Nokia future an abstract from The Economist

The curse of the alien boss
Nokia is reportedly seeking an outsider to revive it. Bad idea
Aug 5th 2010

INSIDE Nokia, Olli-Pekka Kallasvuo, the company’s CEO, is known as OPK. In the wider tech world he is known as a dead man walking. The business press is buzzing with rumours of his imminent demise. Alas for him, these rumours have boosted his company’s share price.

Mr Kallasvuo took over the world’s largest phonemaker (which is also by far the biggest company in his native Finland) in the summer of 2006. Six months later Steve Jobs unveiled the iPhone, and it has been downhill ever since. Nokia’s shares have tumbled by nearly two-thirds. Its profit margins have withered from 15% to 7%. And the firm has all but imploded in America, despite Mr Kallasvuo’s pledge to conquer the region.

Nokia’s most obvious problem is that it is being squeezed out of the smartphone market. Smartphones are not only lucrative in themselves; they are also the gateway to the even juicier market for services and “apps”. Apple’s iPhone and Google’s Android range compete on “cool”. BlackBerry is synonymous with business. But what does Nokia stand for? Mr Kallasvuo argues that the forthcoming N8—an all-singing-and-dancing handset that is due to hit the stores in October after several delays—will “mark the beginning of our renewal”. But previews suggest that the phone is more about catching up than setting the pace. Nokia’s ads tout its “revolutionary” touch-screen technology, built-in camera and GPS. Yet such baubles are already commonplace.

This tardiness is a symptom of two deeper problems. One is technological: Nokia has split its bet on smartphones between two operating systems, Symbian and MeeGo, and has not come up with a hit for either of them. The other is cultural: the centre of gravity of the mobile-phone industry is shifting from Scandinavia (which dominated the field from the late 1980s) to Asia and Silicon Valley. Innovations such as touch-screen navigating are being pioneered in northern California, not northern Europe.

What can Nokia do to turn itself around? If you believe the tech press, the answer is simple: dump OPK and replace him with a troubleshooter, preferably an American. Speculation about possible successors is furious: Andy Rubin, the head of Android at Google, is on many lists. Jorma Ollila, Nokia’s chairman and the CEO in its glory days, is said to have interviewed a couple of big American names. Nokia denies all these rumours.

The speculators may well be right. Mr Kallasvuo is the quintessential product of a company that has grown too cautious and inward-looking—a Nokia lifer who cut his teeth as a company lawyer and visibly wilts in the limelight. Nokia cannot afford to appoint another hidebound insider. But trying to find a saviour from far away is perhaps even riskier.

One of the few things that management theorists agree on is that recruiting bosses from outside is something that you should avoid if you can. Listen to über-guru Jim Collins: in “Good to Great”, he observed that more than 90% of the CEOs of his sample of highly successful companies were recruited internally. Or consult Rakesh Khurana of Harvard Business School: in “Searching for a Corporate Saviour”, he described how companies that invest their hopes in a charismatic outsider are usually disappointed. Or read the painstaking studies that come out of the Academy of Management: they show that even companies that are having a hard time are better off sticking with an insider. The curse of the alien boss is particularly potent in the high-tech sector: think of John Sculley’s disastrous reign at Apple or Carly Fiorina at Hewlett-Packard.

Nokia is especially likely to prove allergic to a foreign CEO. For a start, the firm is headquartered in a country that is dark for half the year. That will surely limit its ability to attract the best and brightest. (The rumour mill suggests that one prominent American has already rejected the job because he or she does not want to live in Finland.) To make matters trickier, Finns deem Nokia a national treasure: it accounts for about a fifth of the value of their stock exchange and a huge share of their exports. A foreign CEO would be under intense scrutiny from day one.

Finnished before he starts?

Nokia is also a global behemoth, with 35% of the world’s handset market. Silicon Valley’s finest may be good at high-end innovation. But none of them knows much about running a company with R&D facilities in 16 countries and sales in more than 160. Nokia has led the industry in creating a vast distribution system in emerging markets: it has some 90,000 sales outlets in China, 1,000 customer-service centres and a huge army of sales people, for example. But the assaults from low-cost local companies are relentless. One of the biggest dangers for Nokia is that it will devote so much energy to taking on Apple, Google and Research In Motion (the maker of the BlackBerry) that it will lose its edge in emerging markets.

All is not lost. There are some examples of successful outsiders—most notably Lou Gerstner at IBM—to be set against the more numerous examples of failures. And Nokia has undergone a remarkable transformation before. It was once an industrial conglomerate best known for making rubber boots.

Nokia sells more handsets than its three smartphone rivals combined and enjoys higher profit margins than some of its traditional competitors, such as Motorola and Sony Ericsson. It has the industry’s best distribution system. Unlike Apple, it sells the equivalent of everything from Porsches to Corollas. Nokia has a better chance of producing a successful smartphone than Apple does of penetrating the Chinese and Indian markets. But in looking for a CEO who can take on the likes of Apple and Android, Nokia faces its biggest test since it decided to bet its future on the mobile telephone in the early 1990s.