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Crisis management in smart phones: the case of Nokia vs Apple

John P. McCray and Juan J. Gonzalez
College of Business Administration, The University of Texas at San Antonio, San Antonio, Texas, USA, and

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Received January 2010 Revised February 2010 Accepted March 2010

John R. Darling
College of Business Administration, The University of Texas at San Antonio, San Antonio, Texas, USA and School of Economics, Aalto University, Helsinki, Finland
Abstract
Purpose The purpose of this treatise is to present an analysis of the importance of positive transformational crisis management. The analysis relates to the difculty now being faced by Nokia, historically the worlds leading manufacturer of technologically advanced mobile phones, of Apples innovative combination of its iTunes, iPhone, and applications that deliver internet content to the iPhone. Design/methodology/approach A crisis, typically considered to be a negative issue, can be a positive transformational event in the life of a business rm when that rm recognizes a crisis and makes appropriate changes in its operations to facilitate positive growth and development. However, the initial stage of a crisis must be recognized and appropriately responded to. The crisis management paradigm that is the foundation for this case analysis focuses on four stages of a crisis: the preliminary crisis, acute crisis, chronic crisis, and crisis resolution. The case deals with the innovations of Apple that have enabled the rm to become a direct competitor to Nokia in the smart phone market. The preliminary crisis stage was not appropriately recognized by Nokia, and the rm was thrust into an acute crisis that has now evolved into a chronic crisis. A brief overview is presented of the historical development of both Nokia and Apple, and an analysis of the present crisis situation in which Nokia now nds itself is presented in some detail. Findings It was concluded that Nokia is now in a very difcult position regarding Apple due to its failure to engage in a timely transformational response to the competitive innovations of Apple. Originality/value This is an excellent example of failure in positive transformational crisis management. Keywords Organizational change, Transformational leadership, Mobile communication systems, Innovation Paper type Research paper

European Business Review Vol. 23 No. 3, 2011 pp. 240-255 q Emerald Group Publishing Limited 0955-534X DOI 10.1108/09555341111130236

Introduction In every rm, a crisis can be expected to be on the horizon. For consumer electronics rms this is often caused by the development and combination of emerging new technologies. One of the most signicant recent changes is the convergence of internet sites that provide content such as news, nancial analysis, lectures, music and video, smart phones, and software applications that will retrieve content from the site and provide the content to a smart phone. Nokia has been confronted by the Apple iPhone, which has over 100,000 software applications that will deliver content from the internet to the iPhone with a touch. Using the model of crisis management developed

by Fink (1986), and modied by Darling (1994), the decisions taken by Nokia to manage the crisis are examined. Although Nokia is presently the largest mobile phone manufacturer in the world, the rm has fallen behind Apple in the development of total capability to deliver a user experience equal to the Apple iPhone. Effective crisis management in organizational development is not difcult to act upon, but it must be recognized. Once a crisis has passed through the threshold of preliminary recognition and action, it is much more difcult to seize and effectively act upon, and thus the opportunity to more easily deal with it, and use it as a transformational opportunity will have passed. Mobile phone manufacturers, as well as all other types of organizations are affected by many difcult issues including changes in technology, competitors, marketing alliances, new market products, availability of resources, corporate acquisitions, government regulations and a variety of other crisis and crisis-like events not generally associated with normal on-going operations. When crises occur, affecting a business rm, the environment seems to treat them differently from the way it treats such events when they occur in the public arena whether or not individuals are affected (Darling, 1994). In the public arena, a much higher degree of scrutiny is given from many different directions. However, manufacturing rm crises are often considered, rightly or wrongly, as a particular rms opportunity or problem and, therefore, a matter to be handled by internal management and organizational responses. The purpose of this paper is to address transformational crisis management as it relates to the difculty of a traditional mobile phone manufacturer such as Nokia when challenged by the innovative combination presented by Apple of the iTunes internet site, iPhone, and applications that deliver internet content to the iPhone using the internet. The term transformational is used in this context to imply that crises, when viewed and managed as opportunities, can often provide a basis for creative change and development in the life of a manufacturing organization. Positive transformational leadership in crisis management is reected in individuals who are opportunity-oriented, and who are constantly on the lookout for problems that can be converted into opportunities for their organizations, thereby providing a means for creative and meaningful organizational development. These transformational leaders nurture understanding based upon use of both hemispheres of the brain, foster reactions based upon internal self-talk rather than external events, facilitate the ability to be centered on expected outcomes, and place condence in events and processes that accompany change (Gabrielsson et al., 2009). These transformational leaders also nurture positive attitudes, thoughts, feelings, perceptions, and associations that help to nurture strong internally controlled responses to what otherwise might be considered to be negative crisis events (Hawkins, 1998). They, therefore, use these crisis-related events to create positive outcomes for their organizations. The constant existence of manufacturing crises has taught the world that a crisis can occur with little to no warning, anywhere, anytime. And it can happen to any type of manufacturing rm, large or small, at every stage of development, and operating locality or globally. It is, in other words, the safest of assumptions that a crisis looms on the horizon of every rm. However, this is not necessarily bad news merely reality. And if this reality is accepted as a given, one will acknowledge that in these complex and unpredictable times anything is possible, including a crisis that may be at least initially perceived as devastating to rms and professionally threatening to individuals. If managers will accept this, then they will be in the right frame of mind to accept the contention that forms the basic

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premise of this paper, that with proper advanced contingency planning and preparation, and appropriate recognition, there can often be a positive opportunity side to a crisis. The Chinese have embraced this idea. The symbol of their word for crisis called weiji is a combination of two words: danger and opportunity. One does not have to be a president or chief operating ofcer of a major manufacturing rm, such as Nokia, to benet from the ideas presented here. Virtually every individual, at any level in the management leadership arena of manufacturing operations, can manage a crisis to his or her advantage. This is true for board members, chief executive ofcers, vice-presidents, department managers, or whomever. The key word is individual. While a crisis may strike any organization, it is an individual who must have the courage and management leadership expertise to recognize and respond to it. Courage is the greatest of all virtues, because if one does not have courage he or she may not have the opportunity to use any of the other virtues. Role of management leadership Nokia had the opportunity through the development and implementation of meaningful leadership strategies to deal effectively with this crisis. It is important to realize that in this regard, there is a signicant difference between management and leadership, but one should readily recognize that both are important (Darling et al., 2002). To manage means to bring about, to accomplish, to have responsibility for, and to conduct. To lead in organizations means to perceive, to inuence, and to guide in direction, course, action, or opinion. The distinction is crucial when it comes to successful transformational crisis management leadership and consequent organizational development. Managers can also be leaders when it comes to effectively dealing with crises. This relates to how they understand and carry out their responsibilities. Those who are successful view themselves as leaders, not just managers. This is to say that they concern themselves with their organizations excellence in all respects. Their perspective is vision-oriented (Bennis and Nanus, 1985). They do not limit their attention to the how to, the proverbial nuts and bolts, but include the parameters of planning and action, the doing the right things, particularly as those relate to the meaningful involvement of all stakeholders within the organization in addressing crisis opportunities. Giving others opportunities for meaningful involvement with regard to successful transformational crisis management is a primary test of effective crisis leadership. This helps enormously in the process of providing meaning and a sense of worth thus an increased level of commitment for people in the organization (Wilkinson, 2003). Effective managerial leadership in dealing with crises requires individuals who do not depend on hierarchy and subordination. These contemporary leaders help to create enhanced capacity in their people. Subordinate leaders and followers, in turn, give up their need to be treated like only internal organizational employees, and become responsible stewards of the organizations stakeholders. New skills are required to be successful in todays crisis-intensive world. Managerial leaders in consumer electronics organizations must develop and nurture skills that are congruent with the perspective of crisis management. The basic principles of human-based systems provide meaningful insights into an organizational world that is objective and subjective, logical and irrational, linear and nonlinear, orderly and chaotic; a world in which the process of human observation somehow affects that which is observed (Darling et al., 2002).

Development of Nokia In 1865, Nokia was founded in Finland by Fredrik Idestam who had invented a revolutionary process for manufacturing paper. There were two early pulp-processing plants, one of which was along the Nokianvirta River, which gave Nokia its name. Incorporated in 1871 as Nokia Ab, Nokia established the Finnish Rubber Works in 1898 and the Finnish Cable Works in 1912. The cable works grew and began to manufacture electronics equipment in 1960. In 1967, Nokia Ab, Finnish Rubber Works, and Cable Works were combined to create Nokia Corporation. In 1992, Jorma Ollila became the CEO and Nokia took the strategic decision to develop a core competence in mobile telecommunications and divest the other businesses. Nokia was a pioneer in the development of mobile phones. In 1992, Nokia introduced the rst global system for mobile handsets. In 1994, Nokia completed the rst satellite call. By 1998, Nokia was the world leader in the manufacturing and sales of mobile phones. The focus of Nokia was on growth through engineering design, supply chain management, high quality manufacturing and sales. This strategy helped Nokia to become one of the best performing stocks of the decade. By 2003, Nokia had overcome Motorola, the once dominant force in mobile phone manufacturing, to become the number one hand set maker with a market share nearly twice that of the number two phone maker, Motorola. The phones rolled out, the prots rolled in, and everything went according to plan (Schwartz, 2005b). Then, the enviable leadership position of the Finnish company began to suffer by experiencing a reduction in worldwide market share from about 35.8 percent in 2002 to 30 percent in the rst three months of 2005. Its European market declined from 51 percent in 2002 to 32.6 percent in 2004. Its stock dropped 14 percent (Schwartz, 2005a). The challenge that Nokia confronted in 2004 came from Asian and American competitors aggressively going after the high-end mobile phone market. A major challenge was presented by Motorola, an electronics manufacturing rm similar to Nokia, which introduced the RAZR V3 in July 2004 (Crockett, 2004). This was a super-thin product that drew attention not only in America but also in Asia and Europe. The RAZR raised the design benchmark for the industry and created great consumer interest for the mobile phone (Rhoads, 2005). This upgrade allowed Motorola to recover some global market share and increased its performance in hand set sales. Motorola sold the 50 million RAZR unit in July 2006, thus making the RAZR a global cultural icon (Lashinsky, 2006). Nokias comeback from the RAZR challenge resulted in its awareness of market share loss and swift response using its design and manufacturing capabilities. Nokia ne-tuned its operations so that existing lines could produce a wider variety of phones, and produced and shipped 21 new models in the second half of 2004. Nokia cut prices aggressively and began to grow market share. Nokia also designed and produced slim and sexy units to counter the threat of the RAZR-like phones. In addition, they added high-quality features like video and music capabilities. Since the RAZR challenge, Nokia has introduced at least 50 new mobile phones, its global market share rebounded from 29 percent in 2004 to about 33 percent in 2005 and its stock price rebounded 25 percent (Schwarts, 2005b). Development of Apple Apple Computer began when Steve Jobs and Steve Wozniak, working rst from a bedroom and later from a garage, invented one of the rst personal computers in 1975. In 1980, Apple had its rst public offering (McCray, 1985). Unlike the executives at Nokia who had extensive backgrounds in design, manufacturing and selling communications products,

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jobs experience was gained rst-hand as the microcomputer industry and internet emerged. In 1984, Apple introduced the Macintosh, which established Apple as a technologically advanced computer manufacturer. In 1985, John Scully, who had become CEO in 1983, ousted Jobs with the help of the Apple board of directors. Without jobs, Apples share of microcomputer sales had dropped from 12 to 4 percent by 1997 when jobs returned to Apple as interim CEO. He soon returned the rm to protability (Elkin and Voight, 1998). In 1997, there was little indication that Apple would ever challenge Nokia. Jobs concentrated his efforts on technology development that would provide customers with the best possible experience. His major interest was new, more powerful, fun to use desktop and laptop computers. The rst of these was the Apple iMac microcomputer launched August 15, 1998. This microcomputer set a new standard for creative design and ease of use. This product brought protability to Apple and great respect for Jobs. The iMac was followed on July 21, 1999 by the iBook, a notebook computer. The iBook had many of the advantages of the iMac; it was well designed and easy to use. It also had one of the rst wireless connections. The iMac and the iBook were then updated each year with new and innovative features. This required the very best engineering and software talent, a task made easier with the rms location in Cupertino in the heart of Californias Silicon Valley. Jobs concentrated on growth through innovative technology, introducing a series of products that would give customers a more meaningful experience. Apple then developed, introduced and incrementally improved two products, iTunes and iPod, that would lead to the development of the iPhone. In June 2001, Apple introduced iTunes, a free program that would allow Mac computer users to download purchased and free content available from Apple using the internet. In the beginning iTunes could only be used with iMac and iBook Apple computers. However, it had the seeds of what would become a revolutionary internet content platform that would provide books, music, movies, news, nancial analysis, college lectures, TV programs and other content. Three important events made iTunes one of the most dominant internet content sites. The rst was the ability to receive songs for $1, an arrangement that had been worked out with much of the music industry by Steve Jobs. The second was the opening of the capabilities of iTunes to non-Apple computer users. The third was the development and popular use of the iPod. The rst iPods were introduced in 2001 and could hold ve gigabytes of data or approximately 1,000 songs. The iPod was designed to be used in conjunction with an Apple computer. In 2002, Apple released iTunes for IBM personal computers. This was a free program that opened the iTunes platform to non-Apple computer users making it easy for anyone with a computer to experience Apple for the rst time (Breen, 2001). The original audio iPod was followed later by a video iPod that could download digital content using iTunes and a computer (Pui-Wing, 2001). Then, in 2007, Apple introduced another outstanding product, the iPhone. The principal advantage of the iPhone was the way it could use software applications. These software applications delivered similar content to the iPhone that was in iTunes. The iPhone had the capabilities of the iPod and would synchronize when connected to a computer. Additionally, using software applications that were developed for the iPhone and the iPhones wi connection, the iPhone could download information directly from the internet. The applications essentially delivered the same type of information that was available to a computer from iTunes. However, the applications often organized the information such as news, the weather, or songs in a way that could be conveniently used

on the iPhone. Since the introduction of the iPhone, Apple has continued to capture market share at the high end of the smart phone market (Borden, 2009). In 2007, the Apple iPhone was named the information technology product of the year (Kenney, 2007) and by the end of 2009 there were over 100,000 applications for the iPhone that would deliver music, video, news, weather, air ight schedules and much more (Karpen, 2010). After the introduction of the iPhone, Nokia saw the looming crisis. However, by this time years had passed since Apple had introduced iTunes and the iPod in 2002. With iTunes, the iPhone and applications that would deliver internet content directly to the iPhone, Apple had established itself as the dominant producer of the most exciting new smart phone. Nokia recognized and reacted to this crisis by producing more competitive smart phones, but at this point Nokia was following a catch-up strategy. Recently, Nokia, who has been an employer of the best design and manufacturing talent, found itself challenged to develop internet integrated products and software applications in order to compete with the growing sales of iPhones (Smith and Singh, 2009). Although Nokia had developed smart phones, it was unable to match the service provided by the iPhone in combination with iTunes and 1,000 of applications that had been developed to use the iPhone. The crisis at Nokia The corporate culture at Nokia and the morale of employees was stable as the rm focused on design, manufacturing and sales of mobile phones. However, the shift to smart phones that used an internet platform similar to iTunes that would make internet content available was not a good t with the traditional Nokia corporate culture. Because of the need to develop software similar to iTunes, applications and smart phones, Nokia needed to compete in the overall high-technology community, where the best and brightest talent had always been attracted by organizations on the cutting edge with unsolved technical challenges. Unfortunately for Nokia, the perception among individuals in the high-tech community was that rms such as Apple, Google, Yahoo, and the new internet startups provided the best opportunities (King, 1999). The best and the brightest of these individuals were very astute, and very knowledgeable of new, emerging technologies and new product developments by various high-tech organizations. They preferred to work in an environment where personal and nancial rewards were the greatest. They also desired a sense of excitement in their tasks and activities, and were both collaborative and competitive in their quest to be at the forefront of technological innovation (Ante et al., 2007). Propagation of this perception posed a challenge for Nokias management in its attempt to hire the type of software engineers and researchers necessary for innovation and development of smart phones coupled with internet applications and content to enhance the rms competitive leadership in the marketplace. In 2001, when Apple iTunes 1.01 was introduced to provide songs and video les for Apple computer users by downloading them from the internet, it was apparently not clear to Nokia that they should react. Nokia did not apparently see the approaching crisis. Nokias principal decision at that time was to produce better and cheaper mobile phones. By 2007, the Apple iPhone began to dominate high-end smart phone sales. A total of seven critical years passed before Nokia developed a similar site to iTunes. In 2009, Nokia introduced the Ovi store to compete with Apple iTunes (Kallasvuo, 2009; Ewing and Kharif, 2009). This was an internet-based store where content such as music and videos could be downloaded by Nokia customers. However, unlike Apple

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iTunes, which was free and available to anyone with a computer, the Ovi store was only available to Nokia phone owners. The Ovi store could not compete with the more revolutionary features that iTunes offered to all internet on line customers. Apple was ahead of Nokia in internet technologies and had developed the best software that allowed users to not only search for and purchase podcasts, songs, and books on line, but also to look inside (browse) the on line content they were considering for purchase. Nokia was therefore forced to play catch-up. Although it spent many millions of dollars, Nokia still remained behind Apple in September of 2009. A signicant element of the crisis that went for the most part unnoticed by Nokia was the need not only to produce the best internet connected smart phone, but also to develop a free software platform base similar to iTunes and applications that could connect smart phones directly to the internet. The performance of Nokia as a traditional mobile phone manufacturer has been exceptional for such a large organization. Although both Ollila and Kallasvuo can take credit for much of the growth, the same is not true for the development of a software platform similar to Apple iTunes coupled with the iPhone and 1000 of applications. As Nokia was growing primarily by designing, manufacturing and selling mobile phones, the importance of software like iTunes and digital audio player devices like the iPod that were only one step away from being phones increased dramatically. However, Apple, not Nokia, became the dominant force in smart phones. The question remains whether or not Ollila should have earlier paid, or Kallasvuo should now be paying, more attention to the growing use of iTunes, iPods, iPhones, and applications. Nokia needed to recognize earlier the importance of hiring the best internet-savvy professionals who could make Nokia a leader in technological innovations and the preferred employer of the best and brightest software engineers and researchers that could develop successful internet business. Based on the situational analysis noted herein, it would appear that the prevailing opinion would rest upon the notion that Nokia had passed through a major crisis warning point, beyond the acute crisis situation, and into the chronic stage that demands immediate management leadership attention and action. Nature of crisis management It is important to understand what crisis management is and what it is not (Littlejohn, 1983). Crisis management is not mismanagement. Often, due to inappropriate or inadequate planning or the absence of any kind of substantive planning at all, consumer electronics rms engage in regular crisis-type situational reactions. Without ordered priorities, the management of a rm seldom knows which situations call for immediate attention and which do not. As a result, management is often unable to continue functioning in the face of a true crisis situation. This is mismanagement! Transformational crisis management should be composed of a systematic approach for dealing with real crises so that the organization continues to function normally in most of its operations, while at the same time identifying opportunities for the future. Crisis management is also not just a recognition and quick-x solution. It usually entails forecasting, identifying, studying, and acting upon crisis issues, and establishing procedures that would enable an organization to prevent or cope with crises effectively. In addition, crisis management is usually not solely represented by a separate operational unit within a rm. It is typically a systems-based combination of affected operational units that are brought together to effectively manage a particular situation. And nally, crisis management does not require that all personnel, or even a large number of personnel,

stop functioning to address a given crisis. In essence, transformational crisis management provides a consumer electronics rm with a systematic, orderly response to crisis situations. Technological organizations that use an established response paradigm will continue their day-to-day operations while a particular crisis is being managed. Furthermore, systematic crisis management creates an early detection or warning system. Many crises can be prevented or at least dealt with more effectively through early detection. In addition, a consumer electronics rm should capitalize on the expertise of appropriate individuals from various operational areas to plan for and manage the crisis situation when it arises. The contemporary-based transformational development skills of paradoxical thinking, controlled responding, intentional focusing, instinctive knowing, inclusive behaving and purposeful trusting can be of enormous value in effective crisis management (Gabrielsson et al., 2009). Understanding and using these skills helps crisis managers to operate more intentionally and creatively, and to give themselves a deeper sense of meaning, fulllment and concern for the good of the whole. Denition of a crisis There are a large variety of conditions and circumstances that can be considered to be crisis management. Use of the term crisis will vary between consumer electronics rms but a crisis is generally considered to disrupt the normal activities of a rm. Furthermore, some organizations will prefer to replace the word crisis with the word issue. Instead of calling it crisis management, it might be referred to as issue management, or in the case of more optimistic managerial leaders, opportunity management. However, the label is not the important thing. What matters is the manner in which a rm systematically and continuously audits its environment and operations in all of its organizational arenas, and plans for how crises, however, interpreted, can be appropriately managed for the transformational benet of the rm. Some of the variables that dene a crisis for technology rms are: the nature of the event; importance of the issue to the stakeholders involved; impact on other consumer electronics rms and perhaps industries; how many and how quickly individuals inside and/or outside of a particular rm need to be helped or informed; who and how many people need interpretation of the events, and how accessible those individuals are; how much interaction with the media is necessary; what the media choose to emphasize; how much the organization needs to assert control and demonstrate that it is capable of responding; and how quickly the rm needs to respond (Shelton et al., 2003). A crisis may also be dened by feelings of panic, fear, danger, or shock. Managers must understand that each crisis will be different and that they must adjust and respond in a unique way to each situation. In addition, the same situation may be a crisis at one time, but not at another. It is important that management at Nokia display a take charge perspective and, in this impending major crisis situation, take action to appropriately inform individuals that the process of response is being appropriately managed. The language of crisis conditions is very important. In times of crisis, words and their use have great power (Darling, 1994). Consequently, the public affairs ofce of the rm needs to be kept informed of all issues relating to the crisis as well as any element that has the potential of becoming an issue. In crisis situations, the top management and other selected people should be informed as expeditiously as possible if they are directly involved. In other words, all appropriate stakeholders should be appropriately informed.

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Anatomy of a crisis The real challenge is to recognize the early crisis warning signs in order to address the issues they represent. What are the early warning signs? What analyses serve to give an early warning of change and the possibility of a future organizational crisis? Again, the challenge is to recognize the crisis and to bring the complex factors into focus in such a manner that individuals can understand and marshal the forces necessary to address the situation. In all consumer electronics rms, the process quite often moves beyond the organization to determine the interaction of the external as well as the internal environments and factors in the various operational arenas involved. Crises typically occur in situations that are unstable. Often this is a turning point for better or worse, decisive moment, or crucial time. A crisis can also be described as a critical situation or a situation that has reached a critical phase. A crisis is, therefore, an unstable time or state of affairs in which a decisive change is impending either one with a distinct possibility of a highly undesirable outcome, or one with a distinct possibility of a highly desirable and extremely positive outcome. Any technology executive who can predict and plan for a turning point in his or her organization stands a far better chance of capitalizing on that transformational opportunity than someone who allows the crisis to sneak up on him or her unprepared. Contrary to popular belief, a crisis may not be necessarily negative or bad. It is merely characterized by a certain degree of risk and uncertainty (Fink, 1986). Crisis management planning for a crisis, a turning point is the art of removing much of the risk and uncertainty, thereby allowing those concerned to achieve more control over the destiny of an organization, and thus creatively exercising the role of management leadership (Darling et al., 2002). A crisis in a consumer electronics rm can consist of as many as four different and distinct phases, although the duration and intensity of each phase is not likely to be the same (Darling, 1994). These phases are: . preliminary crisis stage; . acute crisis stage; . chronic crisis stage; and . crisis resolution stage. The preliminary stage is often difcult to see. This is especially true with respect to dramatic changes in technology. It is usually not clear if the new technology will actually create a crisis. It would have been very difcult for Nokias management to recognize the impending crisis in 2001 when apple introduced iTunes. However, when Apple introduced the iPod and an open version of iTunes that could use any computer, this should have alerted Nokia that it would be relatively easy for Apple to introduce a mobile phone. Knowing how to recognize and manage the warning before it erupts into the far more serious acute crisis stage is often what spells the difference between a technological rm that benets during a crisis, and one that suffers needlessly. A technological rm that reects transformational crisis management is very sensitive to early warning signals of the preliminary crisis stage. Nokia management needed to understand and act upon the preliminary crisis stage because inaction led quickly to the acute crisis stage. The operative word with regard to the anatomy of a crisis is, of course, to recognize. The managerial leader has to recognize the warning in order to intervene proactively.

Not all crises have all four of the crisis stages noted above, but each of the four is very common to any major crisis (Figure 1). As noted above, the preliminary crisis stage is the warning stage, which may be extremely short or even immediate. The preliminary crisis stage in the current situation concerning Nokia was found through recognition of the growth of Apple iTunes, the iPhone, and applications that delivered content from the internet directly to the iPhone. Nokia also needs high-level engineers and researchers to develop the technology to compete in the smart phone and internet content delivery world. Student perceptions of rms similar to Nokia indicate that the best students in the best colleges and universities feeding students into the high-technology arena wanted to work for internet-based rms like Apple, Google, and Yahoo. The general consensus in the high-technology community is that the internet, and not manufacturing, serves as the primary generating source for new technological developments (Elgin, 2005). Preliminary crisis stage In this case regarding Nokia, the preliminary crisis stage could have been recognized in 2002 when Apple introduced the iPod and provided iTunes free to all computer users. The free iTunes program introduced several future customers to Apple who had never bought an Apple product. The iPod, which was the rst Apple purchase for many consumers, made the content of songs, news, nancial analysis, weather, videos, lectures and other content available in a portable form similar to a phone. It should have been clear that the iPod, if turned into a phone, would clearly provoke a crisis for Nokia. Unfortunately, appropriate steps were not taken. Occasionally, as in this case, a preliminary crisis stage may be oblique and hard to recognize, and sometimes it is evident but no action is taken and an acute crisis occurs. Possibly, no action is taken as a result of a warning which may be the result of analysis paralysis or obsessive decision-making within a technological rm. The reason crisis warnings are so important to catch early on is that it is obviously so much easier to manage a crisis at this stage. In the case of most crises, it is much easier and more logical to take care of the problem before it becomes acute, before it erupts and causes possible complications. Therefore, the ideal crisis management paradigm would appear similar

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Preliminary crisis

Crisis resolution Acute crisis

Chronic crisis

Figure 1. Phases of a typical crisis cycle

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to Figure 2. Of course, in the case of Nokia, it was not possible to control movement of the crisis from the preliminary stage to the acute stage because of the weak response to warning signs. Perhaps, Nokia could not respond because some of the circumstances surrounding the crisis were for the most part external to the rm and uncontrollable. Acute crisis stage The beginning of the acute crisis stage for Nokia occurred in 2007 when Apple began to dominate smart phone sales using the iTunes platform, iPhone and applications. In many respects, this was the point of no return with regard to crisis management. To deal with a crisis in this stage, Nokia manufactured smarter phones (Taylor, 2008). As previously noted in 2009, Nokia introduced the Ovi store, an on line music and applications site similar to iTunes (Kallasvuo, 2009). However, unlike Apples free iTunes that could be used by anyone with a computer, the Ovi store could only be accessed by owners of Nokia phones. Now warnings have ended and Nokia has passed from the acute crisis stage into the chronic stage, and management typically faces a genuine challenge in recovering the ground lost in the process. Because some damage has been done (as was true regarding Nokia), how much additional damage occurs depends, in most cases, on the quality and ingenuity of the rms management leadership. Although the key is to control and manage the crisis, Nokia was playing catch-up. If the acute crisis cannot be controlled, management should see if it can exert some degree of inuence over where, how and when the crisis erupts further, which may occur in the public arena with commensurate extensive media coverage. Once faced with the acute crisis stage, Nokias management needed to respond in a manner that would dissipate a great deal of the potential negative impact. The rm needed to make contingency plans as to how it would deal with this crisis situation, and plan how it would deal with issues and other external considerations. Apples dominance of high end smart phone sales within two years of the iPhones introduction demonstrated that one of the major difculties in managing a crisis during the acute phase even if an organization is ready for it is the avalanche-like speed and intensity that often accompanies and characterizes this stage, as it occurred at Nokia. The speed is dependent primarily on the type of crisis, while the intensity is usually determined by the severity or value of the possible outcome (Darling, 1994). The acute
Preliminary crisis

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Crisis resolution

Acute crisis

Figure 2. Appearance of a preferred crisis cycle

Chronic crisis

crisis stage may be the shortest of the four phases; but because of its intensity this stage often may feel to the organization involved, as though it is the longest phase. Not having fully recognized the problem, nor gauged the potential speed and the intensity of factors contributing to the crisis while the organization was still in the preliminary crisis stage, Nokias management fell further behind in preparing for, managing and controlling the crisis through the preliminary stage, and now nds itself beyond the acute stage. Managers and others at Nokia needed to be able to assess how much danger the rm was in once it entered the acute crisis stage. There was also a need to determine which people, if any, were most vulnerable to the crisis and its repercussions. In a given crisis, the danger may be localized to a specic part of the rm or to a particular population within the rm. Managers need to think creatively and ensure that all appropriate stakeholders of the organization know what is happening and feel involved in the rms response to the crisis (Shelton et al., 2003). Organizational involvement is of critical importance. In most cases, the preliminary stage of the crisis enables management to prepare for the acute stage that will follow and in some instances move quickly from the acute stage directly to the resolution stage as shown in Figure 1. Unfortunately, this was not the case at Nokia. Although management should have made plans for how to handle the acute crisis stage, this was not done and the rm moved into the chronic crisis stage. Confronted with the need to be a major force in smart phones, internet content and applications that use smart phones, Nokia needed to attract and retain the best high-technology talent available. The rm also needed to develop the same passion for cutting-edge technological innovations and internet content sales that it has traditionally had for mobile phone manufacturing, distribution and sales. Part of this examination should have focused on the increased bureaucracy confronting employees and the self-actualization needs of high-prole software engineers and researchers. Chronic crisis stage The chronic stage in which Nokia now nds itself will require a strategy to actively recruit the highly qualied senior level technology employees needed. Also, the active recruiting of quality talent from colleges and universities will need to be increased with Nokia playing a more active role in partnering with these programs. The key for Nokia is to start responding to the chronic stage, even if internal or external circumstances change in their favor. Transformational crisis management that facilitates meaningful organizational development causes these types of activities to be of major importance often providing the basis for positive opportunities in the future. Failing to realize the critical importance of the preliminary stage, Nokia lost years. In addition, Nokia was unable to match the technological superiority of the combination of Apples iPhone, iTunes internet platform, and software applications that delivered digital content to the iPhone. Because low-end mobile phone margins are very thin, Nokia cannot afford to abandon high-end smart phones or internet content and applications sales. Therefore, they have become trapped in the chronic crisis stage. During the chronic crisis stage, the crisis should come under control quickly but may be of long duration and require signicant resources. While Nokia should be moving to the clean-up phase of this crisis situation, iPhone and iTunes sales by Apple have continued to increase. With regard to some crises involving technological rms, if there is to be a ` government investigation, an audit, a newspaper expose, or a long period of interviews and explanations, this is when such lingering issues settle in. This stage will also become

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a period of recovery, of self-analysis or self-doubt, and of healing. It may also be a time of nancial upheaval, management shake-ups, or other operational problems. As the chronic stage comes to a close, preparations should be made for the resolution stage. When and if the resolution stage can be reached, skillful managerial leaders at Nokia should use this time for further crisis management planning analyzing what went right or what went wrong, and why the crisis even occurred and taking appropriate actions. With good transformational crisis management skills, this period should eventually become a time for congratulations and for plaudits and testimonials of how the crisis was successfully handled. Successful transformational crisis management is typically a team effort and recognition should be appropriately given (Darling and Keefe, 2008). Crisis resolution stage During the crisis resolution stage the managerial leaders goal is to focus the crisis into a transformational opportunity if at all possible. However, if the preliminary crisis opportunity slips by unchecked and the crisis passes through the acute stage to the chronic stage, as was the case with Nokia, the executives actions and decisions must remain focused on managing the chronic stage. If the chronic stage cannot be brought under control, the technological rm will remain there. When possible, the acute and chronic stages should be guided by the primary goal of: What can I do to speed up this phase and resolve this crisis as quickly as possible? In this situational context, Nokia now nds itself in the chronic crisis stage. In any of the four stages, regardless of what has been done, another crisis may evolve. This is the case of Nokia, now in the chronic stage, where a new crisis presents itself in the sale and use of music, videos, and other content over the internet. This shows that the light at the end of the tunnel of crisis management may very well be the preliminary warning of an oncoming crisis (Fink, 1986). That would be bad enough if it was not also for the acute and/or chronic whistle of other crises sneaking up on the technological manager from behind in the same tunnel. Because crises are not tiered on a convenient plateau system, crisis cycles often make it difcult to see where and when one crisis ends and another begins, or at what stage the rm is in when encountering multiple crises simultaneously (Figure 3). This is especially true in situations where the ripple-effect complications of one crisis set off one or more other crises within a rm. This, in truth, is probably the situational milieu in which Nokia nds itself today. Transformational response to crises Crises can be transformational occasions whereby a consumer electronics rm can make appropriate changes in its operations to facilitate future growth and development. Crises in technological rms are a reality that must, therefore, be dealt with appropriately. It would be a useless investment of time and energy for managerial leaders to spend a great deal of time conjuring up all the possible crises their rms could potentially face in the future. The list would probably be innite; but what is eminently more sensible, and much more manageable, is to identify the processes that are necessary for identifying, assessing, and dealing with future crises as they arise. At the heart of these processes are appropriate information systems, planning procedures, and decision-making techniques. At the center of any meaningful system for problem-recognition and decision-making regarding crises lies a soundly based information system. An important element of such a system includes the capability to describe the rms current situation and to make solid

Preliminary crisis Acute crisis Chronic crisis Crisis resolution

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Crisis resolution Preliminary crisis Acute crisis Chronic crisis

Acute crisis Chronic crisis Crisis resolution Preliminary crisis

Chronic crisis Crisis resolution Preliminary crisis Acute crisis

Figure 3. How crisis cycles may appear

projections about its future. A continuous environmental scan, a product of the collection of relevant data on economic, governmental, technological and other important developments over a period of time, connects the organization with the larger world and can be used to identify trends and forecast their possible impact on the rm. The interesting irony of the planning process within the typical technological rm is that planning has often been seen as less important in times of calm, but unless previously initiated, planning is virtually impossible in times of crisis, as the organizational constituencies may often move to protect their own special interests. Comprehensive planning must become an integral part of a consumer electronics rms mode of operation in good times and bad. An ongoing planning process that includes alternatives and contingencies is a major element in determining an organizations ability to respond to crises. A superior information system and a quality planning process do a rm little good if the ability to convert the results of planning into action is lacking. The uncertainties of the future call for a more inclusive process in decision making, based on concern about the future success of the organization. It also requires involvement by all affected parties in the interactive and decision-making processes, and a sense that decisions are made openly and that a realistic climate of fairness exists. Summary and conclusions Nokia is a well-respected name in mobile phones and has dominant engineering and manufacturing capability. The majority of mobile phones produced by Nokia are not challenged by Apple. Apple is a different story since the most important product at Apple is iTunes, which can deliver internet content to the iPhone, iPod, computers

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and future products. In 2007, Apple introduced the iPhone and Nokia quickly entered the acute crisis stage. By 2009, Apple was the leading seller of the smartest of the smart phones. Nokia did recognize the crisis that the rapid growth of iPhone sales presented. However, since the preliminary crisis stage and acute stage were not appropriately dealt with, Nokia was left playing catch-up. Now in the chronic crisis stage, Nokia has developed a product offensive introducing additional smart phones and an on line internet content site named Ovi. However, since Nokia was not successful in dealing with the challenge from Apple, it now nds itself locked in the chronic crisis stage. Unable to exit high-end smart phone sales because they are the most protable, Nokia has not been able to match the technical superiority of Apples iTunes, iPhone, and thousands of applications. In 2002, Nokia faced a major product challenge from the Motorolas RAZR. In that case Kallasvuo orchestrated a successful and direct reply by using the strengths of Nokias design and manufacturing capabilities to introduce similar phones to the RAZR and regain market share. However, the current crisis presented to them by Apple in the high-end mobile phone market is very different from the challenge by Motorola. Apple is primarily a software, internet, device, and computer company. Unlike Motorola, manufacturing is not the core competence of Apple. The new challenge is due to the ability of Apple to integrate the capabilities of computers, iPods and other devices using software and the internet. The Apple iTunes internet software platform will be exceedingly difcult to duplicate and other mobile phones will nd it difcult duplicate the 100,000 plus applications that are available for the iPhone. It is the combination of smart phone combined with software applications that provide internet content and not manufacturing that will favor and eventually determine the smart phone that will become dominant. Often a crisis that is not well managed is likely to present yet another crisis. This is likely to be the case with Nokia. This should be a great concern for Nokia because the use of computers, on line content sales using the internet, and smart phones as these technologies converge, has the potential to dominate the future use and sales of smart phones. Nokia has announced the development and future sale of a notebook computer that will help them compete with Apple. However, in this effort they are again far behind the computers produced by Apple. he authors welcome the comments, suggestions and questions from other scholars and practitioners concerned with successful operations in the arena of transformational crisis management. Recently, in the crisis-lled world of technology, there is an enormous array of opportunities for creative organizational development on the part of managerial leaders who are willing to seize these crisis-related opportunities, provide the appropriate leadership skills necessary, and thereby enhance the operational success of their organizations. The issues in transformational crisis management cited in this paper are those the authors have found to play a major role in successful management leadership today.
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