Pretty good interview with Nokia's CEO, Stephen Elop

Yesterday, Nokia CEO, Stephen Elop, made a visit to his alma mater, McMaster University in Hamilton, Ontario, Canada. Financial Post interviewed him and it was a very good discussion. In addition to covering Nokia's strategy, it touches on Elop's management style, and his long-term industry outlook.

On an unrelated note, if someone wants to read up on Stephen Elop, here is a detailed article from Canadian Business: "Nokia: The general takes control" (Thomas Watson for Canadian Business. April 11th magazine.)

(all text formatting (bolds/etc) in quotes by me)

Stephen Elop's Management Style

Financial Post: Tell me about the first couple of weeks after you arrived at Nokia. We’ve all read the “Burning Platform” memo at this point. So you come in, you look around and you see — as you put it — the unpolished gems. But what was it like coming from Microsoft — a company that operates like a well-oiled machine — into Nokia and getting the lay of the land. What was that experience like?

Stephen Elop: First of all it’s a learning experience and you have to look at it as such. The very first day I arrived, I sent out an email to every employee in the company and I asked them three questions: “What would you like to see changed? What do you want to make sure I don’t change? And what are you worried I might miss as I go through my early weeks and months of learning?” What I saw was a very rich engagement from the employees. I got thousands of notes from people saying ‘here’s the issue,’ ‘there’s the issue,’ ‘here’s what we ought to do.’

In those early weeks, I was able to form opinions with the leadership team as to what the fundamental challenges were and how we needed to think about those things. So you mentioned the Burning Platform document that made its way into the public domain. That was just one step in the journey of communication with the employees. Very regularly I was with the employees — either doing presentations or writing blogs, one of which found its way to the public domain — where I was essentially playing back to them, saying ‘here’s what I’ve learned, here’s what you’re telling me, here are the opinions we’re starting to form.’

Of course, the Burning Platform blog was very much a statement of ‘let’s put this all together, you’ve told me all of these things, let me put it into context for you’ and the context I wanted to establish is you’ve each talked about the individual elements of the problems or what have you, but when you take a step back and look at it holistically, we have to make some decisions. So it was part of an ongoing journey of communication with the employees.

One thing about being an outsider is that you start with a clean sheet. I like Elop's style here, with him soliciting employee opinions, and then moing on those ideas.

FP: The Burning Platform memo obviously got a lot of attention, and as you say it was only one step in the journey. Did it get more attention than you thought it might? Were you surprised it was picked up and taken around the world?

SE: Yes. [laughs] First of all it wasn’t written for the public. But am I surprised? You’re always surprised when you see something get that much commentary and broad coverage. But at the same time it’s not surprising, in that I think part of the reason it became so widely read and circulated — and this is a key part of our leadership style at Nokia and something I’m doing very deliberately — is that it was remarkably open, honest and transparent. Here are the facts, here are the conclusions we must draw, therefore, we have to have make some hard decisions.

I think when I saw a lot of the commentary on the note, the common theme I saw was ‘Wow, this is an example of a corporate leadership team actually telling it the way it is and laying it out there.’ Because in large, complex companies you get all sorts of times where we’ve got to be careful how we say it, and you’ve got to soft sell it and you’ve got to put a bit of marketing polish on it. But no. This is where we stand, and I think that’s one of the reasons why it went as broad as it did, because it was a very powerful statement of the reality of the situation without a lot of marketing polish on it.

One thing I notice is that Stephen Elop is more frank than many other executives. It's probably a good strategy to be open and transparent before making big changes.

Why Android was Passed Over

FP: As you said, there are only two smartphone ecosystems with big scale right now. One’s Apple and the other is Android. Was there something in particular about Android that helped push you towards Windows or was it simply that you felt the partnership between Microsoft and Nokia could be deeper?

SE: The fundamental thing we were looking at was the ability to differentiate. As a member of the Android ecosystem, there were ways that we could see that we could differentiate, but we were worried over time how much differentiation we could continue to maintain or extend. It was widely reported, just in the last 24 hours, in fact, that Google has taken some steps that on the surface appear to limit the ability of companies to differentiate around Android. That’s still unclear and people are working through that, but the differentiation concern existed very much with Android.

In our relationship with Microsoft, because of the unique nature of the relationship between our two companies, we believe we have a very strong capability to differentiate. I’d emphasize here, differentiate from whom? Who are we competing with? The Windows Phone effort between Nokia and Microsoft, by far the competitive focus is on Android and Apple. What about competing with Samsung around Windows Phone devices? That is not our principle concern. Our principle concern is to compete with the entire Android ecosystem, as well As Apple.

I do think the Windows Phone environment provides more opportunity for Nokia to differentiate but it likely isn't as big as it seems. The operating system, services, etc, will be available to other phone manufacturers using the Windows Phone OS—not to mention the fact that popular services like Facebook and Twitter are available on any OS platform. The only differentiation Nokia will see stems from the fact that many of the lower-end phone manufacturers will be unwilling to pay the Windows Phone royalties. I way I see it, the Windows Phone platform won't have the low-end phones.

FP: Does the Microsoft deal prevent Nokia from building Android devices?

SE: We haven’t specified precisely what the deal does and doesn’t prevent us from doing, but to be very clear, we are entering into a unique relationship where we are heavily focused on Windows Phone.

Not sure if Elop is dodging the question here or if the relationship actually hasn't been concretely defined. This question may seem like a minor thing now but if the Windows Phone operating system fails, it's best for Nokia to keep its options open—if it does fail, it will be costly blunder.

Nokia's Competitive Positioning

FP: When you first got the job as Nokia CEO, I called your friend [Silicon Valley investor and former Macromedia CEO] Rob Burgess to ask him what he thought of you. He said, “He’s an ace, and that “Steve’s job will be to beat Steve Jobs.” How does Nokia, with its global scale, plan to compete against Apple?

SE: It’s an interesting perspective. Clearly the Android ecosystem and Apple are the principle competitors. That much is true. But when you look at the world through a global lens, there’s a huge growth in the use of mobility to connect literally billions of people who are right now having their first digital experience. People who do not have a bank account — some have mobile phones — who need to know where they can get the best crop prices and they get that information on a Nokia device.

From a North American perspective, average incomes are quite high and people can go out and buy their first iPhone or whatever. In many other parts of the world, there’s a much broader segment of the population that are not immediately going to be earning enough money in their lifetime to pay for an iPhone. So there are opportunities on a very broad basis and this is indeed one of Nokia’s strengths. From a North American perspective, it’s hard to observe, but as you travel the world and you go into a rural part of India and you discover that lining the main street of a mid-size city there are dozens of stores advertising Nokia products — we have, in India, 204,000 retail outlets selling Nokia devices — it’s staggering. In China, we’re the leading brand, of all brands — more so than the Chinese brands or Coca-Cola — and so I think while in the North American context, there’s Android, iPhone and so forth. But as you get out in the world, some of that becomes less of a principle concern, than it is in North America.

I don't know if I buy his view that Nokia has a stronger brand than Coca-Cola in China but Nokia is definitely way more dominant than it seems for someone living in North America.

A lot of growth-oriented investors downplay the bottom of the pyramid but that's the core market for Nokia. As Elop points out, the vast majority of users (outside the wealthy countries) can't afford an iPhone. Nokia dominates that area but cheaper phones (from China, Korea, etc) are cutting into Nokia's sales.

The difficulty for Nokia will be to keep costs down and continually operate in a deflating price environment. It'll be interesting to see if Nokia can drive down the cost of the Windows Phone OS—not any time soon but I'm talking about 4 or 5 years from now. Historically, Microsoft rarely cuts prices for its operating systems—only big time I can think of was when netbooks threatened its OS—but it's hard for me to see how Nokia can successfuly compete in the lower-end market if the OS cost doesn't deflate along with the naturally-deflating hardware costs. For the time being it doesn't matter (since Nokia will rely on its Symbian OS) but 4 or 5 years from now, it'll be interesting to see how Nokia can compete at the low-end if Android costs nothing for its competitors.

The Future of Mobile Phones

Interesting, original, thought from Stephen Elop:

FP: Big picture, what do you think is the hidden trend that is currently not much discussed but which you see shaping the mobile world in the next, say 12-24 months?

SE: When new communication mediums are introduced, in the very early years of the new period, what you see is mostly a re-hash of the old period on a new platform. If you think about the first movies in history, they were filmed plays. The very first television shows were about seeing the talking heads from the radio interviews. Cable television was just taking broadcast channels and taking them to people’s homes. What happens is, with time, on each of these mediums, what you see is that fresh new innovation that could only happen in that medium begins to happen. So on television, you look at at show like I Love Lucy. It’s certainly about the dialogue, but it’s also about the hand gestures and the non-verbal clues, and thus the sitcom was born. If you think about another example of cable television — it created an environment with regulatory barriers being reduced and so forth — all of a sudden there were brand new channels and programming that could never have existed before. CNN is a great example.

My essential premise around mobility is that although there have been multiple generations of mobility, we are just beginning to see the opportunity of what new and unique experiences are only possible because of a mobile device. The mobile device knows who you are, it knows who you talk to, it knows whose calls you reject regularly, it may have all sorts of sensors on it — whether it’s GPS or humidity, or temperature or who knows what else. It has all of this information and it’s with you all of the time. So we have not even begun to see the range of uniquely mobile-enabled applications that will define the future. So as much as we’re all talking about the battles of the day, there’s a brand new communications medium in the marketplace that’s just beginning.

In the same way those first pioneers of television or cable TV or even the Internet, they couldn’t have imagined where it would go, it’s part of what’s on our mind. We have some ideas of where it might go and we’re doing some interesting work in the labs to define that future, but as much as everyone wants to talk about here’s the market share this week, I guess that tells the story, it’s only just begun.

One of the reasons I'm attracted to the mobile phone market is precisely because it is a revolutionary communication product. It likely has a long future ahead of it. If you are a very-long-term investor, I think the mobile phone industry is less volatile (in terms of industry profitability, customer base, etc) than it seems (note that I'm talking about industry here and not necessarily about the behaviour of individual companies). It am not sure if the profits will accrue to mobile handset manufacturers or someone else, like the mobile software services providers but the industry as a whole looks solid (over the last decade, the highly profitable industries were the mobile handset manufacturers and wireless carriers (stable, near-fixed, returns like utilities) while wireless equipment manufacturers like Alcatel-Lucent, Nokia Siemens, and Ericsson (Nortel before) have been the place to avoid.)

At least for me, the future of the mobile phone market is more clear than, say, the PC/laptop market. Even something like tablets/e-readers may die off quickly while the mobile phones may not. This is just my opinion—feel free to leave your thoughts—but I say this because, mobile phones are communication devices and humans love to communicate. In contrast, something like a tablet may appear to be communication-like devices but the cost, portability, and so forth, makes it more of an information-consuming tool than a communication one.

I think Stephen Elop is correct in speculating that we are only in the early stages of the mobile phone revolution. As Elop suggests, we probably haven't even seen the applications and services that only mobile phones can provide. So far, it has been an attempt to replicate the landline phone and a laptop computer.