How are the mighty fallen. Once high-flying Nokia has sold its mobile handset operation to Microsoft. Computer maker Hewlett-Packard, a venerable Silicon Valley pioneer, has crashed out of the Dow Jones Industrial Index. It seems to be true, as a recent post on MIT Technology Review notes, that ‘the lifespan of great corporations is getting shorter and shorter’. Back in the 1950s, when a company made it on to the S&P 500, a roll-call of the corporate great and good, it could expect to stay there for 60 years. These days, on average it won't get out of its teens. But why?
‘Technological disruption could be one big reason’, opines the author – and it’s a view common to the point of cliche. Thus, Kodak's demise is always attributed to its being overtaken by the switch to digital; Palm, RIM and Nokia were leapfrogged by the iPhone and have never managed to catch up.
Yet let’s think for a minute. With a few exceptions – technology really has disrupted newspapers – blaming technology is no kind of explanation. It simply restates the problem. A more convincing, and down-to-earth, interpretation is that these companies failed to respond to changing markets because something in their internal organisation and culture didn’t let them.
One ex-Nokia manager cites a Finnish newspaper which points the finger squarely at the company’s stock option scheme for top and senior managers. In this narrative the options progressively corroded the culture from within, setting up debilitating competition between groups, people and platforms. Competition exacerbated divisions created when former chairman Jorma Ollila restructured Nokia's business in 2003 into three separate groups, each with its own budgets and targets. The snag was that market/customer demand had to go through each of these divisions. By 2006 it was apparent that lack of trust and bad blood had caused a breakdown of cooperation between people and divisions that was directly affecting the company’s markets. But by then it was already too late.
In his biography of Steve Jobs, Walter Isaacson describes a strikingly similar situation at Sony in the run-up to the launch of Apple’s iPod and iTunes. By rights, that market should have been wrapped up by Sony, which unlike Apple already had both the technology and the content to make it its own. It failed to act because it was paralysed by rivalries between divisions, something that Jobs had expressly legislated against by insisting on a single balance sheet and P&L. As one Nokia manager described the result: ‘Everyone had two personal targets per year (defined by the hierarchy, top-down); [the result was] you only did your own things that enabled personal bonuses even when the business environment changed dramatically’.
Moreover, says the insider, at operating level Nokia’s work design faithfully mirrored the traditional reductionist thinking evident in remuneration. Complex tasks were systematically broken down into multiple simpler subtasks. ‘But knowledge work is very different from assembly line work... There was no flow in the work because every small decision had be escalated to multiple steering groups (or steering groups of steering groups of steering groups), and decision making wasn't integrated with work. There could be weeks of waiting for the decision and for the time being, some other work had to be done to keep the “worker utilized”. Obviously, resource planning became a very complex task for the organisation’.
Another side-effect of this way of working became apparent when Nokia’s fortunes changed and it began laying people off. Highly reputed as it was, Nokia’s high-specialisation work design meant that engineers with 10 years of programming experience focused on, say, specific Bluetooth drivers in certain operating systems, and only used to following the specifications they were given, were not easily employable elsewhere.
In this light, the ‘technological disruption’ story looks like a lazy oversimplification. The real moral is more sobering. While rapid technological change means that more companies can ride the wave to the top, it also flatters managers (banking their huge option awards as they do so) into believing it was their own managerial genius that deserves the credit rather than the good fortune of being in the right place at the right time. The receding tide separates the firms that got the more boring but lasting things like reward and work design right from those that didn’t. In other words, the turning technology cycle just reveals how many companies simply weren’t that great, after all.