Tag: The Spider’s Strategy


The Joys and Perils of Dancing on a Knife’s Edge

February 25th, 2011 — 11:09am

The tumultuous crowds that brought down a dictator in Egypt had an unintended impact far from their homeland: they drowned out – rightfully! – the announcement of a strategic partnership between Nokia and Microsoft. I admire the Nokia I researched; yet I acknowledge it is currently in deep trouble. I have long disdained Microsoft for its product quality and its reliance on monopolistic power instead of innovation (sole exceptions: Xbox and Kinect; and yes, I admit that Office 2011 for the Mac is far better than iWorks!). So, what do I think of this alliance?

A key “prerequisite” question is: Do I still believe the ideas in The Spider’s Strategy? Absolutely! Toyota’s “unexpected acceleration” fiasco and its resultant recalls of millions of cars didn’t discredit Lean Enterprise. Why then, should Nokia’s recent challenges discredit Networked Organizations? Indeed, Nokia got into trouble because in the key area of product innovation, it stopped applying the ideas that powered its 17% compounded annual organic growth rate (in revenues and operating profits) from 1995 to 2006.

Nokia violated a subtle rule embedded in my third Design Principle, “Value and nurture organizational learning.” It used to learn rapidly by setting seemingly impossible targets that demanded the periodic reinvention its business model. Simultanneouly, to keep control, it insisted its managers follow a “no surprises” policy. This brilliant rule is the proverbial knife’s edge. Balance well, and you can pull off miracles. Tilt toward “big risk” and you can lose your shirt. Tilt toward “no suprises” and you will bring innovation to a screeching halt. As it grew, Nokia made the mistake many other large companies have: it tilted toward “no surprises.” So, unlike Apple, it didn’t build a network of complementary product makers to buttress its proprietary Symbian software. Unlike Google, it didn’t attract a different type of sustaining network by making Symbian open source – until it was too late.

The alliance with Microsoft was in the cards from the day Nokia’s Board appointed Stephen Elop CEO. Nokia’s press release spoke of a strategy to “build a new global mobile ecosystem” with Windows Phone software at its core; “capture volume and value growth to connect ‘the next billion’ to the Internet in developing growth markets;” and make “focused investments in next-generation disruptive technologies.”

The second element – a continued focus on markets like India and China – is an key, though the notoriously developed-world-focused financial analysts may not care. Apple has ignored these markets and Windows still has a true monopoly among operating systems. These facts, plus Nokia’s still dominant marketshare there, give the alliance a strong base on which it can build; Nokia can instantly create volume for the Windows Phone and a seemless integration with Wintel computers may give it an edge over low cost Chinese phone makers. At the very least, this element will buy the alliance time; at best, the “next billion” is a huge market. That’s where the first element is also critical.

To bring the alliance value, the goal of building a mobile ecosystem must truly assimilate the lesson of a recent The New York Times story about a start-up company that hoped to build a business around enabling group dates. The founders noted that the site’s users were mostly South or East Asians, but filed that fact away as “Interesting, but Unimportant.” Success came only when they reluctantly acknowledged that group dating wouldn’t fly in the US and shifted their focus to India. The world, as Thomas Freidman said, is flat. But that doesn’t mean people’s needs are the same everywhere. That’s why the word “global” in the language of this strategic element is troubling. Its use may seduce financial analysts, but unless an ecosystem to specific markets, it won’t amount to a hill of beans. At one time Nokia knew this lesson; it had had anthropologists in Indian villages whose work strengthened its market position there. Does it still remember that lesson and can it convince a monopoly to learn it too?

The third element is critical for the long term and most troubling: Will two companies who haven’t created any disruptive technology recently be able to do so in the near future? Nokia’s Chairman Jorma Ollila had championed the Networked Organization philosophy and as CEO, had managed its phenomenal growth. I could make a cogent case that he and the Board had no choice but to create the alliance with Microsoft. (Which would explain why they pursued Mr. Elop in the first place.) Now, he must ensure that Mr. Elop realizes that his most critical tasks are (1) putting into leadership positions those within Nokia who are still capable of dancing gracefully on a knife’s edge and (2) using his deep knowledge of Microsoft to convince Mr. Ballmer to do the same. Then, and only then, will the alliance succeed. If so, I may one day become once again an enthusiastic customer of both companies.

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