What Nokia Needs to Make Its Risky Bet Pay Off


A CEO who takes charge of a company in decline typically has one of two options: either act as caretaker of that decline, making it as painless as possible, or do something radical and risky.

Neither way is very palatable. We've watched the first option in Carol Bartz's management of Yahoo (YHOO). And you can now see the second option in action with Stephen Elop's handling of Nokia (NOK).

For outsiders, the Elop show is by far the more interesting spectacle, and not just because of the panache he brings to the dull art of the corporate memo. Or even because, by arranging a hasty partnership with Microsoft, Elop has managed to to alienate both Google (GOOG), by rebuffing its popular Android platform, and Intel (INTC) by junking its partnership in the Meego mobile OS.

What seems to have captured everyone's attention is the high-stakes, Russian roulette game Elop is playing. And nobody even knows how many bullets are in the chamber of Elop's metaphorical revolver.

Considering where Nokia is today (a mobile device giant with a shrinking global market share) and where it wants to be (a viable player in that global market) a Nokia-Microsoft partnership makes sense. Elop also gets credit for forthrightly declaring that Apple's (AAPL) iOS and Google's Android are eating away at his company's customer base.

Sound Business Strategy?

From a strategy standpoint, there's some sound reasoning behind Elop's thinking. Most likely there's room for a third player at Apple and Google's poker table -- but Research In Motion's (RIMM) BlackBerry, HP's webOS and Microsoft are all gunning for that coveted seat. Nokia wants in, too, but neither the Meego software it developed nor its high-end smartphones make it a strong contender: Only one Meego product may be on the market this year, if that many.

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Foregoing Android also makes strategic sense. Google's mobile OS may be helping to revive Motorola's (MMI) smartphone sales, but it's hard for an Android latecomer like Nokia to differentiate itself from Motorola, HTC and others. Besides, many of the $150 smartphones competing with Symbian phones abroad are powered by Android.

So, at least on paper, the deal sounds persuasive. Nokia brings with it a deep network of designers and suppliers, and a worldwide distribution system that will take its rivals years to equal. Microsoft has ready-for-market software that's winning mixed to positive reviews -- but it needs more mindshare among consumers and app developers. The strengths of each partner will match the other company's weaknesses.

But, of course, business doesn't happen on paper. It happens in markets. And sudden shifts in strategy like the one Elop is engineering can run into trouble when it comes to executing new plans.

Unhappy Employees

For one thing, the shift away from Meego and eventually Symbian is sure to be a morale-killer. HP and others have put out the word that any less-than-happy Nokia employees are welcome to help develop HP's webOS. And many at Nokia seem disgruntled: More than 1,000 of the company's workers staged a mass walkout on Friday.

Memo to Elop: Bad morale can weigh down a turnaround.

Investors have staged their own version of a walkout. Nokia's stock fell 14% Friday, erasing any gains the company had made since September. Another big concern is when will Nokia start selling Windows-based smartphones, especially given that the ink on its partnership with Microsoft has barely dried and some details still remain to be worked out.

More Popular Than Android Among Developers

But not all the reactions are negative. One group responding favorably to a Nokia-Microsoft tie-up is app developers -- a community crucial to the success of the partnership. And according to Flurry, a smartphone analytics company, the number of new Windows app projects launched this week surged 66%, making Windows Phone 7 more popular than Android among developers for the first time.

In Elop's now-famous memo, he conjured up the image of a man on a burning oil platform, jumping into icy waters to save his life. While the jump may be scary, the hardest part is swimming to safety. Nokia has jumped -- now it has to swim. And if developers can throw Nokia a lifeline, the company just might make it.

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