Nokia’s real mistake (And Bosch’s Wisdom)

If you live in Cluj, you might have seen the outdoor exhibition for Bosch near the main square. If you are new to Cluj, this exhibition may look like an advertisement. But other historical exhibitions have occupied the same space, and Bosch is not the first large company to move into the area.

A 2009 documentary on globalization showed workers in nearby Jucu, who were optimistic.  Their new boss was Nokia.  The Nokia plant had invested hundreds of millions of Euros but would close down three years later.  They had closed down a German plant to move to Romania.  Why spend so much money on abandoned investments?  To save money?

With the additional tax income, Cluj County could finally repair the roads, perhaps even have real roads rather than dirt roads. Were  Romanian workers worried that the plant would move again, to somewhere cheaper?  One interviewee considered that:

“When I see the example of Germany I wonder how long Nokia will stay here, perhaps just a couple of years. If the same thing happens as in Germany, we will end up unemployed again.”

Right there, we see Nokia’s big mistake.  The company was penny-wise, pound-foolish.  Nokia soon abandoned its investment in Cluj County to create an Asian factory.  Most speculation on why Nokia failed ignores this part of its history.

Nokia was making a profit in Germany.  It had underestimated demand, so it made sense to expand.  But instead of keeping its loyal workers in Germany, it upset them (and perhaps German customers) by moving their jobs abroad.  They had three options, keep the factory in Germany and do not expand, close the factory in Germany and move elsewhere, or BOTH keep the factory AND expand elsewhere.  Had I been CEO, I probably would have kept the old factory and added a new one in Cluj.  This would have allowed the company to keep up with demand, and retain its status as market leader.

But no, Nokia changed for the sake of change and closed the German factory that was making profits.  Then, when they found a cheaper option outside, Nokia again closed the Cluj (or Jucu) plant.  Again, they could have kept the old plants and created more mobiles to supply the growing market.

What about Apple and Google, you ask?  Well, Apple existed long before Nokia.  Android might have been a new-ish competitor on the mobile front, but we see that Huawei and a few others still have their unique platforms and did okay. 

Let us compare Nokia with Motorola, their old rival, or Bosch, who came to replace Nokia as an employer in Cluj.  Or Samsung, who took Nokia’s place as market leader.

Motorola is well known by business analysts.  It is analyzed in, “Built to Last” and “Why the Mighty Fall” by Jim Collins.

In From Good to Great, we see that great businesses have a few things in common with Nokia, but have a few important differences.  One of the important differences is that Nokia began hiring its CEOs from the outside.  Olli-Pekka Kallasvuo had come from the banking sector.  Stephan Elop had bounced from Macromedia and Adobe to Juniper and Microsoft before taking over Nokia.  Neither of them had experience with Nokia nor even the hardware industry.  And they surely did not work with mobile phones before.  Sure, Elop worked in IT, but he worked with software, not hardware.  These were clueless outsiders.

If you look at the video of Olli-Pekka Kallasvuo, we see him claiming that this was the most volatile time ever.  He mentions that Apple and Samsung were new players to mobile phones.  (Of course, so was he). Perhaps, but they were not new to hardware engineering.  These were not banks or software companies competing with Nokia, they were hardware companies with decades of experience making similar products.  They had the know-how that Nokia’s CEOs didn’t.

In contrast, if we look at Motorola during its glory years, it hired from within.  Most of its great CEOs had spent their entire career at Motorola.  If you look at the board of Samsung, we see the same story.  Rather than hiring from outside, Samsung promotes the talent it has within.

Olli-Pekka Kallasvuo claims, “Big successful organizations are very slow to change.”  Apple does not seem to have that problem, nor does Bosch.  Perhaps having insiders as CEOs helps those organizations motivate their employees to accept change.  Or, perhaps they pursue changes that make more sense, like improving hardware rather than bouncing their production around the world.  Nokia’s CEOs were like substitute teachers who spent more time on seating assignments than creating lesson plans.

Olli-Pekka Kallasvuo continues “…for organizations to change… you need either a charismatic leader or a crisis.”  Well, I disagree.  A good leader with a vision can motivate people to change, if he understands the people and the change.  Read any of Jim Collins’ books and you will see that charismatic leaders and crises are not needed for change, in fact, both can be detrimental.

And Nokia did have people wanting to change, who could “see the future.” According to Yves Doz, Nokia was a Matrix organization.  Is that just a complicated way of saying the workers knew what they were doing, and the management didn’t?

But he does Kallasvuo some common sense advice for leaders.  Have “clear, measurable,” targets, that “everyone can understand.” Of course, the problem in an innovative, competitive industry is that these targets will constantly change.

Nokia might have thought it was making a good move by poaching expensive talent from the outside, but it only succeeded in finding people who knew how to make a quick buck.  You don’t hire your generals from mercenaries, and you definitely don’t hire generals from bankers who have never been through basic training.

Hiring from the banking sector is an especially bad idea. Jim Collins shows that great businesses hire insiders as leaders.  Of course, recruiters don’t want you to think that, nor do outsiders who are hungry for a quick buck at your expense.

Bosch’s leadership, however, is built from the inside out.

The CEO of Bosch does not have much of an online presence.  However, his LinkedIn page says it all. “As far back as I can remember, I wanted to be an engineer.”  Hartung didn’t have his very first job at Bosch, but he has worked at the company for a long time.  Hartung is loyal both to his profession and it would seem to his company.  He does not seem to be in it for fame and glory, money, or career progression, but for the job itself.  Therefore, I doubt Hartung would make the same mistakes that Nokia did.  I doubt he would close down the factories at Cluj to look for supposed savings elsewhere.

Do not blame greedy shareholders for Nokia’s failure.  Many communist regimes have destroyed long-standing companies by hiring outsiders.   Of course, they did this for political reasons.  In Romania and Portugal, the revolution often meant a change of management.  When successful companies that had lasted for generations were nationalized, the old management was fired and new management was chosen for political reasons.

In the West, companies are being restructured for other political reasons.  Many companies that profited from the lockdown have outsider CEOs who probably won’t serve them well in the long run.

Nokia failed whereas others succeeded because Nokia sought outside leadership instead of internal talent and chased after pennies instead of customers.  It failed to reward loyal talent or to promote those who knew the business best.  You can read about the right way to do things (through American examples that parallel Nokia and Bosch) in Jim Collin’s classic, “Built to Last.”  But it made an even greater mistake.

To find that mistake, I recommend his other book, “Why the Mighty Fall.”  While both books primarily discuss American examples, they also apply to South Korean, German, Romanian, and others.  The big mistake of Nokia was being too arrogant because of their success.  Ironically, outsider leadership became arrogant of success that those outsiders had no part in achieving.    They fired the people who helped them succeed and took credit for it while investing money in failed projects.

The Symbian operating system was merely a symptom, not the cause, of the problem.  Huawei, despite what seems like sanctions, is still doing okay with its unique operating system.  But Huawei doesn’t go around the world opening and closing factories on a whim to chase pennies, or hiring outsiders who have no idea about mobile telephones.

Huawei still has a team that has been with it since its infancy.  Therefore, we wonder where it will go when this initial team retires.  Will it learn from businesses like Bosch, and continue to promote insiders who know the business and innovate from a standpoint of knowledge, passion, and experience?  Or, will it follow the path of ideological regimes and Nokia, and hire less knowledgeable people?