16

A RECIPE FOR REINVENTION

SEPTEMBER 2013–DECEMBER 2013

We knew it was important that the new Nokia should do something meaningful: be a good business and have a positive impact on people’s lives.

NOW WHAT? THAT was the question on everyone’s mind in the days and weeks after September 3, 2013, as the news of our deal with Microsoft reverberated across the company, the country, and the global financial markets.

Even with Nokia’s 150 years of history spanning many industries from paper and pulp to cables, car tires, rubber boots, TVs, and PCs, it was nearly impossible to imagine Nokia as anything other than a mobile phone company. Since the early 1990s, the entire enterprise had been centered on mobile phones and related devices and services: doing R&D for phones, developing their operating systems and software, manufacturing them, selling them, and servicing them. Everything else—the HERE mapping business, NSN’s wireless infrastructure business and Advanced Technologies, the valuable portfolio of crucial patents on which the mobile industry relied and paid royalties—was basically an outgrowth of our mobile phone identity.

Now we were excising Nokia’s heart and seeking to transplant it into another host. We were dismantling the systems and moving almost all of the people who operated them to a new owner. Microsoft would acquire some 25,000 Nokia employees in 50 countries, including 4,700 people in Finland. Out of the 60,000 employees in 2008, some 32,000 people were still employed by Nokia just prior to the deal. After closing the deal, we would have about 7,000 employees left, almost all of whom worked for HERE (and the folks in NSN, of course).¹

Over the course of our 150-year history, we had come close to bankruptcy more than once. Did we still have what it took to be successful in yet another radical transformation? And if so, what would we become? What would be the new Nokia?

A New Chess Game

While I had already had numerous discussions with Timo Ihamuotila, Henry Tirri, Juha Akras, and many others during the Microsoft negotiations, as a team we had not had nearly enough time to map out our alternatives for a new Nokia.

The board and our leadership team began to seriously frame our future in mid-August, devoting an entire meeting to the strategy and structure of a new Nokia. It was as if, in mid-game, we were switching to a new game of chess with a different set of pieces on different squares while losing many key pieces altogether. And all of this was happening while still continuing to play the old game as well.

Up to that point, all strategic planning had been dominated by the demands of the mobile handset business. There had been no point in hypothesizing alternative approaches with the other businesses that might hurt handsets. We just wouldn’t do it, so why waste time thinking about it? But now the handset business would, we hoped, be moving over to Microsoft, and the strictures we had lived under would disappear with it.

We needed to make sure our thinking was no longer constrained by limits that were no longer relevant.

By September, we created a New Nokia Steering Group for strategy work. It was composed of myself, Timo Ihamuotila (our interim president and CFO), Kai Öistämö, Tuukka Seppä (a partner from Boston Consulting Group), and the heads of each of our businesses—Rajeev Suri of NSN, Michael Halbherr of HERE, and Henri Tirri (Nokia’s chief technology officer). We met monthly. We also had a smaller working group, composed of myself, Kai, Timo, and Tuukka, which met on a weekly basis.

We began by analyzing the three businesses we had left from the perspective of planning strategy for each, independent of what the other businesses would need.

HERE’s strength was that it was the industry’s only high-quality independent source for digital maps. One attractive opportunity was to service the large ecosystems that didn’t have a mapping asset: Amazon, Facebook, Microsoft, and Apple, as well as the new players expanding out of China.

HERE also had an opportunity in the business-to-business market, where it held a 90 percent share for in-dash navigation systems. We licensed automotive companies with our turn-by-turn navigation tools and other services, such as finding the cheapest gas station within the range allowed by the remaining fuel in the tank or finding the best parking space at the desired destination. HERE was also offered directly to consumers through free online services, which basically meant an advertising-based business model.

Then there was Nokia’s Chief Technology Office, renamed Advanced Technologies (and later again renamed Nokia Technologies). Its only revenues derived from licensing our patent portfolio, but as home to our research efforts, it also developed key future technologies for the devices business and created new patent applications.

People may misunderstand the definition of a patent. A patent basically gives the patent holder the right to prevent other people or companies from doing what is covered by your patent. And nothing more. When we license a company to use our technology, they’re paying to secure our promise not to sue them.

Advanced Technologies had a portfolio of about 30,000 patents, or 10,000 patent families with multiple patents covering different aspects of a particular invention. We had invented many of the core technologies in mobile phone user interfaces—for example, we had invented the app store. Patent licensing had brought in about €500 million in 2012,² and a large part of it was profit—there’s very little cost involved in patent licensing. On the other hand, Nokia had spent tens of billions in R&D over the previous decades. That investment had created the inventions behind the patent applications.

Back when we had the mobile handset business, the value of our patents was often offset by our use of other mobile phone companies’ patented technologies, for which we needed to compensate those companies. But now that the offset from our handsets was no longer part of the equation, the full value of our patents would become visible. How should we structure Nokia to maximize its value?

Licensing accounted for one-third of our profits and had a strong potential to grow. Advanced Technologies’ research produced about 60 percent of our new patents. The rest was done by regular R&D, and as that was moving to Microsoft, new patent creation would be a challenge.

We had insisted that we keep most of our Nokia Labs personnel, but what would they work on? (Just to clarify: Nokia Labs was engaged in long-term, high-risk fundamental research, like Bell Labs; regular R&D work was more short term and customer driven.)

Engineers typically don’t get excited about working on inventions just to file a piece of paper. They get more excited about creating something that will be used to improve people’s lives. For that to happen, the company needs to come up with products incorporating an innovation that people can use. Our mobile phones had been a platform for all these great innovations. Without a consumer product business, what would motivate our researchers?

Then there was NSN. Even though NSN’s profitability had mostly been in the red and we’d have been thrilled if it ever notched north of 10 percent, NSN post-sale would account for about 80 percent of Nokia’s head count, 80 percent of our operating expenses, and 80 percent of revenues. How could we maximize the opportunity to create value through NSN, especially now that it wasn’t encumbered by such external constraints as lack of funding and its owners fighting with each other?

NSN was kind of a one-trick pony, comprising only mobile broadband technology and associated services. A complete operator network is composed of a lot of additional technologies, such as routers or optical equipment. There was a clear opportunity in trying to buy Alcatel-Lucent, whose economies of scope—the company covered all the technologies of a complex network—were attractive.

When we first considered a merger with Alcatel-Lucent, the idea was that in the end Nokia would not own the combined business but would rather be able to exit the business in a positive way. Now that we were considering keeping NSN, the Alcatel-Lucent deal still made sense: Just as we had bought NSN for a discount and created value, maybe we could do the same with ALu.

But I have to admit, we were battle weary. The idea of doing something major like trying to acquire Alcatel-Lucent on the heels of the NSN buyout from Siemens and before the Microsoft deal had even closed was exhausting to even contemplate, not even considering how risky it would be to juggle so many balls at the same time.

Nokia’s remaining three businesses were very different, their only common denominator being that they were part of Nokia. NSN was a network infrastructure player in an industry defined by intense price competition. Advanced Technologies was a research, incubation and licensing platform. HERE was a cloud-based business trying to answer the question “Where?” the same way Google answered “What?” and Facebook answered “Who?”

Each business demanded a leader with a different type of management experience. Each had a different business model with different customers. Each had a different go-to-market model. None really seemed to have much to do with the others. Was it worth holding on to them or preparing them to be spun off on their own?

We were leaning toward stabilizing the situation first. Our patent portfolio was still quite young, so while the old patents would eventually expire, we had plenty of runway. As a fallback, we believed we could make HERE and NSN IPO-ready in one to two years.

Having sketched out the pieces on the chessboard, there was no need to make a move quite yet. I was appointed interim CEO on September 2. The next day, we announced the sale of the handset business, and for the next few weeks, we had our hands full finalizing and announcing the Microsoft deal.

Five Objectives as the CEO

The board returned to shaping our future in mid-September. With the strategy teams, we dug in to identify the key issues and hone our solutions through iteration after iteration.

As I saw it, my goal as chairman and interim CEO was to achieve five distinct objectives:

1.   Create a new vision for Nokia.

2.   Build a strategy to implement the vision.

3.   Choose the right organizational structure to drive the execution of the strategy.

4.   Pick the best CEO and management team to lead the organization.

5.   Decide what kind of balance sheet we would need.

Although these tasks would seem to be sequential, there is a lot you can prepare in parallel. I believe in making decisions in a certain order but through an iterative process; since all the parts interlock and affect each other, you need to touch each of them several times so that you can see how each evolves during each phase and what the ramifications are for the whole. Instead of marching forward in a straight line, we circled our target in a series of tightening spirals, revisiting each objective, asking questions, examining the pros and cons, and further developing our thoughts on each pass as we gradually homed in on our ultimate goal.

We had a number of months in which to plan. For paranoid optimism to be effective, it was best to give everyone as much time as possible to think through all the different scenarios, face their fears, and articulate their hopes. People had multiple opportunities to state their opinions, voice their doubts, and revise their thoughts. Nobody felt forced to accept something he or she didn’t want.

We structured the process according to three phases, each with a series of key questions to answer within a certain period of time. We wanted to imagine different scenarios and explore all possible options. We started diving into those questions with the board and the management team at the board meeting in mid-September.

Phase I focused on the roles of NSN and HERE and whether we wanted to keep our options open about divesting them. The key questions were:

•   Do we have a valid reason to continue keeping NSN “for sale”?

•   Do we have a valid reason not to structure the new Nokia around NSN?

•   Are there strong synergies between HERE and the other businesses; i.e., do we have a long-term reason to integrate HERE?

•   What are the principles for setting up the “Level 1” structure, i.e., the structure of how the functions and businesses report to the CEO?

As open-ended discussions should, the last question raised another series of issues about the structure of the new Nokia. Two models were considered:

•   Nokia could be a holding company incorporating three separate and independent operating companies, each with its own CEO and its own corporate functions, such as finance, HR, legal affairs, etc. In that model, a group CEO or the board would oversee the companies. However, the value of a holding company is not the sum of its parts; it’s actually less, because the market assumes that the company cannot be led in an optimal way when it’s involved in a number of different and unaligned businesses. Keeping NSN as a separate business within a Nokia holding company would discount both its value and Nokia’s share price. That seemed counterproductive after all of NSN’s sweat and tears to increase its value.

•   Nokia could become a portfolio company. The three operating companies would share some corporate functions under the leadership of one CEO. If there were synergies between the businesses, there would be little discount in the overall value. However, if there were no synergies, then the value would drop.

By the end of October, we came to the conclusion that we wouldn’t sell NSN. Because NSN was the biggest business we had, and Nokia and networks went back a long way, it felt natural for it to become the core of the new Nokia. We were also discussing a potential Alcatel-Lucent deal quite actively.

That led to a showdown at the October 31 board meeting.

Searching for a Happy Medium

The board was divided into two camps. One faction felt that being an infrastructure player was not the identity Nokia was known for: It wasn’t disruptive, it wasn’t exciting, and it wasn’t a growth industry. This group felt that we should bet on Advanced Technologies and HERE, and retain the possibility of selling NSN if we got a good offer. The other camp believed that infrastructure was a slow-growth business, but it could provide a stable platform on top of which we could build some very exciting new opportunities.

We had people who said, “We have to become a holding company so that we have sufficient independence for HERE and Advanced Technologies.” NSN was—and is—a very disciplined operation; it had to be, because it’s quite big and it had been squeezed like a lemon to extract every possible ounce of productivity. You can imagine how the members of a loosey-goosey research community would react if they were forced to live under similar strict rules. It just wouldn’t fly.

That faction was opposed by people who said, “Over my dead body”—and that’s an exact quote. They felt that a holding company discount imposed on our share price would destroy our shareholders’ money. We would become slow, inefficient, and hierarchical, with the group leadership confined to an ivory tower. Those people wanted a fully integrated organization with no extra layers; there would be one CEO, and all the functions and business leaders would report to him or her.

The management team was divided as well.

We started the board meeting without much common ground between these two camps. I had been very careful to stay outside this fight so that I wouldn’t influence people to move in a particular direction too early. I strongly believed that before we had to make a decision, it was important to give people the maximum latitude to think with an open mind. And I honestly didn’t have a strong opinion: I could see the benefits of both points of view.

I had structured the meeting so that both camps could present their opinions. I invited Rajeev, Michael, and Henri to come in, one at a time, and explain how they would like the whole company to be structured. Not surprisingly, Rajeev suggested an NSN-centric model, Michael advocated for maximum independence for HERE and Henry recommended investing in an independent Advanced Technologies.

After they had all said their piece, I asked them to leave so that the board could continue on its own. We debated and discussed and brainstormed for a couple hours. A long day was dragging on toward evening, and everyone was tired and hungry and cranky.

That’s when it struck me that there was a way to do all of the above.

With the debate still roiling behind me, I went to the flipchart at the front of the room, turned it away from the board members, and started drawing. I sketched a very simple picture. HERE was on the left and Advanced Technologies on the right, each in its own box. NSN was in the middle, also in its own box. Above NSN, I put a box labeled “CEO and support functions,” with a big oval encircling the CEO and NSN boxes, leaving HERE and AT outside.

Turning the easel to face the room, I asked for everyone’s attention. “We could actually achieve a good balance of a holding company and an integrated organization,” I said.

I first addressed the party that wanted efficiency without the overhead of multiple CEOs and overlapping functions: “We can run the business in an integrated fashion with one CEO and one set of corporate support functions. We’ll take them from NSN, because NSN is the biggest business and has the most disciplined setup. NSN will not have independent corporate functions; its support functions will support the entire group. NSN will be run directly by the Nokia group CEO; basically the centralized part of Nokia will comprise NSN, and whoever is the NSN CEO will also be the group CEO. HERE and AT will be two relatively independent businesses, each of which will have a president who will report to the Nokia group CEO, so there’s very little overlap.”

Then I turned to the other camp to show how, under this model, both HERE and AT could preserve sufficient independence to have the operating cultures they needed to be successful.

There would be little or no holding company discounts and no leaders walled up in ivory towers. What there would be were the efficiencies of a single CEO and shared corporate support functions as well as a necessary level of independence.

This integrated organizational model met the critical criteria for both parties, so it was easy for each camp to support. In the end, this was what we agreed on. And with that, the hot air simply whooshed out of the room. We all took a deep breath and regained our equilibrium.

In retrospect, the solution seemed so obvious. But it had been eclipsed in the heat of the debate and the deluge of analytical details.

Our decision about the structure of the new Nokia—unanimously agreed upon—determined our approach to Phase II and Phase III. While Phase I was more about NSN and HERE, Phase II, which was the focus of discussion in mid-November, examined the key value drivers and long-term trends over the next few years for Advanced Technologies: What was its business scope and operating logic? How would we attract and retain talent and manage R&D? We had a number of new research projects that we had not mentioned to Microsoft. Which should we nurture, and what would we do with them?

Phase III discussions took place in mid-December. We sharpened our focus to come up with detailed recommendations about the direction of the portfolio, the right governance model, and the high-level implementation steps and timing for the transformation into the new Nokia.

By that time, we had a clear vision of our future.

The Programmable World

From the beginning of this process, we knew it was important that the new Nokia should do something meaningful: be a good business and have a positive impact on people’s lives. On a more mundane level, we needed an overarching common story line that could connect and carry the individual strategies of the three disparate businesses and create faith in our future.

Henry Tirri, our chief technology officer, first proposed the concept of the “Programmable World” as Nokia’s vision of the future world in September. The term had been percolating for a few months: A feature with that title had run in Wired magazine in May,³ followed by an article in Scientific American⁴ and one in Fortune, which declared, “Businesses must embrace the programmable world. Or die.”⁵

The idea behind the Programmable World is the ability to continuously analyze the real world through billions of miniature sensors, making sense of what is happening based on the data collected and weaving a web that transforms our everyday world into a designable environment. Some people call this phenomenon the Internet of Things (IoT) or the Internet of Everything. It’s at the heart of the burgeoning universe of artificial intelligence and machine learning.

As a concept, the Programmable World was intriguing. You think of the world as something you can program; you can create rules that the world will follow. It’s a slightly scary thought, but on a purely pragmatic level, it means that as more things will be automated—from driverless cars to asthma inhalers whose sensors continuously analyze your physical signs and combine those with past data to map when asthma attacks are most likely to occur—our lives can be safer and more productive.

We became more and more convinced that the Programmable World was the vision of the future that we expected to happen and that it was a future in which Nokia could play a meaningful role.

In retrospect, it’s beautiful how nicely it tied everything together: NSN would create the digital nervous system that connects everything; HERE would provide the crucial context denoting “where” things were happening that the digital nervous system needed to know about; and AT had a huge patent portfolio covering lots of the technologies that would make the Programmable World work, plus AT was doing research to create further inventions that would be necessary as the Programmable World developed.

We didn’t want to lock ourselves into anything too early. But the Programmable World was often part of our discussions as our thoughts about the new Nokia evolved, and it was the subject of many of my presentations, both internal and external. Our people began to get the point that this was important to our future.

Meanwhile, the concept of the Programmable World provided high-level guidance about which direction we should follow and the strategy that would enable us to get there.

Be Brave Enough to Dream Big

When we started doing the work, I asked the leaders of the different business groups to come up with an internal strategy to maximize value creation for each business: What kind of a world did they envision in the next 10 years? What would they like to do in that world, and how would they like to shape it? What kind of position would they like to achieve in that world?

I expected differences between the businesses. What I didn’t expect was lack of aspiration. To my surprise, the vision and strategies laid out by both NSN and HERE were not ambitious at all, although for different reasons. For NSN, that probably had to do with the very hard times the company had endured for seven years—suffering through cost cutting, undergoing restructuring, being reduced to such a tight-fisted survival mode that employees had to pay for their own coffee. It’s hard to break out of that austerity thinking, especially since NSN’s ability to make a profit was so new. HERE and the remnants of Nokia, on the other hand, were suffering from an existential crisis. They were moving into a very different business universe and didn’t know what they were allowed to aspire to be.

Essentially, one group had talent but had forgotten how to dream big; the other group also had lots of talent but had been so demoralized that they no longer believed they had the right to redefine the game.

I raised my concerns to the board. I told them that the groups had no vision: They just proposed incremental improvements from where we were at the present. What they proposed wasn’t good enough to build what we wanted or what we needed. It wasn’t exciting enough to capture people’s imagination. It wasn’t ambitious enough to create a new future for a new Nokia.

Bruce Brown, the chief technology officer of P&G, suggested a process called “Future Back.”⁶ It’s a way of thinking about strategy that asks you to imagine a moonshot future scenario and then work backward to articulate the steps necessary to achieve it.

I thought it was the perfect tool to force the leaders of NSN and HERE to break out of the prison of conventional thinking and have the courage to imagine the implausible. Their minds were free to dream about the world 10 years from now; what bogged them down was getting there. By starting at a point in the future and then backing up one year at a time, the Future Back exercise creates a tangible road map to tomorrow.

We asked all the businesses to redo their strategy work based on the Future Back model. They consequently came up with many new ideas and alternatives.

That’s what strategy work should be: to imagine alternatives, so that we can identify the ones we want to pursue and plan how to achieve them, as well as naming the negative options and preventing them from becoming reality. Future Back eventually led to our acquisition of Alcatel-Lucent.

Who’s in Charge?

Deciding on the vision, the strategy, and the organizational structure weighed on the selection of the CEO. Some companies select a new CEO and say, “Now you devise a strategy for us.” I think that’s just an easy way out for the board. You can predict what kind of strategy a particular type of CEO with a particular type of background will pick. For example, if you want a software-centric strategy, pick a software executive. If you want a services-centric strategy, pick a services expert. If you want something very aspirational, pick an entrepreneurial type, someone who has already done it.

We said, “No, it’s our responsibility to choose the vision and strategy and then create an organization that’s best structured to implement the strategy. Only after we have the right vision, strategy, and structure will we find the right people for the roles.” It’s better that way than to change the roles to fit the people we get.

I was in charge of finding the next CEO from the outset. A headhunter had come up with about thirty external candidates, of whom I interviewed six over the course of the fall, and some more than once. We wanted a large list because we weren’t sure what kind of CEO we would need. When recruiting, I always aim to find three candidates, all of whom could do the job. Choosing between them is a pain, but it is a luxury to get to choose from three great candidates. You cannot go badly wrong.

I was looking both at CEOs who could run a holding company and at CEOs who could run a company centered on the network infrastructure business. Another sieve was filtering for someone who would be at home leading a very innovative consumer company or someone who would be comfortable in an infrastructure-centered business. We had a number of good external candidates as well as Rajeev Suri and some other internal candidates.

The board debated all the names a number of times. We didn’t rush into a choice; we would make a decision only when we were at the right stage of the process. The ultimate choice of CEO would be linked to the organizational model we chose.

“Credibility Is a Currency Grounded in Actions”

What do you say when you can’t say anything?

One of the most painful aspects of this period was not being able to give our people details about Nokia’s future. Our people wanted to know what we would do. We did not know, and what we knew we could not tell. (If we had been a private company, things would have been completely different.)

Leaders at every level regularly face this dilemma, especially so during a time of change. Rumors percolate; speculation escalates. Discord becomes inevitable.

I said in Chapter 10 that trust both greases the gears and glues everything together. It’s also the oil that calms the raging waters. But merely to say, “Trust me, it will all work out,” is naïve on your part and insults your audience’s intelligence. This is especially true when a company announces bad news.

My advice is:

•   Never lie.

•   When you can, it’s best to admit openly that you cannot talk about the topic.

•   If you can, explain why you cannot talk about it.

•   When you talk with your own people, say the maximum you can, and do your best to help them understand that you are doing your best.

•   If you cannot talk about the outcomes, discuss the process that will lead to eventual choices.

Credibility is a currency grounded in actions. There is no shame or embarrassment in admitting that you don’t have answers but that you are working hard to provide them—as long as people can see that you are, in fact, doing what you say.

I have always believed that difficulties create opportunities to build trust, whether it’s trust between individuals or teams or even companies. Every obstacle is a chance to do the right thing at the moment—and to build a piece of something permanent. Investing in trust pays dividends for a long time.