Innovation's Burning Platform
That's why I thought it was interesting when Stephen Elop became the CEO of Nokia and declared that Nokia faced a "burning platform". Just over two years ago, Elop became the CEO of Nokia at a time when Nokia was losing the mantle of cell phone handset leadership. Elop wrote an open letter to his employees at Nokia, talking about the burning platform. Nokia's dominance in cell phone handsets was at risk, and he was trying to create more awareness and emphasis. Today, Nokia is the number two worldwide supplier of handsets, but barely registers in the smartphone market, where the majority of the profits reside. The news today (September 3, 2013) is that Nokia will sell its handset division to Microsoft.
Letting a crisis go to waste
Rahm Emanuel, who was a key advisor to President Obama, was only the last in a string of executives who stated the obvious: you don't want a crisis to go to waste. In other words, use the crisis to create the change you need. Elop did create some change. He "bet the farm" on Microsoft's wireless operating system, when the other major players were going with Android, except for Apple of course. In addition he focused on cutting costs, and cut a significant amount of costs out of Nokia's business. But the drop in sales was actually faster than his ability to cut costs.
I'm going to argue that Elop let a crisis go to waste. In a critical time when he had the attention of Nokia, he bet on an outside partner (Microsoft) that had little cellphone experience rather than bet on his own people to create something innovative and meaningful. After making the bet on Microsoft, he then proceeded to cut costs rather than focus on meaningful product or business model innovation. When he declared a burning platform, he had the mindshare of his employees, the impending change to overcome any corporate resistance to innovation and a storehouse of really smart, committed people. Nokia could have become the innovative alternative to Apple. Instead, Elop chose to outsource the operating system to Microsoft, forcing Nokia to become basically a hardware provider. Once Nokia became a hardware provider, Elop focused on cutting costs rather than creating innovative handsets. Now, both options have run out of steam. Nokia has lost any hope of software leadership by banking on Microsoft, and has cut costs and people so quickly that significant innovation in the handset is off the table.
Money can't buy innovation
The second fallacy with this proposed merger is that while Microsoft may have money to burn, money by itself doesn't buy innovation. Often the reverse is true. Apple may be a telling story in this regard. When Steve Jobs returned to Apple, Apple was approaching bankruptcy. It faced its own "burning platform". Jobs cut the range of product lines drastically and in addition started focusing on new innovative products - simultaneously. This is what Elop and Nokia missed from the Jobs story - simultaneously cutting products and at the same time ramping up innovation.
No matter how much money Microsoft may have, merging a handset developer with few ideas and little innovation momentum with a software platform that to date has been rejected by the market doesn't add up to better products, better business models or innovation. Nokia and Microsoft, while they have been partners, have different worldviews, different perspectives (North American and European) and will take time to merge to create anything new. Meanwhile, Balmer is preparing to leave, and a scramble will soon be underway to sort out his successor. If this seems like an awkward marriage of two suitors who lack innovation, and whose focus will be on internal integration and potential succession rather than innovative new software and handsets, you are probably right.
The most significant barrier to innovation in the proposed merged business won't be money, or technical capability. It will be culture and arrogance. Linking two companies that have traditionally been market leaders who don't listen to customers, will result in a larger, more distributed company with poor communication internally and no external capability to understand or assess customer wants and needs. The ability to listen, and the capability to become a bit humble and naive about the markets are in high demand right now.
Setting fire to your own house
Perhaps in the end Nokia will be a case study of a firm that like Icarus believed they could fly and flew too close to the sun. Many industry leaders become a bit arrogant and complacent, and are disrupted by new entrants they don't anticipate. Many people don't know that Nokia experimented with touch screens similar to Apple's iPhone long before Apple did, but the idea was shot down within Nokia.
Nokia didn't become aware of its predicament until the platform was on fire. It's an interesting object lesson, and one many innovators should take to heart. Perhaps the job of innovators and senior executives (should they be different?) is to start lighting your own house on fire, to remind people that product dominance is not a given, not guaranteed, and any firm on top or near the top is there only temporarily unless they find ways to obsolete their own products and create new ones far faster than competitors.
Innovators, there are several key points here:
- Use an event or market condition to create a burning platform for change
- With that burning platform in hand, align your goals and resources for innovation
- Don't let a burning platform go to waste
- Change the culture, not just the products
- Don't expect to "buy" innovation. It comes from insights, trends, understanding customers, not from technology or past history
- Set fire to your own platform before someone else does. Don't get too comfortable.
- If you choose to "outsource" critical innovation differentiators (Nokia did with Microsoft operating systems) you'd better double down on innovation in something else that matters to customers.