Risto Siilasmaa wasn’t an obvious choice to take over as chairman of Nokia after Jorma Ollila finally stepped down in May 2012. Ollila acknowledged in his subsequent memoir that he had made mistakes by failing to predict changing customer needs and developing new software. Disruption in the tough environment of global mobile phone development – and an inability to keep in step – had precipitated his downfall.
So the 45-year-old Siilasmaa had much to do. He certainly had the right credentials: an entrepreneurial background from tech business, serving several years as chairman of a telecom operator, a master’s degree in engineering and four years’ experience serving on the Nokia board.
At the time Siilasmaa took over the helm at Nokia the health of the former Finnish handset giant was dire. During the first half of 2012, operating losses ran to €2 billion, cash flow was strongly negative and sales were down 26 per cent.
And yet today under Siilasmaa’s stewardship, Nokia is a thriving network infra¬structure provider, number two in the global market. The share price has more than tripled over the past three years and its enterprise value has multiplied by more than 15 times.
A huge transformation
So what happened? Most visibly Nokia has done three bold, strategic deals: the sale of its handset business to Microsoft, the acquisition of the remaining 50 per cent share in Nokia Siemens Networks from Siemens and the acquisition of Alcatel-Lucent. And behind these deals lies a vast amount of work, including more than 100 board and board committee meetings.
“It has been a huge transformation and the board has made difficult decisions,” says Siilasmaa, referring especially to the sale of Nokia’s handset business, in September 2013. “But difficult decisions can be made easy when you do a load of analysis and iterative thinking. By the time the deal was signed we were certain it was the right decision.”“But difficult decisions can be made easy when you do a load of analysis and iterative thinking. By the time the deal was signed we were certain it was the right decision.”
What Siilasmaa needed to do with both Nokia and its board was to build up trust and encourage open discussion. “No news is bad news, bad news is good news, good news is no news”, is his slogan for internal corporate communication.
“Everything culminates with trust,” says Siilasmaa. He started his tenure as chairman by giving everybody in the board a set of five Golden Rules to follow. “Always assume the best of intentions from others,” goes the first rule. Siilasmaa and his board knew that they had to instigate change but what kind would it be?
“We started a scenario analysis and checked out all possible alternatives. It was like a tree: some branches were cut off but new ones were growing to replace them.”
Fellow board members praise Siilasmaa for his ability to ensure that everyone has their views heard and even the most difficult topics are openly discussed.
“I knew Nokia was a turnaround story but I didn’t know how bad things were before the first board meeting,” says Bruce Brown, former Procter & Gamble CIO. He joined the board when Siilasmaa started as chairman. “Risto has done an amazing job managing the board and never avoids tough challenges.”
“Curious, tech-savvy and a little bit idealistic, at least compared with me,” says Jouko Karvinen, former CEO of Stora Enso a Finnish pulp and paper manufacturer. “He puts more time and effort into the job than any other chairman I’ve met. He’s not into formalities and he’s not trying to walk on water, which is good.”
Negotiating with Microsoft
The next big deal happened before the sale of handsets was announced, but the two were intertwined. When Nokia was negotiating with Microsoft about the deal, it also managed to get a loan from the prospective buyer.
“This was the funding Nokia used to buy back the Siemens share of NSN. We had an agreement that we would have got the money even if the handset deal didn’t go through,” says Siilasmaa.
NSN had been struggling for several years after the merger in 2006, but it had eventually turned into a growing and profitable business. So it made sense to use it as the core of a new strategy. Until August of this year it was supported by two brands, Nokia Technologies, which describes itself as “a leading innovator of the core technologies enabling the Programmable World, where everything and everyone will be connected,” and, until August of this year, its mapping and location business HERE. But then Nokia sold HERE to a consortium of German carmakers for US$3.07 billion allowing it to focus on the Alcatel-Lucent acquisition.
During his term as chairman, Siilasmaa also served as an interim CEO for eight months in 2013-2014. The sale of the handset operation to Microsoft was then in progress. It had been announced that CEO Stephen Elop would be switched to work for Microsoft once the deal was concluded, and the search for the new CEO was under way.
“As CEO it was my goal to achieve five distinct objectives: create a new vision for Nokia, build a strategy to implement the vision, choose the right organisational structure to drive the execution of the strategy, pick the best CEO to lead the organisation, and announce what kind of a balance sheet we would be aiming at.”
With Networks as the core of the new Nokia it was natural that the former CEO of NSN Rajeev Suri should be elected to lead the whole company. “We want people with not only professional skills but also an understanding of our corporate culture,” says Siilasmaa.
The first meetings with Alcatel-Lucent took place already during the closing period of the Microsoft deal, but the board carried out another rigorous analysis process and went through all other possibilities as well.
Siilasmaa believes the deal is driven by changing customer needs. As in many other businesses, even the network operators will in future buy service as a whole rather than separate technologies. For Nokia this means that it needs to have a deep understanding of all kinds of networks. So far it has been a specialist in mobile broadband networks.
“We’re not primarily looking for economies of scale but economies of scope,” says Siilasmaa. “With Alcatel-Lucent we have created the only company with significant global business on all the different network technologies: fixed and mobile broadband, internet routing and software defined networking and cloudification.”
The €15.6 billion Alcatel-Lucent deal is the biggest in Finnish business history. “What we need to do first,” says Siilasmaa, “is get through this interim period as fast and efficiently as possible. The longer it takes the more painful it gets,” obviously remembering how the closing of the Microsoft deal lingered on and on.
When the deal is done, Nokia is determined to avoid the problems it met with Nokia Siemens Networks merger, when both parties were treated as equals and different corporate cultures clashed head on. The aftermath lasted for years and business suffered.
“We didn’t want a merger of equals, this is a buyout. We are going to seek the best solution to any problem based on meritocracy, and not pay attention to nationality. The decisions will be made under clear governance: the chairman and the CEO will come from Nokia.”
Market reaction to the proposed deal was not overly positive and slightly disappointing Nokia Q1 earnings right after the news ensured that the stock price went down. But Q2 profit was back on track: it exceeded expectations and all three business units were doing well.
Siilasmaa says short-term stock price changes don’t affect Nokia’s strategy.
“This deal is based on a careful analysis of the expected market dynamics over the next 10 years. We are participating in a marathon not a 100 metre race.”
Photo by Juho Kuva
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