All companies make mistakes but success – especially huge success – can blind companies to their mistakes until it’s too late to recover. Risto Siilasmaa, Chairman of Nokia, shares hard-earned lessons from Nokia’s near-death experience in 2012: How to recognise and prevent the toxicity of success.
When I joined Nokia’s board of directors in 2008, Nokia was on top of the world. In the late 1990s, Nokia had emerged from obscurity to become a powerhouse in the hottest new industry of the time: mobile phones. Its phones had cutting-edge technology and sexy designs, and people around the world were gobbling them up. The company owned over half of the global smartphone market. It had better brand recognition than Toyota, Intel, Walt Disney – better even than McDonald’s.
Four years later, Nokia was fighting for its life. Blindsided by the iPhone and Android operating system, the company that once sold more cell phones than anyone else in the world had lost over 90 percent of its value. By the time I was appointed Chairman in May 2012, we had announced two profit warnings in three months. The value of the entire business was less than the value of our patent portfolio. Many industry analysts were predicting that Nokia might go bankrupt.
It’s easy to say that Nokia was caught by surprise. But that’s not true. Nokia was very early with all the technologies that ended disrupting us. For example, we invented the App Store – and Apple is still paying us licensing fees. We had some of the first touch devices, including a separate operating system for touch devices, which was discontinued. In 2006, an internal brain trust was asked to name the ten things that Nokia would miss next. Number one on the list was an iPod with mobile connectivity, which is basically an iPhone.
So we can’t say we didn’t foresee all of this. We did. We just didn’t act. What made us so slow to understand the threat and unable to mitigate it?
A significant factor was the toxicity of success. All companies make mistakes but companies blinded by their own success may be unable to admit or even see those mistakes and therefore become culturally unable to recover. Put another way, overwhelming success can lead to the assumption that past success guarantees future success. Call it arrogance or complacency: Either can be fatal.
Let me give you an example: In India, it’s important to have dual SIM phones. People typically have several subscriptions with different operators and swap SIM cards so that they always use the one that is cheapest at a particular time of the day in a particular city for a particular type of usage. So the ability to put two SIM cards into a device and change between them by pressing a button was much better than having a pocket full of SIM cards and always having to dissemble the phone to swap them out. Nokia knew this. But the reasoning was: We are so dominant that if we don’t offer a dual SIM phone, there won’t be a market for it.
In 2010, the competition brought out dual SIM phones and dual SIM phones quickly became an absolute requirement in the Indian market. Meanwhile, because Nokia had hard-coded the number of SIM cards a device could use into our operating system, it took over a year to reprogram the operating system and we fell badly behind in a crucial market.
Of course, the company didn’t feel it was arrogant or complacent. The management team believed they were making logical decisions. The strategic goals made sense. To be sure, the warning signs were there. But out of the multitude of data points, it’s so easy to focus on the 90 percent that are good and ignore the other 10 percent. The warning signs were overlooked.
Many CEOs and chairmen of some very successful global companies have asked me, “How can we avoid what happened to Nokia happening to us?”
One of the most valuable lessons from this experience was learning to recognise the four toxic symptoms of success:
1. Bad news doesn’t reach you or your team.
People may be afraid to air negative news for fear of being criticised. Or if they insist on bringing bad news to you anyway and subsequently are fired or reprimanded, that sends a message for everyone else to clam up.
In board meetings, we discussed bad news all the time but the “news” was typically historical facts that could not be avoided. We did not discuss data points that indicated significant weaknesses in our future plans. Most importantly, we did not insist on understanding the root cause of the failures.
Today, one of my favourite sayings is, “No news is bad news. Bad news is good news. And good news is no news.” Facts should always be a welcome opportunity, never a negative. Embracing bad news is the only way to make sure people will tell you and your team what’s really happening.
Bad news needs to reach you but you also need to go hunting for it. You may justify in your own mind that while you are not investigating the root causes of the problems, the people reporting to you certainly are. And if they found anything significant, certainly they would tell you. But that may not be true. No news is bad news. That’s why you are obliged to find out how things really are. That’s why you must ask questions and not shy away from, ignore, or soften something you don’t want to hear.
2. Your team is focusing on the wrong things.
This is a major challenge for any team. How do you separate what is of utmost long-term importance from what is interesting from a tactical point of view but has very little strategic importance?
For example, during my first year as a Nokia board member, a very large part of each board meeting was spent on topics like reviewing past financials, reporting to the stock exchange, overseeing the auditors, following compliance topics, analysing the company’s balance sheet, discussing shareholder distributions and share buybacks, hearing about cybersecurity preparedness, and looking into our corporate social responsibility efforts. These were important topics but they did not speak to the core issue: our future competitiveness.
When I became chairman, I made a conscious choice to minimise the time spent on those topics of secondary importance and maximise time for the topics that really mattered. These were – and continue to be – the topics that affect the company’s health and well-being: our sources of competitiveness; how our core technologies and products compare with the competition’s; what our customers are thinking; how our people are doing. If you start spending less time on these four topics, that should be a major red flag.
That’s not to say that it can sometimes be extremely difficult to separate the essential topics from the trivial ones. My suggestion: Take a step back to determine with your team what is truly essential. That will inevitably take you closer to the right focus. You always benefit by stopping to think about this. If you don’t, you will definitely miss something.
3. You are discussing the right topics the wrong way.
Is your behaviour right for these circumstances? If you’re not able to have deep and candid discussions, then the time spent talking about the right topics will not produce useful results. That’s why the very first item on the agenda at my first board meeting as chairman was to determine the kind of environment that would be most conducive for us to solve our immediate and long-term challenges.
The guidelines we came up with crystallised into what we call “the Golden Rules”. The eight rules defined how we would work together and the principles we would apply as we faced and tried to control the chaos confronting us. The first rule was very simple: Assume the best of intentions from others. Everything else stemmed from there. We wanted to build trust and encourage people to be open, to create an environment in which anyone could respectfully challenge anyone else – including the chairman or the person with the loudest voice – admit mistakes and learn.
These types of discussions are often dismissed – if they’re even thought about – as not being pragmatic or ignoring the urgency of the situation. But they will pay off for years and years in a team that is more effective and, not unimportantly, one that is more pleasant to work with.
4. There is often just a single plan with no alternatives.
To see alternatives and present them to others requires trust, the ability to discuss possible bad outcomes, and an open communication culture. Vice versa, a generic lack of alternatives in planning speaks of potential cultural problems. Any major decision taken without considering different scenarios is a warning sign.
On the old Nokia board, we saw the future as a dark landscape crossed by only one well-lit path – that was the official plan. But as we discovered time after time, the plan never worked out and instead of leading us to the future, the path left us wandering in the wilderness. That’s why the new Nokia board decided that we had to explore unknown terrain. The only thing we could be sure of as we looked towards the future was that we would not follow the only lit path we saw in front of us.
Scenario planning enabled us to identify various ways to go forward. Even if we didn’t strictly follow those paths, we had a better sense of the landscape they covered.
Always have alternatives. Alternatives free your mind to imagine everything from the best to the worst outcomes – and come up with an action plan for each option. The scenario work we do today helps us to try to ensure that whatever happens is not a complete surprise.
Today, Nokia is an entirely new company, the result of a complete and fundamental transformation. We’re one of the top two companies in the multi-billion-dollar global digital communications infrastructure market. Our entreprise value went up more than 20 times between mid-2012 and mid-2017. At the same time, we basically changed all the atoms in the company. Out of our 100,000 current employees, less than one percent carried a Nokia badge in 2012.
Today, we maintain a constant lookout for the warning signs. We think about the worst outcomes and we talk about them, prepare for them and plan specific actions to avoid or prevent them.
There are no guarantees – ever. You need to feel insecure. The moment you start to feel, “Hey, we have everything under control”, you are already on the way down. Every time you start believing that your advantage is so strong that new entrants can’t compete, you should slap yourself in the face and say, “I’m wrong even if I don’t yet know how.”
Conversely, by constantly maintaining a lookout for the signs of trouble, you can stay successful longer.
About the Author
Risto Siilasmaa is the Chairman of the Board of Directors of Nokia Corporation since 2012 and was interim CEO in 2013 and 2014. As Chairman he led Nokia through its transformation from an ailing devices company to a successful network infrastructure player through the divestiture of the Nokia device business to Microsoft and the acquisition of Nokia Siemens Networks and the acquisition of Alcatel-Lucent. He is also the author of TRANSFORMING NOKIA: The Power of Paranoid Optimism to Lead Through Colossal Change as well as the founder and chairman of F-Secure Corporation, a Finnish cybersecurity company.