PART 1

       ORGANIZATIONS THAT WIN: HOW THEY’RE NIMBLE, FOCUSED, AND FEISTY

3

       THEY POSITION TO PIVOT

      NOKIA, the Finnish telecommunications company, was originally founded in 1865 in Tampere, Finland, as a ground-wood pulp mill. Over the years, the company periodically added a number of other business areas to its portfolio, including forestry, cable, rubber, tires, footwear, plastics, chemicals, power generation, and eventually electronic devices. However, it was Nokia’s entrance into the mobile-phone market that changed everything and made Nokia the brand we know today.

      In 1992, new CEO Jorma Ollila was so convinced that Nokia’s future was in telecommunications, he made the strategic decision to divest the company of all of its non-telecommunications enterprises. So, during the course of the 1990s, Nokia sold off its legacy cable, consumer electronics, and rubber divisions and put its focus squarely on mobile telecommunications. By 1998, Nokia had surpassed its rivals in this fast-growing industry and became the largest mobile-phone manufacturer in the world. Revenue grew from 6.5 billion euros in 1996 to 31 billion euros in 2001, and the company could seemingly do no wrong.

      Then, in 2007, Apple introduced the iPhone.

      Apple’s vaunted capability for innovation and new product development made Apple the winner and Nokia the loser. Apple disrupted the industry. Nokia was late to the game. The iPhone ate up mobile-phone market share and forced other manufacturers to play catch-up. Nokia wasn’t able to do so successfully and announced its intention to sell off its mobile-phone division to Microsoft in 2013.

      Or so the story goes.

      The problem with this narrative—much like the story of Blockbuster in chapter one—is that Nokia was actually ahead of Apple in the smart-phone market. A few years before Apple introduced the iPhone, Nokia research engineers unveiled a prototype of an internet-ready, touchscreen mobile-phone handset with a large display that they thought would give the company a significant advantage in the fast-growing smartphone market. In 2004, at its headquarters in Finland, the company demonstrated it to customers as an example of what was in the company’s pipeline; it was greeted with much excitement and anticipation.

      What happened then? A stunning series of cultural flops led to complete and total reversal.

      Management at Nokia worried that the product would be costly and risky. A former employee, Ari Hakkarainen—a manager responsible for marketing on the development team for the Nokia Series 60, then the company’s premium line of smartphones—explained in a New York Times interview why the company did not pursue development.

      “It was very early days, and no one really knew anything about the touchscreen’s potential,” Mr. Hakkarainen explained. “And it was an expensive device to produce, so there was more risk involved for Nokia. So management did the usual. They killed it.”¹ For a large and prosperous organization, there simply wasn’t a taste for pursuing possibility over profitability. Hakkarainen went on to say that the biggest obstacle for the company was without a doubt its stifling bureaucratic culture. In subsequent interviews with a Times reporter, Hakkarainen and other former employees depicted an organization so swollen by its early success that it grew complacent, slow, and removed from consumer desires. As a result, they said, Nokia lost the lead in several crucial areas by failing to fast-track its designs for touchscreens, software applications, and 3-D interfaces.

      In other words, it’s not that Nokia lacked the innovation capabilities or the talent to come up with new, breakthrough products. Rather, it lacked an organizational culture to support these ideas. According to Adam Greenfield, a former Nokia employee, Nokia’s problem is not, and never has been, that it lacks creative, thoughtful, talented people, or the resources to turn their ideas into a shipped product. The problem with Nokia is that the company is fundamentally, and has always been, organized to trade in commodities. Think back to Nokia’s roots. Whether those commodities were stands of timber, pallets of paper, reels of cable, pairs of boots, or cheap televisions for deployment in hotel chains, much the same basic logic applied: acquire, or manufacture, great quantities of a physical product for the lowest achievable cost, and sell for whatever the market will bear. This worked with mobile phones up until the point when customers considered them as so much more than communication devices.

      Nokia fought back and tried a variety of different strategies to stem the tide, including entering into an alliance with Microsoft to produce Windows phones, but the decline continued and the company was forced to announce several rounds of layoffs. On April 25, 2014, Nokia sold its mobile-phone business to Microsoft for 5.44 billion euros.²

      Behind the story, the rise of Nokia and the subsequent demise of the company we knew rested on its ability and failure to pivot.

      ESTABLISHING A TRIPLE THREAT

      Nimble organizations have a distinct ability to innovate. They do so by deliberately structuring and positioning themselves either to pivot toward new opportunities or to counter forces that might otherwise diminish their competitiveness. This first mode of innovation is a way of going on offense—organizations pivot to create new products, services, or markets. The second mode is a form of defense—organizations hold off competitors or preserve the value of their offerings by improving performance or otherwise shoring up their market position.

      Leading a sizable and established organization today is a daunting task, given the critical need for flexibility, innovation, and rapid reaction to sudden changes in the market or the competitive or technological environment. It seems appreciably easier for an organization to be fast and adaptive when its culture is young, its market is immature, its founders and people are entrepreneurial, and its customers are fickle and demanding. Indeed, I have found that many (but importantly not all) NFF organizations are new-economy companies in their first or second generation of leadership.

      And yet, in truth, it is difficult for any organization, large or small, upstart or market-leader, to pivot.

      The modern concept of the “pivot” was actually coined by a venture capitalist and author of The Lean Startup, Eric Ries, in 2009. Ries was talking about the challenges that startups face in deviating from their original vision to seize new and better opportunities. Focused relentlessly on that vision or the process of building and directing their organization, the founders or leaders avoid distractions that might impede momentum or energy, even turning aside customer feedback that can get in the way.

      “So how do you know it’s time to change direction?” Ries asks. “And how do you pick a new direction?”³

      Ries observes that unsuccessful startups either avoid such discussions and decisions entirely and fail to change, or they jump too completely or unthinkingly from one vision to another. The latter kinds of changes are just as risky because they “don’t leverage the validated learning about customers that came before.”⁴

      As an alternative, Ries introduces the concept of the pivot, “the idea that successful startups change directions but stay grounded in what they’ve learned. They keep one foot in the past and place one foot in a new possible future. Over time, this pivoting may lead them far afield from their original vision, but if you look carefully, you’ll be able to detect common threads that link each iteration.”⁵

      A pivot, then, is neither a wholesale change nor