The Rise and Fall of Nokia: A cautionary tale for innovation programmes

How did a company with a thriving innovation culture that invented one of the most important items of the past 50 years deflate into a shadow of if its former self?

The BBC Four documentary, The Rise and Fall of Nokia, tells this story from the inside. Founded in 1865 as a pulp mill, Nokia moved into mobile phones in the 1970s and became the market leader. By 2013 Nokia had sold the mobile phone business. So what happened?

For anyone that came of age at the turn of the millennium, it’s hard not watch without getting a pang of nostalgia for the days when a mobile phones’ primary uses were discovering the freedom of texting your friends, ordering ringtones from adverts from the back J17 magazine, and playing Snake II for hours on end. No notifications, no group chat, no social media. You were often short of credit, but you never ran out of battery.

Nokia staff interviewed in the documentary shared a wistful longing for this early era of innovation, describing how they were welcomed, included and given opportunities.

The invention of the mobile phone began in 1972 when an employee improvised a way to solve a problem. A sales manager had packed up a car phone because people had wanted a phone in other places, such as their holiday cottage, boat or hotel room.

The focus of early Nokia was to serve the needs of the customer, well before Jeff Bezos was attributing the growth of Amazon to their ‘customer obsession.’ Nokia’s focus was on user needs and solving problems and the workforce was made up of designers and engineers.

Ideas were freely shared and early developments were patent free. The shared goal was providing social value and modernising public services. Staff were encouraged to innovate. The famous slogan ‘Connecting People’ was not devised by a hot shot ad agency, but one of the engineers who helped develop the handset.

In the 1980s, mobile phones were marketed to businessmen. The advert for the Mobira Talkman depicts cheerful men in suits using the handsets to make business deals, like candidates on the Apprentice, but with bigger hair. Nokia phones would help them succeed. In what could be the first instance of influencer marketing, Mikhail Gorbachev used the handset to make his historic treaty call in 1987.

It was at the turn of the millennium as the phones became cheaper and attractive that Nokia’s growth exploded and they became the global market leader. In the year 2000, the Nokia 3310 was everywhere. No longer just for men in suits, teenagers discovered the freedom of text messaging and expressing their identity with customised covers and ringtones. At its peak, Nokia was one of the biggest companies in the world and had a larger budget than Finland, the country it was from.

As Nokia became more successful, it became larger and the culture changed. The focus moved away from encouraging staff to solve customer problems to maintaining Nokia’s status as the number one global brand. Layers of management formed like sedimentary rock as the company went global. The success attracted people that were drawn to Nokia’s status, rather than their values. When the Head of Legal expressed concern at how the sudden success could impact the leadership and culture, another executive responded by shouting, shutting her down.

A plucky engineer showed executives a proto-smartphone he was working on, but executives responded by laughing and dismissed it as a gimmick. A decision made by HIPPOS in their natural habit, a boardroom in a glass-walled office, with no users to be found to validate their views.

Then came along Steve Jobs, in his stonewashed jeans and black polo neck, with the iPhone and changed everything.

The executives panicked. The focus was not on user needs but on chasing Apple’s tail. An email was sent to the design and engineering teams with the command, ‘By next year, we need an iPhone killer.’ The Head of Design was ordered to abandon a user research workshop on map technology and instead study the iPhone operating system.

There was no iPhone killer. Instead, Nokia became a shell of its former glory. At its peak the company was worth $300bn, but was sold off to Microsoft in 2016 for just £350m.

As Nokia had been the market leader for 14 years, staff had been rewarded with good pay and the success brought pride to Finland. As the tide came in, the company was exposed. It became clear that the pioneering, innovative culture had languished like a sourdough starter that had been abandoned at the back of the fridge. Still spoken about, but never attended to. Fear engulfed the company and staff were afraid to speak out. The psychological safety that had been key to their success had faded away.

In her TED talk, Margaret Hefferman talks about the impact on creative innovation in teams when a pecking order emerges. Research at MIT found that social cohesion was the key factor in the most productive teams. What happens between each other is what counts. Innovative teams are motivated by the joy of invention and working alongside brilliant and creative people is its own reward. In the early days of Nokia, there had been a high degree of social cohesion, but as they grew, a pecking order emerged which held all the power. The company was more risk adverse as their success became dependent on maintaining their position at the top.

Nostalgia is a potent force, and it is tempting to look back at a golden age and attempt to recreate past success. What we can learn from Nokia’s rise and fall is the importance of cultivating an environment of psychological safety so innovation can thrive. Instead of resting on our laurels once success has been achieving, it is important to support teams in solving the next customer problem. As companies grow, there will need to more structure, clear direction from leaders and governance, but if innovation is not encouraged when times are good, the greatest risk is doing nothing at all.

It’s not all bad news. Nokia still exists, but has moved into licensing its brand and digital health. A sequel could also be in the works. Young people are beginning to abandon smart phones, perhaps down to notification fatigue or a greater suspicion of social media surveillance. At the same time, the cyclical nature of trends means the Y2K revival is in full swing. The Nokia 3310 is now a must-have handset among the generation that have never known a world without mobile phones. Apple, watch out.