Wednesday, February 09, 2011

The sign of a true leader

Earlier this week, Nokia CEO Stephen Elop wrote a memo to his entire organization. This memo has now come to be known as the "Burning Platform" memo (see transcribed below). This is probably the most straight forward a CEO can ever get. I can only imagine the turmoil that must've been going through the company ranks and all it's employees prior to this memo. I'm sure the employees were disillusioned about the leadership and why the "leaders" were not able to see ground reality. As a consumer, I've always wondered what the heck the Nokia guys were smoking up! Stale products. Totally unexciting. If I'd been an employee, I'm sure I'd have been wondering why I'm working on whatever I was working 'cause it's totally irrelevant to the market.

There are four parts to the situation Nokia is in (a) Recognizing the problem (b) Accepting it openly to send out strong signals that the problem is known (c) identifying corrective actions (d) executing on the corrective actions. Even if one of those steps is missed out, it's impossible for a leader to re-gain confidence of his workers, peers and investors. If one of those parts were missed out, it always leaves people wondering "What the heck are these guys are up to? They are clueless!"

Stephen Elop took a strong step in the right direction by his memo. He addressed (a) and (b). Let's see what happens at Mobile World Congress this week. He should talk about (c). Hopefully a partnership with Windows Phone 7?
Stephen Elop, we bow to you. It's the hardest thing for any leader to have said openly (and proactively), especially when there are thousands of employees depending on you. Once you have said what you said, it all seems so simple. But, the simplest things are often the hardest to say. Yours is a text-book move, for every aspiring leader to learn from.

RIM.. I hope you're watching and learning? Your Blackberrys are going sour!

Hello there,

There is a pertinent story about a man who was working on an oil platform in the North Sea. He woke up one night from a loud explosion, which suddenly set his entire oil platform on fire. In mere moments, he was surrounded by flames. Through the smoke and heat, he barely made his way out of the chaos to the platform's edge. When he looked down over the edge, all he could see were the dark, cold, foreboding Atlantic waters.

As the fire approached him, the man had mere seconds to react. He could stand on the platform, and inevitably be consumed by the burning flames. Or, he could plunge 30 meters in to the freezing waters. The man was standing upon a "burning platform," and he needed to make a choice.

He decided to jump. It was unexpected. In ordinary circumstances, the man would never consider plunging into icy waters. But these were not ordinary times - his platform was on fire. The man survived the fall and the waters. After he was rescued, he noted that a "burning platform" caused a radical change in his behaviour.

We too, are standing on a "burning platform," and we must decide how we are going to change our behaviour.

Over the past few months, I've shared with you what I've heard from our shareholders, operators, developers, suppliers and from you. Today, I'm going to share what I've learned and what I have come to believe.

I have learned that we are standing on a burning platform.

And, we have more than one explosion - we have multiple points of scorching heat that are fuelling a blazing fire around us.

For example, there is intense heat coming from our competitors, more rapidly than we ever expected. Apple disrupted the market by redefining the smartphone and attracting developers to a closed, but very powerful ecosystem.

In 2008, Apple's market share in the $300+ price range was 25 percent; by 2010 it escalated to 61 percent. They are enjoying a tremendous growth trajectory with a 78 percent earnings growth year over year in Q4 2010. Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range.

And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100. Google has become a gravitational force, drawing much of the industry's innovation to its core.

Let's not forget about the low-end price range. In 2008, MediaTek supplied complete reference designs for phone chipsets, which enabled manufacturers in the Shenzhen region of China to produce phones at an unbelievable pace. By some accounts, this ecosystem now produces more than one third of the phones sold globally - taking share from us in emerging markets.

While competitors poured flames on our market share, what happened at Nokia? We fell behind, we missed big trends, and we lost time. At that time, we thought we were making the right decisions; but, with the benefit of hindsight, we now find ourselves years behind.

The first iPhone shipped in 2007, and we still don't have a product that is close to their experience. Android came on the scene just over 2 years ago, and this week they took our leadership position in smartphone volumes. Unbelievable.

We have some brilliant sources of innovation inside Nokia, but we are not bringing it to market fast enough. We thought MeeGo would be a platform for winning high-end smartphones. However, at this rate, by the end of 2011, we might have only one MeeGo product in the market.

At the midrange, we have Symbian. It has proven to be non-competitive in leading markets like North America. Additionally, Symbian is proving to be an increasingly difficult environment in which to develop to meet the continuously expanding consumer requirements, leading to slowness in product development and also creating a disadvantage when we seek to take advantage of new hardware platforms. As a result, if we continue like before, we will get further and further behind, while our competitors advance further and further ahead.

At the lower-end price range, Chinese OEMs are cranking out a device much faster than, as one Nokia employee said only partially in jest, "the time that it takes us to polish a PowerPoint presentation." They are fast, they are cheap, and they are challenging us.

And the truly perplexing aspect is that we're not even fighting with the right weapons. We are still too often trying to approach each price range on a device-to-device basis.

The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren't taking our market share with devices; they are taking our market share with an entire ecosystem. This means we're going to have to decide how we either build, catalyse or join an ecosystem.

This is one of the decisions we need to make. In the meantime, we've lost market share, we've lost mind share and we've lost time.

On Tuesday, Standard & Poor's informed that they will put our A long term and A-1 short term ratings on negative credit watch. This is a similar rating action to the one that Moody's took last week. Basically it means that during the next few weeks they will make an analysis of Nokia, and decide on a possible credit rating downgrade. Why are these credit agencies contemplating these changes? Because they are concerned about our competitiveness.

Consumer preference for Nokia declined worldwide. In the UK, our brand preference has slipped to 20 percent, which is 8 percent lower than last year. That means only 1 out of 5 people in the UK prefer Nokia to other brands. It's also down in the other markets, which are traditionally our strongholds: Russia, Germany, Indonesia, UAE, and on and on and on.

How did we get to this point? Why did we fall behind when the world around us evolved?

This is what I have been trying to understand. I believe at least some of it has been due to our attitude inside Nokia. We poured gasoline on our own burning platform. I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haven't been delivering innovation fast enough. We're not collaborating internally.

Nokia, our platform is burning.

We are working on a path forward -- a path to rebuild our market leadership. When we share the new strategy on February 11, it will be a huge effort to transform our company. But, I believe that together, we can face the challenges ahead of us. Together, we can choose to define our future.

The burning platform, upon which the man found himself, caused the man to shift his behaviour, and take a bold and brave step into an uncertain future. He was able to tell his story. Now, we have a great opportunity to do the same.

Stephen.

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4 Comments:

Blogger Karthik said...

Manu,

While I appreciate the candid communication, don't you think a "normal" employee would lose confidence in the company after reading this and start looking at alternatives. I expect mass exodus of employees after this message.

11:01 AM  
Blogger Rhapsoder said...

:-). That's where you're mistaken. If you think the average employee hasn't figured out by now that iPhone and Androids are kicking Nokia's ass.. then you're badly mistaken. All one needs to do is look around and see how many people are buying new Nokia phones. That will say the story.

Infact more people would've left the company already 'cause they've already realized that Nokia's losing market share big time.. and the management has no clue about it!

2:27 PM  
Anonymous Anonymous said...

I don't think your response answers the first comment. The problem isn't that employees don't see this mass migration to the iphone or android platform. This much is obvious. But there is also a lot that they don't know. This has much to do with not how much Nokia sells today but what their plans/prospects are. Who better to provide this insight than the CEO? While it turns out he did have a plan (Microsoft deal), the tone of that mail while refreshingly honest, could have also carried an optimistic tone to it. When employees hear doom and gloom - in my view I think the normal course of action is to panic as opposed to being inspired.

3:56 AM  
Blogger VCN said...

I think the e-mail was just brilliant and inspiring.

People have changed, organizations have changed too. People don't like to be herded like cattle by the top management anymore.

The only reason I would want to work for an organization would be if I believed in the Management, the organization, in the work that it does.

Why I liked the e-mail:

Easiest way to identify a problem?:
Feedback from sales & sales support departments.

What happens when you send out comforting and "Don't worry, we'l be fine" e-mails to your staff?:
They pass off as, run of the mill top management consolations and people lose faith in the managements.

Typical employee response?:
These guys give us the same old fodder, I'm going to get the hell out of here.

Best Management response?:Recognize that people lower down have a mind of their own. The know the problems as well as you do and probably, they have better solutions as well.
Acknowledge your problems to your own people. It shows intent to tackle them. That said, that alone is not enough in itself. Show them a plan. But acknowledgement is critical. In order to make people work for a common goal, you have to institutionalize them. Include them. Communicate to them and be transparent. Empower them, atleast with knowledge and awareness if not authority and power.

Will people leave?: YES

Is that good?: YES and NO. While we'l lose some good hands, the folks that believe in the organization, will still stick around. Everybody is going to get out of their comfort zone and start acting like their its their organization, and they've got to make this happen. For the more cynical and negative folks on board, they'l atleast try to protect their jobs and become more pro-active OR they'l leave.

Result?: Leaner, Meaner, Stronger, more motivated work force that is more likely to accept change. While this alone can't solve a companies problems, its ONE STEP FORWARD

@all: Sorry this response has turned out so lengthy.

4:53 PM  

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