Nokia Disaster Told in Single Pictures Number 10: Greatest Destruction in Any Global Market Leader: Elop Effect cause bigger damage than New Coke, Toyota Brakes, Exxon Valdez and BP Oil Spill

I have been chronicling Nokia's disaster since Stephen Elop announced his mad new strategy (his first 5 months in charge were a brief period of strong, healthy, profitable growth for Nokia, if you remember). As the Elop Era at Nokia has been a series of mistakes and errors, I have run a series of blogs, each focusing on one strategic blunder, and used only one picture per blog to illustrate that error. So far we've had 9 blogs in this series: the Nokia smartphone sales collapse due to Elop Effect, the competitive picture of Nokia vs Apple and Samsung, Nokia market failure in context of other handset collapses, the failure of the migration from Symbian to Windows Phone, the disasterous Lumia sales pattern with Windows Phone, the Revenue Collapse in Nokia's handset business, the CEO delusions: When was Nokia truly burning, and when was it safe from any platform fire? the Extent of the Failure in Elop Strategy Promise vs Delivery and finally the Ultimate Proof of Failing the Future: Elop reversed Nokia's world-leading migration from dumbphones to smartphones.

I have several times in the series mentioned, that the damage done by Elop over the past two years has been worse than the biggest management failures of history. We did the mobile handset industry, where this Elop-orchestrated catastrophy has been obviously the worst fall in handset history. Worse than Motorola, Palm, Siemens, Blackberry, etc. And I've mentioned other famous management disasters like the launch of New Coke by Coca Cola in 1985, or the Exxon Valdez oil spill or the problems Toyota had with a global recall of millions of cars with brakes problems. Today we will put Nokia and the Elop Effect into the context of the world's worst management mistakes of the modern management era.

 

RECENT CASES OF WORST MANAGEMENT BY GLOBAL GIANTS

 

Note, first, that I am not going to include clear crimes ie fraud. So I am not going to include clear management crimes, like those that destroyed Enron, Worldcom and Lehman Brothers. I mean mismanagement, where yes, management may have been negligent in their duties or made catastrophically bad management decisions, but the problem is not one of frauding the public and claiming profitable business where none existed.

 

In this series, the problem is one of incompetence, of truly horrid management 'skill'. So for example, for the world's luxury car market leader, Mercedes-Benz, to release a new car model that was so unstable, if you drove it into a curve, it tipped over - the A-Series (launched in 1990 and soon recalled and redesigned). Or the world's biggest soft drinks maker, Coca Cola, launching New Coke in 1985, but simultaneously removing the existing soft drink from the market - facing a huge consumer backlash, that soon saw Coca Cola re-introducing the old flavor as 'Coca Cola Classic' - which today still exists simply as Coke, while New Coke was quietly renamed as Coke II and then finally discontinued in 2002. These are cases of clear management failures, mistakes, errors that cost their parents dearly. They are studied at MBA classes the world over as how not to run a business.

 

I also include management failures of 'process' where they perhaps allowed mistakes to enter into the production process, while the big disaster could be called an 'accident'. Toyota's brakes problem in 2009 is one of these, as is BP's Deepwater Horizon oil spill in the Gulf of Mexico in 2010. In these cases there were a series of management problems that helped create the conditions that resulted in the problems. I also include the Exxon Valdez oil tanker accident in Alaska in 1989, even though one could argue, that was due solely to the incompetence of the Captain of the oil tanker that ran aground. Even so, Exxon had decided to operate those single-hull cheaper oil tankers - a double-hull tanker - the type was already available at the time - would not have resulted in that kind of damage to Alaska, so Exxon management did create conditions that enabled that accident to happen.

 

There are other major collapses of major companies. Pan Am was one of the big international airlines, that went bankrupt rather fast. But its troubles started from a terrorist incident (a Pan Am operated Boeing 747 Jumbo Jet was bombed and fell from the sky over Lockerby in Scotland in 1988 killing everyone onboard. The Khaddafi government of Libya claimed responsibility for the bombing). The resulting travel problems were further damaged by a global economic downturn at the time plus some suddenly collapsed merger talks, leaving Pan Am exceptionally exposed, and the airline died a quick death. But no level of preparation by an airline at the time could have prevented government-sponsored terrorism in this, pre 9/11 era of air travel. Pan Am was a particular case of being totally in the wrong place at the wrong time, but even so, while it was an American 'flag carrier' airline and well known around the world, at the time by 1988, Pan Am was not anywhere near the world's largest airline and wasn't even a Fortune 500 sized company.

 

I am also going to exclude failed mergers and acquisitions, that often lead to big losses in the first year or years of attempting the merger, some succeed, others fail spectacularly in costly manner, like AOL-Time Warner. This is not an analysis of the mergers and acquisitions industry. This is an analysis of management incompetence WITHIN their own business, using their own resources. So yes, I will limit this discussion to companies that were (among) the largest of their industry - or a given lucrative industry sector. And I limit the analysis to truly major global industry giants, ie companies big enough to make it into the Fortune Global 500 - companies on that list should have totally professional management and know what they are doing. There have been even more spectacular cases of corporate destruction by management, we on this blog have examined the Osborne Effect and the Ratner Effect as they relate to Nokia's Elop and what I call the Elop Effect. But neither Osborne Computer company nor Ratners jewelry company were anywhere near Global Fortune 500 sized companies, so we ignore those.

 

I could also go back in time, such as Ford and its launch of the Edsel in 1958 is a famous example of the giant car-maker producing a total disaster of a new car launch. But that goes so far in history, to a different era. I will limit this blog to those incidents most of my readers were alive to remember. Please recognize, I am NOT an expert on car manufacturing, or the oil production industry, or the food and beverage market. I am doing my best here, aided by online sources and Wikipedia, but honestly, am not the expert. I have tried to do an honest job of chronicling briefly the extent of the problem, in particular with the famous incident or crisis, and how it impacted that corporation's global revenues, and profits, and if the CEO was fired. But remember, I am not an expert on those industries, if I got some part a bit wrong, please allow me that and tell me where I erred, I will correct any mistakes of course. I can only claim to know the mobile industry where I have written the most books of this industry and have been thought of as one of its thought-leaders for more than a decade... With that, I do want to set Nokia's collapse into a context of global management disasters. I'll do this in chronological order. So we start from 1985 and a brand new drink called New Coke.

 

COCA COLA COMPANY - NEW COKE LAUNCH 1985

 

Coca Cola was the world's largest soft drinks manufacturer in 1984. It was highly profitable and saw growing sales. But Coke saw its market share in slight but steady annual erosion to rival Pepsi Cola, who offered a more sweet cola drink. So suddenly in 1985, without warning, Coca Cola introduced its New Coke flavored cola drink, which was sweeter than that of Pepsi. Bizarrely, what Coca Cola company did, was to pull its old standard Coca Cola product from the market at this launch - not to introduce the new flavor alongside old Coke but to replace the old flavor. We all know what happened - a big consumer backlash demanded old Coke to be returned to the market, which Coke did, by calling it Coca Cola Classic. For many years both products were sold side-by-side in North America, but the popularity of the new flavor diminished and the New Coke product was ended in 2002.

 

What happened to Coca Cola company in 1985? How did this launch disaster impact the Coca Cola company? Coke's sales fell by 3% in the year that followed and Coke lost its market lead to Pepsi. But Coke was never unprofitable in this episode, and after a year, would recover both its market lead and a position of increased sales above what it had in 1985. Yes, New Coke launch was a mistake but one, from which Coca Cola management quickly and smartly recovered (some even suggest a cunning management conspiracy here, that Coke knew its customers would demand old Coke back, and this was all pre-planned, expressly to withdraw the old flavor immediately.. Coke management has responded to that rumor saying they wish they had been that clever). The company contined to make profits through this episode and the CEO didn't lose his job.

 

EXXON - EXXON VALDEZ OIL TANKER GROUNDING IN ALASKA 1989

 

So next up, from 1989 we get the famous oil spill in Alaska. Exxon's giant oil tanker, Exxon Valdez ran aground and spilled massive amounts of oil into a pristine and vulnerable Alaska environment. Exxon was the world's largest oil company at the time who had seen strong growth in revenues the year before, and made massive profits. Yes, the oil spill was a PR nightmare, and yes, there were clean-up costs, but Exxon revenues did not stop growing into the two years that followed. And Exxon continued to make huge profits. Yes, we can count that Exxon's profits dipped in the year following the accident, but were still massive. When the damages are added to the somewhat diminished profits, Exxon's total profits following the oil spill were down by about a third for no more than two years, and after that recovered fully. While the Captain of the ship Joseph Hazelwood was fined and lost his job working for Exxon, he didn't lose his Master's License (which means, he was still licensed to pilot giant ships). However, with his reputation ruined, he never captained another major ship again.

 

DAIMLER-BENZ - MERCEDES BENZ A-CLASS UNSAFE TO DRIVE INTO CORNERS 1997

 

Next up we get to 1997 and the Mercedes A-Class. This was Daimler-Benz company's first attempt at a minivan type of vehicle, a hybrid type of vehicle body, between a standard station-wagon/estate vehicle and a proper full-size van. The A-Series design had a flaw, that its center of gravity was too high for the width and length of the wheelbase. If driven into a corner at normal street-legal speeds, the A-Series would tip over. This was first reported by a Swedish car-testing magazine and soon replicated the world over. The car and company faced a lot backlash and damage to the reputation. The A-Series was soon recalled and totally redesigned to avoid the tipping problem. Now, Daimler-Benz was nowhere near the biggest car maker, so its inclusion to this list is tenuous, but Mercedes Benz was the market leader (at least in value of cars sold if not in volume of cars sold) in the luxury car segment. Overall, Mercedes was only the 10th biggest car maker at the time. But yes, as the biggest luxury car maker, I will include it to this listing of the biggest management blunders, as this is also a popular MBA case study in management failure.

 

What happened to Daimler-Benz due to the A-Series fiasco? Sales revenues ended up down one percent for one year before recovering and returning to growth. Daimler-Benz did not produce losses during this recovery operation and relaunch of the A-Series. The company generated healthy profits all through the launch disaster. While a bad publicity episode for the Mercedes-Benz brand, the company was healthy through this rough patch and the CEO kept his job.

 

TOYOTA - BRAKES PROBLEM GLOBAL RECALL 2009

 

Toyota was the world's largest car maker, growing strongly and generating healthy profits in 2008. In fact, the car company had never produced a loss in any quarter of its existence. Toyota's cars were very highly rated for build quality and safety at the time. Then came the brakes catastrophy of 2009, which resulted eventually in 14 million Toyota cars being recalled.

 

How did it impact Toyota? Sales fell very badly, falling 8% in the next year, and recovered only partly in the second year after the problem. It took Toyota three years to return to the sales levels it had seen before the problem. Toyota's profits turned into losses, and the company posted its first-ever annual loss for that year, resulting in the CEO resigning in 2010. Toyota lost its market leadership position falling to number 2. But within the next year, Toyota returned to profits and today Toyota has also recovered its number 1 global car-maker status. Looking at damage to profits, the level of the losses generated were of the magnitude of 7% of total revenues, for one year. I should mention, Toyota's shares fell 15% in value to its worst moments about a year after the incident before recovering.

 

BP - DEEPWATER HORIZON OIL SPILL IN GULF OF MEXICO 2010

 

BP was the world's third-largest oil company at the time, with strong growth in sales and huge profits. An underwater oil drilling platform had a rupture very deep in waters at depths where spill damage capability was not proven. The company took months to stop the spill and seal the well.

 

How did this impact BP? BP had previously seen strong growth in sales revenues, those slowed to flat sales and BP had only 1% more revenues in the year after the spill. The company went from generating profits to making a loss for one year, but then returned again to making profits in the second year. The CEO was fired. When the damages are added to the losses, the total cost to BP were of the level of about 6% of total revenues if allocated over one year, or about 3% per year for two years, if spread over two years.

 

NOKIA - ELOP EFFECT DESTROYING A MARKET-DOMINATING POSITION IN HANDSETS 2011

 

Nokia was the world's largest handset maker by a wide margin in 2010, and was growing sales in both units and revenues; and was vastly profitable. Nokia's new CEO, Stephen Elop took over in September 2010 and for the last quarter of the year, Nokia produced record profits of its long history. The stock market seemed to like the new CEO, Nokia's share prices were up by 11% by late January 2011 and the ratings agencies all rated Nokia a near-perfectly run company, with all three ratings agencies grading Elop's first five months so good, Nokia's credit ratings were one notch below perfect.

The future of mobile phones is what are called 'smartphones'. While some revisionists want to claim that Nokia had been in trouble before Elop changed Nokia's strategy with smartphones, and the popular myth claims that Nokia was 'losing' to the iPhone and Samsung, Blackberry etc. That is simply not true. Nokia had invented the smartphone and dominated the global smartphone market, not just selling more than twice as many smartphones as its nearest rivals - a powerful position never enjoyed by Coca Cola, Toyota, Exxon, BP or Daimler-Benz in their industries - but growing more in 2010 than its nearest rivals, so the gap from Nokia to its chasers, like Apple, Samsung and RIM/Blackberry was in fact increasing during 2010, not diminishing. Please bear this in mind - even as various history revisionists want to perpetuate the myth, in reality in 2010, Nokia grew more than Apple, more than Samsung, more than Blackberry - Nokia was so dominant in smartphones that Toyota, Exxon, Coca Cola had never had that size of a lead - and Nokia's massive lead was increasing in 2010, not diminishing. This was a 'winning hand' if the future of handsets was indeed, as we know it is, smartphones.

 

In February 2011, Nokia's new CEO Stephen Elop repeated two infamous and massive communication errors, each individually so damaging, that they had already previously been turned into case studies of supreme management mistakes, studied at MBA schools. First, Elop issued a memo highly critical of Nokia's products calling them so bad as to liken Nokia's position to that of being on a burning oil rig. The 'Burning Platforms' memo was widely reported in the press, and resulted in a 'Ratner Effect' whereby if the CEO of a company bad-mouths his own products, he will be believed and sales will collapse, specifically, sales support of the sales channel will disappear. As it did. Nokia's handset sales fell at a mobile industry-record speed from this moronic statement. What makes it worse - is that the Burning Platforms memo was not even accurate, Elop himself has since issued nearly a dozen statements walking back or fully reversing positions he took in that costly memo. So where Ratner accurately called his jewelry crap, Elop actually made the unforgivable error - he called Nokia products worse than they actually were, only expediting the speed of the collapse.

I said two communication problems. Elop added to the 'Ratner Effect' problem with the announcement of the switch of his smartphone platforms to one new one. Nokia was going to switch from Nokia's own, self-developed platform trio of the old but still serviceable Symbian, Nokia's own-developed Linux-based Maemo used in limited production, and Nokia's newest, also Linux-based highly praised and beloved MeeGo (developed with Intel). These were abandoned in favor of a future platform by Microsoft, as an evolution of the then-current version of Windows Phone which Nokia at the announcement was not even going to deploy.

 

Because of this ridiculously premature announcement, Nokia could not show any phones and not even commit to any dates of when the first phones of the new platform would be available. (Nokia's first Windows based smartphones would not be sold until 9 months later in small quantities and 12 months for global distribution in volume. This is an eternity in a handset business where product cycles are measured in months and handset replacement cycles for smartphones in most advanced markets were under 12 months.)

 

This announcement of promising a new - and incompatible - platform for Nokia's premium products, while not offering anything to sell or even show, is called the 'Osborne Effect' named after the computer manufacturer who committed this error before. As with Osborne, Nokia smartphone demand instantly collapsed, as any buyer recognizes the current product line is instantly obsolete. Sales volumes, revenues and profits at Nokia fell due to these two effects, to an unprecedented degree, that I have christened the 'Elop Effect' ie the costliest management communication of all time.

 

But Nokia is more than smartphones. The Elop Effect also hurt Nokia's other handset business, its 'dumbphones' or 'featurephones' business. Yet Nokia also sells other products and services such as its networking infrastructure products and various mapping services etc. How big is Nokia's Elop Effect damage? Did Nokia's overall sales suffer?

 

Did it ever? Nokia had seen solid growth in its revenues from 2009 to 2010, now its sales collapsed. In the first year after the Elop Effect, Nokia sales tumbled 9%. In the second year, Nokia sales fell another 24%. Total fall over two years since the Elop Effect is 29% of revenues. This is BY FAR the biggest damage done by management to any Fortune 500 sized company in such a short period of time. When Toyota saw only half as bad a decline in sales revenues (and BP only less than one quarter as bad), their CEOs departed.

 

What of profits? Nokia had strongly profitable handset business (its only loss-making quarter since it became the world's largest handset maker was one quarter in 2010 where the loss was driven by the networking unit; the Nokia handset unit had never reported a loss). And the Nokia profits were growing towards the end of the year 2010, when in Q4 the smartphone unit established a Nokia record for profits and profitability. Now what happened after the Elop Effect? The smartphone unit was immediately unprofitable, and has not recovered to profits since the Elop Effect. The dumbphone unit was also plunged into loss-making, and its 'return to profits' finally in Q4 of 2012, was accomplished by accounting gimmicks, most of all by Elop selling the Nokia HQ building - and allocating all that revenue a profit to the handset unit, not spread across all Nokia units. By selling handsets, Nokia's handset unit is still unprofitable now. I am deeply suspicious of Elop's recent corporate sales activities (the Oulu Finland Nokia campus was sold recently as was a series of patents) - if these are again used to bolster supposed 'handset business' profitability to create the illusion of the handset unit being supposedly 'profitable' once again.

 

Back to the Elop Effect. How big was the damage? When the abandoned profits and resulting losses are added, and taken as a percentage of sales, the loss to profits was 8% in 2011 and 10% in 2012. Note, not of the smartphone unit, or even the handset unit, this is of all Nokia Corporation revenue as of the level prior to this self-induced catastrophy of the Elop Effect, so for the full year 2010. The damage to Nokia profits (as a percentage) is twice the damage level caused at Toyota over two years, and three times the damage done at BP, over two years. Whereas Toyota's share price damage was the worst in this group, down 15% one year into the crisis, Nokia's share prices collapsed, down 55% in the first five months after the Elop Effect and still today, more than two years since the damage was caused and were down as far as 80% at the worst levels before rumors emerged that Nokia might be sold. Those rumors have helped Nokia share prices recover somewhat but the Nokia's share price is still 65% below where it was before the Elop Effect at the start of February 2011. All three ratings agencies now rate Nokia as junk.

Elop's predecessor, Kallasvuo saw Nokia share price fall by about 50% over three years and was fired (and during his tenure Nokia still produced profitable annual business every year). Elop has not produced one profitable year and has seen share prices fall more in shorter time than under Kallasvuo. Why is Elop allowed to run this company (to the ground).

 

THE PICTURE OF THE SIX BIGGEST MANAGEMENT FAILURES

Here is the picture today. This is on one graph, the six most infamous management 'events' that could be called a crisis or in some cases management failure or in some cases accidents that the management had to deal with. New Coke, Mercedes Benz A-Series and the Elop Effect were the only ones completely controlled by the management, done by management plan and schedule. Of these six, the first-year damage to the corporation is biggest - at Nokia. Of these six infamous management disaster situations, only Nokia is the one that could not fix the problem in two years, and Nokia is the only one where the problem got worse in the second year. And of these six management challenges, only Nokia resulted in corporate losses for two years running.  

 

 

  

 

 

This picture may be freely shared

 

WORST CEO OF ANY FORTUNE 500 SIZED COMPANY - EVER

Elop has caused by far the biggest damage to any Fortune 500 sized global company, that was a market leader in its industry, in the modern era of management. Elop is incompetent, and because he did not move rapidly to fix the damage he caused - he has admitted his memo caused damage to Nokia handset sales for example, and he has admitted his Windows Phone based smartphones are not appealing to the market due to hatered of partner Microsoft's position in the world.

Any other CEO of any other handset maker, would never have killed the existing platforms when introducing a new platform. That is not mere speculation by Mr Ahonen. That is historically accurate. It is the 'textbook' way to do it. It is literally how every other smartphone manufacturer has ever introduced a new platform. That is how Samsung introduced Windows alongside Symbian. That is how HTC introduced Android alongside Windows. That is how SonyEricsson introduced Android alongside Symbian. That is how Palm introduced Windows alongside its own Palm OS. That is how LG introduced Android alongside Windows. That is how Samsung introduced bada alongside Android and Windows. No handset maker has ever done anything as stupid as Elop. Nobody ever has! Ever! If the Nokia management felt that its current platforms were not up to the competition, the correct way - looking after Nokia's interest - would have been to introduce the Windows platform alongside the existing Symbian, Maemo and MeeGo platforms, not immediately ending the existing ones.

THE RIGHT WAY AND THE WRONG WAY

And obviously Windows should not have been rushed to be pushed to all global markets. That made no sense whatsoever. Windows did not support most languages, did not have carrier support and didn't have any apps to sell in most markets where Nokia dominated with Symbian. If Windows was not popular in China (the world's largest handset market where Nokia's Symbian held over 60% market share in 2010) but obviously Nokia's Symbian based smartphones were not only the bestselling brand, but the brand with high loyalty too - then the sane move would be to continue developing new desirable smartphones aimed at the Chinese market, where Symbian had the carrier relations, the vast library of apps, the language support etc and not replace that with Windows that was non-existent in that market at the time!

 

If Nokia were to suddenly introduce a Windows based smarpthone series, then the logical place to do that is the one market where Nokia was not a leader, but the market where Microsoft was strongest. That is obviously the USA - and only launch Windows based Nokia smartphones to that market, as a test. If Nokia had been just sensible about Windows, it would brought Windows alongside Symbian and MeeGo, but at least initially only offered Windows Lumia series to the US market. Then see if it got success there, if popular, then perhaps introduce it to Europe next.

 

And we have the evidence. Today, even in Microsoft's best market, the USA, after a year of massive promotion of Nokia Lumia with the world's largest handset launch budget by Nokia, added by the biggest handset launch ever by AT&T, and added by even more billions from Microsoft, Nokia's Lumia is well known as a Windows Phone smartphone in the USA, but the latest MKM survey found that only 0.7% of US mobile phone users were willing to buy a Nokia Lumia running Windows Phone. This is in line with the previous Bernstein consumer survey and the Yankee Group survey that both found that Windows Phone and/or Lumia are rated worst phones with shear hatered, most owners of one want to get rid of the phones and platform and buy any other smartphone instead. This is how well Nokia and Microsoft are received in Microsoft's best market. How do you think it fares in markets that the Lumia series is not designed for, and not supported as strongly? Where its price points are far above the market price levels?

But yes, lets examine the evidence for the US market. Before this partnership was announced, Nokia's Symbian had 1.6% of the US market and Windows had 4.0%, so the partners 'separately' had 5.6% of the US market in December 2010 (according to new sales market share stats by Kantar for Dec 2010). Now its more than a year since Lumia launched in the US market. With massive AT&T and Microsoft marketing support and Nokia's world-record launch budget, how is this partnership doing two years after the partnership was formed, in Microsoft's best market? Kantar reports that in February 2013, Windows had 4.1% of the US smarpthone market and Symbian had 0.1%. The partnership apart was able to command 5.6% of the US market, but when two turkeys merge, they do not form an eagle. When these two were forced together, today their combined market share is 4.2%. The partnership has lost one quarter of the customers it used to own in Microsoft's best market !!! By very clear evidence, this partnership was poisonous to Nokia, even in the one country where Windows had some meaningful market position before the partnership started! Nokia sacrificed 1.5% of Symbian sales to generate 0.1% gain to Windows. American customers loyal to Nokia smartphones are rejecting the Nokia Lumia Microsoft Windows Phone proposition at a rate of 15 to 1.

 

And what was the result? Go to Europe. Just before the Elop Effect, Nokia had 33.4% market share for smartphones in Europe, according to Kantar market share numbers for December 2010. Microsoft's two Windows based smartphone platforms, Windows Mobile and Windows Phone, had a combined European market share of 3.9%. Now after Elop sacrificed the Symbian share, the latest Kantar numbers (for 3 of the big 5 European countries, unfortunately Kantar didn't release stats for all 5 big European countries) have Symbian share for Nokia now down to 2% and Windows is up to 8.5%. Note. Windows had almost 4% before Nokia was sacrificed. They managed to just over double their market share in Europe, at the cost of Symbian devastated from 33% to 2%. The trade-off was devastating. One in three European smartphone owners were happily loyal Nokia Symbian smartphone owners in 2010 still said they were happy and intended to continue to buy Nokia smartphones in the future. These were then forced to abandon the Nokia they knew and take the highly flawed Windows platform (with 101 faults that Nokia owners would hate, now ugraded to 121 faults..). So in the attempt to shift loyal Nokia customers from Symbian to Windows in Europe, out of every 7 attempted, 6 refused the Lumia and went to buy a Samsung Galaxy or iPhone or some other vendor smartphone (on another platform). This is total catastrophic failure by the CEO and a self-destructive 'strategy' where migration utterly fails.

 

If we go to markets where Microsoft and Windows smartphones were traditionally weak or non-existent, like China, Africa, India etc - and Nokia was the powerhouse in each of those markets commanding far more than half of the total smartphone market - the damage is far more severe in this transition. Nokia's Lumia smartphones on Windows not only have their 101 faults (now with improved Lumia, get them while they're hot, 121 faults to annoy loyal Nokia customers!) but in these markets there are usually no handset subsidies, so the pricing of the Windows smarpthones are far higher than low-end Symbian smartphones used to be, so the pain is particularly hard felt in Emerging World markets - where all the big growth in the industry is right now, and the part where Nokia had the strongest presense, strongest brand and strongest loyalty. Apple's iPhone is nowhere in Africa or India if you go today to those markets.

 

WHEN EVERYONE ELSE SEES THE TRUTH BUT YOUR CEO

 

Furthermore, every other handset maker who provides Windows based smartphones has said in public that there is no carrier/retail/customer demand for the smartphones. Hence every single one of the other smartphone manufacturers has shifted production away from Windows - Sony and Motorola totally to Android; HTC more to Android; Samsung to Android and its own bada, and now launching also Tizen as yet another platform 'that isn't Windows'; Huawei to Android, Tizen and Firefox yet another new platform 'that isn't Windows'; LG to Android and purchasing Palm WebOS as a new parallel platform yet one more 'that isn't Windows'. ZTE is going to Android and Firefox. Palm abandoned its Windows project to build its new own OS, called WebOS (Palm was later sold to HP, and then what remains onto LG)

Look at that list. They are all past or still-current Windows 'partners' in smartphones. Every one has admitted Windows Phone is not competitive today, and every one of them has taken an active - and expensive - step to shift to at least one other platform - two of Nokia's rivals have gone the extra step of launching (or buying) a new OS that is not Windows - Samsung (twice! bada and Tizen) and LG with Palm WebOS. There is nothing wrong with the CEO expressing confidence in a platform, but if the market is so clear - and brutal - in rejecting that one, only a moron CEO would not react to it, and only an insane CEO would refuse to sell highly praised and desirable products on another platfrom of its own! - if Nokia itself owns that rival platform and its products are so good, they win industry awards ahead of Apple's iPhone and that get recommendations from the press saying 'its so good, fly to another country to buy one' and where used product retail values are 4 times bigger than what you can sell the current Windows products for. Yes. That is the honest truth about the N9 and N950, Nokia's first two MeeGo based superphones, that should be sold in every market now, if the market says that they dont' like the Windows offering.

 

If Elop was thinking of Nokia's best interest, he would focus on selling Nokia products, designed by Nokia engineers, that have Nokia DNA, that are beloved by Nokia customers, that have no royalty payments due to outsiders, that Nokia can control. Like the N9 and N950, on MeeGo, yes an operating system that on side-by-side comparisons was rated regularly BETTER than the iPhone !!! Who is ever rated better than Apple? No Windows product in history, haha.. But Nokia's MeeGo and N9 were, regularly so. If your sales are collapsing at a world-record rate, and your smartphone unit generates a 22% loss for every phone you actually manage to sell, on that undesirable Windows platform - only a delusional madman would insist, he rather sells the undesirable Windows products at a loss - for which he has to pay royalties to Microsoft, and which have Nokia-record return rates, and world-record level customer dissatisfction - than selling the most beloved Nokia products ever made, the N9 and N950 (and their unreleased newer siblings) on MeeGo.

 

SOME CONTEXT

 

Do we want context? BP's Deepwater Horizon oil spill was at least partly an accident, and even today, the three major companies involved with that oil rig are accusing each other of whose fault the problem was. With the Elop Effect, there was no 'accident' - the Elop Effect was 100% caused by Stephen Elop, voluntarily and deliberately causing damage to Nokia's products, sales and reputation. The Exxon Valdez oil tanker was yes, driven onto rocks in Alaska, but the guy in charge of causing that damage - the Captain, was at least sacked by Exxon and no longer allowed to drive big oil tankers. Elop crashed SS Nokia and is still allowed to remain at the helm. Toyota's brakes were a process problem that surfaced suddenly, after the faulty brakes had been installed into millions of cars. Elop's problem did not build over time like a hidden bomb- Nokia's R&D capability is still second to none in mobile, look at the awards Nokia won for example with the 808 Pureview last year, the best cameraphone of all time, superior to professional DSLR cameras even under some circumstances. Or the D&AD award - considered the 'Oscars' of industrial design - that Nokia's MeeGo based N9 won over not just Nokia's Lumia devices but over Apple. Nokia has not lost it in the design and capability of its phones. This damage was not a creeping systematic rot from the inside, like the myth suggests, that the iPhone had somehow killed Nokia. No, this was a new wound, opened by the new CEO, out in the open for all to see.

Mercedes A-Series was badly designed and were withdrawn until fixes were made and a new series was launched. While Mercedes fixed its new A-Series, it of course did not stop selling its other profitable cars - just like Nokia should not have stopped selling its successful smartphones on other platforms especially on its MeeGo system. And New Coke is perhaps the nearest to this example - but there Coca Cola was smart enough to notice, that when customers ask for something they have made in the past, they should give it to them, especially if the new item is not a global hit success.

 

Elop did not have to announce his new Windows platform in February, when the first phones wouldn't be sold until November. That was a management mistake. (The February 2011 announcement of Windows did not serve Nokia's best interests, but clearly were welcomed by Microsoft, and to the degree Elop as Nokia's new CEO acted in Microsoft's best interest against Nokia's interest, he not only broke his fiduciary duty, he is guilty and must be fired and sued for all compensation paid to him, any of his signed contracts with Microsoft such as the Windows contract are null and void, and Elop must be investigated by the various stock markets and forbidden from ever taking corporate officer positions in companies that operate on a stock market).

 

Elop did not have to say bad things about his own company products. No CEO needs to do that, but even worse, his statements were mostly false, several that Elop himself has reversed since. Elop has admitted the Burning Platforms memo damaged Nokia (to the tune of Billions of Euros I should add, it is the costliest management memo of all time). That he issued such a damaging memo alone stands as proof his judgement is not suited to run a major Fortune 500 sized company.

 

That Elop launched his Windows products instantly replacing his highly successful smartphones on Nokia-owned platforms - that yes, actually grew more sales in 2010 than any major rival like Apple, Samsung and Blackberry - that Elop would terminate such successful sales and replace it with unproven Windows that only sold in miniscule numbers - Nokia smartphones on its own Symbian and Maemo platforms held 34% market share in 2010, but global Windows smartphone market share across all Windows partners was 2% in 2012 !!! Yes, that includes all Nokia Lumia sales. Windows total market share globally last year was a puny 2%. And Elop abandoned his 34% Nokia-controlled market share for a slice of that 2%. Is he perhaps mathematically challenged, Stephen Elop? Did he fail his mathematics courses at McMaster University in Canada?

 

But this clearly shows that Elop does not act in Nokia's best interest. This decision to sacrifice massive dominant Nokia market position to bolster Microsoft's collapsing world position (it held 12% market share as recently as five years ago) serves Microsoft interests only. No other handset manufacturer has ever made this moronic move, of ending existing successful sales platforms before a new platform has proven itself by generating bigger sales. Elop may be suitable to be a Vice President of Destroying Partners over at Microsoft, but this decision means he is not knowledgable enough to run any phone manufacturer company of any size.

 

That Elop would continue to push Windows, when all evidence - including every single one of Windows manufacturers - has shifted production partly or completely away from Windows to alternate platforms - this unwillingness to face facts, tells us Elop is living in some CEO delusional world, where he rules an imaginary world, not unline Kim Jong Un, who imagines his puny military could defeat the combined forces of the USA, South Korea and Japan haha... The delusions of Elop have cost Nokia billions. Any other CEO of any other company would have - and indeed have - altered their product mix away from the undesirable Windows to more desirable platforms.

 

That Elop refuses to offer MeeGo based smartphones to Nokia customers - even where Nokia competitors, like worlds' largest smartphone maker Samsung and number 3, Huawei, plus others like Panasonic and NEC, are launching smartphones on the evolution of MeeGo (called Tizen) instead of Windows - tells us everything we need to know about which platform has potential and which doesn't. It is expensive to launch on new platforms. Only a total fool would be the owner of such a highly popular and capable platform as MeeGo, and instead of allowing sales on it, forbids sales in all major Nokia markets, and pushes the undesirable and unprofitable Lumia series instead. Elop would rather hide a huge success for Nokia, and rather take tiny sales of Windows instead. Again, this is criminal disregard of Elop's fiduciary duty to Nokia owners (shareholders). He has put another company's interests (Microsoft) ahead of the company he was hired to run (Nokia). He has to be fired instantly for such breach of duty.

 

I could go on. I end here. I have shown that in the context of the most notorious management failures and crisis faced by management in our lifetimes, from New Coke to Toyota brakes, from Exxon Valdez to Deepwater Horizon, those management catastrophies pale in contrast to what Elop has achieved at Nokia. Nokia's collapse in the past 2 years is the biggest fall of any Global Fortune 500 sized company ever. That it was caused by the CEO's own actions, and his subsequent actions did not rapidly fix the problem, but made them worse, is proof that Elop is indeed not just the worst CEO in telecoms, or the worst CEO of the year, he is the worst CEO of all time. He has to be fired for this.

 

Nokia Board. Its your move. Get rid of him before the Annual shareholder's meeting. Or you will face investigations for collusion and even criminal negligence for letting this man destroy the company while you do nothing.

 

Nokia shareholders, if the Board doesn't fire Elop for this gross mismanagement, then the Board is in collusion with Elop and the Board must be fired too. Get ready for the Annual shareholders' meeting. Don't let this clown, the Microsoft Muppet, the Pretend-Patton, Stephen 'Call me the General' Elop, destroy your company.

If you are a journalist or blogger, reading this story - please PLEASE study this issue and report on it. We are witnessing the biggest management fiasco of all time, this will be a must-read case study of management stupidity and incompetence, and Elop's name will be synonymous with wanton destruction of a global market leader. Please write and report on this story - this is the biggest story in management and business of the year, if not the decade. Please do study it - a good place to start are those 9 links on the top of this article, each with just one picture showing the different dimensions of this calamity. 

 

Comments

[Tomi T Ahonen]

Stoli89

Thank you for your comment. I removed it for my long-standing policy on this blog, saying if any comment would require me to write 'if you read the blog completely' - those comments will always be immediately deleted as total waste of my readers' time.

You made some good points. But you also ignored the fact, that I have ALREADY discussed on this blog and shown a picture - and referenced explicitly in very beginning of this blog article - that within the handset industry, Nokia has already set the world record collapse of sales. You cannot accuse me of not doing 'fair comps' if that is right at the top of the article. Why don't you re-read the article, acknowledge that fact, and then make whatever points you might still find relevant after that?

Tomi Ahonen :-)

[Tencent]

Hi Tomi so you would recommend that I sold my Nokia Shares to M$ (even though I do not own any Nokia shares now or ever)but I just have one question are all finns some poon jobs or what? since you haven't bought all the outstanding shares of the company that used to contribute around 33% of your GDP and then demand Elops + the board of directors EXIT...

[Jac]

As an ex-Nokia fan (love the T9 phones, best even up to today) I have to say that Tomi's points are very convincing.

I would welcome others who disagree however, to provide opposing views (backed by facts, or course). Perhaps start by dealing with the elephant in the room - is there are good reason to release the "Burning Platform" memo at all?

[John Phamlore]

There is actually a good analogy to Nokia that is not mentioned in the list of corporate collapses: Sun Microsystems.

It turns out Nokia and Sun have a very important common element: Both had relied on Texas Instruments as a fab partner only to have TI decide to not compete for the next generation of fabs leaving both Nokia and Sun stranded.

[Kalle]

It's hard to see Nokia recover from this position. Company is still bleeding money which is not bolstering its position in the market. Creative people have mostly left the company, it has no way of attracting any new talent.

It's easy to lul yourself into a fantasy, lie down and wait that a fair knight will come and rescue you because of your beauty.

I'll coin it "Snow White"-strategy. Nokia ceased to be active player in the market and started waiting for innovation to come from Redmond. Elop most likely is inclined to believe in this fantasy. Unfortunately no matter how pretty you are there are no princes in business, only witches and goblins.

Even if WP suddenly reversed it's fortunes it's not in Microsofts interest to rescue Nokia. Nokia was supposed to be a stepping stone for Microsoft to re-enter the mobile phone business. Unfortunately Nokia managed to screw it up royally. Nokia could have entered the market from relative position of strength, but as Tommi has pointed out they took a fools gamble and killed the goose that laid the golden eggs.

Best thing for Nokia would be to find some profitable parts of the company, try to break them out and try to salvage what little bit of value is still left in it. Perhaps a small WP7 company could be one spin off.

It was a nice run, but unfortunately the old idiom proved to be true. Biggest danger to any company is it's own management.

I sold my shares of Nokia the day I read the burning platforms memo, because I also made exactly the same conclusion that Tommi did. If your CEO tells people that your baked goods are shit don't expect business in your bakery.

[John Phamlore]

If rumors are to be believed, the collapse in sales of Nintendo gaming consoles may be rivaling soon the collapse of Nokia's handset sales.

[MarcoAustria]

I believe you should include that Elop also badmouthed MeeGo/N9. The N9 was announced and shortly thereafter Elop said it wouldn't be continued. So before the phone was on the market the CEO did another Osborne and Ratner.

Reference:
"Nokia will not return to MeeGo even if N9 turns out to be a hit, says Stephen Elop "
http://blog.gsmarena.com/nokia-will-not-return-to-meego-even-if-n9-turns-out-to-be-a-hit-says-stephen-elop/

There is another evidence that Elop actively sabotaged/badmouthed MeeGo. A senior software engineer from Nokia made this public. Elop told lies about it and this is surely what he told the Board too.
http://www.trustedreviews.com/news/meego-engineer-calls-out-nokia-ceo
or the original Blog
http://felipec.wordpress.com/2011/06/21/my-disagreement-with-elop-on-meego/

[John Phamlore]

Have not previous articles shown there is a sales cliff that in particular handset makers seem prone to experience? Companies such as Motorola have had tremendous rises and then falls of handset market share.

The smartphone handset market is hardly roses for anyone making the entire handset at the moment other than Apple, Samsung, and apparently a rising Sony. Observe all three bring a lot more to the table than just handsets. Samsung and Sony have stupendously sized electronics divisions and stupendous spending on research and development to match. That to me is the difference between Samsung and Sony versus the ailing HTC, and observe HTC has a new top tier smartphone that is getting rave reviews.

[foo]

I think you should replace the first paragraphs with a simple definition:

"What was the worst marketing decision made by a CEO, ever?"

Marketing involves PRODUCT, PLACE, PRICE, and PROMOTION.

Countability issues, like Enron and Worldcom and Lehman Brothers is not marketing. Mergers and acquisitions is not marketing. Internal processes is not marketing.

Public perception is marketing.

Reseller boicot leads to problems with placement and promotion, which is marketing.

Product quality and price is pure marketing.

So... I suggest replacing all the explanation with this simple definition:

"What was the worst marketing decision made by a CEO, ever?"

[foo]

When we compare Elop's blunder with past marketing catastrophes (ex: New Coke), what do we learn?

-- YOU DON'T KILL YOUR CORE PRODUCT LINE BEFORE YOU HAVE A WELL STABLISHED REPLACEMENT.

That's the lesson.

Elop killed, by words and acts, all the alternatives to Windows Phone before he had anything else to show.

Which brings me to the second lesson:

-- YOU MUST HAVE A PLAN B

Elop failed here too. As an executive put it: "Plan B is that plan A must work". It didn't.

I'm sure there are other lessons to be learned. Ideas?

[Dipankar]

@Sander van der Wal: I dont think it's Tomi's pet theory. Just look up Nokia quarterly earnings releases, and see for yourself that in 2010 Nokia revenues & profits were rising. Both fell after Feb 11. I have a quick graph of quarterly revenues from Q3 2010 to Q3 2013 here

http://dipankarmitra.blogspot.in/2012/12/end-of-year-look-at-nokia.html

The board hired Elop to fix execution (which, as a ex-employee I confess was quite screwed up), not to play with strategy.

[incognito]

@Dipankar "The board hired Elop to fix execution (which, as a ex-employee I confess was quite screwed up), not to play with strategy."

Well, you have to agree that Elop executed Nokia quite expertly. One head shot after another. A proper terminator would be all green with envy watching this Muppet work.

[zlutor]

@Tomi: "Nokia shareholders, if the Board doesn't fire Elop for this gross mismanagement, then the Board is in collusion with Elop and the Board must be fired too. Get ready for the Annual shareholders' meeting."

What can they do there? Unite and revolt? :-)
Is there any chance of it?

[daz]

>> "Nokia Board. Its your move. Get rid of him before the Annual shareholder's meeting."

You can't count on the board to make a change, they have already elected for status Quo, keeping things as they are, see "Proposal by the Corporate Governance and Nomination Committee for Composition of the Board of Directors"
http://www.nokia.com/global/about-nokia/governance/agm/annual-general-meeting/

It's up to shareholders now to vote for a change, or continue with the madness.

btw, The Annual General Meeting (AGM) of Nokia Corporation will be held on Tuesday, May 7, 2013 at 2.00 p.m. at Helsinki Exhibition and Convention Centre.

[vladkr]

Tomi :

You still consider Elop's actions as incompetence, but what if it's not ?

We all know Elop ruined any company he used to rule, or where he used to have a decisional position (Boston Chicken, Macromedia, Juniper , and even at Microsoft, he wasn't brilliant), but despite his "hunt-bag", not only he still gets wealthier and wealthier, but he still gets high responsibilities positions.

How is it possible ? How can a sane (group of) person(s) hire someone who failed anything he attempted ? There certainly is a good reason.

Now, look at Nokia's stock value these last two years ; it's a real roller-coaster, and it's easy to imagine that someone who could predict it's value could make a lot of money.

2.5 months ago, I made a demonstration of how much one could earn on this game, here's a copy :

--->
If one buys Nokia shares just after Elop Osbourns Lumia 710/800/900 at 1.32 Euro each, the (s)he can sell them when Nokia announces a new Pureview Device (Lumia 920), when the share reaches 2.7 Euros but before Nokia informs the 920 will be released only 3 months later, in some countries (1.92 Euros - buy) and then sell again when Nokia announces Q4 results are not as bad as expected.

So, if one invested 132,000 Euros in July (100,000 shares), (s)he doubled the pot in the end of August : 270,000 euros (that's 138KEuros earned in 1.5 month, doing nothing).

If the same person invested again these 270KEuros in the beginning of September - 1.82Euros/share, (s)he would have bought 148,352 shares, which in mid January (not that bad Q4 press release) were valued at 3.5 Euros = a total of 519,230 Euros.

So in less than 6 months, a trader who invested 132,000 Euros earned 387,230 Euros, doing absolutely nothing.

Imagine that people like Elop and friends can invest 10x, 100x these values (through ghost-companies), you can imagine easily how much they could earn in just 6 months with this little game.

--->

All this is even more easily made as Nokia is considered now as junk.

Of course, all this is quite difficult to prove, but don't you think it's a possible pattern, what would explain Elop's behaviours ?

[Pekka Perkeles]

Funny,

Motorola went down and never recovered, although still barely alive, no matter of OS they use.

Nokia went down, but it's still alive, no matter what OS they use.

HTC seems to go down, no matter what OS they use.

Sony, well, we'll see.

Blackberry, well, we'll see.

LG, well, we'll see.

Then about Operating Systems.

Symbian, just dead.

Bada, just dead. Never saw any ecosystem, but I may be wrong.

Maemo, same thing.

So how about Skype, one of the "claimed" reasons for Nokia's downfall. Will it now go away? Well, why would it?

[Pekka Perkeles]

Still some words about Motorola and HTC as well as Blackberry. While these manufacturers were never biggest - thus cannot be biggest losers - I would like to see how their downfall proportionally compares what Nokia "achieved". :-)

Well, I guess HTC was biggest Android manufacturer in U.S. some years ago, so that could be interesting comparison as well. How come it collapsed so badly? Did they also have Skype in their handsets?

[foo]

"We all know Elop ruined any company he used to rule, or where he used to have a decisional position (Boston Chicken, Macromedia, Juniper , and even at Microsoft, he wasn't brilliant), but despite his "hunt-bag", not only he still gets wealthier and wealthier, but he still gets high responsibilities positions."

This information certainly deserves a chapter in the book "Elop Effect"!!!

[khim]

Tomi already did comparison between Nokia and other seven collapses in Mobile:

http://communities-dominate.blogs.com/brands/2013/01/the-seven-biggest-collapses-in-mobile-handset-or-smartphone-history-this-is-part-3-in-the-nokia-disa.html

Elop won with a sizable margin. Palm achieved something close (but still far enough away to not be a contender) but second place belongs to WinMo which makes it so strange to pick it's descendant for a Symbian replacement.

[bjarneh]

Pekka Perkeles> Well, I guess HTC was biggest Android manufacturer in U.S. some years ago, so that could be interesting comparison as well. How come it collapsed so badly?

HTC never released updates for their phones, I still have an HTC Android phone with Android 1.6, and they did not stick with their original and beloved 'Desire' concept. I.e. their attempt to diversify made the Desire-brand worthless. Desire-HD ran out of battery when you sent 1 SMS, the Desire Z had a keyboard slide-out which was barely attached to the device..

HTC reviews in Norway are super-positive lately at least, maybe they can turn the boat around..