I coined the term 'Elop Effect' this past summer, as the height of management incompetence, combining the ruinous path of the Ratner Effect, with the calamity of the Osborne Effect. I called it then also the costliest management mistake of all time. Now we have data and can evaluate that bold claim. I urge you the reader to consider carefully - can you recall - or discover - any management error by any global corporation that has ever existed, in any industry, ever, that has achieved this level of wanton destruction of the company, by a CEO gone berzerk.
IS NOT ABOUT SYMBIAN
Some come to this blog and say that I want Nokia to set back the clock and that somehow this is about Symbian. It cannot be. The decision to move Nokia smartphones away from Symbian was taken long before Elop had his first interview at Nokia. I have been writing on this blog about what will become of Symbian in that transition to MeeGo and what role Ovi store and Qt the app development tools were to play in that transition. The Elop Effect had nothing to do with the decision to end Symbian. Elop brought the end date somewhat earlier, and then fired Symbian staff boldly, but the fate of Symbian was sealed long before he came to town. This has nothing to do with the end of Symbian.
IS NOT ABOUT MICROSOFT
Also this is not about Elop's choice to replace Symbian and MeeGo with Microsoft's OS for smartphones, now called Windows Phone (WP). It has been reported in the public domain, that Elop went through a meticulous process of considering all viable options, Symbian, MeeGo, WP, Google's Android and even spoke to RIM about Blackberry OS. He did the right moves and in the end, it is his right to make the call, which OS Nokia will use in the future. And he convinced the Nokia Board that Microsoft was Nokia's best option. That was no doubt a difficult call, between Android and MeeGo and WP but it was his decision to make. That decision was not what caused the Elop Effect.
WHAT IS THE ELOP EFFECT
The Elop Effect is similar to the Osborne Effect and the Ratner Effect. Both of them were COMMUNICATION errors. Not errors of management decisions. Errors of communication. Osborne Effect bankrupted the Osborne Computer Company in Britain, and the Ratner Effect almost did the same for Ratners Jewelry Store also in the UK, but they survived only by firing their CEO and changing the name of the company. Imagine how severe your troubles have to be, if you are a retailer and have to change your company name and branding. If Walmart was so poisonous as a brand, or Tesco or Ikea, that they can only survive by changing totally their corporate identity and trying to convince consumers that they are now somebody else. Ouch indeed. Stephen Elop caused the modern version of the Osborne Effect, when he announced that Nokia would switch from Symbian to WP, while at that time, he had no Microsoft WP based Nokia smartphones to sell, or even to show.
That is exactly what Osborne did with his computers. Osborne saw its sales collapse overnight. So did Nokia too. We have now seen Nokia lose more than half of its market in a matter of months - a world record destruction of a global customer base. Elop actually even made matters worse than what Osborne had done. Elop not only announced his current smartphones are instantly obsolete on that fateful February 11 day, he then told the world, that Nokia under his leadership would boldly release dozens more new smartphones on that suddenly-undesirable Symbian OS for more than a year to come. He in fact committed to 150 million more Symbian phones - which would take us to about the end of 2012 before Nokia would stop peddling new Symbian phones at us. And this, when in February he announced to the world that Nokia's own Symbian was to be terminated. What a fool! So Elop looked at the most damaging management communication about new products ever, and decided he can do better. He actually out-Osborned Osborne.
Yes. That alone would qualify us for creating a new word in his honor to commemorate this disgrace. But he was not done. Elop wanted to guarantee he will end up in the Guiness Book of Records for the most incompetent management ever, he compounded his error by replicating the Ratner Effect, except that too, he did with his Microsoftian style.
So just before his big Microsoft announcement, Elop decided to issue an internal memo to all staff, about his thoughts. This is the infamous Burning Platforms memo, the costliest management memo ever written. A memo so toxic it not only wiped out Billions in sales and profits at the smartphone unit - it even caused severe loss at the supposedly unrelated featurephones unit of Nokia (ie dumbphones). The Burning Platforms memo was so devastating it gives new meaning to the term 'poison pen'.
Again. Please do not misunderstand me. I said when I first read the memo, that I AGREE with its sentiment and I agreed then and agree still now, that Nokia had then (and still has now) severe problems that the top management has to deal with. But those problems were not with 'innovation' or 'ecosystems' or 'falling behind the USA' etc. Those problems - as previous Nokia management had admitted before - most obviously Anssi Vanjoki - and Elop himself has admitted since - were about 'execution' not about 'innovation.' This is what Elop said on June 2: "Mismanagement - not a lack of innovation - is what ails this company." I have discected the Burning Platforms memo for its factual mistakes. I have even gone to the trouble of collecting Stephen Elop's own statements later that correct 11 of the most glaring mistakes in that memo. We do not need to go into that now. Because I have said, I agreed with the sentiment, yes Nokia needed to hear that there is a new guy in charge and he will be shaking things up, and that Nokia needed to prepare for more competition. That is all good.
Whether you or I happen to agree with finer points of that memo is neither here nor there. The Ratner Effect was not about 'misanalysis' of a management challenge. The Ratner Effect was a communication problem! Remember Ratner called his jewelry 'crap'. That destroyed the customer confidence in his jewelry. Stephen Elop did the same in the Burning Platforms memo. Regardless of whether I can prove to you that Apple is indeed lagging Nokia in innovation, and that all dozen of the first changes to the original iPhone from 2007 to 2010 were all copies of older Nokia innovations that existed on Nokia phones before the first iPhone was sold. And that Apple which likes to sue everyone from HTC to its parts supplier Samsung for iPhone patents infringements - actually had to settle with Nokia and pay Nokia, because Nokia is ahead of Apple in smartphone innovations. Elop himself said this of Apple vs Nokia on June 14: "We are very pleased to have Apple join the growing number of Nokia licensees. This settlement demonstrates Nokia's industry leading patent portfolio." It doesn't matter - in Ratner's case his jewelry was in fact inferior to the competition.
But the Ratner Effect was not about quality of the product, it was a communication error by the CEO who called his products unfit for sale. MBA students learn never to repeat the Ratner Effect because if your CEO calls your own products bad, the customer will believe it. And Elop called his products crap. Not just that the phones were crap (which he said) and the operating systems both Symbian and MeeGo were also crap (which he said) but he even went so far as to say the ecosystems of Nokia (Ovi store, Qt etc) were crap (which he said) and even that the very style of doing business at Nokia was crap. Elop was so extreme in his view, that he argued that Nokia was beyond salvation - it could not be fixed - and the employees were advised to jump off the platform into the freezing sea and risk drowing, risk freezing and to seek another platform to try it there.
Obviously just like with Osborne Effect, also with Ratner Effect, Elop decided he wants to out-Ratner Ratner. Ratner at least was truthful in his commentary that his jewelry was bad. Elop actually made numerous false statements in his Burning Platforms memo that made Nokia seem worse than it was in reality. So much so, that in eleven cases, he has already had to walk back those statements and retract major points of his memo. By now he has retracted almost all that I found initially objectionable in that devastating memo.
And I should make one more point. This Ratner Effect side would damage Nokia's sales efforts in its reseller channel to a disproportionate degree. I have been chronicling the issues about sales in the mobile space including Elop's subsequent mismanagement of his sales channel like on this blog last week. So the Elop Effect is a communication error by the CEO that combines the worst new product announcement communciation ever - the Osborne Effect - with the worst own product endorsement communication ever - the Ratner Effect. I said it was the costliest management communication ever uttered by a CEO of any Fortune 500 sized company and that the Elop Effect would cost Nokia billions and ruin the once proud profit-generating giant of the mobile industry. And that was quite a severe indictment clearly. So now we can start to measure the early results of the Elop Effect. Lets take out our calculators, shall we.
WIPING OUT A WHOLE BLACKBERRY SIZED MARKET
Just before the Elop Effect, at the end of Q4 of last year, Nokia's market share was 29%. Now, the latest quarter for which we have data, Q3 of 2011, Nokia's market share has crashed to 14%. Yes. In a very real sense, Nokia has voluntarily gifted away more than half of its market! How much is that in terms of smartphones? That is the equivalent now of 11.5 million smarpthones (46 million annually). That is almost exactly the size of RIM ie Blackberry! RIM sold in Q3 10.6 million smartphones, and last year in 2010 for the full year, RIM sold 48 million Blackberries. Think about that. Nokia's CEO has just in this year, amputated a Blackberry-sized hole out of Nokia's smartphones unit! The evidence is carnage everywhere.
Lets start with China, which has just overtaken the USA as the world's biggest smartphone market. Just a year ago Canalys reported Nokias's smartphone market share in China was 76%. What a brilliant long-term strategy by Nokia to embed itself into what was becoming the most important market, and building factories there and nurturing the carrier relationships. Nokia had even secured China Mobile's support as a partner in the MeeGo ecosystem. The Elop Effect wiped all that out. Nokia's market share was down to 22% in Q2 of this year according to Analysys and Morgan Stanley reported that only 18% of the Chinese smartphone owners want to buy a Nokia branded smartphone. Total utter complete collapse in the biggest market. Its so bad, that we hear news stories that Nokia flagship phone stores have started to sell phones by other manufacturers!
Lets go to the UK, a major European market where Nokia had a strong presense and a leading European major market by smartphone penetration rate. Nokia's market share in 2010 was 33% according to Kantar. Canalys just reported that the Q3 market share for Nokia in the UK was.. 2% !!!!! The same total collapse. The Nokia hype-machine, well-trained by Microsoft has been out trying to create a false impression - so extreme that Nokia Sales Director Niels Munksgaard was trying to convince journalists that theUK youth has grown tired of the iPhone and Samsung Galaxies. But again, the truth is brutal to Nokia. The first market survey by Gfk after Nokia's massive Lumia launch in the UK, found that right now, the UK's bestselling phone was not Nokia branded, it was still the iPhone. And at number 2? Samsung's Galaxy. Nokia did not even get its Lumia800 - even when giving away free Xbox360 gaming consoles to entice sales - did not get into the top 10 bestselling phones in the UK. And Europe-wide, research by BNP-Paribas found that in the countries where Lumia has launched, only 2% of smartphone buyers are even intending to go for the newest Nokia smartphone. Last year at this time the Nokia N8 was roaring to the top of all European sales charts. Now after the Elop Effect nobody wants a Nokia.
What of North America? Elop promised he'd work at a Nokia come-back in the USA. The most bizarre thing is, that Elop had actually received that, as a gift from the long efforts of Nokia sales in North America, who landed nothing less than AT&T to be the launch customer of the X7 Symbian phone, a deal announced in January. Who killed that idea? Stephen "North America is a critically important market" and an "area of emphasis for Nokia" Elop that is who (Elop quoted on September 9, 2010). At Q4 of last year Nokia's North America sales were 2.6 Million total handsets (mostly dumbphones, not smartphones). That has fallen to 0.7 Million total handsets by Q3 of 2011. Elop had the chance for AT&T to sell and subsidise the X7 and have a genuine comeback. Instead, he has obliterated Nokia sales in North America. No wonder Nokia North America sales President Mark Louison resigned in protest. What Moron Elop did however, was he replaced the most challenging Nokia sales position with a total mobile industry novice (but former Microsoft cronie) Chris Weber. I think we have seen enough of the carnage done to Nokia market share.
I do ask you, the reader, seriously - can you recall any global major brand, in any industry, that was leading its market - and lost half of it in only 8 months? This did not happen to Coca Cola with New Coke. This did not happen to Toyota when it had problems with faulty brakes. This did not happen to British Airways with the disasterous move to Terminal 5 at Heathrow. This did not happen to BP with the oil spill, nor to Exxon with the Exxon Valdez tanker disaster. This did not happen to Ford with the Pinto with its 'exploding gas tank' etc. Please do post here in the comments if you can find any example in any industry where a market-leading brand had destroyed half of its market in less than one year. But lets move on. Market share is only one way to calculate the Elop Effect.
DEMOLISHED AN ORACLE SIZED COMPANY
Then lets look at Revenues. The last full quarter before the Elop Effect was Q4 of 2010. That is our comparison point. Note that Nokia had seen 7% unit sales growth - yes growth - from the previous QUARTER - in smartphones. Yes. GROWTH with its 'so-called obsolete' Symbian S^3 based smartphones. And Nokia saw a 14% rise in Nokia smartphone ASPs (Average Sales Price) which had reversed Nokia's previous trend which was down by 7%. A major positive development at Nokia. And Nokia had increased revenues from the previous quarter, in its smartphone unit by 22%. And Nokia's profits had jumped 64% in just one quarter.
By any reasonable analyst, the trend would then follow into Q1 of this year with more growth on those metrics. Nokia had dramatic new phones coming such as the E7 flagship phone (essentially an N8 with the QWERTY slider, costing even more than the hot N8). And later the X7 still on Symbian, and then the new MeeGo based superphones, the N9 and N950, all coming for later in the Spring and Summer of 2011. Meanwhile in the Spring if you remember, Apple's iPhone 5 was delayed, HP's Palm based WebOS smarpthones faltered and Blackberry stumbled. In many areas Nokia would have faced less-than-severe competition. And for Samsung? At that point, Nokia was almost three times as big as Samsung in smartphones! The smartphone global industry grew by about 60% this year. Any reasonable analyst would look at Nokia's all-growth numbers in Q4 and would have projected some degree of continued growth into this year. Probably not as strong growth, but would project growth.
I am not going to do that. I will set the base comparison point as 'Status Quo'. Lets take the extreme pessimistic view, that all the growth Nokia had achieved in Q4 would suddenly stall and even with all the new hot phones, and the rivals stumbling, Nokia would only stay stable this year. And then lets replace Elop (or his mad Microsoft Strategy). If Nokia only held onto its Q4 sales from last year, in smartphones, it would currently be making 8.3B Euros (11.2B US dollars) per quarter in its handset unit (smartphones and dumbphones added together).
The reason I have to add Nokia featurephones is that the Ratner Effect side of the Elop Effect has also caused a catastrophic decline in Nokia dumbphone sale prices and thus total revenues. Nokia's featurephone average sales prices fell by more than a third in the past 8 months, and when coupled with a decline in unit sales of featurephones too, the total revenues of the dumbphones unit fell by almost 40%. So today, the combined smartphones and featurephones handset units produce revenues for Nokia of 5.1B Euros (6.9B US dollars) per quarter.
The direct damage of the Elop Effect to Nokia revenues has slashed 3.2B Euros (4.4B US dollars) per quarter or yes, on an annual basis - Elop has wiped out Nokia business worth 20.4B Euros (27.6B US dollars). I think nobody could possibly grasp that point without me repeating it. Elop has wiped out almost 28 BILLION dollars of Nokia revenues on an annual basis. Wiped out so, that they cannot be recovered with his mad Microsoft strategy either. They are gone, wiped out, destroyed. How can I put it into context that makes sense. 27.6 Billion dollars is so huge in global business, that alone would be a Global Fortune 500 sized giant corporation, at the rank of 349 !
Or lets put some names. Bigger than say Mazda Cars. Bigger than Philip Morris. Bigger than Time Warner. Bigger than Oracle. Bigger than 3M or L'Oreal or Rite Aid. Its almost the size of LM Ericsson the world's biggest telecoms infrastructure maker. Thats bigger than total sales of International Paper or Staples or McDonalds. Yes. The value of the Elop Effect is as big as McDonalds global sales. That is what he's destroyed. If you remember the 1970s TV series '6 Million Dollar Man' - Elop is not a 6 Million dollar man. He's not a 60 Million dollar man. He's not a 600 Million dollar man. He's not even a 6 Billion dollar man. Elop the Colossal Flop is the 27 Billion dollar man - and has single-handedly caused the biggest revenue-assassination to any corporation in a one year period - ever.
Every day that the Nokia Board now waits in firing Elop - costs Nokia another 75 MILLION dollars of abandoned revenues EVERY DAY. I mean, even the US Congress cannot destroy money at this rate haha. If we look at the biggest corporate collapses like Worldcom or Enron or Lehman - these were caused by genuine systematic mismanagement and actual fraud etc. I cannot recall any Global 500 sized company to make one single action (or two related communications within two days) by one person that so totally demolished so much business revenue.
Note, obviously this has real concrete business impacts. Elop came in firing 1,800 people. He's since been terminating thousands more in several orgies of layoffs. He's also been selling Nokia assets like the highly trained and rare smartphone software programmers related to Symbian. He's sold parts of Nokia's patent portfolio and closed one of Nokia's biggest handset factories (in Romania). He's tried to sell the NokiaSiemens Networks unit and is currently trying to sell one of Nokia's 'crown jewels' the highly profitable Vertu luxury handset unit. And we heard from Danske Bank that Nokia is expected to sell the smartphone unit to Microsoft early next year.
If Elop was replaced by a monkey. Literally a monkey from the zoo. Who was utterly and totally unable to enact ANY decisions for Nokia. If Nokia's CEO did absolutely no decisions from February 8 - Nokia would be 28 Billion dollars bigger as a company today. Elop is the biggest management failure of all time. But at its heart, business is not about market share or revenues. It is about profits.
OBLITERATED GOOGLE SIZE PROFITS
Yes. Profits. Again using not the realistic scenario of some growth for Nokia, but just the truly 'even a monkey could achieve it' level of status quo - no growth whatsoever when this industry grew by 60% this year, how did the Elop Effect impact Nokia profits. Funny you'd ask. Lets count the ways.
The profits like the revenues were damaged again on both the smartphone side and the dumbphone side. So we count the two units together to see the impact of the Elop Effect to total Nokia branded handsets. In Q4 of last year just before the Elop Effect, Nokia handsets were generating 2.0 Billion Euros (2.7B US dollars) of profits per quarter. The smartphone unit was plunged into deep losses by the Elop Effect but even the featurephones unit has seen profits dive by 60% Yes. And overall, the combined handsets unit saw profits crash by 87% in the first eight months from the Elop Effect.
But thats just math. Lets do the relevant number. On an annual basis today, if there was no Elop Effect, Nokia's handsets divisions would be making 8.0 Billion Euros (10.4 Billion US dollars) of profits. But now instead of that, Nokia only manages annual profits at the level of 1.8 Billion Euros (2.5 Billion US dollars). So the Nokia CEO has permanently ELIMINATED 6.1 Billion Euros (8.2 Billion US dollars) of PURE PROFIT per year. Even if his Microsoft Madness might somehow succeed, the revised starting point for Nokia is the current level - that abandoned profit is gone forever and cannot be recovered even if his Microsoft strategy pans out. Wow. 8.2 Billion dollars of profits. Money that belongs to Nokia shareholders. Voluntarily set on fire by Mr Burning Platforms Elop.
Oh my gosh. 8.2 Billion dollars would rank all by itself as the 45th biggest profits of any Global Fortune 500 sized corporation - just behind Google's profits! Yes. You read it right. Nokia's CEO has wrecked so much of Nokia's pure profit as Google made all last year. See how crazy this is. The company he took over was ranked 143rd on the Fortune Global 500 list by revenues, but only ranked 193rd by profits in the current July 2011 issue of Fortune which uses 2010 financial data. So Elop took charge of a company that was ranked 193rd in profits. Then he found a profit miracle in his in-box (called Nokia Symbian S^3 and the N8 smartphone) which was powering Nokia far up the charts of profits. If he had done nothing, Nokia would be about in the top 30 in profits. And was he happy to perform such a 'miracle' ? No. He rather DESTROYED so much of the profit, that the abandoned profits alone would rank 45th most profits earned by any company in the world last year. Or yes, profits as big as all of Cisco. Or just less than all profits earned by Google last year.
This is how Elop described his job on September 9, 2010, at the press conference where he was announced as the new CEO. Elop said job to be: "My job is to ensure that we are meeting the needs of our customers, while delivering superior financial results." How can this guy be allowed to run Nokia still? He is the biggest fool of any company ever, isn't he? He wiped out 8.2 Billion dollars of profits in only 8 months! He is destroying even more as we speak. He costs 22 MILLION dollars of PROFITS to Nokia every single day he is allowed to remain on the Nokia payroll, including Saturdays and Sundays. He costs Nokia shareholders almost a million dollars of pure profit every hour including when he's asleep! But even profits are really not the final measure of a CEO. It is shareholder value.
NOKIA SHARE PRICE AT ALARMING LEVELS
Yes. The previous Nokia CEO had seen the Nokia share price fall to half its value over a three year period - and was fired. He did not plunge Nokia into loss-making. Elop has achieved the same loss - from its peak on February 10, since then Nokia has lost more than half of its share value - but Elop didn't have to wait 3 years for that drop, he achieved it in ten months. And he did compound his damage by plunging Nokia Corporation from very healthy profits to loss-making. This is independent reason to fire the CEO immediately. He has lost the confidence of the market. He is no longer believed. He is seen as a Microsoft crony. He is not acting in Nokia's best interest. He has seen the value of Nokia cut in half in barely more than half a year.
Elop is utterly incompetent and must be fired for cause - and sued by shareholders and then investigated by both the New York Stock Exchange and the Helsinki Stock Exchange. He is not fit to run any publically traded company and must receive a lifetime ban of holding corporate office of any business on the stock exchanges. He is a disgrace to all of business management and must be exposed and held to account, so others learn not to try the Elop Effect.
If the Nokia Board is not firing Elop soon, the Nokia Boardmembers and Chairman will also have to be investigated for collusion or incompetence or neglect of fiduciary duty or all of the above.
Why do I say 'alarming level' for Nokia share price. The reason is that Wall Street analysts have already calculated in June that Nokia has passed the danger level, where the value of Nokia is more if broken apart and sold for its parts, than Nokia Corporation as a whole. So someone might buy all of Nokia today, and then sell off Navteq and NokiaSiemens Networks and Vertu and the Ovi Store and the dumbphones unit etc.. And end up making a profit by splitting this sick company apart. That is what was the fictional character Gordon Gekko played by Michael Douglas in the movie Wall Street and its sequel. Or from real life, that is part of what Mitt Romney did in his previous life at Bain Capital. Find bloated poorly-run companies, buy them, split them up, sell the parts for a profit. Nokia has entered that danger-level. It is a sure sign that the CEO has passed the point of recovery. He is now a danger to the very survival of Nokia the corporation as we know it.
And its not idle gossip anymore. There have been several press reports in the summer and autumn that buyers are sniffing around about Nokia, including Sony, Samsung, Google and Microsoft. Google obviously then decided to buy Motorola instead. And we're again hearing now from Danske Bank that there are fresh rumors of Microsoft buying part of Nokia, while Nokia has admitted it has tried to sell NSN and is actively now attempting to sell the Vertu unit. This is a sick puppy. Unfortunately, it was poisoned by its CEO.
But perhaps there can be a rainbow at the end of this storm? Elop wrote in his Burning Platforms memo about how vital it was for Nokia to have a good outlook in the eyes of investors and especially ratings agencies. He wrote this on 9 February: "Standard & Poor’s informed that they will put our A long term and A-1 short term ratings on negative credit watch. This is a similar rating action to the one that Moody’s took last week. Basically it means that during the next few weeks they will make an analysis of Nokia, and decide on a possible credit rating downgrade. Why are these credit agencies contemplating these changes? Because they are concerned about our competitiveness."
Well, how did that go for Elop? Nokia held an A rating before the Elop Effect. Nokia was known for very solid and 'Finnish' reliable and profitable management. In fact, since it entered the US Stock Market, Nokia had not seen a ratings cut. Since the Elop Effect Moody's and Standard & Poor's both downgraded Nokia in April. And downgraded Nokia again in July - Moody's a full two points that time. And both downgraded Nokia yet again in August. Both ratings agencies have Nokia's outlook as negative still today. This is catastrophic! The man is a menace. He has to be fired so that Nokia can be rescued. Three separate ratings downgrades? How can he remain in office still today? No matter how beautifully he can spin stories and sell is poison as the ultimate Microsoft-trained con-man, the facts speak for themselves. He's a fraud. He's a fool. Yes, perhaps, he is a silver-tongued fool. But he's a fool nonetheless. He's the Microsoft Muppet.
AND BRAND IS BURNED
So one more measure. Nokia has been consistently in the top 10 most valuable brands on the planet ever since the Interbrand global brand rankings were published a decade ago. Nokia was ranked 8th most valuable brand in 2010. The new results came out in October and the Elop Effect did severe damage here too. Nokia fell out of the Top 10 for the first time ever, and the biggest drop it had ever seen, falling to 14th. The calculated monetary loss of that drop was 15% !
The total value of the most used brand on the planet - the only brand that has ever reached 25% of the total human population - yes a Nokia handset is more widely spread today than Levis jeans or Nike sneakers or Toyota cars or Microsoft Windows PCs or Marlboro cigarettes or Coca Cola has ever achieved in their best years. Even the 'Nokia tune' has become the most recognized piece of music that is known in literally every country. This iconic global brand, built over three decades of steady reliable work, has seen the brand devalued by 15% in a matter of months because of the Elop Effect.
THE ELOP WAY TO DOUBLE DOWN
There is a betting term in Blackjack which is called 'double down'. It is when the person gambling will double his bet on the same hand. I have explained to you what is the Elop Effect and I have calculated in this update blog what is the value of the damage he has done so far. You would think, that an intelligent person would learn from his or her mistake(s). Elop doesn't. He prefers to repeat his mistakes. There is a SECOND Elop Effect already by yes, done by the master himself, Stephen Elop the CEO of Nokia.
MeeGo. The Nokia N9 and N950. We have now seen that the N9 is a fantastic superphone, a genuine iPhone-killer candidate. The only Nokia phone ever that has been considered (by many tech analysts in many countries) better than the iPhone by its user interface - what is usually Apple's strongest suit and was Nokia's weakest. MeeGo was not still-born as Elop claimed in some very self-serving article in Business Week or some such periodical early in the year. MeeGo has received enormous praise the world over as a revolutionary and incredibly user-friendly touch-screen smartphone OS. The N950 is the QWERTY variant to the N9.
Elop repeatedly delayed the MeeGo launches and its handsets including killing the first MeeGo phone, with the internal designation of N9-00 (this is different from the N9 that we now know). The N9-00 was ready to launch for February and would have been ready to sell in April or May. So today we'd have three MeeGo devices if Elop was any normal and reasonably intelligent CEO. A whole slew of consecutive heads of the MeeGo project have resigned in protest against Elop's actions, as well as the Nokia CTO.
So the Elop Effect? On June 21 Nokia announced the N9 and showed the prototype to the world and started its launch efforts. The tech world was so amazed and astonished, that the N9 became the most talked-about and most-desired new Nokia phone ever announced. It was the first time Nokia had a global 'must have' phone that would have become a hit phone. So rare is a hit phone in the world, that Nokia has never actually had one. Motorola had one hit phone - the Razr, which propelled Motorola up 14% of market share over two years until others started to catch up. Apple had a hit phone with the original iPhone in 2007 which for two years seemed to have no close rivals (until the Samsung Galaxy came along) and propelled Apple up 16% in the smartphone market. Did you notice that since 2009 Apple has only managed to pick up 2% more in its market share haha. A hit phone is very rare in mobile. Obviously the Lumia800 and Lumia710 are very far from hit products.
But the N9 had the biggest warmest and most excited reception of any Nokia new phone announcement ever. Ever! Both the N9 smartphone handset and its MeeGo operating system. And all reports from those countries that have been lucky to get the rare handset, have reported that the N9 is indeed a superior smartphone (while obviously lacks apps because the whole Ovi/Qt/Symbian/MeeGo/S40 ecosystem had already been destroyed by Elop).
If you are a competent manager of a company that is struggling to generate a profit - and you find your company has produced a highly desirable device at the top end of the price range and a global demand for it - you release that phone everywhere. So. Elop Effect number 2? He sabotages the N9 and MeeGo. First, lets take Osborne Effect part of Elop Effect. Immediately after the the N9 was shown to the public, Elop gives Finland's biggest newspaper, Helsingin Sanomat, an interview where he states very clearly, that no matter how how good the sales of the N9 might be, there will be no further MeeGo based smartphones from Nokia. What? Is this man soft in the brain?
But yes, then the Ratner Effect part of the Elop Effect. He won't let the N9 be sold in any of Nokia's big markets for smartphones except China (that because China Mobile, the MeeGo partner, insisted). So in Europe, the biggest markets for Nokia like France, Germany, Italy, Spain, the Netherlands and the UK have all been craving to get the N9. The CEO refuses to give it to them, forcing them to take the inferior Lumia800 instead. Same for the big Asian markets like India and here in Hong Kong. Even the USA doesn't get the N9. Only very small markets by population (like New Zealand, Singapore and Norway) get the N9 or else larger countries that have small smartphone sales due to low income levels (like Kazakhstan and Nigeria).
It is extremely rare to have even the potential for a genuine global hit phone in this industry. Elop was gifted that in the N9. The N8 last year, without this level of interest had achieved 4 million sales in Q4 alone. If Elop had any inkling to do what is in Nokia's best interest (rather than what is in Microsoft's best interest) he'd immediately launch the N9 everywhere!
Even if it only did the same level of sales as the N8, that would bring 1.8 Billion dollars of bonus revenues to Nokia and get this - even if the profit margin was only that of the N8 - instead of the Nokia smartphone unit today reporting a loss of 130 million Euros - it would report a PROFIT of 310 million Euros! Just one MeeGo device, the N9, selling only what the N8 did last year this time when the global market was far smaller than today and only at the same level of revenues (the N9 is more expensive actually) and the same level of profits (because of high demand, Nokia could ask for a higher price still and boost the profitability even more) - Nokia would now make 548 million Euros (740 million US dollars) of more profits per quarter - ie 2.9 Billion dollars of pure profits. Pure profits that Elop prefers to not give Nokia shareholders, to protect his own ego. Elop doesn't want the world to see he made a mistake about MeeGo and the N9. So what does Elop's ego cost Nokia shareholders? A cool 2.9 Billion dollars - at a minimum. No wonder Stephen Elop has such a high impression of himself. His ego costs 2.9 Billion dollars.
In reality, the damage is far worse. Nokia has four - count them four - actual handsets today it can manufacture and sell today - that can run MeeGo. The N9 has its sister product, the N950, a QWERTY variant (even more expensive and profitable). While Nokia factories actually are producing this phone as we speak, it is not sold anywhere. Nokia is keeping the run very limited and only giving away a few of the handsets for some developers. So Elop gets all the costs of actually producing a complete new handset model, but none of the benefits of selling it. What a moron.
And there is the previously-killed N9-00. No matter how 'inferior' that smartphone might have been by Elop's evaluation - remember, this is the man who thought the Lumia800 would set the world on fire and thinks the N9 is not worth selling globally - so I don't put much weight in his own opinion. I do however, trust long-term Nokia execs including all who were involved with the early MeeGo project who all wanted to launch and sell the N9-00, from Anssi Vanjoki on down. That phone should be sold. It was ready to go in February! And as a gimmick, the older Maemo-based handset the N900 can also run MeeGo. So while its hardware is older, its camera smaller etc, that could be sold as the 'entry-level' model into the MeeGo line, like the older Apple iPhone 3GS is the cheapest model in Apple's iPhone range.
Any clown with half a brain, would look at the global hatered of Nokia brand today, and the global carrier boycott and the dismal consumer response to the current Lumia phones, and then see the massive appeal for the N9 and MeeGo - and release the N9 everywhere. And then that same half-wit would understand to rush into mass production the N950, the N9-00 and the N900, all with MeeGo. And if the CEO bothered to give this phone serious marketing support and attention - Nokia would face a true hit phone (line of phones) and if the Razr could resurrect Motorola and the iPhone could propel Apple to become (albeit briefly) the worlds' biggest smartphone maker - only a total idiot would refuse to sell the N9 and its siblings in every Nokia outlet.. NOW !
If the MeeGo unit was separated from Nokia and these four smartphones were all released, the minimum revenues that MeeGo/Nokia smartphone company would earn per year would be 14.1 Billion US dollars and that company would report annual profits of 5.9 Billion dollars. That MeeGo-powered superphone company would not be quite in the Fortune Global 500 yet, but would be more than 3/4 of the way into it. And by profits? This company would be ranked the 20th most profitable company on the planet!
Anyone out there? Hire Anssi Vanjoki and let him run that company for you, and watch the dollars stream in. How can Stephen Elop refuse to sell the N9 and the other three MeeGo phones in most major markets? This is the pinnacle of pigheadness. Elop is the epitome of corporate incompetence. He actively takes decisions that go against the best interests of Nokia where they serve the interests of Microsoft, like a Microsoft mole at Nokia HQ. He is the Microsoft Muppet and must be fired. Today!
SOME LAST THOUGHTS
I have to stop here because I am growing ever more despondent re-writing and re-reading and redrafting this blog article. I love Nokia and Elop is destroying it.
But any journalists out there? Here is your Pulitzer prize, isn't it? The evidence is overwhelming, Elop is currently on a killing spree destroying the company that was the 8th most valuable brand on the planet. He has already set the world record for the biggest destruction of market share, and has also caused probably the biggest fall in revenues and profits ever witnessed in any 8 month period. And he is not done. He is still costing the Nokia shareholders one million dollars of pure profit lost ever hour he is allowed to continue as Nokia CEO, Saturdays and Sundays included, and including the time he spends sleeping. He is the ultimate symbol of corporate failure. The evidence is overwhelming. Please, some 'real' journalist, take this idea and do research into this area and write your story (likely it will become a series stories) about the management lunacy that is Stephen Elop. (and if you do, please also do mention the Elop Effect somewhere, ok?)
So all of my friends over at the Financial Times, and Wall Street Journal, and the Economist, and Business Week, and Forbes, and Fortune, and the Guardian, and the Times, and the San Francisco Chronicle, and the New York Times and the Washington Post and the Seattle Times and Kauppalehti and Taloussanomat and Helsingin Sanomat and Wirtschaftswoche and Finanstidningen and Nikkei and Le Monde and CNN and CNBC and the BBC and Bloomberg and Euronews and France24 and Channel News Asia and YLE and on and on and on. Please, my journalist friends - this has to be at least the story of the year for 2012, it probably is the business story of the decade, perhaps even the business story of the century. Please research it and write it and go interview Elop for all his management madness and get his quotes on the issues so we get a record of what all he is saying, etc. I am tired telling this sad story and I am always deeply demoralized when I find myself having to write another chapter into this sorry saga. Its time some professionals start to cover the full fiasco as well, isn't it?
And you random visitors and readers of this blog? Please do contribute a comment here with me, especially, please tell me what other companies, CEO's come close to something as stupid - and specifically - as costly. I am pretty sure this is a world record in the level of corporate destruction by the CEO.