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Shock treatment! Nokia's radical break with the past

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Analysis So Nokia's board has decided the company needs shock treatment: it's brought in a non-Finn for the first time in its history, and someone who carries very little baggage to boot. This should be interesting.

In fact, Stephen Elop has just six months' experience as the CEO of an independent company, gained in a brief stint leading Macromedia into an acquisition by Adobe. So modest is Elop's resume, that he lists his tenure at fast food outlet Boston Chicken Incorporated twice on his LinkedIn profile. (To be precise - Boston Chicken Inc and Einstein Brothers Bagels.)

The decision is tough on the most capable internal candidates - particularly the popular Anssi Vanjoki, whose time may yet come - but at Nokia from today, inexperience and outsider qualities may be considered virtues.

In interviews Elop has stressed the importance of the user experience in modern electronics, the UI and UX as part of the elusive "consumer satisfaction". Nokia owes much of its success in the 1990s to design and usability, but it has dropped the ball in the past decade, and since 2007 has been handed a brutal lesson in what really matters to the end user by an upstart, Apple.

Elop's background in operations - which includes a year at Juniper, steering Macromedia through the dot.com bust and of course the Boston Chicken experience - must have impressed the board. Nokia's global logistics operation is formidable - you don't want to muck it up - but that's not the company's main problem. The CEO that Nokia has just sacrificed to the markets, Olli-Pekka Kallasvuo, was an accomplished operations guy too. Something radical is needed - and the new CEO faces something of a paradox.

What went wrong?

The conventional wisdom amongst financial analysts is that Nokia remains rooted in a business that's now old and increasingly unprofitable: voice phones. The warning bell sounded clearly two years ago when DKIB pointed out that Nokia was now dependent upon sub-$50 phones. The future belongs to manufacturers of high margin data devices. So Nokia needs to join them there, and also diversify, by creating new markets where its mobility and radio engineering skills can be profitably exploited.

It's amazing just how widespread is the perception that Nokia has been left behind. For example, today the BBC, reporting on the change of CEO, tells us that Nokia has "struggled to break into the smartphone market". This must hurt; Nokia effectively created the smartphone market and has (numerically, at least) led it for a decade. But Nokia's smartphones really aren't used as data devices. They're expensive phones, and the end-user experience has been horrible and getting worse. (Six months before Apple unveiled the iPhone, we were asking "Whatever happened to the smartphone?"). Nokia responded with a very poorly executed push into services (outsourced to a design agency) which simply highlighted all the things it's not very good at.

It's true that Nokia is taking a beating in the high-end: its products aren't competitive and it has wasted three years through staggering complacency, as the iPhone and new Blackberry phones take the lions' share of the profits. But as I pointed out recently, unlike IBM or Apple in their crisis days, Nokia still makes money. The danger is that it can't afford complacency, because consumers change phones far more easily than they change other goods or services.

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