Technology

The general takes control

An exclusive chat with Stephen Elop, the Canadian fighting to save Nokia.

(Photo: Aki-Pekka Sinikosk)

Ask Stephen Elop to describe a perfect Saturday night, and you can tell Nokia’s new CEO is a Canadian. The evening starts with a family feast from Swiss Chalet. The menu includes salad with house dressing, quarter- chicken dinners with white meat and fries. Two roasted birds are required since Elop and wife Nancy have a 20-something son, a teenage daughter and triplet tween girls. The night ends around the boob tube, watching hockey. Elop is a native of Ancaster, Ont., a historic Hamilton hamlet, so rooting for the Maple Leafs isn’t an option. The perfect outcome, he says, is “Vancouver 3, Toronto 0.”

The Elops are not spending a lot of quality time together these days. The availability of dear old Dad has been an issue since September, when the 47-year-old quit his former gig as head of Microsoft’s business division in Redmond, Wash., and moved to snowy Espoo, near the Finnish capital of Helsinki, where he is currently trying to save the world’s largest mobile phone company from itself. Nokia, which generated about US$60 billion in revenue last year, has been the leading global producer of mobile phones since 1998. “The company,” says Christian Lindholm, a former Nokia product designer known as the godfather of mobile in Finland, “is digital Coca-Cola. The brand is available everywhere.” But Nokia has lost what the Finnish call sisu—which translates into an ability to endure extreme challenges. Less than a decade ago, it appeared set to overshadow Microsoft as the tech world’s new dominant gorilla, with innovative mobile devices that blurred the line between telephony and computing. The company developed an iPhone-like product before the release of Apple’s own touch-screen device in 2007, as PCs give way to mobile devices, the smartphone market is heating up. But Nokia is widely seen as an also-ran in the highest end of this industry segment. This is especially true in the lucrative North American market, where the real competition is between Apple, Research In Motion and phones from companies like Samsung that run Google’s Android operating platform.

According to the International Data Corp., 101 million smartphones shipped during the fourth quarter of 2010, an increase of 87% over the same period in 2009. Nokia still led the pack, selling 28 million units, well ahead of Apple and RIM, which shipped 16 million and 15 million respectively. But Q4 sales of Apple, RIM and Android phones (all of which have higher margins) grew more. The Finnish company’s market share fell to 28%, down more than 10%.

Elop’s job is to reverse the trend. In hockey terms, he aims to help Nokians “skate where the puck is going,” meaning the market’s growing high end. But proud employees are not sure what to make of their first non-Finnish team captain. In February, Elop issued a memo comparing the company to a person on a burning deep-sea oil platform. Previous management, he said, fought the blaze with gas. “The first iPhone shipped in 2007,” Elop wrote, “and we still don’t have a product that is close to their experience. Android came on the scene just over 2 years ago, and this week they took our leadership position in smartphone volumes.” Meanwhile, Nokia’s market share for so-called dumbphones is being attacked by Chinese companies that crank out cheap devices in the time it takes Nokia “to polish a PowerPoint presentation.” Thanks to this “unbelievable” reality, Elop said the company faces an almost certain death unless it takes a bold jump into an uncertain future.

A few day later, Nokia announced a partnership with its old rival. Microsoft’s Windows 7 software will now replace the Finnish company’s operating systems on high-end smartphones. Elop insists the battle is no longer about devices. It is “an ecosystem to ecosystem war in which an ecosystem includes not only the hardware but the software, services, developers, advertising and partners that create a great mobile experience.” Nokia—which opened an online store for applications before Apple—tried going it alone. That strategy failed. The partnership with Microsoft is meant to put both companies in the game by stimulating third-party interest in the development of applications and services for “Windokia” phones, or “Nokidows.” Nevertheless, hundreds of Nokia employees feel betrayed. The naysayers question experience in charge of the fight with Apple and Google. They claim Nokia needs a “product obsessive” like Steve Jobs, not someone with Elop’s bumpy career history. “He’s a jumper,” insisted one online post, “more politician than manager, a man always on the run with his pockets full of money. How can this be good?” Other critics suggest the company would be better off returning to its roots as a forestry company and rubber-boot manufacturer, or selling “actual Androids to Finnish schoolchildren.”

Market reaction to Elop’s appointment as Nokia’s leader was positive, but the stock dipped on news of his Microsoft gambit. And yet, plenty of industry folks still think he is the right man for the job. “Nobody will work harder at Nokia,” says executive coach Stephen Miles, who has helped the McMaster computer engineering grad hone his executive skills for years. “Elop won’t ask anybody to do what he wouldn’t do. Absolutely, 100%. I mean, the guy has five kids, and I don’t think he sees them one day a month. I mean, it is ridiculous.”

Miles has worked with senior management at numerous companies, from BHP Billiton to Best Buy. Elop is unique, he says, because he is “not a Cyclops.” He is multidimensional, a “total geek” who understands business and finance. Elop’s citizenship was also a benefit for Nokia, helping dull the sensitive issue of hiring a non-Finn. “Elop wouldn’t have been hired,” Miles says, “if he was American.”

According to Nokia chairman Jorma Ollila, the board of directors spent months looking, inside the company and out, for someone who could inject “oxygen” into management and “gear up” Nokia to be a top player in “all industry segments.” He says Elop was selected because of his “understanding of change management” and “deep understanding of software.” Perhaps most important, Ollila says Elop boasts an ability to make things happen “that will be remembered for a long time.”

In November 2009, Stephen Elop stood before what remains of the Berlin Wall, trying to comprehend the change that engulfed eastern Europe 20 years earlier. The experience put past disruptions in his own life into perspective.

Born on Dec. 31, 1963, Elop was turned into a “gadget nerd” by his father and grandfather, both engineers and ham radio enthusiasts. Elop’s first job wasn’t tech related. He was a caddy at the Hamilton Golf and Country Club, where he learned not to laugh at people attempting to perform well. He also learned to hate smoking. “There’s nothing worse,” he says, “than being asked to hold someone’s lipstick-stained cigarette while they swing a club.”

At McMaster, Nokia’s new boss is remembered for more than top grades. Computer engineering professor David Capson recalls Elop as the kid who walked past his office in 1985, carrying a stepladder and a roll of coaxial cable. While his professors toiled away on floppy drive computers with 20 megabyte hard drives, Elop—who worked for the faculty of engineering as a student— was poking his head through ceiling tiles up and down the halls, getting his hands dirty hooking people up “to this new thing” called a computer network. Capson has had hundreds of students since. But few left an impression like Elop. “He was exceptional,” Capson says, “really focused, one of my top two students that year.”

Building McMaster’s first Ethernet network was more than just a job that helped pay for Elop’s education. “It was a mission,” he says. “Imagine,” he remembers thinking, students being enabled to “access a central computer from their dorm.”

People who know the guy call him fiercely competitive, but not in “an investment banking way.” According to Tim O’Reilly, a former director of Macromedia, where Elop spent most of his career, Nokia’s CEO is driven to change the world, not make money. He is “an ambitious guy because he wants to make interesting things happen. He’s not an egomaniac, not a prima donna. He’s a guy who loves leadership. You know, he loves the act of getting people to go in what he thinks is the right direction.”

At McMaster, Elop appeared destined to be one of the high-profile leaders of the technological revolution. But after graduating, his career took him far from the limelight. Elop eventually became CIO at Boston Chicken, which offered great experience, but it wasn’t the kind of business that turned him on. In 1998, after serving as director of Lotus Development Corp.’s consulting services with responsibility for Canada and the Midwest United States, he landed at Macromedia, a San Francisco software company, where he earned a nickname—the General. During a seven-year stint at Macromedia, he held various senior jobs, helping develop a plan to survive the burst tech bubble. “We decided to bet on Flash,” Elop says, “and it turned out a success. The change was a big one, but after that we made better results than before the Internet bubble.”

Elop was named CEO of Macromedia in 2005, but the company was acquired by arch-rival Adobe just a few months later. After the merger, Elop became head of worldwide field operations for the combined company, but his heart wasn’t in it. He moved back to Canada and commuted from Toronto. That lasted about six months. Some sources insist Elop left Adobe simply because he wasn’t part of the succession plan. Others say he had “an allergic reaction” to Adobe culture. One insider recalls an incident involving new company offices. The plan required all offices to be exactly the same size, creating a two-foot gap of unused space between two of them. That drove Elop nuts. Playing ninja, he dodged security and entered the construction site, where he altered building plans to remove the waste. That ruffled feathers. But Elop reportedly had a great time breaking the rules. “It was almost like he was a student again,” the source says.

In January 2007, after convincing his wife to return to California, Elop joined Sunnyvale- based Juniper Networks as COO. He was being groomed for the top job. His family again started laying roots. Then Microsoft chief Steve Ballmer called to offer Elop the chance to run a US$19-billion division with an estimated head count of more than 26,000. As a Silicon Valley guy, Elop once thought Bill Gates’s evil empire couldn’t innovate its way out of a paper bag. But after being offered a job, he couldn’t help noticing the software giant’s scope and influence, which were as impressive as its pay packages. The opportunity to have a real “impact” on the world was too good to pass up. So he quit Juniper, and his family headed for Richmond.

The jump to Microsoft moved Elop once again to a company with more employees and heftier bottom lines. Macromedia had 1,500 employees and annual revenue of about US$42 million. Juniper had 5,600 and annual income of US$370 million. Elop saw the move as “daunting and exciting.” A lot of people expected him to get crushed at Microsoft, which is one of the hardest cultures in the world to join as an executive. But Elop didn’t flame out. He is credited with focusing the company on cloud computing and web-based applications, beating back competition from emerging business-software players like Google.

According to Miles, Elop’s experience at Microsoft shows his cultural antenna is impressive. “He can adapt as well as anybody I’ve ever seen.” Whatever the case, by the time Elop stood before the Berlin Wall, he seemed content with his place in the world. “I’ve only ever had three hair styles,” he told a group of Microsoft business partners in July 2008, “and this will be my last.” He then explained how joining Microsoft was “the best career decision that I ever made.” Then the Nokia challenge came along.

In the past, Elop could find time to blow off steam piloting a Cessna T-182. Bad-weather flying, he says, is “a great way to concentrate the mind.” But a typical workday now starts long before the sun rises, when Elop finds the quiet time he needs to do “real thinking, real work.” He tackles 15 or more items on his calendar before a working lunch, or a working dinner, or both. And every day, he typically takes at least one commercial flight to somewhere without his family. But Elop doesn’t regret joining Nokia for a second. And his family, which hasn’t moved to Finland yet, supports him 100%. After all, he finally landed his dream job, an opportunity to make history as a CEO.

“Google is beatable,” Elop recently told Nokians. “Apple is beatable, RIM is beatable. Everyone is beatable. The game is just beginning. In ice hockey terms, we are just in the first minutes of the first period.” The guy isn’t Steve Jobs. But despite a slight resemblance to John Hodgman, the actor who plays the boring establishment type in Apple’s “I’m a Mac” commercials, Nokia’s new CEO is no wimp, either.

At McMaster, Elop was cool enough to teach The Hamilton Spectator a thing or two about network security by breaking into their publishing system. “That’s the only prank for which I’ll take credit, because we were caught,” he says. “They were not amused.” And when attempting to adopt his eldest daughter from China as a Canadian living in the States, he had enough endurance to successfully fight the three nations that said it couldn’t happen. Elop shouldn’t be judged before he’s been given a chance to make his strategy work.

Martti Häikiö, an adjunct professor of social history at the University of Helsinki, who wrote Nokia: The Inside Story, argues Samsung is the company to beat. “Apple,” he notes, “is present only in one, although important, segment.” He is confident that the world leader in mobile phones can renew its competitive edge. And he says its selection of Elop sent a “strong message of Nokia’s determination to fight back in the North American market.” That’s an absolute necessity, insists Canadian industry watcher Carmi Levy. “I don’t envy the challenge Elop faces,” he says, “but his background represents a refreshing change from the kind of person who might have been slotted into the role in the past. It recognizes that software, not hardware, is now eminent.”

And when it comes to switching smartphone software, Mike Walkley, an analyst with CanaccordGenuity, thinks Elop made a sound decision. While he sees a transition period that will limit Nokia’s profitability this year, he has reiterated a long-term Buy rating for the company. Walkley says industry feedback suggests Windows 7 is a competitive operating system for smartphones. He anticipates “strong carrier support for this partnership” and thinks Microsoft’s marketing support combined with Nokia’s scale and massive user base will attract developers and create a third major ecosystem.

Nokia could have stayed the course—but that wasn’t what it hired a Canadian to do. The company could have moved smartphones to Google’s platform. That was a real option, although it would threaten Nokia’s $8-billion investment in its Navteq service, which competes with Google Maps. Insiders insist Elop didn’t join Nokia as a Trojan horse. “Ballmer can be the biggest asshole on the planet,” says a source close to Nokia’s CEO, “so if it was the right thing to do, Elop would have shoved the partnership back in Ballmer’s face.” But adopting Android was what many people expected Nokia to do. Keep in mind that Nokia’s board asked Elop to do something “that will be remembered.” He forced Nokians to jump into Ballmer’s arms. And while that may be painful for proud employees, the partnership with Microsoft clearly gives Nokia a shot at getting its sisu back.

 

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