It seemed to be, get stuck in the translation of the order to, we,
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we need to do this as priority.
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And people were frozen by fear of, oh, well we're not gonna do that
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because we control the resources.
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Or was it, we think that's the wrong thing to do.
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Where did it get stuck in the middle?
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That I do not know, but reflecting what you just said and what you have
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been talking earlier with Timo and Quy is that our communication was
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very much targeted to the business unit boards or corporate boards.
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We were target, we were mostly communicating up when we were
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communicating on the sideways to the say product planners or product
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feature, road mapping teams and so on.
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Wasn't maybe that kind of the strategic message that we need to do big changes.
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That was very kind of the operational checking, are the mega pixels in
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our cameras aligned with what we expect competitor roadmaps to be?
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While we perhaps created that external fear.
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To the upper management.
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We didn't do that to the middle management.
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So there was no urgency because they didn't feel it.
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I, I think that what's come true also from the earlier the other research
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that you have been talking, I, I, I
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haven't researched that myself, so I do
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not know what, what
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exactly they felt, but that's my impression.
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At least we didn't push that information, act actively enough to that direction.
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that's why it's so useful to share these messages to help other people
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because it's often in your position, you wouldn't think that was necessary.
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But you, what we see more and more when you study this work is you
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see how important it is to listen down and message down and make sure
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all those messages are aligned.
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Because you can think you're very, very clear at the top of the organization,
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but the rest of the organization having a clue what we're doing.
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They're just showing up and doing their work every day because
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that's what they're measured on.
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And i'm not looking here for blame.
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I'm actually trying, , I'm trying to avoid blame in any way and actually trying to
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go, how can we take lessons from this?
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'cause that's what I find so interesting about Nokia is that I, I like when
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I was, I was a professional rugby player for 10 years, and at the end of
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my career I started to follow Nokia.
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I was like, this is an amazing company.
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And it was two, it was November, 2007, and the stock was like up here.
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And I was like, this is amazing company.
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And then it just dwindled.
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I was like, what happened?
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So I have huge empathy and respect for what happened in Noki.
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So I don't want to, I'm not like that with my work.
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I don't want to go, oh, idiots.
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It's the opposite.
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I think the main learnings from the intelligence era for me is
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that in that sort of function.
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You need to try to find a fine balance, that you are not just
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a yes man telling the news that top management wants to hear.
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But on the other hand, you cannot go all in challenging
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that everything you do is wrong.
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then you are ignored.
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So you need to find a way to communicate there.
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Then another thing is that you need to have institutional support for your
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messages, and I think that came very well what you discussed in the earlier
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episodes about the period around 2012 where Nokia changed the management
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mode so that it was more data driven.
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And what I referred to my market forecasting period, which was
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quantitative, became the market forecast for the future and we.
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were part of the institutionalized process of planning our finances,
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our production and so on.
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But the market intelligence function where we try to wave the flag that,
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hey, apple is coming, APPLE is going to hit us badly if is just a PowerPoint
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presentation presented in the management team meetings that is not doing the work.
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It has to somehow get into the operational process where people are making those
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often quite low level decisions.
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But that is a link we didn't build well enough in those days.
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Then in this strategic aspect I'm not sure sure, how to how companies
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could themselves for that sort of the massive disruption that this caused.
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I think they need lot of flag waivers coming with the news.
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They need the challengers, they need to hear that from the
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customer, suppliers and so on.
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But seeing kind of the fundamental idea of the top level management that, hey, what
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we are, what we should do, what we should focus on, takes definitely much more
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than just the in intelligence function.
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That's fantastic.
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It speaks to, we did a series, a long form series with Joe Bower who was the
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thesis advisor for Clayton Christensen.
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And you're probably familiar with his work of resource allocation process.
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And for me, what you're saying there speaks to the resource allocation
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process because he, he gives a great example about Intel that when they
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moved from DRAM to semiconductors, they did it 18 months after the
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organization did it at the lower levels.
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'cause they saw the value of moving there and then they announced it as a strategy.
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And people down the levels are kinda like we did that ages ago.
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So it can actually lag the other way.
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And to your point, if you don't get inside the heads of those middle managers, you
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don't change the future of the company.
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And I think that's the.
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Why I wanted to, to bring you on and through your lens now as a lecturer
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and, and a strategy professor, is it's, it's easier in a way to see
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it in retrospect than it's in the moment because there's a great saying.
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It's hard to read the label when you're inside the jar.
20:02
Oh yeah, yeah,
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When it's you and you're, you're stuck and you're doing the work
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and you're rewarded on the present.
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It's very, very difficult to to see yourself in the moment.
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And then comes another angle.
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'cause if you, if you will now look the document, finally what
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we've been talking, you will notice that it goes to quite a detailed
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hardware specifications and so on.
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There's, and actually this is a short version.
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There was a much longer verse and distributed as well.
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But point is that there are lot of data points and when somebody in
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the middle management reads it they probably read it through tail lens.
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And Nokia being hardware focused company, of the middle management
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threat that documented, okay, iPhone's hardware is not that great.
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We are doing well here.
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They pick the message, they want to hear from that.
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I love that, that's so, so key.
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So let's share it now.
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So let's share it and you take us through it.
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I'll, I'll, I'll navigate, I'll, I'll drive it for us and I'd
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love you just to comment on it.
21:09
So, where.
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Was this, where were you in the meeting?
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Like who were you talking to?
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If you can, whatever you can share.
21:16
I know there's gonna be some confidential stuff
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But this was,
21:20
I
21:20
who was it to?
21:21
So first of all, recalling something exactly what happened almost 10
21:26
years ago be be challenging here.
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So as you see already from this, Nokia was organized quite much in silos.
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So all these abbreviations after our names indicate the different
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corporate units we were working on.
21:42
And this was a document that was put together from the white
21:46
Intelligence organization.
21:48
And that is actually one thing that perhaps was a challenge that the
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different, managers in different parts of the organizations got different messages.
22:04
All right, so this was a document that was prepared right after iPhone was launched.
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And this is a document that, if I remember was distributed quite
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widely also beyond the Nokia's board.
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So this is perhaps bit sanitized version of all the analysis we have done.
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This doesn't include references, for example, to our future products.
22:33
It doesn't include speculative information that we couldn't
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been confirming that, but we were communicating perhaps in other sessions.
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Okay, so I'll, I'll flick onto the next page.
22:45
And so here we go.
22:47
Executive summary.
22:48
So again, were you a presenter of this knowledge to, to the team?
22:53
I, there was so much detail here that you had Right?
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That's what I find so fascinating.
22:58
It's not like you didn't know.
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It's like you knew very, very well.
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You had brilliant market intelligence.
23:03
Yeah.
23:03
So we had, as, as I said, we had been following Apple for several
23:08
years at that point of time.
23:10
So there was not that many big surprises.
23:14
This was conclusion that, okay, what information was confirmed?
23:20
What information was me?
23:23
And we had had quite a bit of time to think about the implications well.
23:28
And don't think any of the proposals we make here would be controversial.
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So when I presented this, I don't think anyone in the management disagreed
23:44
with the proposals that we are making.
23:46
They may prioritize them differently.
23:50
may think that something is maybe not that urgent urgent, and so on.
23:55
But overall, I, I think everyone was nodding here at this point
23:59
of time in the top management.
24:01
And if I recall some discussions were around how we could
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use the other US operators.
24:13
Point four.
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How could we collaborate with them?
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Is our coming portfolio strong enough to work with them?
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Can we get them on board with the products?
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So you're asking all the right questions like I'm, I'm asking our audience
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here, business people to put themselves in your shoes and go, you had the
24:34
information, you, you thought you were taking action on that information,
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and the, the question you always go is, did you have the capabilities to
24:44
carry the strategy through anyway?
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Or had Apple because they were a computer company and the game had
24:51
moved from a mobile phone to actually a smartphone had they just got such
24:56
a headstart that it was so difficult to catch up Anyway, if you wanted to.
24:59
Yeah.
25:00
Yeah.
25:00
So Nokia was often a quick second in its actions.
25:06
So at that point of time, Nokia was a still leader in smartphones.
25:10
The market was small.
25:12
And our Symbian phones now retrospectively, were not that
25:16
competitive, but overall, the feeling was that yes, this is again, some trend
25:22
where we might be a little bit late.
25:26
We are not going to touch screens to the same volume as early as Apple, but if
25:31
they become successful, we will flood the market with the different kind of
25:34
the touch screen phones to different price points, different consumer
25:38
segments, different product categories.
25:41
That's what we did with the earlier products that we had missed.
25:44
If you remember, for example, before iPhone, there was a big hype around
25:49
Motorola Razr, the very thin phone.
25:53
and Nokia was, Nokia had identified also their, the miniaturisation trend,
25:59
but we had a misinterpreted it so that people want smaller phones while the
26:04
thin phone became the absolute winner.
26:07
And yes.
26:08
Then when we noticed we missed that trend.
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We created a portfolio of thin phones across the different price point.
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We had a very cheap thin phone.
26:19
We had a very fashionable thin phone.
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We had the business focused thin phone and so on.
26:23
Pretty much killed the Razr with that.
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And when we were talking about this, I don't remember, was it in the
26:30
management boards or some more informal meetings or some other occasions?
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The atmosphere was very much, okay, we might be late with this kind of
26:39
the product, but we have something in our pipeline that will have touch
26:44
screen, that will come with the music.
26:48
That will be a great experience.
26:50
We are able to use our scale, our distribution, and
26:56
apple will not be growing as fast as predicted.
27:01
about this slide that you are now showing probably the third bullet point.
27:07
There was something that had most comments among the higher level of management that
27:18
getting really, the Cingular CEO Google, CEO Jerry Yang from Yahoo on the stage.
27:27
That ecosystem that Steve Jobs was building around, was something
27:35
that we didn't understand.
27:37
What are they planning altogether?
27:40
And the last question there, Timo on the page as well.
27:43
Is this a direct challenge to em's, multimedia, computer positioning?
27:47
What's that in reference to?
27:49
M was our multimedia product division that was responsible for the different kind
27:57
of the higher end smartphones and that we were at that point of time positioning I,
28:06
I think maybe in the next slide we will talk about was it that N700 and N800?
28:12
N 800 which was kind of the multimedia computer product, which we saw, in
28:19
principle, targeting to very similar market, but it was not doing well.
28:26
It was not that good product to be honest, and operators didn't support it that much.
28:32
But I think at that reference in the slide, kind of the refer
28:36
that, is this kind of the product positioning going to work?
28:41
Or is Apple going to take over this part of the market?
28:45
There, there's a couple of things that just came to mind where when I studied
28:50
this over the years, the Nokia story, and it's got, it's got much richer
28:53
obviously with conversations like this.
28:55
And I think that's one of the pities about this is that people make a jo a a decision
29:01
based on a tiny piece of information.
29:03
Like you said, even within Nokia, everybody saw it based on where
29:06
they were inside the organization.
29:08
There's a law called Miles's Law, which is where you stand, depends on
29:12
where you sit in the organization.
29:14
So marketing sees it different than r and d, sees it different
29:17
than finance, et cetera.
29:19
And a couple of things came to mind where some of the stories you hear
29:23
are.Well, Nokia had developed a touchscreen phone way before Apple did.
29:29
That's one.
29:30
The other was Nokia also developed an iPad way before Apple ever had an iPad.
29:35
And then the other is that you also had an app store before
29:38
Apple ever even had an app store.
29:40
And that they were ideas that came from within Nokia, but were
29:45
rejected or leadership said, no, we're making progress with this.
29:49
This is where we're gonna focus.
29:50
And I won.
29:51
If you can share or comment on that, I wonder what your thoughts were.
29:55
let's start with the app store part, for example.
30:00
That was something that from my perspective was identified that,
30:04
hey, we have here the app store, which is not working great.
30:09
And Symbian was really bad from the developer point of view.
30:13
And idea of having the external applications in our phone, building that
30:19
sort of platform strategy was there.
30:22
Execution?
30:24
Yet again the resource allocation Nokia, being hardware company.
30:27
Probably all the software initiatives didn't get as much
30:32
emphasis as they should have had.
30:34
I remember telling, prior iPhone that the, some sort of the benchmark results,
30:41
some sort of the market research results about the usability of our app
30:44
store both from the user perspective and from the developer perspective.
30:49
And these issues were flagged.
30:51
And when some senior vice president or vice president, I don't remember, says
30:56
that they, we will take action on this.
30:57
From my perspective, I can take the intelligent studies done
31:01
and I don't know if anyone ever then followed up that issue.
31:06
Nokia's Innovations Nokia came up with actually quite a lot
31:09
of innovations in those years.
31:10
So, for example, one of the response strategies for iPhone was that looking
31:15
out, launch the music phone, or actually range of the music phones.
31:19
'cause we thought that the music is going to be the killer application in iPhone.
31:24
They had the iPod before.
31:26
So we launch, launched, express Music series.
31:31
And then I think half a year, year later, than iPhone was launched.
31:36
We launched the service comes with music, which provided basically
31:40
that when you buy a Nokia phone, you get a free music for a year.
31:45
At that point of time, it was not streaming music, it was downloadable
31:48
Mp3s, but you can download all the MP3s from Nokia Music Store.
31:53
So kind of, you can think about that as Spotifys were some 20 years
31:58
ago, and you get that subscription free for a year with Nokias.
32:02
several things.
32:03
why it didn't succeed,
32:07
inertia of incumbency.
32:09
Our biggest customers, operators didn't want us to go that way.
32:14
We didn't have enough resources to execute that strategy correctly.
32:19
We didn't have, enough, probably capabilities to do it correctly and so on.
32:24
So plenty of thinking.
32:26
But I think a lot of the issues then come back that Nokia didn't think
32:33
beyond these devices, for example, for that Nokia didn't think that
32:39
this could be potentially a Spotify type of service that would be
32:42
independent from the other services.
32:46
We saw it as a tool to sell our phones 'cause that's where we got our money.
32:51
and it's very hard not to, I mean, even it's very useful
32:55
now on having the language.
32:57
It's one of the reasons I love doing this work and speaking to people
32:59
like yourself is you put a language on how to think about these things.
33:04
And you see that many times when a, an executive team struggle with the future,
33:10
they don't have a way to think about it.
33:12
So they don't have a lens to see what's actually happening here.
33:16
Some of the things you were saying there.
33:18
We had Paul Nunes on the show before he, he was the head of research for Accenture.
33:23
Brilliant guy.
33:25
And he talked about the hidden S-Curve.
33:27
So there's the scur of the product, there's the scur of the industry, but
33:31
there's also the capability S-Curve and the capability S curve starts to
33:35
fail as well when it's a jump to a new curve where you jump from hardware
33:40
to software or ecosystem thinking, which, how could you have that when
33:45
you have been a hardware company.
33:47
And then one of the ones I just wanted to ask you about there, you,
33:50
you touched on it briefly, was what's called premium customer captivity.
33:55
So your customers actually dictate where your resources go in the future.
34:00
And your customers didn't want the music thing, so you didn't do the music thing
34:03
'cause they were the ones with the power.
34:05
And I wondered just what your thoughts were particularly on that
34:07
one, that how much a customer can dictate where you go in the future.
34:12
They definitely dictate a lot because you need to listen to your best customers, and
34:17
especially in this kind of the industry where in many markets you had only a
34:22
few key distributors, the operators, you don't want to take any initiatives
34:30
that would harm your position with them.
34:33
So that is often a situation where outside disruptor can come to the
34:38
market and create something that an incumbent firm couldn't do, Apple
34:43
did it for us here, very obviously.
34:46
Yeah, because they don't have anything to lose.
34:48
I think that's such an important thing that you have.
34:51
You have so much to lose.
34:52
The incumbency problem, the endowment effect it's called in biases, is that
34:58
one of the things Paul Nuno has told me about Nokia, and I'm, I would love
35:01
to qualify it, is that you had massive mortgages on, on investments in factories
35:09
in China to develop the dumb phone, essentially the normal phone versus
35:14
no skills to develop the smartphone.
35:17
And because you had made that investment, it was very difficult to pivot when
35:21
you had that hanging it over you.
35:22
That's why internally Nokia was split in the divisions.
35:26
So we had the mobile phone division, which was taken care of, the low end
35:30
part, and we were trying to develop the cheapest possible phone in the world.
35:35
And then we had other organizations that were both physically and
35:40
mentally far away from the old business, which were trying to develop
35:45
multimedia products, enterprise products, gaming products, music products and so on.
35:50
So we did recognize this, that the investments we have made to become the
35:56
worldly leader in the low end phones.
35:58
May harm our capability to be innovative at the same time.
36:02
'cause it goes very much to the back to the basic exploration versus
36:08
exploitation paradigm the organizations.
36:11
That if you want to be efficient or if you wanna be innovative of the
36:15
new need to separate these things.
36:17
Because one of the other things.
36:19
That from the outside.
36:20
So I've spoken to Gary Hamel, Rita McGrath lots of, lots of consultants
36:26
who worked with you and you had access to the best consultants in the world,
36:29
the best thought leaders in the world.
36:31
And again, there's a, a notion that there was arrogance in inside Nokia.
36:37
And it, it doesn't appear to me from talking to people who work there, that
36:41
it's not so much individual arrogance.
36:44
It's we're, this is working, we're making profits, the strategy's working.
36:49
It's a strategic arrogance and it's a different thing.
36:53
Yeah, yeah, probably very right with that.
36:56
Nokia talked to a lot of outsiders.
36:57
We heard lot of comments.
36:59
We try to apply the best knowledge we can find everywhere, both for
37:06
the product development, managing the organization, and so on.
37:10
But yes when you are one of the most valuable companies, one
37:15
of the most respected brands, you are having great profits.
37:19
Your CEO is named the CEO of the year for several years and so on.
37:24
It's hard avoiding becoming somewhat arrogant because everything
37:27
seems to be working pretty well.
37:30
And that, and that's why we're doing this series is just to see.
37:33
It's hard to read the label when you're inside the jar maybe.
37:36
We'll, we're, we're on page four of the iPhone now, I think you,
37:39
back to it.
37:40
Yeah.
37:41
you mentioned actually at the, the touchscreen ui
37:44
Hmm.
37:44
and you mentioned that you could see the strategic M&A that was happening
37:50
inside Apple, that they were buying companies to piece together capabilities
37:55
that they'd build the future.
37:56
And you were watching this closely.
37:57
Yeah, I think it was probably 2005.
38:01
I think I just had started in my intelligence role when Apple announced the
38:07
acquisition of FingerWorks, which was a multitask UI company that had developed, I
38:18
believe some products, some these devices.
38:22
Sorry, I don't recall now all the details, but yeah, it had been on the
38:25
radar and we had seen that happening.
38:29
We had seen both phones and other devices getting that screens, if I recall
38:36
correctly, the iPod had a simple, that screen at that point of time and so on.
38:40
So yet again, we saw that coming yet again.
38:47
We heard the messages that, that out, touch screen with our interface is
38:53
being developed and in the products we launched next year, we are going to
38:57
have S 60 that screen user interface.
39:01
And, well, you have heard the story, why we didn't have it then?
39:05
it's interesting where you said you were also used to being a second mover
39:09
or being a fast second mover, and the second mouse gets the cheese sometimes,
39:14
but here, the second move, you never caught up just really because you didn't
39:19
have the capabilities to do so I can see why you thought, oh, it'll be fine,
39:23
because we've been here before and we've caught up and actually we've killed that
39:27
person, like with the Razr you told us.
39:29
So you can see why I can, you know, when you share these conversations,
39:32
you can start to get inside your head.
39:34
Here's a typical model you talk about here , of hardware is to
39:39
start at the high end and then make cheaper and cheaper versions.
39:42
And again, you call that out here because that is what happened
39:45
initially with the iPhone.
39:46
Yeah.
39:47
And here our expectations was then that mobile phones division, which
39:53
is our mainstream phone division that make those phones that cost 100 euros,
39:59
$100 that will get hit the future.
40:03
But at that point of time, we didn't see an immediate threat for that
40:06
when we expected that Apple will launch a mini version of the iPhone
40:11
later, and we had plans to that to with the product that turned out
40:16
to be then Nokia 5,800 and, here.
40:21
You see also the point that Nokia's mental model was very much about the hardware.
40:27
So, Otto, in the first point, we highlighted here the user interfaces,
40:33
but there comes this kind of the discussion, the, hey, this is not
40:36
any super product from the hardware perspective, we can do better.
40:41
and you totally get it.
40:41
I mean, it's like, people talk about Kodak and Kodak,
40:45
Mm-hmm.
40:45
model was selling film.
40:47
Your mental model was selling hardware.
40:49
And it's a totally different skill.
40:52
It's a totally different mindset.
40:53
It's like even we saw in the press industry where they
40:56
went from analog to digital.
40:58
Hmm.
40:58
It's a totally different mindset and a lot of it's given away your content.
41:02
And people who sold content could not understand that.
41:06
So you can see why the mental model shift is, is such an
41:09
important aspect of all this.
41:11
, And I'm happy to share this, we're on page six.
41:14
For anybody who wants to just get in touch with the show and
41:16
we'll share this document and I'll put a link on our substack.
41:20
But here you predicted how the market share would play out, and I
41:25
wondered how you felt it was versus actually what happened and when
41:31
it didn't go as you'd predicted.
41:33
How did that feel and how, how did they react inside Nokia?
41:37
now I have to say that I don't recall by heart.
41:41
Did they reach that 1% market share in 2008 or did they
41:45
already get higher at that point?
41:48
I think it was 1% and they weren't a threat in the early days, and then
41:52
all of a sudden you were like, oh.
41:54
Because they just took out the market all of a sudden.
41:57
the initial target was quite modest in that sense.
42:00
So this perhaps gave us kind of the false impression that we have
42:05
time and eventually we didn't have them enough time to catch up.
42:10
But if you would have had a product in the mid rains by the end of 2008, that
42:15
would have silenced iPhone, this would have been perfectly doable for us.
42:20
So one and a half year from the launch, we could come up in the old
42:26
world, we could have come up with a competitive product that we distribute
42:30
more widely price a lower price point, and we kill the competitor.
42:35
So we saw that, hitting the top end of the market.
42:39
So we mentioned here 30% share of the phones more than 300 euros.
42:44
So we saw that in that particular market segment, it is going to be
42:49
a killer product that it's scale down to the lower price point.
42:55
So price point is perhaps wrong here 'cause it was sold to operators it
42:59
was often given for either free or for very low price to consumers who
43:05
then committed for two years, three years contract with the operator.
43:10
while we had seen of that in America, that's how the Americans
43:14
cell phone market works.
43:16
We had seen that we perhaps beat underestimate that how well
43:25
Apple is going to sell this model or going to sell iPhones to.
43:31
Consumers who at that point of time were spending say $200, 200 euros
43:37
for their phones, that they were suddenly willing to upgrade a home
43:41
that is in the ballpark of 500, $600.
43:45
And you can see why it's a, it's an entire ecosystem shift.
43:48
It included magnificent marketing and included the, I think
43:52
this is one thing people miss.
43:53
It included the cannibalization of the iPod
43:56
because the iPod became the phone and people were like, kind of
43:59
rationalized it and went, oh, well I'm actually just buying a new iPod
44:02
that happens to be a phone here.
44:04
And they rationalize it then.
44:06
But also the business model was a, was a big shift where , as you said,
44:10
the mobile phone market worked where you got a device and it locked you in
44:15
and it still, it works that way, but it hadn't, that hadn't come across
44:19
Europe at that stage that, that model.
44:21
That,
44:22
So that was another big shift.
44:24
yeah.
44:24
In Europe, that was a somewhat new thing.
44:26
Yeah.
44:27
It wa it was in America.
44:29
It was in a few other markets, but the European America,
44:31
wa, wa was Nokia's home turf.
44:33
That was something we didn't expect to happen that quickly.
44:39
So I'm gonna skip past a couple of slides.
44:41
'cause you go deep into the phone analysis, which is all so so accurate.
44:46
I mean, you, you were so tight on all this potential position in the handset market.
44:50
You were really, really tight with that.
44:53
And the exclusivity thing here, you call out that because that
44:56
was a huge blow really, because this was the big shift I felt.
45:00
And also even Blackberry were struck by this because.
45:03
You'd both tried to do things like this before Nokia and Blackberry had tried to
45:07
do things where you could sell essentially through the phone as an ecosystem, but
45:12
that was controlled by the carriers.
45:14
And then people think people miss that because that took everybody's by surprise.
45:17
The incumbents by surprise.
45:20
it took, and I would love to hear comments from the Cingular
45:24
management at that point of time.
45:26
Did they think that will happen?
45:29
'cause were afraid of becoming a bit pipes that they don't control anything.
45:34
They are just transferring data that's what they have become nowadays.
45:39
And this was the move that killed the operators
45:46
potential in the mobile internet application space.
45:51
You didn't need any more similar applications.
45:54
T-Mobile, Vodafone applications you could call with Apple and Google.
46:01
It's so true.
46:01
'cause I remember buying ringtones on my Nokia, remember the, the
46:06
Imperial march, the death March.
46:08
I remember buying the, and.
46:10
You, you bought, actually bought it from the carrier on the phone.
46:14
And then of course it's a computer, a smartphone's, a computer.
46:18
So you don't need to do that anymore.
46:19
And there's so many back doors to get content on your phone, et cetera.
46:24
So, and, and you think about these moves that you wonder
46:28
sometimes the people regret it.
46:29
And where somebody, it's like in the newspapers allowing Google and
46:36
Facebook to crawl their content
46:38
versus create actually coming together and going, going, no,
46:41
you're not getting access to this.
46:42
And, and really it was a lack of understanding of what, what floodgates
46:46
it would open in the future.
46:47
We'll keep, we'll keep going on the document.
46:49
So.
46:50
You talked about the marketing here, it was a cool product to have and you were
46:55
defined by the product just like you were actually with like a Blackberry as
46:58
a business person before you talked about the stock price getting a boost from it.
47:03
So I, thought we'd conclude with this, which is the summary
47:06
of recommended Nokia actions.
47:08
So what you recommended versus what happened, and even some of the
47:13
recommendations when you read them, you're kind of going, you were so right with
47:17
these recommendations, but it just had, it was such a different context for Nokia.
47:23
It was a different world that you were entered into here that it was difficult
47:26
even to compete even if you followed all these actions comprehensively.
47:31
Yeah, very true.
47:32
So there were some accents where we thought that we would have
47:38
competencies where we could definitely take these accents let's say point
47:44
number four, for example, that I mentioned, how we counter the iPhone
47:51
Mini, what we expect it to come.
47:53
Yes, we generally thought that we have a competencies to respond to that.
47:57
While then some other points that we mentioned here, which are more on
48:02
this software development UI thing, like the number two, we aware, aware
48:10
of our lack of de competencies, we.
48:13
Had communicated that message for a long time.
48:16
I'm not in the position to say we didn't see enough action happening on that.
48:22
I think you had discussed that in the previous conversations points like six and
48:28
eight developing new software solutions, developing partnership networks.
48:37
They were borderline our capabilities.
48:39
We were taking actions on this, but probably we didn't have enough resources.
48:46
We didn't have enough world class capabilities.
48:49
When I now retrospectively look this list, would there have been anything
48:57
else I would have recommended?
48:59
Let me ask you, would you have recommended anything else to this list
49:03
in those days or now retrospectively.
49:06
Great, great question.
49:07
I, I, I've thought a lot about this and.
49:10
It's why I wanted to have you on the show.
49:12
It's why I wanted to do a deep dive on Nokia.
49:14
I'm not finished, by the way, there's other books like Ringtone
49:17
and Risto's book as well.
49:19
There's lots of books in Nokia.
49:21
I think there was so much you were doing that was right and it's so hard
49:27
to predict the way a market will go, particularly when it the internet
49:31
was such a form factor change.
49:33
Like, it, it wasn't, it wasn't what you were producing on the outside.
49:37
It was, it was behind the phone
49:39
I just see that as so hard to understand when it wasn't your DNA
49:44
and that you needed really to listen to people and maybe back ideas.
49:50
And when you knew there was an iPhone coming, maybe develop it.
49:55
Develop it at that time and go kind of develop products knowing
49:59
that most of 'em are gonna fail.
50:01
I mean, that's the only thing, like you said, exploit explore.
50:04
But it's so much easier to say it in retrospect, and it's so much easier to
50:08
say it, when you weren't the leadership team, when you didn't have a stock price,
50:11
when you didn't have market investors looking at you kind of going, why are
50:16
you wasting our money on these toys?
50:18
And you're kinda going, 'cause those toys could be our future.
50:20
So I see the difficulties.
50:22
Yeah.
50:23
Yeah.
50:23
So looking down retrospectively, what should have been recommended is.
50:29
S finding a bigger partner that comes with the muscles, whether
50:34
it is Google or Microsoft already at this point of the time
50:40
compensate our lack of the software development skills,
50:44
our operating system status.
50:46
So if you would have, say, been able to partner with Google to develop
50:50
Android and be the first one to work on Android to replace our Symbian,
50:58
well, the question at that time, a few years later was that, okay, if
51:02
they go to Android, are we going to be able to compete with Samsung?
51:05
And now conclusion was no.
51:08
Could we have made Android or Windows Mobile Nokia exclusive
51:12
at that point of time?
51:14
Probably not because those software players were also thinking from
51:18
the ecosystem perspective and wouldn't want to commit to Nokia.
51:22
But, most of these actions, what we call here, are quite tactical in nature.
51:28
So bigger strategic moves probably started to emerge only few years
51:35
later when we started to see that we are not able to do this by ourselves.
51:39
Which is always the way Timo, it's, it's, so you have to let it emerge
51:44
a little bit, understand a little bit more, and particularly when
51:46
it's not your core competence.
51:48
So I think that's the, that's the difficulty here.
51:50
There's a book we're covering.
51:52
I'm just gonna grab it from the show.
51:54
So next up on the show is this book Split the Pie.
51:57
It's by Barry Nalebuff.
51:58
And the reason I'm sharing it is he talks about a partnership like
52:02
you and, Google coming together maybe to create a phone together.
52:06
It's not about, it's difficult to see, they're gonna cannibalize us.
52:09
But you think about, what's the kind of third part that creates from you
52:13
two coming together and you split that?
52:15
That's why the idea of split the pie is the excess that's
52:18
created by a partnership.
52:20
comes probably partly from the Silicon Valley culture where a lot of the
52:24
companies are working close to each other, they are talking to each other, and they
52:28
have learned the way of doing things.
52:30
Then coming from the back woods of North Europe, a company that is pretty
52:34
much there alone didn't develop that sort of the things that mental culture
52:40
that we need to really collaborate with our competitors or constantly be
52:46
figuring out what could we do together and how could we save this together.
52:50
Yeah.
52:51
And, and it, again, easy to say in retrospect, and, and Barry's actually
52:54
earlier book is called Co-Opetition, which is this idea of being a frenemy
52:58
that you compete, but you together create something new, just like you
53:01
said, where Google announced that they'd put their, and Yahoo, that they'd put
53:07
their products onto the iPhone and that was a shock to people in Nokia.
53:11
And you get that, 'cause culturally that wasn't the way you did it
53:13
and you were very protective of your secrets, et cetera.
53:16
Yep.
53:17
The last thing I, I just wanna.
53:18
To ask was one, one thing that really annoys you, that people
53:22
say on the outside, that you just go, that isn't true.
53:25
So there's always one of those that you just go, that just never
53:28
happened, that people say it or throw away comment or just an irritation.
53:34
You're kind of going, oh, we were doing that because you, you know, often an
53:37
innovator, a head of innovation will a, a consultant will come in and tell the
53:42
board, oh, you should be doing this.
53:44
And the board are all listening and they're going, oh, that's great.
53:46
And then the, the head of innovation's there.
53:48
I've been telling these guys this for years.
53:51
Yeah.
53:52
Probably in those days I was, not so much irritated by outsiders coming
53:58
to tell that Nokia didn't see this.
54:01
Nokia should have done this.
54:03
Nokia was arrogant ignorant and whatever.
54:07
I wouldn't so much irritated about that.
54:10
And irritation is probably wrong word, but frustration.
54:15
Frustration internally, why things don't happen.
54:20
Why I thought four years ago about the importance of a touch screen, I thought
54:24
three years ago about the importance of the App store, why I don't seem to
54:29
drive any action with these things.
54:31
That was probably the frustration, but my frustration talk about the feeling.
54:36
So my feeling towards the end of my Nokia era was frustrated
54:40
and it was coming internally.
54:42
Why , I've been trying to push things, but I don't see anything happening.
54:46
What is blocking that am I communicating something wrong?
54:50
Am I sending wrong message says, I do, I just don't have enough muscles
54:56
being 30 something, mid-level manager.
55:02
And so on.
55:03
one of the biggest frustrations of so many people who listen to this show Timo,
55:07
you're not, and it hasn't gone away, man.
55:09
It hasn't gone away.
55:10
and I see it in my current job as well, the academic industry is going through
55:15
massive disruption in the coming years.
55:18
And Lot of the universities are going to have the same experience than what
55:23
Nokia or other failed companies have had.
55:28
and if they're lucky, they'll be able to resurrect and become a
55:31
networks business like Nokia did.
55:33
They had to resurface in some other form of the higher education experience.
55:42
Exactly.
55:42
And we look forward to that coming down the line.
55:44
Speaking of which, if people wanna reach out to you, where's the best place?
55:48
Or will I just share your LinkedIn profile maybe in the show notes?
55:51
Share my LinkedIn profile, that's the easiest way of connecting me.
55:55
It's been an absolute pleasure, professor of strategy at Adelphi
55:59
University just north of New York.
56:01
If you wanna get in touch with Timo, brilliant thinker, brilliant
56:04
strategist, and brilliant guest on the innovation show.
56:07
It's been an absolute pleasure, Timo Partenen thank you for joining us.
56:11
Thank you Aidan, it's been my pleasure.
56:13
Thanks again to our sponsor, Kyndryl and the Kyndryl Institute, where you can find
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