Can a Microsoft man fix Nokia? Here are 6 things that have to happen

Stephen Elop is the new CEO of Nokia. Can a guy who led Microsoft's business division prod Nokia to innovate on smartphones?
Written by Larry Dignan, Contributor

Nokia has named Stephen Elop CEO beginning Sept. 21. Olli-Pekka Kallasvuo will step down over 30 years that saw Nokia surge to be a global mobile leader, branch out into software and then lose momentum to Research in Motion, Apple and Android. The big question: Can Elop turn Nokia around before it loses more momentum?

Elop's resume indicates that he has the experience to turn Nokia around. Elop led Microsoft's business division, one of the software giant's two key cash cows. Simply put, Office is huge. Elop also worked at Juniper and Adobe. That experience will come in handy at a company with Nokia's scale.

Nokia Chairman Jorma Ollila said in a statement:

"The time is right to accelerate the company's renewal; to bring in new executive leadership with different skills and strengths in order to drive company success. The Nokia Board believes that Stephen has the right industry experience and leadership skills to realize the full potential of Nokia. His strong software background and proven record in change management will be valuable assets as we press harder to complete the transformation of the company. We believe that Stephen will be able to drive both innovation and efficient execution."

A few notes about Ollila's statement. For starters, Nokia doesn't have any choice in the timing. Nokia either gets it together---especially on high-end devices---or it's lead and profit margins are toast. Nokia also needs to delight with its software to keep up with Apple and Android. And more importantly, Nokia has to innovate on design.

Naturally, Elop is excited about harnessing Nokia's "unique global position" and "great brand."

Highlights from Nokia's press conference:

  • "There are critical moments when fundamental change takes place," said Elop, referring to graphical user interfaces, the browser and mobile phones. Today, cloud computing, smart devices and tablets are creating "a fundamental moment of disruption." This disruption can be an advantage for Nokia.
  • "My role is to lead this team through this period of change...and disruption," he said.
  • Elop will start a listening tour and then introduce changes necessary.
  • There's a tremendous partnership with Microsoft as well as areas of competition, said Elop. The lines of communication are more open than others before. There are areas of common ground.
  • Elop was asked about Nokia's software strategy and platform. Elop said "there are a range of experiences that need to be delivered" across the globe. He added that it's too early to determine what parts will be used for these various ranges, but Nokia has to be clear on its software strategy and communicate that to developers.
  • Elop had to field a lot of questions about his knowledge of Finland and the cultural importance of Nokia.

Analysts are just happy that Nokia is finally making a few changes. Andrew Gardiner, an analyst at Barclays Capital, said:

"We receive positively the appointment of an executive with significant software and U.S. tech experience. Nokia's struggles over the last few years in the area of software and operating systems has caused it seek a President and CEO from outside the company, an unusual move after all prior CEOs have all been Finnish and home grown. Furthermore, such an appointment likely indicates some change will come, as it is hard to see such an executive move all the way from Seattle to Helsinki without a mandate to stamp his own view on the business."

It remains to be seen whether Elop is the right guy for the job. At Microsoft, Elop struck folks as more manager than visionary. Nokia needs product, vision, new software and the ability to leverage its vast scale. It's an interesting line to walk. Nokia isn't a startup and may never be nimble. But it does have the Symbian OS to harness so it has a start.

What does Elop need to do? Here are a few thoughts:

Pare ventures that don't matter. Nokia is into a bunch of different services like music subscriptions, email and navigation. Nokia delivers these services through carriers, but the model is complicated. Does Nokia provide services or hardware? We know Nokia can do hardware well, but things like Comes With Music are a distraction.

Either leverage Symbian or cut bait. Symbian is the leading mobile OS in the world, but under Nokia share has been slipping. Nokia has new versions of Symbian on deck for cell phones, but hasn't been able to keep up with Android or Apple. Some analysts argue that Nokia should adopt a third party mobile OS like Android. Like RIM, Nokia is primarily a hardware company that dabbles in software and doesn't exactly excel. Related to the Symbian question is the overall software strategy. Simply put, Nokia needs one. Nokia can't take forever to get new smartphones out the door.

This chart highlights Nokia's waning momentum:
Figure out what to do with Nokia's R&D budget. Nokia spends 3 billion euro annually on handset R&D for little return. Elop either needs to get better returns or cut the budget. Gardiner said in a research note:

With Nokia's EUR3bn annual handset R&D budget clearly inflated relative to the competition. If Elop can come in and show a willingness to use more 3rd party Operating System and reduce R&D, then we see 2011/12 consensus EPS estimates moving higher.

Leverage the enterprise. Nokia is a no-show in U.S. corporations, but in other regions the company can be a major enterprise player. Elop clearly has the enterprise chops to bolster Nokia's standing.

Recruit visionaries and product innovators. What do Nokia devices stand for? It's a bit murky. Nokia's motto is to connect people, but almost every technology company does that these days. Nokia's devices are increasingly standing for low-end models. Nokia needs to dazzle at the high-end of the market. Plot a U.S. comeback. Nokia has basically decided that the U.S. market isn't important. All Nokia has to do is make some headway in the U.S. and its results will look much better. It's stunning that you can talk to someone from abroad and they know all about Nokia. In the U.S., consumers barely acknowledge the company. Nokia may be the only company in the world that sees the U.S. as an emerging market. Why bother with the U.S.? For starters, U.S. handset makers---notably RIM and Apple---are eating Nokia's lunch. At the very least an encroachment in the U.S. would give them more intelligence on how to compete in the smartphone market. Elop's first calls should be to U.S. carriers about making Nokia a real player.


Editorial standards