What Went Wrong?
The subject of how things went wrong at Nokia inspires a wide range of reactions from mobile industry analysts and observers. There is some sort of agreement among many commentators that poor strategy and inability to adapt to change were at the root of the company’s misfortune. Besides, many observers have noted that complacency was at the root of Nokia’s problems. As a market leader for over a decade, Nokia seemed to rest on its laurels and play safe by relying on the approach that helped it achieve its success. Meanwhile, the consumer transition from traditional (feature) mobile phones to smartphones was dramatic and caught Nokia off-guard. Nokia’s failure to act swiftly when the trend towards smartphones was beginning to emerge is an important starting point in the discussion of the company’s subsequent decline.
As Al Ries and Jack Trout point out in their 1981 book Positioning: The Battle for Your Mind, change is inevitable, and leaders must embrace change rather than resist it. In the case of mobile telephony and the technology industry in general, when a new technology opens up the possibility of a new market that may threaten the existing one, it is often necessary for a forward-looking company to look out for opportunities and prepare to embrace the impending change in direction. Based on a number of indications, Nokia’s decline started with its failure to recognize that smartphones were the future of mobile technology — choosing instead to focus resources on feature phones. According to market research firm Strategy Analytics, only 14 percent of Nokia’s 2012 mobile phone shipments were smartphones, in contrast to 34 percent for Samsung.
Looking at both companies’ product mix over the past few years, Samsung’s growth was almost entirely in the smartphone segment, whereas Nokia went the opposite direction. As a percentage of total, Nokia shrunk its smartphone business from a peak of 24 percent in the third quarter of 2010 to around 14 percent by the first quarter of 2013. In the same period, Samsung’s smartphone share of portfolio increased dramatically from 10 percent to nearly 50 percent. These contrasting trends show how Nokia’s failure to evolve and embrace change contributed to its rapid decline. The company’s lukewarm response to the emergent signs of global interest in smartphones meant that it failed to position itself and take full advantage of its market leadership as the smartphone market began to show signs of an impending boom. Even then, Nokia has failed to retain its dominance of the less lucrative feature, low-cost mobile phone market segment, as the company faces intense competition from mobile phone producers in emerging markets who can make fast, cheap handsets at the lower end of the mobile phone market.
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