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Nokia answers the call for fresh leadership: Mobile life of a telephone boss
By Nicholas George
Published: December 20 2004 02:00 / Last updated: December 20 2004 02:00

http://news.ft.com/cms/s/aad4bf94-522c-11d9-961a-00000e2511c8.html

Abig red plastic crate sits in the middle of the floor of Matti Alahuhta's office waiting to be filled with papers and mementos from the chief strategy officer's 26 years with the world's largest mobile phone maker.


Mr Alahuhta, 52, is not the only senior figure clearing their shelves at the Finnish group. Over the coming weeks the red crates will be appearing in the offices of Sari Baldauf, the 49-year-old head of the network division, and Jukka Bergqvist, a 47-year-old general manager in the same unit.

After more than a decade of extraordinary continuity, the tight-knit team that has helped transform Nokia from a sprawling industrial conglomerate into one of the world's leading technology groups is breaking up.

All three are on the executive management board. Mr Alahuhta and Ms Baldauf are part of the "gang of four" who have, since 1992, surrounded Jorma Ollila, the chief executive.

The three departures, announced within the space of two weeks during the past month, were always going to cause a stir, but the timing added drama.

Nokia has had a tough year. It failed to spot some trends in mobile phone design - for instance, the appeal of foldable "clam-shell" phones and the market for mid-priced colour screens. This and other factors led to a profits warning and a sharp drop in market share. Nokia has therefore spent most of the year playing catch-up.

For Mr Ollila, the departures and the company's difficult year are not directly connected. Sitting in Nokia's steel and glass headquarters in Helsinki, he insists that the departures - though for different reasons - were the result of an 18-month strategic planning process.

He says that, in a period of change for the industry, Nokia must adapt its structure and management team.

"From our point of view, it began in spring or summer 2003 when we in the management team started discussing the need to look at our organisation afresh," he says.

This resulted in the reorganisation of the company, as Mr Ollila added two new business units: a multimedia unit, concentrating on more advanced handsets with imaging or music capacity, and an "enterprise solutions" unit.

The thinking behind the realignment was straightforward. "The aim has been to get scale advantage in the handset business at the same time as being better focused on the new niches of the market-place - to capture the value added through multimedia and enterprise solutions," Mr Ollila says.

As Nokia reorganised, it began to rethink its management. "There was a discussion on how we would effect the generational change that . . .has taken shape one year after the organisational change. It is all one and the same transformation."

Mr Ollila admits that the management changes do raise serious questions, especially in a company that has traditionally valued long service and loyalty.

"You don't make generational changes easily. Just look at companies, organisa tions, families, any kind of communities where generation change happens - it's a big change. But change allows you to reposition, to rethink."

But is it Mr Ollila's task to oversee this generational shift? After all, his contract only runs until 2006. As one senior executive at a rival puts it: "Normally you would expect the new chief executive to form the new management team. But Mr Ollila is forming it already."

Mr Ollila says his critics misunderstand the way Nokia works.

"When we hire people in this company, we have five or six of their colleagues interview him or her," he explains. "This is not a top-down event." He scoffs at press suggestions that the new executives are his confidants. "That's not how it works."

But why change a structure and management team that has served the company so well? Mr Ollila answers simply: events in the market-place.

First, the number of new handsets has risen to between 630m and 650m this year, boosted by, among other things, a growth in emerging markets such as China and India where mobile phones are being used in the traditional way. Second, the arrival of 3G technologies in developed countries, allowing the development of non-voice services such as videoing, is expected to transform the business.

Third, telecoms operators, who buy 65-70 per cent of Nokia's phones, have become increasingly demanding. No longer ready to settle for standardised products, they are looking for innovations that help them differentiate their services from rivals.

"It's a very different era in terms of management requirements: in terms of skills, know-how, how you build your customer relationship," he says.

For Nokia, the idea of developing customised products has not been an easy one to entertain. Keen to protect its brand and capture the economies of scale that bulk manufacturing can bring, it has had to suffer criticism for its reluctance to change its phones to meet the desires of its biggest customers: the telecom operators.

Mr Ollila does not think this is fair criticism: "What we have stressed is this: we think fragmentation is not going to be positive to the development of this industry."

He says that standardisation, allowing manufacturers to create a cheap mass product, triggered the breakthrough of mobile telephony in the 1990s. But he accepts that the policy "might have been interpreted [as implying] that we were not always the first one to suggest how to do things in an operator-specific way".

Customisation is often looked at "simplistically, as a hardware game", he says. In the future, however, he thinks that, in order to meet operators' requirements, Nokia and its rivals will have to focus on software that allows them to provide services.

Nokia has invested heavily in software development, both directly and through its stake in Symbian, a UK-based software developer jointly owned by Nokia and other mobile phone producers. Partly, this has been a way of defending its market position against Microsoft which, five years ago, was seen as a big threat. Microsoft has remained a marginal player in the mobile phone industry, and some Nokia executives privately say that they think the company probably expended too much effort fending off the US giant.

While Nokia may have changed structure and personnel and even bowed a little to the demands of the operators, much of the group's business model remains fundamentally the same.

It continues to manufacture between 70 and 80 per cent of its handsets rather than outsourcing this to lower-cost producers. Also, it continues to aspire to market domination. Mr Ollila is convinced, as he always has been, that Nokia must retain a dominating share of the market. He thinks it is Nokia's broad appeal - covering all regions and segments - that lets it call the shots on price. As a result, it continues to extract the best profit margins in the business.

His market share target is 40 per cent, something many analysts regard as unrealistic, not least because of the advent of new technologies and strong competitors.

But Mr Ollila is not fazed. "Watch this space," he says, as he prepares to govern the company without his original lieutenants.

At a company he describes as "emotional", there appear to be no hard feelings about the changes. Last week, when Nokia's management team assembled at Mr Ollila's home for their Christmas party, he says it was only natural that Mr Alahuhta, Ms Baldauf and Mr Bergqvist be there.

"I think," he says, recalling the event, "we sang Christmas carols more in tune that ever before."

HOW TO MAKE A GENERATIONAL SHIFT

* Rationale: Nokia wanted to change its top staff. This was less about age and more about the length of time individuals had served at the company. Despite spending more than a decade at the top of Nokia, many executives are only in their late 40s or early 50s.

* Challenge: like other Finnish companies, Nokia has promoted long service and loyalty as a key part of its corporate culture - its top management team has been together for more than a decade. Implementing change does not suit everyone: new appointments may force others to reconsider their prospects in the company, having a damaging knock-on effect on performance.

* Method: Nokia's management team discussed the importance of generational change, as part of a broader plan to reorganise the company in the face of changes in the market.

* Outcome: three high-profile departures have been announced at the company in the past month.

* Next step: Nokia is a global company and it wants this to be reflected, over time, on the executive board. Only four out of the 12 members of the new board are non-Finns.

"You are paranoid. CEOs are paid to be paranoid - that is why they are there," Jorma Ollila explains. "They are there to raise the flags, to raise the questions."

It is his 13th year in charge of Nokia and the 54-year-old Finn, who has three grown-up children, insists his contract runs to autumn 2006. After that, who knows? Certainly there is little sign he wants to slow down. "I am enjoying it all. I have more energy than ever," he says.

Exact and sometimes prickly, Mr Ollila's intensity is broken by his infectious laugh. He is not a man easily interrupted.

On the morning of his interview he was playing tennis at 7am before addressing a group of 500 suppliers to Nokia's infrastructure business. After the interview, it is lunch in the canteen - "we don't have an executive dining room" - and then there are four or five more events before dinner with a customer.

In fact, the last year has seen Mr Ollila stepping up his direct involvement in the company - a result of the reorganisation. "I need to be more hands-on, even more so than I have traditionally been.

"Obviously some of the customer transactions and market shifts mean we all need to be more hands-on in top management.

"I think I have put in more travelling and more meetings with customers than I typically have in any year. I have been twice in India, three times in China and one other time in Asia, 12 times in the US and so on."

Despite the increased travelling, Mr Ollila has also found time to take on a new role in Finnish society. Earlier this month he accepted the chairmanship of two influential think tanks - ETLA, the Research Institute of the Finnish Economy, and the Finnish Business and Policy Forum.

"It's doing your duty for the community. I don't see it as any more dramatic than that. A small country like this is a special community, and I take a certain responsibility to give a little bit of a contribution to making sure this country does the right things in these times of turbulence."

Certainly the head of Nokia cannot be ignored, with the company expected to account for about 3.5 per cent of Finland's GDP this year. No other country in the OECD is so dependent on one company. Nor has Mr Ollila been shy of contributing to public debate, complaining that the country's high taxes make it hard for the company to recruit executives from abroad.

Mr Ollila's appointment as chair of the think tanks sparked rumours that he would consider running for president. He has political experience, once heading the Finnish Students' Association as a representative of the non-socialist Centre Party, who lead the country's coalition government. But Mr Ollila is quick to crush speculation. "Definitely no," he insists, "politics no."