years of success can produce an unjustified degree of self-confidence and lead to the misguided belief: ‘We can do it all.’”
Dr. Iris Löw-Friedrich, Executive Vice President and Chief Medical Officer, UCB
What Goes Up Must Come Down? A Look at the Fortune 500
Every year, Fortune magazine publishes the list of the top 500 companies. On this list appear the “big players,” those companies with the highest revenue in the world. And yet, hardly any of these organizations manage, consistently, to maintain their ranking among the titans. Could it be that the moment of greatest triumph is also the moment of greatest vulnerability? Does every extraordinary success carry with it the seeds of its own destruction? Must everything that goes up eventually come down? If global empires can collapse and advanced civilizations like the Incas’ can melt away into irrelevance in a matter of a few years, how on earth can our current business leaders and managers have any confidence that today’s success can be sustained into the future? More importantly, are there any warning signs of impending doom? Of course, these are not just questions for big businesses. After all, we all know of start-ups that demonstrate meteoric growth before failing equally spectacularly, as well as more traditional family businesses that flounder, seemingly without warning, after many decades of success.
Ask a modern-day cellphone-savvy teenager what he thinks about Nokia and he will most probably give you a blank stare. Er…who? Nokia? Just a few years ago, this Finnish company ranked among the giants of the business world and dominated the global market for mobile telephones from 1998 to 2011. In 2004, Nokia made it into the top third of the Fortune 500, coming in at number 122. A small country with around five million inhabitants was the home of an undisputed leader in a key and growing global sector.
The story of Nokia reads like a Hollywood script. It is 1865, we are in the south of Finland, and an engineer called Fredrik Idestam builds a paper pulp factory on the banks of the Nokianvirta; he calls it Nokia. About thirty years later in 1898, Eduard Polón sets up the Finnish Rubber Works to manufacture rubber boots and tires. Another fifteen years go by, and Arvid Wickström establishes the Finnish Cable Works. From 1963 onward, the Cable Works manufactures wireless telephones for the army. The three businesses have already been working closely together for forty-five years when they merge to form the technology firm Nokia in 1967. The core businesses of forestry, rubber, cabling, electronics, and electric power generation are continued until deregulation of the European telecommunications market in the 1980s creates new opportunities. With the birth of the Scandinavian mobile phone company NMT (Nordic Mobile Telephone), Nokia manufactures the world’s first mobile car phone in 1981 and, from 1987 onward, focuses on mobile phones and grows exponentially. Other business areas like rubber, cabling, and electricity generation are hived off. The business keeps the consumer happy with technological innovations such as the “Communicator” (an early form of smartphone) and floods the market with sturdy and affordable mobile phones for the masses. In 2002, one in three mobile phones sold on the planet is a Nokia (market share of 35.8 percent), only one in six is a Motorola (15.3 percent), and fewer than one in ten is a Samsung (9.8 percent). For a long time, the highest selling mobile phone was the Nokia 1100, selling more than 250 million phones up to 2013.
To the world, Nokia, with its headquarters in Espoo, Finland, appears invincible. Unfortunately, the company, too, starts to believe itself unbeatable. As Nokia reaches the pinnacle of its economic might, new competitors start to join the fray. When the first flip phones come onto the market in 2004, Nokia sticks with its tried-and-trusted designs. And when Apple launches the first smartphone with a touchscreen in 2007, CEO Olli-Pekka Kallsvuo describes the iPhone as a “niche product.” In November of the same year, the front cover of Forbes magazine, complete with a picture of a rather self-satisfied looking Kallsvuo, asks the question: “One billion customers—Can anyone catch the cell phone king?”
Nokia’s developers continue to come up with new ideas and pioneering products—for example, the first mobile phone with camera (Nokia 7650) or the Internet Tablet 770—but the organization is too slow and cumbersome to respond and is perhaps blinded by the accolades in the press. To make matters worse, a dispute breaks out among board members. Should they accelerate smartphone development or stick with making cheap handsets? Their long-serving head of the business in Germany describes the scene as “the very picture of a huge bureaucracy, populated by mobile phone functionaries with jobs for life.” At the beginning of the ensuing crisis, we can learn a lot about the nature of the problems by looking at how the employees of one of their larger European affiliates used dark humor to rename their meeting rooms. “Helsinki,” “Berlin,” and “London” became “Won’t Work Here,” “Will Never be Approved,” and “Global Wants It.” (“Global” refers to the company’s monolithic headquarters in Finland.)
As quickly as it had forged ahead in the previous ten years, the company now heads into decline. Nokia’s market share starts to slump in 2008 and, from 2011 onward, the business operates at a loss. A cooperation agreement is put in place with Microsoft in the same year. Its own operating system is to be ditched and Nokia mobile phones will run on MS Windows. The rest of the market looks on in amused disbelief and jokes about the two rusty old battleships heading off into the sunset together. The Nokia products are no match for the Apple iPhone or for the Android phones made by Samsung, LG and other manufacturers, and two years later, Microsoft takes over Nokia’s mobile phone business. The trade magazine connect commented, “The Finnish mobile phone phenomenon has come to an end.” Nokia positions itself today as a leading supplier of network technology. Since 1999, its share price graph looks like the outline of a mountain range, with dizzying heights around the turn of the millennium and flatlining from 2009 onward. Anyone buying a Nokia share in 2000 had to pay more than sixty dollars. By mid-2019—and for the five years before that—the share price has stagnated at around six dollars.
Those familiar with the history of the Incas will see plenty of parallels with the Nokia story. In both examples, a small nation changes the world because it is more inventive, more disciplined, and—at least, at first—more successful than the competition. Both are able to seize the moment. The growth catalyst for Nokia was deregulation of the mobile phone market, combined with know-how in wireless telecommunications. For the Incas, it was a period of unusually cold weather in the Andes and along the Pacific coast, around 1100, which allowed their superior know-how in agriculture, irrigation, and farming techniques to come to the fore. While other tribes abandoned the cold hills, and drought on the Pacific coast combined with very heavy rainfall elsewhere led to migration and conflicts, the Incas stayed true to their motto: “Bring Order to the World.” They carved out thousands of terraces on steep slopes, built irrigation systems, and diverted rivers. They only planted crops that were appropriate for the prevailing climate, cultivating a variety of potato that easily lends itself to freeze-drying, for example. The Inca expansion was, to a large extent, built upon farming techniques which led to agricultural and thus economic success.
Just like the Finns, who enjoyed worldwide success with their reliable and affordable technology, the Incas exported their successful agricultural methods into neighboring lands and thereby gained more and more influence. Their Golden Age started in the reign of Pachacutec Yupanquis (1438–1471) and brought large land gains. But just like the Finns, who could hardly imagine that their run of success would ever come to an end, the Incas stuck with tried-and-trusted solutions when confronted with an opponent who played by a completely different set of rules. Just as Nokia, with its wide range of affordable products, simply could not imagine losing its market leadership to Apple, with its single, expensive product, so the Incas found it impossible to adapt to an opponent who was not to be caught out by their hitherto successful approach of offering the choice between a “friendly” takeover or being forced into submission. The Spanish conquistadors, led by Francisco Pizarro, had arrived.
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