A Nuance on the Burning Platforms Memo - Nokia Board and Nokia Chairman Reprimanded Elop For That Mistake

I came across this interesting article in Finland's largest newspaper, Helsingin Sanomat (published more than a month ago on 29 Sept 2013) about Elop's tenure while Nokia CEO (the article is in Finnish of course). It is mostly a biographical story of the departing Nokia CEO but it includes an interesting passage about the Burning Platforms memo, which may ring particular bells to our readers who were here in 2011 and lived throught its aftemath. Plus it sheds some light on the negotiations with Microsoft. So let me do my translation of that passage into English (I will include the Finnish part also at the end for those who know Finnish and might want to read it to compare)

Early on Elop experienced friction with the Board. He made decisions quickly and at his own initiative and did not always remember to inform the Board, which at this time was still led by past CEO, Jorma Ollila. Elop's adviser Stephen Miles confirms that during Elop's tenure at Nokia, he and Elop discussed a lot about how Elop might be better able to inform the Board, and get it to sign onto the proposals of his management.

Nokia Board members were particularly annoyed by for example the famous memo where he compared Nokia's situation to a man standing on a burning oil platform, who had to decide whether to jump into the freezing sea. The emotional memo was published internally in February 2011, a little before the Windows partnership was revealed to the world. The purpose of Elop's memo was to awaken the organization to the necessity of change. It ended up also condemning the company's Symbian phones, which Nokia had intended to sell for another 150 million units.

The leaking of the memo into the public domain did not make it easier for Nokia sales staff around the world. Many have estimated the memo to have been very expensive to Nokia, as Symbian phone sales became ever more difficult. At the Nokia Board, the memo was seen as a severe error in judgement, and Elop was given stinging feedback from Jorma Ollila. The cooperation with the Board would improve over time. In the Spring 2011 Shareholder Meeting appointed Elop as a Member of the Board.

With hindsight we know that the selection of Windows sealed in the end the sale of Nokia's handset business to Microsoft. After a couple of years, the Lumia phone sales did not meet expectations. and Nokia's worsening economic condition forced the Board to the painful decision.

The exact role of Elop in the sales process is not fully known. He did participate in the negotiations which included members of the Board, active management of Nokia, and outside advisors. Nokia Chairman of the Board, Risto Siilasmaa has emphasized, that he led the negotiations with Microsoft. The negotiations got to speed in February, when Siilasmaa and Ballmer met at the mobile industry fair in Barcelona. One is unlikely to ever know, what kind of bilateral talks Ballmer and Elop engaged in, if any.

So what is the news here. First, that the Board disapproved of the Burning Platfoms memo. No surprise there but nice to see it now reported in Finland's largest newspaper. Also that Jorma Ollila actually reprimanded Elop about it. Good to know. Now - that tidbit of recollection.. someone once wrote a few months after the Memo, that Elop must have been spanked recently, because he had already changed his mind on about a dozen mistakes in his memo.. Remember that? Now we know who did the spanking. It was big JO.

Also, no surprise from what we've seen of Elop's style, but yeah, he clearly was doing his thing without bothering to tell the Board and the Board had to chase him afterwards about what he had been up to... So even more proof that yes, the actual damaging decisions and especially those damaging communications (Memo, timing of Windows announcement, sudden MeeGo death announcement etc) came before Elop had 'remembered' to inform the Board. Why was he doing this? He had his cool bonus that he was working towards.. Nice to 'forget' to inform your boss, eh?

Lastly, we now know Elop was personally involved in the Microsoft sale - WOW what a conflict of interest and even Helsingin Sanomat speculates that Elop may have had private meetings on his regular trips to Redmond (because contrary to his original promise, he did not bring his family from Redmond to Finland.. the family was a convenient excuse to go meet up with his pal Ballmer, especially now that we learned that his marriage was so much a wreck, that the divorce proceedings were started already in 2012...)

For those who might be new to this story or this blog - the Burning Platfoms memo was indeed the costliest memo of all time and this was the first blogsite in the world to call it damaging to Nokia, at the time when we weren't even sure if it was written by Elop. The final count of the cost of the Memo is here. Meanwhile, on Elop - his time at Nokia was a disaster. His predecessor, Olli-Pekka Kallasvuo was fired after four years. Elop didn't last three years. The Nokia disasterous corporate performance under Elop is discussed here. And the most bizarre twist to the story - that Elop was paid 25 million dollars for having destoyed the Nokia handset business - yes this is true and was confirmed by Nokia that it was in his contract - that story is here. The Financial Times has just compared this heist to the worst greed we've seen on Wall Street, and counted that in his bizarre bonus package, Nokia shareholders paid Elop one million Euros for every 1.5 Billion Euros of Nokia value that Elop destroyed during his 3 years. The damage Elop achieved at Nokia is the worst management-caused damage in Fortune 500 sized-company history, worse than New Coke was to Coca Cola, worse than Toyota had with its brakes problems, worse even than the BP oil spill was to BP. If you just want the numbers to do your own analysis. Pure numbers-only Elop history is here.

So yeah, I know we are pretty well done with Elop - not quite, I have to do the final numbers of course now that we have the last Nokia Quarterly Results under Elop, and I have something quite spectacular coming up shortly on this blog (will there be pictures?...) 

 

From Helsingin Sanomat, recreated the above translation, in original Finnis:

Alkuvaiheessa Elopilla oli kitkaa hallituksen kanssa. Hän teki päätöksiä vauhdikkaasti ja omin päin eikä aina muistanut informoida hallitusta, jota vielä tuolloin johti entinen toimitusjohtaja Jorma Ollila. Elopin neuvonantaja Stephen Miles vahvistaa, että Nokia-aikana hän ja Elop keskustelivat erityisen paljon siitä, miten Elop ottaisi paremmin huomioon hallituksen ja saisi sen sitoutumaan toimivan johdon esityksiin.

Nokian hallituksen jäseniä ärsytti esimerkiksi Elopin kirjoittama kuuluisa muistio, jossa hän vertasi Nokian tilannetta palavalla öljylautalla seisovaan mieheen, jonka on tehtävä päätös hyiseen mereen hyppäämisestä. Tunteikkaasti kirjoitettu muistio julkaistiin yhtiön sisällä helmikuussa 2011, hieman ennen kuin Windows-yhteistyö kerrottiin koko maailmalle. Elopin muistion tarkoituksena oli herättää organisaatio muutoksen välttämättömyyteen. Siinä sivussa hän tosin tuli haukkuneeksi yhtiön Symbian-puhelimet, joita Nokia oli ajatellut toimittaa maailmalle vielä 150 miljoonaa kappaletta.

Muistion vuotaminen julkisuuteen ei ainakaan helpottanut Nokian myyjien tilannetta maailmalla. Monet arvioivat sen tulleen Nokialle kalliiksi, sillä Symbian-puhelinten kauppaaminen muuttui entistä vaikeammaksi. Nokian hallituksessa muistiota pidettiin pahana arviointivirheenä, ja Elop sai siitä kitkerää palautetta Jorma Ollilalta. Yhteistyösuhde hallituksen kanssa parani sittemmin. Kevään 2011 yhtiökokous nimitti Elopin hallituksen jäseneksi.

Jälkikäteen tiedetään, että Windowsin valinta käyttöjärjestelmäksi sinetöi lopulta Nokian matkapuhelinten myynnin Microsoftille. Lumia-puhelinten myynti ei parin vuoden jälkeenkään vastannut toiveita, ja Nokian heikkenevä taloustilanne pakotti yhtiön hallituksen kipeään ratkaisuun.

Elopin täsmällinen rooli myyntiprosessissa ei ole täysin selvillä. Hän oli mukana neuvotteluryhmässä, johon kuului hallituksen jäseniä, Nokian toimivaa johtoa ja ulkopuolisia neuvonantajia. Nokian hallituksen puheenjohtaja Risto Siilasmaa on korostanut, että hän johti neuvotteluita Microsoftin kanssa. Neuvottelut pääsivät vauhtiin helmikuussa, kun Siilasmaa ja Ballmer tapasivat Barcelonan matkaviestintämessuilla. Sitä tuskin saadaan koskaan tietää, minkälaisia kahdenkeskisiä keskusteluita Ballmer ja Elop keskenään kävivät, jos kävivät.

 Full article at Helsingin Sanomat website here.

Comments

[E.Casais]

@Baron95

The problem with US car manufacturers had nothing to do with an alleged ballast of 10000 unionized workers or unsellable plants.

The problem was ugly, gas-guzzling, shoddily designed and unreliable cars -- that did not sell.

Counter-example: German manufacturers do have 10000s of highly unionized workers, and manufacturing plants. Despite all the stupid things German management did (e.g. Daimler-Benz), they have not had to fire 10000 people in one day or sell plants. Because their cars sell.

When times are hard, German manufacturers adjust in two ways:
1) Kurzarbeit;
2) cancel contracts with interim workers (yes, it is easy to fire people in Europe -- large corporation rely _a lot_ upon body shopping for interim, non-permanent, easy to fire workers. Apparently you do not know about the reality of the labour market in Europe).

As for Hon Hai firing 10000 people in one day: I already explained in detail that this assembly work interests no large manufacturer. Apple and others concentrate on owning/controlling the _production_ of essential components and subparts, with highly automated lines. Besides, the ability to hire and fire 10000 people in one day goes hand in hand with 70% rejection rates at QA -- there is no free lunch.

[Winter]

@E.Casals
" Besides, the ability to hire and fire 10000 people in one day goes hand in hand with 70% rejection rates at QA -- there is no free lunch."

There is a good reason German companies are good at selling expensive high quality machinery (to China!): They have a very highly trained and loyal workforce.

When you fire half your experienced people this year, you will get inexperienced people back next year.

[zlutor]

@Baron95: "Really? They are effective? You got that by looking at it? Wow!!!" - I'm just smiling, you know. All that sentence meant I do not speak about Nokia's factories without knowing what I'm talking about. Nothing more, nothing less...

I was there and what I saw was really, really impressive. Of course, it means nothing but let it be enough that director of the factory knew what he was talking about. I have a picture about how long it took to satisfy incoming demands including responding to any changes it requires in production. You would be surprised I bet...

"You have no clue what you are talking about. Hon Hai can increase/decrease workforce by tens of thousands virtually at will. Low performing people don't last even a day there. The level of productivity/competition on a Hon Hai factory vs the one in Finland is not even on the same plane."

Are you aware of the fact Nokia has factories all around the world (Mexico, Brazil, Hungary, India, Vietnam, etc)? Flexibility, productivity and costs were not really the issues there. Finland was always special, concentrating on high value products and some research things...

Not to mention what requires you changing your "workforce by tens of thousands virtually at will"? Planning, forecasting, eh? :-)

Of course, Hon Hais have their advantage - mainly concentration of factories producing 'everything' nearby-, no doubt about that but it just simply should not be the ultimate target of all the rest of the world to move all production into China/Asia.

They are not so cheap any more and that highly evaluated 'flexibility' will not last long. People are not animals and they can not be treated like that (no rights, horrible work and housing conditions) so long, I believe. We all have read stories about what happens there...

I know you see everything with eye of an investor - but world is just more complex than that...

"You are just being emotional." - fully admitted. But I do not care... :-)

[zlutor]

@Baron95: "That is a 17% decline. So a 17% decline over 3 years in share price (the only thing that matters) on a company that got completely disrupted is a bad result how?!!???"

Just to be objective - how big portion of current share price was recovered after announcement end of this beautiful journey with Microsoft?

[zlutor]

@Baron95: "10,000 un-needed unionized or European workers are a boat anchor" - just a hint: please, refine your granularity and open your eyes...

Talking about France-Germany-Finland-Sweden or Poland-Hungary-Romania-Bulgaria as one Europe (from this aspect) - even though all of them are part of EU(!) - is not the same thing. Not to mention Brazil-India-Vietnam...

I have to think you are a typical US guy who has really limited knowledge about the rest of the world...

[Winter]

@zlutor
"how big portion of current share price was recovered after announcement end of this beautiful journey with Microsoft?"

Just before September, Nokia traded around 4 euros

(select the YTD option in the graphic)
http://money.cnn.com/quote/quote.html?symb=NOK

[zlutor]

@Winter: I know I own them... :-)

It was rather a poetical question, you know. Not to mention a 47% daily increase here and there...

[Winter]

@zlutor
"It was rather a poetical question, you know."

I am sorry you own them. But I am a sucker for rhetorical questions.

[zlutor]

@Winter: "I am sorry you own them" - why to be so? It was not a bad investment at all... :-)

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[B a r o n 9 5]

@Zutlor "Just to be objective - how big portion of current share price was recovered after announcement end of this beautiful journey with Microsoft?"

That was part of Elop's strategy. If they had gone with Android or Meego and failed, there would be no Microsoft to buy.

The Windows Phone strategy had a plan B backstop.

You can't have it both ways. You can't claim that Elop wanted all alone to sell Nokia D&S to Microsoft and not give him credit for the sale.

[zlutor]

@Baron95: "You can't claim that Elop wanted all alone to sell Nokia D&S to Microsoft and not give him credit for the sale."

I do not give him any credit. He wrecked Nokia by purpose - my opinion - and now it will (most probably) be sold to Microsoft. Shame on him - and on all who let him doing it. On the other hand I admit he did it professionally but that's all.

"If they had gone with Android or Meego and failed" - why on Earth it was destined to be failed? Samsung did it - just like Nokia could have done it, too...

[venus Factor]

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[zlutor]

" If they had gone with Android or Meego and failed" - aaa, that makes me really angry. The mantra 'Nokia could not do that bu Sammy yes thay can"...

Nokia had money, scale, reach, factories, operator relationships, know-how, people, the brand - everything needed to sell high quality, full range, popular products on top of a popular OS/ecosystem (Android). just like Samsung do.

At maximum they would not leverage all benefits of their mapping solution. Then so what (compared to current situation)?! Samsung has no mapping solution either and still, they are quite fine...

If Nokia went Android they would go head-on-head with Samsung...

[B a r o n 9 5]

@Zlutor Really?

Nokia had in house capacity to produce 4" retina-quality capacity displays or had locked in suppliers like Apple had done?

No. It had none.

Nokia had access to Qualcomm converged chipsets that were a necessity to play the GSM/CDMA markets?

No. It was in a dispute with Qualcomm that forced it to use substandard chips and had no credible way to offer CDMA solutions in the US, Japan, Korea and a few other markets.

Did Nokia had ANY presence in the top two smartphone markets - USA and Japan - like Samsung?

No. None. ZERO in Japan. Near zero in the US.

Did Nokia produce PCs like Samsung and Apple?

Did Nokia have the massive flash memory production capacity or had cornered supplies by massive upfront investments like Apple?

Did Nokia have ANY experience with their own (ARM based) application processor designs like Apple and Samsung had?

Nokia had so many handicaps vs Samsung, it was not even on the same level. It had no chance to compete with Samsung. Least of it, by the time Elop came in. Apple and Samsung had massive supplies locked in, 2 generations of designs locked in and multiple operator volume agreements coming on-line. All those were put in place way before Elop took over Nokia.

What happened to Nokia in 2011/2012 was sown in 2009. Not Post Elop.

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[zlutor]

@Baron: yes, really. All I say Nokia had/has factories being capable of producing devices like hell, responding to any incoming demand quickly and effectively. That's is a fact...

Nokia is still capable of producing phones in volume (#1/#2 by volume, smart+dumb phones together) - head-on-head with Samsung. Including phones based on so advanced Qualcomm chips, too. othing prevents them producing in the same volume loading Android to these devices at the end...

Why on earth should they produce high-quality screens, flash memories, PCs and CPUs by themselves? That's why specialization exists, no? Do you really think any component vendor would say no to #1-#2 manufacturer? I do not think so. Samsung was/is one ef the bigges component provider for Nokia. They have respectful relationship lasting decades. They did not want to kill each other but compete fairly.

Little different approach from some fruit sticked (sometimes) patent-trolling company. :-)

Having (almost) no presence in US and Japan has nothing to do with manufacturing capabilities - they are/were special markets with special rules that Nokia did not wanted/were able to take...