How deeply should you clutch on your organizational culture? — Sauna rooms, resistance, and Nokia’s downfall!
By: Kanhaiya Maheshwary
Tags: Innovation, Organization, Organizational Culture, Organizational Change, Business Strategy

You are probably reading this piece on your smartphone or another device, so it would be a little ironical to ask this but let’s go back in time when mobile phones weren’t as sophisticated, nor as commonly owned. A group of five American youngsters called the Backstreet Boys had released their first album, Titanic had just hit the movie screens, and Bill Clinton was elected for a 2nd Presidential term. Around the same time, in 1997, the world started taking notice of mobile phones, and Nokia entered this market to become a global leader almost immediately. What happened over the next 10 years is a success story unlike any other.

Between 1997 to 2007, Nokia’s market share surged from 25% to 50%, and the company was at least selling twice as many as mobiles as compared to its nearest competitor. It was a monopoly that only the likes of Coca-Cola, Airbus, and Microsoft may remember enjoying once. But Nokia’s decline was just as swift as its rise. The company went from being the market leader to a point of complete extinction in the next 8 years. By 2011, it lost half its market share, and by 2015, it was staring at a figure of just 1%. This catastrophic failure is now the stuff of B-School folklore and management case studies. And while Kodak, Xerox, and Yahoo served a similar fate because they failed to upgrade technologically, the roots of Nokia’s failure are nestled in its organizational identity and culture.

Nokia’s Market Shares, from a position of monopoly to obsolescence

When a company experiences a failure of such proportions, analysts are quick to point fingers in various directions. And truly, it is difficult to pin-point one single cause of failure. But several researches, memoirs of the company’s top executives, and in-depth interviews with the candidates have all provided solid evidence that Nokia’s culture was at the helm of the company’s demise.

Let’s go inside a classroom at Henley Business School, UK, in September 2011. A Professor had posed a seemingly unsolvable question to a room full of bright candidates, and left all of them dumbfounded. But a student, who was an engineer with Nokia, walked up to the board and solved it, much to the surprise of everyone else. If Nokia had such bright people, how did the company fail? The engineer narrated an incident wherein he had prepared a pitch-deck about ‘touch screen technology’ and presented it to the CTO. Nokia had touch-screen development capability much before Apple did. But Nokia’s conservative, slow approach prevented the top management from approving this project. They believed that the company was good as it was.

This was one of the several anecdotes that point towards the fact that the company was built on the fundamentals of conservatism, maintaining silence, and resisting change. The first two are also tenets of the Finnish culture, and Nokia was the crown jewel of Finland. Also, Finnish culture is in stark contrast to American or even the Indian culture — people are comfortable with silence during meetings. The same happened at Nokia. Despite the realization that the mobile phone market was changing, the employees preferred maintaining silence.

Deeper examination reveals that Finland makes it impossible for its people to fail. It offers free college tuition, fixed working hours, health insurance etc., and makes people complacent. And if you are even slightly familiar with Finland, you will also know that Saunas are a big part of the their culture. Nokia went to the extent of installing luxury saunas in offices across even Afghanistan and Zimbabwe. The top management essentially started taking decisions whilst having meetings inside those sauna rooms, away from all the other employees.

I would like to bring in Kurt Lewin’s 3-step change model here. It has 3 phases — Unfreeze (acknowledge the need to change), Change (implement the desired changes), Refreeze (absorb and practice the desired changes).

In the context of Nokia, the organization wasn’t even at ‘unfreeze’. Their unreadiness to acknowledge and embrace change caused the management to decide that the world was still not prepared for smartphones. ‘Organizational Identity, Culture, and Image’ by Davide Ravasi explores the phenomena where organizational culture and long held beliefs may prevent people within the organization to embrace change. Anna F. Carmon also mentions this in ‘Mission Statements’ that ‘mission statements may make it challenging for organizations to change as conditions and markets dictate’.

The larger point, therefore, is that organizational culture can have far greater implications on a company’s course of actions than people realize. Many are quick to say that Nokia failed because they didn’t have Smartphones or touch-screen. But the deeper question that arises is why didn’t the company upgrade? Weren’t they capable? They had a fleet of some of the smartest engineers and technicians. But it was their organizational culture that resisted change, basked in complacency, and prevented the company from catapulting itself further in the race for the smartphone market. Whenever someone’s setting up a new company, the founders should see to it that they don’t end up creating a culture that restricts growth and hinders creativity.

By Kanhaiya Maheshwary

— — — — — — — — — — — — — — — — — — — — — — — — — — —

References:

1. https://www.statista.com/statistics/263438/market-share-held-by-nokia-smartphones-since-2007/

2. https://knowledge.insead.edu/strategy/the-strategic-decisions-that-caused-nokias-failure-7766

3. https://hbr.org/2011/02/the-real-cause-of-nokias-crisi.html

4. https://www.scmp.com/business/companies/article/2131615/why-mighty-fail-lessons-nokia

5. https://www.zdnet.com/article/nokias-problem-is-there-time-to-change-culture-amid-a-burning-platform/

6. https://ecywjourn.files.wordpress.com/2015/09/organisation-communication-report.pdf

7. https://www.businessinsider.com/nokia-as-he-who-must-not-be-named-and-the-helsinki-spring-2011-10

8. https://knowledge.insead.edu/strategy/how-nokia-bounced-back-with-the-help-of-the-board-10211

9. https://www.theguardian.com/tv-and-radio/2018/jul/10/the-rise-and-fall-of-nokia-review-fascinating-insight-into-the-finnish-and-now-finished-tech-firm

10. https://www.researchgate.net/publication/326691715_Case_Study_4_The_Collapse_of_Nokia's_Mobile_Phone_Business_Wisdom_and_Stupidity_in_Strategic_Decision-making