My last article comparing Nokia's (NOK) turnaround to Ford's (F) recent turnaround received a lot of responses. One of the main causes of concern was whether the two companies were actually comparable. Also, another important point made by the readers was whether Nokia's CEO Stephen Elop had the sufficient qualities to be as successful as Ford's (F) CEO Alan Mulally did. This article will hopefully address this concern.
I believe that Stephen Elop and Alan Mulally have a lot in common. At least, it is safe to say that the two minds think alike. This is easily noticed when we look at Ford's turnaround a few years ago and Nokia's ongoing turnaround. There are some striking similarities between the two stories, showing us that the two men have very similar mentalities.
The first step of every turnaround is noticing that something is wrong, coupled with a sense of urgency to take action. Alan Mulally probably passed through this stage around the mid part of 2008. Mr. Elop also passed through the same stage around last summer. Both men realized that their companies weren't moving in the right direction and that something had to be done fast. Products of either companies were falling behind the competition, the cash reserves were melting and things didn't look like they would correct themselves.
The second step of turnaround is usually planning the actual turnaround. This stage played out very similarly in both Nokia and Ford. Both companies primarily decided to focus on three things: 1) cutting costs, 2) improving quality of the products substantially, 3) improving the image of the company in front of the consumers of the world. Cutting costs would include measures such as laying off employees and closing off plants.
Interestingly, both companies decided to keep spending large amounts of money for their research and development departments during the turnaround. Even when things were in the worst shape for Ford, the company still continued to invest in research, exactly the same thing Nokia has been doing. Also, both companies launched new products along with new marketing campaigns to make sure that the customers are actually noticing the changes the companies are going through. It takes a lot of time, money and resources to change a company's image in people's eyes, and Nokia is now in this stage where Ford was a few years ago and people's perception of Nokia phones is slowly changing.
The third step of the turnaround is actually implementing the plan. In this stage, Ford and Nokia also have many things in common. For example, Ford decided to move some of its North American plants to countries like India where costs are considerably lower. Similarly, Nokia decided to move some of its European plants to Asia and build a brand new plant in Vietnam. Ford decided to form a partnership with Microsoft (MSFT) for the software in its cars; similarly Nokia formed a similar partnership with the exact same company. It's obvious that Stephen Elop and Alan Mulally's minds think alike. I also noticed that both CEOs have a sharp tongue- which might or might not be a good asset depending on time and situation.
Of course, Mr. Elop has made some mistakes too. For example, some may say that his partnership with Microsoft (MSFT) that limits Nokia to Windows phones is bad for the company. This is because the company will not be able to make money off the software business anymore and it will not be able to produce phones running in alternative platforms. On the other hand, this partnership will earn Nokia $1 billion annually, receive Microsoft's full backing, and give it the lion's share when Windows 8 phones and tablets are released. Also, it's important to note that there was already a lot of competition in other platforms. The smartphone industry is big enough to allow more than a couple of platforms.
Since Mr. Elop joined Nokia, the company has been more serious about many things. For example, now Nokia is more serious about pursuing companies that are violating its patents. Mr. Elop is trying to squeeze every dollar he can out of the company while cutting costs and making the company a leaner and more efficient company. Some may even say that he's creating a whole new company from what is left from good old mighty Nokia. Now Nokia has fewer layers in many of its departments, and the company's sales team is directly reporting to its marketing team. This will allow a far more efficient cooperation between the two teams, allowing marketing to be more focused and sales activities to be more relevant to the marketing activities. This is a huge step for the company and many people seem to underestimate this step. Fewer layers and less bureaucracy will allow for efficiency at all levels.
Many people blame Elop for the problems Nokia is facing, but the problems started far before he joined the company. If you look at Nokia's products prior to Elop and after Elop, you will see huge differences. I think Nokia's CEO is currently doing a fine job of diagnosing the company's problems and taking actions to address these problems. The company is getting leaner, the products are getting better, and the company is marketing its products more efficiently.
As we speak, the Windows Phone is gaining market share in almost every country. Interestingly, Lumia 900 is being advertised heavily by AT&T (T). For example, the phone's advertisement appears as soon as one enters in AT&T's website. The next couple quarters will be very interesting for Nokia as the company will return to profitability and launch new products including a tablet.
On a side note, Nokia has made a profit in 5 out of the last 6 years. Many people don't notice this detail and continue to believe that Nokia has been losing money for years. The company was profitable all the way until 2011 and it will become profitable in the second part of this year unless something goes terribly wrong.
To answer the question in the title, Stephen Elop can become an Alan Mulally if he successfully turns the company around. If we compare Nokia's current turnaround with the first 6 months of Ford's turnaround, there are many encouraging similarities to convince me that the outcomes will be similar.