Analysis: Is Nokia's leadership fit for purpose?

Nokia CEO Stephen Elop has presided over a precipitous decline in revenues at the mobile technology company. Now, some are saying that he should go - and take the rest of the board with him

When Stephen Elop was appointed CEO of Nokia in October 2010, it raised more than a few eyebrows. Not only was the well-travelled executive the first non-Finn to head up the mobile technology company, but he was also an ex-Microsoft employee.

Finns ain't what they used to be

In the 1990s and early years of this century, Nokia phones were synonymous with user-friendly interface design and mass popularity. When Elop took over, Apple and Android mobile devices had begun chipping away at Nokia's lead, but it remained the global market leader in smartphones, as well as cheaper "feature phones".

Just 18 months later, Elop had presided over a 28 per cent fall in revenues, seen the company's credit rating slashed from investment grade to junk status, and instigated two restructurings that will see the company's workforce slashed by 24,500 by the end of 2013 - a reduction of some 36 per cent since he took over.

The company has also been burning cash at such a rate that its entire balances might be gone by the end of 2013, jeopardising its ability to repay or rollover maturing corporate bonds.

And to top it all, it cannot even rely on its new partner Microsoft. Just as Nokia phones based on Windows Phone 7 were starting to appear in volume, Microsoft pre-announced Windows Phone 8, months before the formal launch of the new operating system.

Windows Phone 8 marks the end of Windows Phone operating systems based on the 1990s-developed Windows CE kernel. As a result, applications built for Windows Phone 8 will not run on Windows Phone 7, while existing devices will not be upgradeable to the new operating system.

Nokia's new Lumia range of smartphones, therefore, is effectively obsolete. And it might be six months - two potentially catastrophic financial quarters - before Windows Phone 8 Lumias start appearing in volume.

The deal that was supposed to rescue Nokia from its "burning platform" (a phrase used by Elop in February 2011 to describe Nokia's predicament) might yet arrive too late to save the company.

Shareholder pain

While some of Nokia's US shareholders have responded in time-honoured fashion to its downturn in fortunes by suing the company, its Finnish shareholders have been more philosophical - even though the lay-offs will devastate a number of communities in Finland.

"You can't blame one person," said Ari Rikkilä, a Nokia shareholder who is also CEO of Finnish software company Efecte. "Sometimes, a company has to change quite significantly. When it notices how the market is changing, then often it's too late," he said.

Analysis: Is Nokia's leadership fit for purpose?

Nokia CEO Stephen Elop has presided over a precipitous decline in revenues at the mobile technology company. Now, some are saying that he should go - and take the rest of the board with him

However, Rikkilä is critical of Elop's handling of the company - especially his Gerald Ratner-like "burning platform" memo that the company's sharp decline has been attributed to by some.

"It was the wrong statement. As a CEO myself, I'd be very sensitive about releasing such information," he said.

He added: "It's normal for companies to devise a strategy, to execute on that strategy and then - only when it is ready - to announce the transformation."

Elop, though, pre-announced the tie-up with Microsoft in February 2011 before he even had a deal in the bag - tying his own hands in negotiations with his old employer.

The "burning platform" memo that preceded that announcement effectively tarnished the company's products before it had anything to replace them with. That not only damaged its reputation with customers, but also encouraged network operators to either drive a hard bargain with Nokia, or to stock alternatives instead.

"I'm shocked that the board of Nokia let Elop do that," said Silicon Valley veteran Jean-Louis Gassée, a former Apple executive and now a venture capitalist. Gassée described Nokia's board as "terrible" and believes that both Elop and its board of directors ought to be replaced.

In a June 2010 meeting, before Elop was appointed, Gassée had urged Nokia's board first to fire the-then CEO Olli-Pekka Kallasvuo, and then to adopt Android, as the company had already lost the platform battle. While they duly obliged with the first suggestion, they rejected the idea of adopting Android as the company would, they said, no longer be in control of its own destiny.

Institutional rot

Gassée attributes the firm's decline to an institutional rot that started a long time before Elop's arrival, as reflected in the proliferation of competing platforms that previous CEOs Jorma Ollila and Kallasvuo had presided over.

However, Gassée questions Elop's qualifications and suitability for the top job. "He has zero experience in terms of what makes a smartphone maker tick. And what is his experience in supply chain management? Zero," claimed Gassée.

An understanding of the supply chain - all the way from the designer's drawing board to the factory, before a device goes on sale - is essential in the mobile phone market, as Apple has demonstrated.

The day after Microsoft's Windows Phone 8 pre-announcement, London's free Metro newspaper carried prominent advertisements for Nokia Lumia phones - at half-price. In some mobile phone shops, Nokia phones are marginalised, if they are stocked at all.

Meanwhile, Android phones remain cheaper and more alluring. Windows Phone 8 will therefore have to be very special to divert people's attention away from Android and Apple's iPhones, especially with the new iPhone 5 expected imminently.