How did Nokia, an exemplar of strategic agility, lose the smartphone battle? In a fascinating case study Quy Huy of Insead and Timo Vuori, of Aalto University, conclude that collective emotions were a big part of the story. The study involved 76 interviews with Nokia top and middle managers as well as engineers and external experts.
So what happened? In a nutshell, Nokia lost the smartphone battle because of a deep disconnect between middle and top managers. This led to company-wide inertia and left Nokia powerless against the threat of Apple’s game changing iPhone. The main cause of this disconnect was fear. Middle managers were afraid of top management, which had a reputation of impatience with anyone who was not delivering. So, nobody wanted to be the bearer of bad news and risk losing resources and social status.
Nokia’s top managers were also afraid but this fear was externally directed, to the threat posed by Apple’s iPhone. They had serious doubts as to Nokia’s ability to come up with a timely answer. And they were also afraid to show any signs of weakness to external investors, suppliers, customers and employees. Led by these fears Nokia’s top managers tended to put heavy pressure on middle managers, not accepting any messages that implied ‘bad news’. Beyond verbal pressure, top managers also applied pressure for faster performance through personnel selection, by favouring “new blood with a can-do attitude”. All this led middle managers to overpromise and underdeliver.
Culture of silence
Fears on all levels thus shaped an emotional climate in which unpleasant information simply ceased to be shared in meetings. Top management didn’t share how fundamental iPhone’s threat to Nokia really was. Fearing the reactions of top managers, middle managers remained silent or provided optimistic, filtered information. In the words of one middle manager “the information did not flow upwards. Top management was directly lied to.” A culture of silence where no one dared to speak-up emerged. One middle manager suggested to a colleague that he challenged a top manager’s decision, but his colleague said “that he didn’t have the courage; he had a family and young children”.
Optimistic reporting led Nokia’s top managers to believe that company was progressing well in matching Apple’s iPhone when in fact it was not. The quality of Nokia’s high-end phones thus gradually declined as did its market share. The market value of Nokia declined by about 90% in just six years. In 2013 Nokia was acquired by Microsoft. Since then the organization has largely been dismantled.
Which lessons can we draw from Nokia’s downfall? Huy and Vuori suggest that more careful management of their own emotional processes would have allowed top managers to get more accurate information of Nokia’s software capabilities and development speed. By honestly sharing their fears with key middle managers, and working with them to counter Apple’s iPhone threat, Nokia’s top managers could have fostered more healthy levels of external fear without giving rise to the kind of internal fears that ultimately blocked the flow of communication. They also suggest that top managers need to be very aware of how their own emotions, especially fears, play out in the way they set demands and how they perceive messages from subordinates.
Huy and Vuori conclude that Nokia’s paralysis could have been avoided if top management had fostered a culture where “telling bad news is a good thing” rather than a sign of weakness. Encouraging authentic, safe dialogue and creating feedback mechanisms would have led to a far better understanding of the internal challenges and would have allowed for a more focused collective effort to counter these challenges.
According to Huy and Vuori modest levels of fear can be healthy for motivation but leaders should be extremely aware of harmful side-effects and stay carefully attuned to collective emotions in the organization. They add that fear can only be a useful motivator if management provides employees with the means to address these fears.
Could a healthier communication climate have saved Nokia? Maybe not, but it would at least have enabled them to harness all the talent and technological savvyness the Nokia-brand was so renowned for. As one manager said “Just telling the truth could have saved Nokia’s fortunes.”
To read Huy and Vuori’s entire research paper, please click here.