The case against Stephen Elop as Microsoft CEO

The case against Stephen Elop as Microsoft CEO

Summary: Before we start calling Stephen Elop the heir apparent to the Microsoft corner office, let’s not forget the factors working against him.

Image: CNET/James Martin

With Microsoft buying out Nokia's phone business for $7.2 billion and Nokia CEO Stephen Elop officially rejoining his old compadres, the assumption has become that Elop is now the heir apparent to the Microsoft CEO job. However, don't get too hasty to jump on that bandwagon.

While the assumption is understandable since Elop was already considered one of the front-runners for the job even before the Microsoft-Nokia deal, there are a number of factors that argue against it. So, indulge me while we play devil's advocate.

First, Wall Street is unlikely to get excited about Elop as the next Microsoft CEO. His performance at Nokia didn't inspire much confidence in anyone. While Nokia was in decline when Elop took over, he hastened its demise by choosing to go almost exclusively with Windows Phone as the company's phone platform, alienating much the company's existing user base and having to lay off over 20,000 employees because of the company's poor financial results.

On the one hand, you have to admire Elop's courage for taking a big risk and trying to move Nokia in a new direction. On the other hand, the move failed spectacularly as Nokia's smartphone market share plummeted from 37% to less than 5% and the company's stock price lost 85% of its value during Elop's tenure, falling from $10 to a low of $1.63.

Those are the kinds of numbers Wall Street analysts and Microsoft board members are going to look at when they consider Stephen Elop for the Microsoft CEO job. That kind of failure does not typically get rewarded by becoming the CEO of an even larger company.

Two Wall Street analysts -- Ben Thompson and Benedict Evans -- are already questioning whether Microsoft actually bought Nokia because Nokia was threatening to stop making Windows Phones, and not because Microsoft wanted Elop.

Another factor that works against Elop as CEO is that about 10 of Microsoft's 16 separate billion dollar businesses are now enterprise businesses. The company needs an enterprise leader, as I wrote in the Monday Morning Opener. Elop has limited enterprise experience, other than a stint as a CIO earlier in his career and a one-year tour at Juniper Networks. He has mostly worked with end user applications at Lotus, Macromedia, and Microsoft, where he primarily oversaw Microsoft Office. Elop technically ran "business" software at Microsoft, but it was not the kind of back-end cloud infrastructure that is destined to dominate Microsoft's future, mostly centered around Azure.

Officially, Microsoft announced Elop will now run the company's Devices and Studios business unit, which will be beefed up with the addition of 32,000 Nokia employees. The question we should be asking is whether this move indicates that there is another shoe still waiting drop.

Is Microsoft planning to put its healthy, high-margin enterprise businesses at the center of the company and spin off its low-margin consumer businesses into a new venture? Making Elop the CEO of that spin-off (which would likely include phones, tablets, and Xbox) would at least make more sense than Elop as the CEO of the enterprise-heavy Microsoft as we know it today.

Global coverage: Nokia Interim CEO: Microsoft deal makes us stronger | Even with Nokia devices, Microsoft wants to license Windows Phone to other makers | Does its Nokia buy thwart or fuel a possible Microsoft break-up? | Microsoft shows how to flush decades of Nokia goodwill away | Microsoft gets less than $10 per Windows Phone unit | Microsoft-Nokia deal: Reaction from the Twitter trenches | Elop drops Nokia CEO role to lead devices team under Microsoft deal

Topics: The Microsoft-Nokia Deal, Microsoft, Mobility

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  • Elop was a great trojan horse or one of the most lousy CEOs in history

    Simple as that.
    He ruined Nokia, there is no other way to look at it - he fired thousands, Nokia's market share took a nose dive, he sold assets, ... I guess in history, it must be very hard to find a large company with a decline faster and greater than the one of Nokia under Elop's leadership.
    The price Microsoft is paying is almost ridiculous (not saying it worths more), not many years ago, Nokia would make that in just 2 years of profits!

    But if in reality Elop was just a trojan horse so MS could get Nokia on the cheap, he has done a great job, not sure if he would give a good MS CEO though, but it's easier to see him being CEO of anything if my first scenario is not the reality.
    • In reality ...

      ...Nokia had already fallen off the cliff when Elop took over. Symbian was dead in the water and Nokia had completely missed the iPhone touch-screen phone + app store revolution.

      Android wouldn't have saved them, just as it hasn't saved HTC, LG, Sony, etc.

      Elop defined a vision where Nokia could differentiate themselves from everyone else and drove the company to execute that vision. The result is that Nokia now offers an enviable range of phones and is rapidly increasing its sales.

      Making such a change is NEVER easy. If you think it is, go, apply for the Microsoft CEO role and let's see how you do.
      • You want the numbers of the fall?

        Yes Nokia was falling, but the cliff came after Elop - call it coincidence, yes it could be, but the numbers (and many analysts say it) indicate that Elop and the option to go WP and dump everything else, was really bad for Nokia.
        But let's say the downfall just continued with Elop. He was supposed to save the company, not to let it keep falling. He was a failure, most of what he predicted when he went to Nokia didn't materialize - not even close.
        I'm not saying it would be easy, but succeeding in hard times it was separate greatness from mediocrity (and i'm not saying I could do better - but let me forget about modesty for a moment - I think I could :P)

        I suppose never in history a large company has plunged as bad as Nokia in so short time, plus in a market that was growing by leaps and bounds - what to call that?!

        Android is actually saving LG and Sony - what you said is simply not true. In case of LG, Windows mobile was what almost killed their smarphone division BTW.
        • "and many analysts say it"

          did you ever bother to check the track record of those mysterious "analysts"? somehow I doubt it
          • Yes I've checked it sometimes

            Do you have any track record for me to check? I will gladly look at it also :-P
            I can post links, but I'm sure everyone can do a simple search.
          • sure, zdnet conveniently published some reading for you on the subject

            the summary sums it up nicely

            "IDC projects 10 percent share for Windows Phone in 2017. The old prediction from IDC: 20 percent Windows Phone share in 2015. Keep guessing folks. "

            guessing is what your beloved analysts do. and most of them are not very good at that

        • AleMartin for CEO

          considering all things, you couldn't have done a worse job than Elop. In many cases, doing anything is easy when nothing goes wrong - its when things do go wrong that you get to see your true abilities. Elop showed his, one way or the other.

          Nokia was failing, but slowly - consider that Microsoft has bought the rights to the Nokia brand for some featurephones, and the Asha line - which is symbian. So to say anything bad about Symbian is to say bad things about the current Windows phone lineup. Ironic, huh.
          That people are then using the Asha line as part of the Windows phone marketshare (25% in colombia apparently - do you really think that 25% is all Lumia 920s?) means desperation to justify the whole damn pile of crap is really starting to kick in.

          and I didn't even mention the N9 :)
          • Asha is not counted in nokias windows phone numbers

            Never has been. Asha appropriately count as feature phones. So yes anywhere you see windows phone market share numbers for Nokia, including countries where it's over 20%, that's all true windows phone Lumias. It doesn't count any Asha devices which if added in make Nokias total market share in those countries even higher than the reported WP numbers.
            Johnny Vegas
      • Bitcrazed do not try

        To tell the truth. Without Elop, Nokia would probsbly be bankrupt now. People that believe Elop was a trojan horse must believe in fairy tales. In the real world these things simply don't happen.
        • I agree it's a far fetched theory

          But read this from 2011:
          Another Nokia employee, David Weinehallm left the company in April and claims that it’s difficult to know where Elop’s loyalties lie. The claims are echoed by other anonymous employees that GlobalPost spoke to. One programmer suspects “Microsoft will wait for Nokia’s share price to fall a bit more, and then it will buy them out"
          • There was another threat

            It's fairly well-publicised that Huawei were expressing an interest in Nokia, but only as another Android vendor. So you can point out that Microsoft did indeed buy Nokia when the share price was low, or you can understand the viewpoint that Microsoft were protecting their greatest asset behind Windows Phone.

            If you were running Microsoft and you believed that Huawei were seriously interested in Nokia, what would you have done?
          • You'd have to be terribly stupid to

            think the rantings of a disgruntled employee have more value than the actual facts. If Microsoft was just after Nokia at the lowest price they would have bought it way back when it was at $1.50 a share, not when it's two and a half times that. Nokia had already stepped off the cliff before Elop came in, that's why they brought him in. They'd already evaluated Symbian and meego and android and realized that none of them were viable. His vision of building out the windows phone ecosystem with differentiated devices saved them from exiting the smart phone business. They are now on a tremendous growth path.
            Johnny Vegas
          • Not saying I put many trust on those theories

            But they are interesting.

            Now can you show me the graphics for the performance of Nokia before Elop and after? It's Not True that before Elop Nokia was doing so badly - that's the excuse to justify Elop actions.

            Call it coincidence - maybe (coincidences can be fishy sometimes).

            Again, define "tremendous growth path". WP sales are growing - a fact. Nokia smartphones are not growing year on year. WP global share is basically stopped. Microsoft had more share before, Nokia used to have more than 50% of smartphone share. Before Elop, Nokia was actually pulling away from Apple, the dangerous was Samsung - but again Elop failed to see that one coming.
          • Nokia Before and After Elop

            At the end of the srticle I posted are links to nokia's financials before and after. A CEO that says that his existing products are terrible without bringing out anything new into consumers hand in 12 months. That was just step 1.
            Stefan Wessels
      • Except that's not true

        Nokia was still gaining in units sold of SymbianOS phones when Elop took over. They were doing a strong business. They sold 118 million phones in 2010, nearly twice all of the Android devices, nearly 2x what Apple sold. Every quarter in 2010 was up over 2009, and profitable. They sold over 90 million phones in 2011, but only Q1 was profitable. Elop announced the end of SymbianOS in late February of 2011, and SymbianOS slowly toppled. By 2012, they were losing half their SymbianOS market every quarter. That was entirely Elop's doing. And I'm not claiming SymbianOS had a rosy and perpetual future. But it was their bread and butter, and it was still a growing market when Elop killed it. Yeah, it looked bad next to Apple's 2x annual growth rate and Android's 5x annual market... but keep in mind, most of Apple's growth came in the USA, where Nokia didn't even have a market. Pretty much all of the smartphone market growth in 2010 and even into 2011 came from expansion, not replacement. Nokia needed a 5 year strategy, and could have had that simply by adding Windows Phone, just as HTC and Samsung did. Of course, Microsoft wouldn't have had the exclusive, Nokia could have added Android at some point, too, and finally, Microsoft couldn't have bought Nokia's devices division for less than they paid for Skype.
        • Whoops

          That should read "nearly 3x what Apple sold".
      • Nokia needed to change, but there was NO cliff involved

        The media has so misrepresented this whole thing. The sales and business statistics simply don't bear out that Nokia had to make a drastic decision like they did. In fact, there's every reason to believe that if they'd simply "flown the plan", they'd be far better off today.

        In 2010, just before Elop's "Burning Platform" torpedoing of their own products, Nokia sold twice as many smartphones as Apple, more than 2x Samsung, and though their share of the smartphone market fell from 39% to 34% over the course of the year - they still sold more than 1/3 of all smartphones - and though their share fell, their sales went up considerably, it's not like they were losing customers, they just weren't adding them as fast as Apple/Google. Add to that, they had far more of an installed base of featurephone customers than anyone else (think retention).

        They also had their own app store that was 2nd to only Apple's in terms of content and downloads. So the idea they had no ecosystem is ludicrous.

        And though they didn't have all the figures in hand in Feb 2011, their January sales were very good, in fact showed them regaining market share (yes, with their Symbian product line).

        Yes, Symbian had deficits compared to iOS and Android - but their MeeGo phones were already testing very well, as borne out later in 2011 when they released the N9 to huge critical and user acclaim, and it sold out immediately. Then Elop axed it, in spite of clear user interest.

        The whole thing just smells. There was no cliff, Elop's analysis of the "burning" need to commit to MS made no factual/business sense. Either the board brought him in with that intent in mind, and they were together just trying to justify the decision, or he truly was a trojan horse, and did an amazing internal sales job (no doubt helped by the promises to board members concerning their golden parachutes after MS acquired Nokia).
    • Crucially Two Things MS didn't get

      The Nokia name and it's patent portfolio making this look like $7.2bn down the toilet.

      As of now MS down 6.05%, Google up 1.91%. Even Blackberry is up 2.37%
      Alan Smithie
      • They got 8000+ patents

        and licensed remaining patents for 10 years.
        • No they didn't

          Nokia investor relations statement:

          "Nokia will retain its patent portfolio and will grant Microsoft a 10-year non-exclusive license to its patents at the time of the closing. Microsoft will grant Nokia reciprocal rights to use Microsoft patents in its HERE services. In addition, Nokia will grant Microsoft an option to extend this mutual patent agreement in perpetuity."
          Alan Smithie