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ARTICLESTRATEGYHow Nokia Embracedthe Emotional Side ofStrategyby Timo O. Vuori and Quy Huy

STRATEGY

How Nokia Embraced theEmotional Side of Strategyby Timo O. Vuori and Quy HuyMAY 23, 2018

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

Recall that Nokia dominated the mobile and smartphone markets in 2007-2008 when Apple launchedthe iPhone and Google the Android operating system. The new rivals revolutionized customer

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expectations, causing Nokia’s Symbian operating system to become outdated. However, Nokia heldon to Symbian until 2011, when it eventually switched to Windows operating system, which alsounderperformed. Ultimately, Nokia initiated a radical strategic renewal in 2013 by divesting itsmobile phone business and focusing on manufacturing network equipment and software, patentlicensing, and opportunities in wearable technology and the internet of things. This bold strategicleap was, we found, in part facilitated by Nokia’s newly appointed board who actively attended to topmanagers’ emotions in 2012-2013. The emotional practices used by Nokia’s board should also behelpful 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 topmanagers and board had undermined the quality of strategic discussions after the iPhone andAndroid launches. In particular, top managers and even some board members were unable or afraidto voice their concerns about the severity of the threats and to develop a stronger response. As one ofthe top managers reflected on the period from 2007 to 2011: “A lot of the board members felt thatthey weren’t always encouraged to speak freely [at that time].”

The new chairman appointed in 2012 sought to improve strategic discussions by “breeding a newculture in the company — in the board, and between the board and the management team.” He wasexplicit that he did it “because things clearly weren’t working. […] If the board is a place where themanagement comes with knees trembling [i.e. feeling fear], a solution in their mind, that they needto 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 speakwith good intentions — and made sure that these rules were followed. For example, a board membertold us how, after he had made hostile comment to a top manager, the chairman made him apologizeto the top manager in the next meeting.

These actions increased trust and led to a more open dialogue about the company’s strategy. A topmanager told us: “With [the new chairman] we are not afraid, we don’t have to think about what wesay 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 thestrategic challenge from various perspectives, which helped in generating more options.

Practice #2: Reduce emotional attachment to the prevailing strategy by generatingmany new options – not just one alternative.In the past, Nokia’s top managers did not succeed in revising their strategy partly because they wereemotionally attached to the prevailing Symbian-based strategy. As a top manager noted: “No one onan emotional level wanted to think about it right away, even though [top managers] knewanalytically [that the prevailing strategy should be challenged]. The consequences were emotionallyburdening.” This inability to discuss the limitations of the prevailing strategy was partly fueled by theabsence of readily available alternative options. As another top manager reflected: “Even if you

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personally thought that ‘Damn it, this won’t work,’ you couldn’t shout that to anyone. Not untilthere’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 optionsit reduces fear.”

The continuous pressure from the board to generate and analyze multiple options disciplined topmanagers’ evaluation process — despite their own initial emotional impulses — and made themdevelop a deeper understanding of the situation: “The workload was so huge that if the board wasn’tconstantly 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 draggingthese other three out?’ That’s where the [new] board played an important role… to say, ‘No, we wantto look at all of them. We want to see them all the time. Let’s go back to the drawing board.’ Becausethat generates more information that helps formulate a [more thoughtful] decision.”

Practice #3: Nudge top managers to pay attention to data that conflicts with their gutfeelings.In the past, especially when Nokia was contemplating Windows or Android as the replacement forSymbian 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 caninfluence the game; instead of playing with the same Legos [Android] as everyone else.” And astrategy 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 tofailure’, 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 theprogress of the prevailing strategy in 2012-2013. Key sales numbers were followed regularly andspecific actions were defined for different projections of sales revenues, such that emotionalreactions to the incoming data would be less likely to bias the interpretation of the data. A boardmember explained how this helped them “to evaluate not only what will happen but also the deltacompared to our expectations, and then we were able to backtrack from there and see, what was thereasoning behind our expectations, which in turn enabled us to calibrate our reasoning.”

In addition, several options were thoroughly analyzed regardless of their initial seemingattractiveness. In particular, the option of switching from Windows to the Android operating systemin 2012-2013 — which many initially thought as the right move and would have allowed maintainingthe 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.”

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Likewise, top managers’ initial dislike of the option of buying full stake of the Nokia-SiemensNetworks — which was a joint venture between Nokia and Siemens that had been performing badlyfor several years due to difficulties in post-merger integration and industry conditions — wastransformed: “When [the CFO] presented that alternative for the first time [laughs], people weren’treally enthusiastic about it, right away. But after a few discussions, it looked reasonable, specificallyin terms of the financial metrics.” Ultimately, Nokia acquired Nokia-Siemens Networks in 2013, andstarted 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 themost difficult decisions in its history — to renew itself radically by divesting its main business. Whilethis move surprised outside observers, Nokia’s top managers strongly felt that this was the rightchoice: “It was of course the entire path […] All that time, we had gone through [the options] with afine-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 transformedtheir long-standing emotional commitment to their once world-dominant mobile phone businessinto 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 asmany assume. In fact, paying more attention to the soft stuff may help boards and top managementteams increase their ability to think strategically in times of major disruption and stress.

Timo O. Vuori is an assistant professor in strategic management at Aalto University in Finland.

Quy Huy is the Solvay Chaired Professor of Technological Innovation at INSEAD and Academic Director of the INSEADChina Initiative.

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