I launched yesterday a series of short articles about the Nokia collapse where each blog article looks only at one specific aspect of it, and is illustrated by one picture. Both of these are rare for me, usually my blogs are longggggg and comprehensive (and very repetitive) and text-only, like this about the 20 risks Nokia listed in its Form 20-F which now have all turned out to be true and are haunting Nokia. So today in the Nokiasaga, we look at Nokia's two main competitors in smartphones over the past few years, Apple's iPhone and Samsung's smartphones on several platforms but most famously led by the Galaxy series on Android. So lets start with a riddle:
MANAGEMENT RIDDLE - WHICH OF THESE THREE IS ON THE BRINK OF DEATH?
This graph may be freely shared
So yes, in the picture we have Apple, Nokia and Samsung but not necessarily in that order. Which of the three companies is in deep trouble, so hopeless, its CEO destroys the platform and invites employees to jump off the 'burning pltform'?
Blue company has seen growth in smarpthone sales - so strong growth in fact, that it set a company-record in smartphone unit sales in 2010. It also finds its smarphone unit profitable, in fact it sets a new company record for most profits by that unit, ever, in 2010. Blue company considers itself a mobile company and states that smartphones are critical to its success in the mobile industry.
Lets compare to Green company, which totally differently from Blue company, in 2010, sets a company-record in smartphone unit sales in 2010, and its already-profitable smartphone unit sets a company record for most profits in that unit, ever, in that year. But Green company thinks that smartphones are vital to its future in the mobile industry, which it considers is its primary business.
Well, what of Red company, which totally differing from the first two, actually in 2010, sets a company-record in smartphone unit sales and the profitable smartphone unit also sets a company record for biggest smartphone profits in 2010. Red company however, sees mobile as its future and says that smartphones form the critical part of its success in the mobile industry.
This riddle would not trouble any first-year MBA student for any time at all. The three companies are performing in exactly the same way, reporting exactly the same internal performance benchmarks of excellence. There is no difference between the three. If you have a growing, profitable business, and its profits are growing - you have a successful unit, congratulations. Unless there is any other info to the contrary (illegal dealings like some banks did, or perhaps cancer-causing business like cigarette-sales etc or your technology is polluting or something like that) - these are three HEALTHY businesses of excellent condition. Only a pure madman would terminate any of those three.
Especially if 'smartphones' are the stated future of YOUR company main business. It doesn't matter at all whether you are company Blue or company Green or company Red, if you set company record growth and set company record profits in this smartphone business which is the future of your company industry, then you are SUCCEEDING. DO NOT STOP THIS SUCCESS.
Any first year MBA student gets this. Elop did not. Nokia had a highly profitable and growing smartphone business when Elop joined Nokia in the middle of 2010. That smartphone business grew so well, it set a new Nokia record for growth in 2010, and its profits were growing so well, the smartphone unit not only set a Nokia record for profits for the unit - the profitability itself grew towards the end of the year. It was only getting better.
Only a certifyable idiot would call this growing business success a Burning Platforms problem at Nokia. Which is before we figure out which of the three actually is Nokia? Who do you think? Apple must be company Blue, right, in 2010, iPhone 4 and so forth, the huge runaway global success that was so the darling of all the techie press with Steve Jobs on every magazine cover holding an iPhone. So which is Nokia, company Green or company Red. How was Samsung doing in 2010? When did the Galaxy launch?
Actually Apple is not company Blue. Nokia sold 28.6 million smartphones in Q4 of 2010, thats the blue line. Nokia is company Blue. For the full year 2010, Nokia sold 103.6 million smartphones according to the latest Quarterly data as reported by Nokia. Apple is company Green, the middle line, and as we know, Apple sold 47.5 million iPhones in 2010. So company Red is Samsung which sold 24.0 million smartphones in 2010. Nokia in smartphones was literally more than twice as big as Apple and more than four times as big as Samsung in 2010.
TWICE AS BIG AS NEAREST RIVAL
This is incredibly rare. I have to emphasize this point. Toyota has most of the recent years been the world's biggest car maker. GM ie General Motors of the USA has been in most of the other recent years. When was Toyota last so dominant in its industry, that it was twice as big as GM - or any other rival? Try 'never'. Yes, Toyota the car giant, has NEVER been twice as big as its rivals. How about GM? When was GM last twice as big as its rivals? NEVER HAPPENED. Volkswagen? Never. Fiat? Never. Nissan? Never. Renault? Never.
What of the PC industry? HP is currenly the world's biggest PC maker by one analyst house and Lenovo is the biggest by another expert's opinion. When was HP last twice as big as its nearest rival? Never. What of Lenovo? Never happened. Dell, surely Dell at one point? Nope. How about Apple? It was once the world's biggest PC maker in the era of the Apple 2, but even then it was not twice as big as its nearest rival. IBM? Never in the PC era. Toshiba? Compaq? Acer? Siemens? Asus? Never never never never and never.
Can you understand how rare - and massively dominating - such a position is, when you have the luxury of being TWICE as big as your nearest rival. Nokia was MORE than twice as big as its nearest rivals. So yes, Nokia is company Blue and not only is it setting Nokia records for new sales per year, and Nokia records for profits in the smartphone unit, Nokia is so utterly towering over its rivals, that almost any major tech company CEO would jump to take that market position in a second. If you TOWER over your rivals, and you are setting records in growth and profits, you are the hero and this is the goose that lays the golden eggs. You do not shoot this goose, in the face, like Dick Cheney.
GREW FASTER THAN RIVALS
Now the most astonishing part. Here is actual sales for year 2009 and 2010 and the absolute growth for Nokia smartphones, Apple iPhones and Samsung smartphones. Look at the amount of growth in 2009-2010
COMPANY . . . SMARTPHONES 2009 . . . SMARTPHONES 2010 . . . GROWTH 2009-2010
Nokia . . . . . . . 67.8 million . . . . . . . . . . . 103.6 million . . . . . . . . . . . 35.8 million
Apple . . . . . . . 25.1 million . . . . . . . . . . . . 47.5 million . . . . . . . . . . . 22.4 million
Samsung . . . . . 7.0 million . . . . . . . . . . . . 24.0 million . . . . . . . . . . . 17.0 million
Source: Company data
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The gap between Nokia and its rivals was not closing in 2010, it was GROWING. Nokia grew more than its rivals. Nokia smartphones unit was growing more than Apple iPhone or Samsung's smartphone unit. Remember, these are absolute numbers, don't be fooled by the propaganda and spin-doctors, whether at Apple, Microsoft or Nokia who may talk about 'growth rate' as a percentage. The growth 'rate' measure is mathematically skewed always to show the smallest rival to seem to have the biggest rate, when in absolute terms it might not be so. For real competition, real growth, you have to always compare by absolute numbers.
Let me show by simple example. If you grew your 'number' by 20, and I grew that same 'number' by 10, you grew more. This could be smartphone sales. It could be our bank accounts. It could be Olympic polevault jumping heights or whatever. You grew twice the amount I did. Now lets show how 'growth rate' can distort the reality. If you were the biggest at 200 measures (in smartphone sales or bank account balances or whatever) your addition of 20 was only 10% growth rate. But if I only started from 20, a far smaller starting point, and added only half what you did, ie 10, my growth rate is still 50% - a number 5 times bigger than your growth 'rate'. The growth 'rate' number is misleading when comparing rivals of different size, but the absolute growth number is always correct.
Apple grew in 2010 by 22.4 million smartphones. Samsung grew in 2010 by 17.0 million smartphones. Nokia however, grew by a massive 35.8 million smartphones, ie by far the biggest growth. The gap between Nokia and Apple was not shrinking in 2010, it was growing. NOKIA WAS NOT LOSING TO THE iPHONE - NOKIA WAS WINNING. (I know it sounds so totally 'counter-intuitive' and surely every news article you read at the time suggested Nokia was doing a death-dance, but I don't deal with fantasies and imaginariums here. If you want to believe in the Tooth Fairy and the Easter Bunny and any myths that Apple was growing faster than Nokia in 2010, enjoy your delusions up there on whatever planet you live on. Here at the CDB Blog we deal only with the hard facts, not entertaining myths). The reality is - those are actual reported numbers by Nokia and Apple direct from their quarterly results. Like Bill Clinton said, its just math. If you live on Planet Earth, your reality will tell you, Nokia grew 35.8 million in 2010, in smartphones, more than Apple which only grew 22.4 million. And as Nokia already was more than twice as big as Apple, and Nokia already was profitable, and Nokia's profits were growing, this the very definition of winning. Nokia was winning the smartphone wars against Apple's iPhone in 2010. The math is undeniable.
Same is true of Nokia vs Samsung. Nokia was more than twice as big as Apple and more than four times as big as Samsung in smartphones - an the gap was only growing larger, in Nokia's favor. This, while Nokia's smartphone unit was profitable, and producing ever bigger profits.
If you suggest Nokia is somehow on a dying platform, ie 'burning platform' on fire, and it must be terminated as the loser - it is like today, if Apple looked at the massive dominance of the iPad over the Kindle and Galaxy Tab and other tablets, suddenly said, hey, we are losing, lets abandon the iOS platform for the iPad, lets switch to the smallest tablet platform we can find - ironically yes, Windows 8. If Tim Cook suggested that today, he'd be burned on the stake and Steve Jobs would turn in his grave. For Nokia to look at the smartphone wars in 2010, find itself more than twice as big as its nearest rival, growing faster than the competition, in a highly profitable business, setting new Nokia records for profits (with plenty of hot new smartphones coming down the pike too, for early 2011 launch) - only a complete lunatic, a Microsoftian Misguided Muppet could write a memo suggesting the Nokia smartphone platform was 'burning' and Nokia had to jump off it.
Yet, that is bizarrely, unbelievably, what Nokia's new delusional CEO, Stephen Elop did (and how on earth could he have tricked Nokia's Board to believe this fairy tale, who knows?), in what will go down as the costliest and maddest, most destructive management decision of all time. The Elop Effect. Elop wrote his Burning Platforms memo, which caused what is commonly called the Ratner Effect, and then compounded that with the sudden announcement of the Microsoft partnership while having no phones to sell - but collapsing instantly current Nokia Symbian based smartphone sales due to what is called the Osborne Effect. Nobody has ever tried these two self-destructive management mistakes together - until now. The Osborne Effect bankrupted the Osborne computer company while the Ratner Effect nearly did the same for the Ratner jewelry company (which only survived by firing its CEO and rebranding). Elop Effect combines those two suicidal management actions into this, the worlds' most destructive management mistake ever, called the Elop Effect. Here is what happened to Nokia's record-setting domination and growth, instantly after the Elop Effect. Compare how the rivals did under the same period:
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Yes, this is the full picture of the earlier one we saw, the riddle. Now I have identified Nokia as the blue line, Apple as the green line and Samsung as the red line. You can also see where the Elop Effect happened and what happened to Nokia smartphone sales instantly after that.
Nokia's smartphone unit was instantly plunged into loss-making. Nokia issued a profit warning only weeks after this new strategy was announced and Nokia's smartphone unit has produced an ever-increasing loss ever since that day. In the latest quarter for which we have data, Q3 of 2012, Nokia's smartphone unit was generating a loss of 48% per smartphone it managed to sell. The sales have collapsed so comprehensively, Nokia went from 29% market share to under 3% now for Q4, ie very literally, Nokia has scared away nine out of every ten customers it had just two years ago. This is a world record in market destruction of a market leader, in any globally contested industry in human history. No car company has fallen this much this fast, not Toyota with its brakes problems, not Ford when launching the Edsel, not General Motors when it went through its bankruptcy. BP didn't see this rapid collapse of its business with the oil spill, and neither did Exxon with the Exxon Valdez oil tanker disaster. New Coke when launched, a textbook marketing disaster, did not cause this much total market loss for Coca Cola, and then - Coke wisely re-introduced its 'old platform' ie Coca Cola Classic, to regain its market.
We are witnessing the making of the world record in market failure by a global brand leader. Stephen Elop took the most rare 'sure thing' of utterly dominating his industry, holding victory in his hands, and cast it away. He literally snatched defeat from the jaws of victory. Nokia's brand is damaged, Nokia's dumbphones business is damaged, Nokia's credit rating has had a series of downgrades and is now rated junk by all ratings agencies. Nokia's share price which had been growing 11% since Elop started at Nokia and passed 8.20 Euros in value, is now down to about 3 Euros and Nokia is frequently the target of takeover speculation or bankruptcy.
This decision to judge Nokia's market dominating and massively growing, profitable smartphone business as a 'failure' and 'burning platform' which Elop decided to destroy, has to go down as the worst management mistake of all time, and yes, worse than New Coke. As this was Elop's idea, his decision, his communication and his strategy and his execution - this is obviously Stephen Elop's personal management mistake. Thus Elop is the most incompetent CEO that has ever held corporate office. Having set the world record for management failure, Elop is thus, the world's worst CEO of not just technology or of last year but yes, when you set the world record for market self-destruction you are the worst CEO of all time. Stephen Elop, do the right thing and resign, now!
I will return with more analysis of Nokia's plight with more pictures soon.