Nokia's chief executive to staff: 'we are standing on a burning platform'

A memo speech, subsequently posted on Nokia's internal blog, from Nokia's new chief executive Stephen Elop warning the staff that it is "standing on a burning platform" has leaked from the company and indicates that the former Microsoft executive is planning radical action to revive the company's fortunes.

(Following further information after the original publication of this post, it now transpires that the contents were given as a speech which was then reprinted on the Nokia internal blog.)

He is expected on Friday to announce sweeping changes, probably including an alliance with another smartphone platform to give the company new strengths in the field it once dominated.

Reprinted by Engadget and reproduced in full below, the memo post likens the company's situation to that of a man standing on an oil platform in the North Sea and facing a raging fire on multiple fronts – who has no choice but to jump into freezing water to survive.

The memo's contents match those alluded to previously by The Register and TechCrunch Europe. It has been circulated within Nokia.

Elop is expected to make a significant announcement this Friday about what Nokia will do to stem the loss of market share, notably in the smartphone market, where despite being the biggest player it has been unable to compete with incomers, notably Google's Android and Apple's iOS.

Many observers expect him to announce an alliance - probably with Microsoft's Windows Phone 7 in North America, where Nokia is weakest - as well as a shakeup of the company's executive and middle management.

The graph above, from the consultancy Asymco, shows the entire market and indicates how Android has grown rapidly to take a significant share of it.

Elop points to a number of problems for the company:
its stock is moving onto "negative credit watch" with rating agency Standard & Poor's, following Moody's last week, indicating that it might downgrade its creditworthiness because they are concerned about its competitiveness
the "battle of devices has become a war of ecosystems" (such as Apple's App Store and Google's Marketplace) and "ur competitors aren't taking our market share with devices; they are taking our market share with an entire ecosystem. This means we're going to have to decide how we either build, catalyse or join an ecosystem"
"Google has become a gravitational force, drawing much of the industry's innovation to its core."
"we have multiple points of scorching heat that are fuelling a blazing fire around us" - from Apple, Android, and from Chinese competitors that can produce a device "much faster than, as one Nokia employee said only partially in jest, 'the time that it takes us to polish a PowerPoint presentation.' They are fast, they are cheap, and they are challenging us."
"we're not fighting with the right weapons. We are still too often trying to approach each price range on a device-to-device basis."

Nokia has seen falling profits for the past three quarters, and warned in January that profits for this quarter will be lower than analysts expected. It was also passed for worldwide share by Android in the fourth quarter, according to analysts.

Elop's memo speech/blogpost follows.

Hello there,

There is a pertinent story about a man who was working on an oil platform in the North Sea. He woke up one night from a loud explosion, which suddenly set his entire oil platform on fire. In mere moments, he was surrounded by flames. Through the smoke and heat, he barely made his way out of the chaos to the platform's edge. When he looked down over the edge, all he could see were the dark, cold, foreboding Atlantic waters.

As the fire approached him, the man had mere seconds to react. He could stand on the platform, and inevitably be consumed by the burning flames. Or, he could plunge 30 meters in to the freezing waters. The man was standing upon a "burning platform," and he needed to make a choice.

He decided to jump. It was unexpected. In ordinary circumstances, the man would never consider plunging into icy waters. But these were not ordinary times - his platform was on fire. The man survived the fall and the waters. After he was rescued, he noted that a "burning platform" caused a radical change in his behaviour.

We too, are standing on a "burning platform," and we must decide how we are going to change our behaviour.

Over the past few months, I've shared with you what I've heard from our shareholders, operators, developers, suppliers and from you. Today, I'm going to share what I've learned and what I have come to believe.

I have learned that we are standing on a burning platform.

And, we have more than one explosion - we have multiple points of scorching heat that are fuelling a blazing fire around us.

For example, there is intense heat coming from our competitors, more rapidly than we ever expected. Apple disrupted the market by redefining the smartphone and attracting developers to a closed, but very powerful ecosystem.

In 2008, Apple's market share in the $300+ price range was 25 percent; by 2010 it escalated to 61 percent. They are enjoying a tremendous growth trajectory with a 78 percent earnings growth year over year in Q4 2010. Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range.

And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100. Google has become a gravitational force, drawing much of the industry's innovation to its core.

Let's not forget about the low-end price range. In 2008, MediaTek supplied complete reference designs for phone chipsets, which enabled manufacturers in the Shenzhen region of China to produce phones at an unbelievable pace. By some accounts, this ecosystem now produces more than one third of the phones sold globally - taking share from us in emerging markets.

While competitors poured flames on our market share, what happened at Nokia? We fell behind, we missed big trends, and we lost time. At that time, we thought we were making the right decisions; but, with the benefit of hindsight, we now find ourselves years behind.

The first iPhone shipped in 2007, 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. Unbelievable.

We have some brilliant sources of innovation inside Nokia, but we are not bringing it to market fast enough. We thought MeeGo would be a platform for winning high-end smartphones. However, at this rate, by the end of 2011, we might have only one MeeGo product in the market.

At the midrange, we have Symbian. It has proven to be non-competitive in leading markets like North America. Additionally, Symbian is proving to be an increasingly difficult environment in which to develop to meet the continuously expanding consumer requirements, leading to slowness in product development and also creating a disadvantage when we seek to take advantage of new hardware platforms. As a result, if we continue like before, we will get further and further behind, while our competitors advance further and further ahead.

At the lower-end price range, Chinese OEMs are cranking out a device much faster than, as one Nokia employee said only partially in jest, "the time that it takes us to polish a PowerPoint presentation." They are fast, they are cheap, and they are challenging us.

And the truly perplexing aspect is that we're not even fighting with the right weapons. We are still too often trying to approach each price range on a device-to-device basis.

The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren't taking our market share with devices; they are taking our market share with an entire ecosystem. This means we're going to have to decide how we either build, catalyse or join an ecosystem.

This is one of the decisions we need to make. In the meantime, we've lost market share, we've lost mind share and we've lost time.

On Tuesday, Standard & Poor's informed that they will put our A long term and A-1 short term ratings on negative credit watch. This is a similar rating action to the one that Moody's took last week. Basically it means that during the next few weeks they will make an analysis of Nokia, and decide on a possible credit rating downgrade. Why are these credit agencies contemplating these changes? Because they are concerned about our competitiveness.

Consumer preference for Nokia declined worldwide. In the UK, our brand preference has slipped to 20 percent, which is 8 percent lower than last year. That means only 1 out of 5 people in the UK prefer Nokia to other brands. It's also down in the other markets, which are traditionally our strongholds: Russia, Germany, Indonesia, UAE, and on and on and on.

How did we get to this point? Why did we fall behind when the world around us evolved?

This is what I have been trying to understand. I believe at least some of it has been due to our attitude inside Nokia. We poured gasoline on our own burning platform. I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haven't been delivering innovation fast enough. We're not collaborating internally.

Nokia, our platform is burning.

We are working on a path forward -- a path to rebuild our market leadership. When we share the new strategy on February 11, it will be a huge effort to transform our company. But, I believe that together, we can face the challenges ahead of us. Together, we can choose to define our future.

The burning platform, upon which the man found himself, caused the man to shift his behaviour, and take a bold and brave step into an uncertain future. He was able to tell his story. Now, we have a great opportunity to do the same.

Stephen.

Update: Asked for a comment, Nokia said that it did not comment on internal matters and declined to comment on the content of the memo or its provenance. The Guardian believes that the memo is genuine.

And: Vic Gundotra, Google's VP of engineering (and a former Microsoft staffer), tweets re "#feb11" - when Elop will make his announcement - that "Two turkeys do not make an Eagle". (Ditto'd by @Carniphage in comments below). That implies that there isn't a tieup figured out with Android.

Updated to clarify that the "memo" was in fact a speech which was then reprinted on an internal Nokia blog.