Creative Disruption

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Nokia is one of the businesses I’m looking at in my book. Although, the way they’re currently announcing things at the moment, I’m keep having to add bits. A deal with Microsoft here. A new netbook there – it all adds up…

The reason I’m writing about them is a bit fiddly to explain, but they have been one of the great technology companies of the last couple of decades, and now they find themselves despite being the world’s biggest provider of handsets, they are having to play catch-up in the smartphone world with the recent upstarts Apple and RIM.

Their strategy has been to transform themselves from a handset manufacturer (an increasingly commoditised game) into a software and services business – initially announced in August 2007, resulting in a major restructure six months later (here is how the Economist covered it ).

This is a massive transformation programe – it’s interesting that even now, two years after initially telling everyone the chief exec Olli-Pekka Kallasvuo, still has to stress it in an interview with the FT on Monday .

When he says: ‘It is a big change, it’s very challenging’, you guess that just scrapes the surface of it.

The problem is that while they might be talking about services being the future, they know their smart phones have a fair bit of catching up to do if they want to be in the same usability league as the iPhone, Android and Blackberry (and I speak as an E71 owner who has used all of the others).

In other words, if they want to make it to a lovely software and services future, they’re going to have to deliver some kick-ass hardware to help them get there. Because we consumers love our gadgets.

I say ‘hardware’ rather than ‘handset’ because of the launch of their booklet (see the video below, if you haven’t already). With all that moody lighting, it looks gorgeous, but I wonder if it’ll feel quite so slick up close. It looks a bit solid if you ask me – and there’s a lot of netbooks out there. A lot of cheap netbooks from good brands.

Nokia’s history is well known – in particular the decision to focus on mobile in the 80s and the way they overtook pretty much everyone to become a global leader – a combination of great timing, and 15 years of great product development and (bar one horrific glitch in 1995) industry-leading supply chain management.

But the challenge they now face is of a different kind all together. They’ve gone from being the challenger and the rising star to being the incumbent.

And it is always harder for an incumbent to transform than a new entrant to innovate and grow.

Not only are they having to refocus a massive global organisation (and the services division is the result of a blitz of acquisitions over the last few years, which brings its own challenges), but they have to make sure that any software they launch works on dozens and dozens of different handsets.

And at the same time, they have to make sure that their core business doesn’t fall too far behind.

On every level, this is an oil-tanker-like turnaround. The big lesson so far is just how long it takes.

The obvious question is whether it will succeed – and I wouldn’t be so presumptuous to think I have the answer. But they have plenty on their side – and no shortage of ambition. This month’s Fast Company, gets all enthusiastic about their potential (a little too enthusiastic – but that’s what happense when business journalists meet rock stars).

But, I suspect ’success’ in the future is going to look very different to ’success’ in the past. At best, they will be one of a leading pack rather than an outright leader. Whether that gives them the growth and margins they have known in the past is another matter.

Judging on their current share price performance – it seems the market thinks not. But hey, what does the market know?

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