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Thursday, January 22, 2015

Did Nokia fall victim to silo mentality?

9:38:00 AM Posted by Oscar Berg No comments
At the turn of the millennium, the Finnish company Nokia had become the largest mobile phones manufacturer in the world. Four years later, the company was divided into four divisions: Mobile Phones, Multimedia, Networks and Enterprise Solutions. The Mobile Phones division produced the successful feature phones for the consumer market. The Enterprise Solutions division served business clients so they could get mobile access to corporate networks while traveling, which primarily meant accessing email, "the number one mission critical business application” according to Nokia. The world’s first commercial smartphone, Nokia Communicator, was key in this strategy. It was a smartphone intended for business users, but not for regular consumers. The Mobile Phones division was taking care of the needs of consumers.

In 2007, when Nokia’s revenue and turnover was at all time high, Apple launched the iPhone, a cool-looking smartphone with a touch interface that consumers, unlike any smartphone before it, actually found attractive and easy to use. Ironically, this happened at a point in time when Nokia had just shifted its focus from smartphones back to basic phones. Nokia’s strategy was to make smartphones for businesses, and feature phones for consumers, each being the responsibility of separate divisions that didn’t collaborate with each other. Instead, they competed with each other.

When discussed in future management textbooks the demise of Nokia will probably primarily be blamed on collaboration failure. Imagine if the two divisions had collaborated and pursued a shared goal instead of competing and pursuing their own goals. Chances are Nokia would still be the largest mobile phone manufacturer in the world. Instead they had to sell their bleeding mobile phone businesses to Microsoft to avoid shutting it down completely.  

It is feasible to assume that Nokia fell victim of silo mentality that led to collaboration failure. Silo mentality is a typical phenomenon in large organizations. Teams tend to focus on the part they are responsible for and specialize in. As a consequence, they sub-optimize and focus on their own goals. The silos become organizational barriers that limit communication and thus impeding knowledge exchange, collaboration, and innovation within the enterprise. With so many people involved in an enterprise, and with so many barriers that make communication hard and result in lack of communication between different groups, it also becomes hard for any group to paint the complete picture and thus also hard to make decisions that are in the best interest of the organization as a whole. I am pretty sure this is what happened at Nokia.

Sources

  1. Nokia reorganizes into four divisions”, Nokia press release, 2003
  2. "Nokia's New Coke moment? The Communicator software debacle”, Andrew Orlowski, The Register, 2007
  3. Nokia's Bad Call on Smartphones”, Anton Troianovski and Sven Grundberg, The Wall Street Journal, 2012


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