How Nokia Embraced the Emotional Side of Strategy

May 23, 2018 Timo O. Vuori

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How do emotions shape strategy making? We investigated this topic when we studied how Nokia executives dealt with the company’s severe strategic challenges between 2007 and 2013. As part of this research, we conducted 120 interviews, including nine with board members and 19 with top managers.

Recall that Nokia dominated the mobile and smartphone markets in 2007-2008 when Apple launched the iPhone and Google the Android operating system. The new rivals revolutionized customer expectations, causing Nokia’s Symbian operating system to become outdated. However, Nokia held on to Symbian until 2011, when it eventually switched to Windows operating system, which also underperformed. Ultimately, Nokia initiated a radical strategic renewal in 2013 by divesting its mobile phone business and focusing on manufacturing network equipment and software, patent licensing, and opportunities in wearable technology and the internet of things. This bold strategic leap was, we found, in part facilitated by Nokia’s newly appointed board who actively attended to top managers’ emotions in 2012-2013. The emotional practices used by Nokia’s board should also be helpful for other organizations under stress.

Practice #1: Increase trust by defining new conversational norms.

Several top managers and board members confided to us that, in the past, low trust between top managers and board had undermined the quality of strategic discussions after the iPhone and Android launches. In particular, top managers and even some board members were unable or afraid to voice their concerns about the severity of the threats and to develop a stronger response. As one of the top managers reflected on the period from 2007 to 2011: “A lot of the board members felt that they weren’t always encouraged to speak freely [at that time].”

The new chairman appointed in 2012 sought to improve strategic discussions by “breeding a new culture in the company — in the board, and between the board and the management team.” He was explicit that he did it “because things clearly weren’t working. […] If the board is a place where the management comes with knees trembling [i.e. feeling fear], a solution in their mind, that they need to sell to the board, that would be a complete disaster.” The board defined concrete “Golden Rules” for board discussions that included showing respect to other members and assuming that they speak with good intentions — and made sure that these rules were followed. For example, a board member told us how, after he had made hostile comment to a top manager, the chairman made him apologize to the top manager in the next meeting.

These actions increased trust and led to a more open dialogue about the company’s strategy. A top manager told us: “With [the new chairman] we are not afraid, we don’t have to think about what we say too much. It’s pretty easy to discuss things with him and throw in ideas and think out loud. With [the old chairman], this wouldn’t even have crossed my mind.” Hence, they were able to consider the strategic challenge from various perspectives, which helped in generating more options.

Practice #2: Reduce emotional attachment to the prevailing strategy by generating many new options – not just one alternative.

In the past, Nokia’s top managers did not succeed in revising their strategy partly because they were emotionally attached to the prevailing Symbian-based strategy. As a top manager noted: “No one on an emotional level wanted to think about it right away, even though [top managers] knew analytically [that the prevailing strategy should be challenged]. The consequences were emotionally burdening.” This inability to discuss the limitations of the prevailing strategy was partly fueled by the absence of readily available alternative options. As another top manager reflected: “Even if you personally thought that ‘Damn it, this won’t work,’ you couldn’t shout that to anyone. Not until there’s an option. You need to have a [viable] option before you can change course.”

In 2012, the new board was explicit in that the creation of new options can change top managers’ emotions toward the prevailing strategy: “We did a huge amount of work to analyze those options, which helped to reduce emotional attachment to the current strategy […] If you have several options it reduces fear.”

The continuous pressure from the board to generate and analyze multiple options disciplined top managers’ evaluation process — despite their own initial emotional impulses — and made them develop a deeper understanding of the situation: “The workload was so huge that if the board wasn’t constantly asking for more scenario analysis, there was a risk that the management would just say, ‘We’re so f***ing tired. Isn’t it obvious that these two are the main alternatives? Why are we dragging these other three out?’ That’s where the [new] board played an important role… to say, ‘No, we want to look at all of them. We want to see them all the time. Let’s go back to the drawing board.’ Because that generates more information that helps formulate a [more thoughtful] decision.”

Practice #3: Nudge top managers to pay attention to data that conflicts with their gut feelings.

In the past, especially when Nokia was contemplating Windows or Android as the replacement for Symbian in 2011, some top managers had been blinded by wishful thinking. A top manager said: “There was the bias to wanting to be a market leader. […] We believed that with Windows you can influence the game; instead of playing with the same Legos [Android] as everyone else.” And a strategy director elaborated: “All outsiders thought that the Windows Phone would not succeed. […] The rational [side of thinking] led to, ‘Well I don’t believe in the Windows thing so this is doomed to failure’, whereas if you yourself believe that the Windows thing might have a chance […] then this [seems like a] better solution.”

To avoid similar wishful thinking, the new board required detailed attention to data about the progress of the prevailing strategy in 2012-2013. Key sales numbers were followed regularly and specific actions were defined for different projections of sales revenues, such that emotional reactions to the incoming data would be less likely to bias the interpretation of the data. A board member explained how this helped them “to evaluate not only what will happen but also the delta compared to our expectations, and then we were able to backtrack from there and see, what was the reasoning behind our expectations, which in turn enabled us to calibrate our reasoning.”

In addition, several options were thoroughly analyzed regardless of their initial seeming attractiveness. In particular, the option of switching from Windows to the Android operating system in 2012-2013 — which many initially thought as the right move and would have allowed maintaining the company’s identity as a smartphone maker — was ultimately rejected based on data analysis: “Through this analysis, little by little, the truth kind of stared you in the face.”

Likewise, top managers’ initial dislike of the option of buying full stake of the Nokia-Siemens Networks — which was a joint venture between Nokia and Siemens that had been performing badly for several years due to difficulties in post-merger integration and industry conditions — was transformed: “When [the CFO] presented that alternative for the first time [laughs], people weren’t really enthusiastic about it, right away. But after a few discussions, it looked reasonable, specifically in terms of the financial metrics.” Ultimately, Nokia acquired Nokia-Siemens Networks in 2013, and started expanding the networks business, also acquiring Alcatel-Lucent in 2015.

In sum, these three emotion regulation practices helped Nokia senior executives to make one of the most difficult decisions in its history — to renew itself radically by divesting its main business. While this move surprised outside observers, Nokia’s top managers strongly felt that this was the right choice: “It was of course the entire path […] All that time, we had gone through [the options] with a fine-toothed comb […] Since we had left no stone unturned, there was no longer anywhere to hide; you couldn’t say, ‘No, we still have to take time out and think about this or that.’” They transformed their long-standing emotional commitment to their once world-dominant mobile phone business into a voluntary and thought-through radical departure from their former identity and pride.

Managing people’s emotions is often referred to as the “soft stuff,” while questions of strategy are the “hard stuff.” But our deep dive into Nokia’s experience shows that these two aren’t as separate as many assume. In fact, paying more attention to the soft stuff may help boards and top management teams increase their ability to think strategically in times of major disruption and stress.

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