Culture: Why Nokia faltered?
In May 1865 a 27-year-old engineer obtained a permit and started a small pulp mill in a remote corner of his country. After a successful exhibition at the 1867 Paris World Fair, the young company started receiving orders from across Europe. Sensing an opportunity during World War 1, the company diversified into hydroelectric power generation. Afterward, it acquired a majority stake in a cable company. Soon telephone cables and equipment started driving sales for the entire company. Through all this, the management had centralized marketing and sales under a single brand. This enabled them to discard their previous diversification led approach and focus only on consumer electronics which they believed to be the next big industry. After a successful restructuring, the company went on to collaborate for the development of revolutionary technologies like Wireless Application Protocol, enabling the internet on mobiles, and Bluetooth, enabling wireless data transfer. By 2000, the company was among the 5 most valued technology brands in the world. The house was certainly built to last.
The case almost seems like a legend. However, what is even harder to believe is what happened after this. If you have not guessed it by now, the above story is that of Nokia Corporation.
What is culture and why is it important?
Culture is an abstraction, yet the forces that are created in social and organizational situations that derive from culture are powerful. If we don’t understand the operation of these forces, we become victim to them.
— Edgar Schein
In his seminal work ‘Organizational culture and leadership’, Edgar Schein argues that understanding culture is important because although powerful in its function and effects, it remains elusive in form. Just like the character of an individual, it is an accumulation of impressions. These invisible impressions affect an individual’s capacity to act with true discrimination. Similarly, the cultural elements of an organization impact it’s decisions across all levels. These impacts are hard to trace and this causal ambiguity is what makes it among the most important elements in an organization’s character.
Culture forms an essential part of corporate strategy. Concretely, the corporate strategy aims to estimate the probability of exploiting available market opportunities given certain capabilities and culture of the organization. For example, Apple an organization with a culture of integration would not participate in automobile space which demands a modular approach.
Schein provides a framework to precisely define elements of culture.
Artifacts: These are the visible aspects. Apart from the decor, architecture, and dominant colors, it includes the body language of employees, topics of conversation, and their behavior.
Espoused values: What elements the organization cares for to associate within its processes. Teamwork, integrity, customer obsession.
Shared tacit assumptions: Elements of the past that made the organization successful become deeply embedded in its structure and processes. They are not to be argued or questioned and must be taken at face value. It may arise out of the organization’s national background, core technology underlying the business, and the personalities of the founders.
Culture is a pattern of shared tacit assumptions that was learned by a group as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.
How leaders shape culture
Cultures are shaped by a multitude of factors in an organization’s environment. However, they can be broadly classified into two mechanisms:
People driven embedding mechanisms
- What leaders pay attention to, measure, and control regularly
- How leaders react to critical incidents and organizational crises
- Observed criteria by which leaders allocate resources and rewards
Process-driven reinforcement mechanisms
- Organizational structure, systems, and procedures
- Design of physical space, façades, and buildings
- Stories, legends, and myths about people and events
As the external and internal conditions of an organization change, so will the functionality or “ rightness ” of given cultural assumptions. Cultural elements then have to evolve with the evolving circumstances of the organization. Managing that cultural evolution is one of the primary tasks of leadership.
Change mechanisms
As old assumptions become outdated by technological disruptions, there is a need to revamp culture. Change mechanisms for organizations depend on the stage of their evolution.
- Early growth
- Groups evolve over a period of time. As their size grows, the same cultural assumptions tend to have a different meaning. Different functions are influenced by their specific environments and adapt broader culture to their particular needs.
- An insight into a dysfunctional cultural element can induce the organization to change. As teams grow in size, earlier cultural assumptions like discussion might become time-consuming.
- The most common mechanism is to fill key positions with people who are internal to the organization but have values and assumptions necessary for future growth.
2. Midlife
- Change can be initiated by introducing modern technology. Computers emphasized communication, common portals for administrative work emphasized operational efficiency.
- Introducing key leaders from outside and giving them independent charge of certain divisions. This induces them to form new subcultures which might become dominant over time if found successful.
3. Maturity
- When espoused values and reality are in conflict, scandals and whistleblowers play a key role in the explosion of myths. This initiates change by a widespread feeling of shame and emotion.
- To remove elements of culture that have become dysfunctional, organizations can adopt from acquisitions to create a blend of two cultures.
Nokia story
Between 1996 and 2000, the headcount at Nokia Mobile Phones (NMP) increased 150 percent to 27,353, while revenues over the period were up 503 percent. This rapid growth resulted in its core business to focus on incremental improvements providing short term gains rather than disruptive innovation. It’s mobile phone business ultimately failed due to an inherent contradiction between an industry that was moving towards platform-based systems, while Nokia was stuck with its product focussed structure. As software took precedence, Nokia was unable to shift its strategy of product differentiation through market segmentation. Nokia’s underlying assumptions that were formed on the basis of what had worked in the past did not fit well post 2004 and it was unable to unlearn and form a new culture in time.
