The challenges
The recent announcement that Microsoft is purchasing Nokia for some £4.6bn/ $7.2bn was for many not a surprise. With a former Microsoft leader, Stephen Elop heading Nokia these last couple of years it was perhaps inevitable that the two would come together. After all one of his first strategic moves was to sacrifice Nokia’s beloved Symbian software and move to Microsoft’s Windows Phone.

Nokia’s market share in the last ten years has fallen dramatically from around 40% to just 15% of the general market and it occupies a paltry 3% of the critical smartphone market. At the same time its market value has fallen from a historic high of $250billion. Meanwhile whilst Microsoft sits on a huge $80bn cash pile its share price has hardly moved in the last decade and whilst it has enjoyed success in the game market many investors have grown tired of its failures in the search, music and phone business. Some commentators have called it Microsoft’s “Lost Decade” which is why it is not a surprise to many that after such a long tenure Steve Ballmer has announced his departure from Microsoft as CEO. Many people now look to see if Stephen Elop becomes the new CEO, which would be a remarkable turn of events if that were to happen.

The bright future unrealised
Yet only some 12 years ago I sat in a business conference in Barcelona and listened to Jorma Ollia the then CEO of Nokia and a Mr Ulrich Holtz a HR VP for Microsoft Germany extol the virtues of their great companies. Recently reviewing my notes I recorded that Mr Ollia talked about how Nokia believed in “business success by continuously transforming people, philosophies and practices into a competitive advantage.” He went on to say they improved organizational productivity and renewal by a culture that combined a passion to win, performance and competence together with leadership readiness and speed. He also talked about a culture of “no fear” that brings about risk taking.

Equally Mr Holtz talked of a “great company and how it would win in a lead industry “and grow without losing the agile and informal culture” that characterized Microsoft. In praising the leadership of Microsoft he commented that great leaders make Microsoft “a perpetual motion machine”

Now hindsight is a wonderful thing but past participants of some of PPI business programmes will know that we have long followed the journey of both these companies. What is clear is that like many other great companies such as Sony, Blackberry and Motorola both Nokia and Microsoft have become victims of their own success. Trapped by business models that have delivered huge success and wealth for their leaders and shareholders they have fallen into the trap of clinging too long to yesterday’s success model.

Whilst Google, Apple, Facebook and others have ramped up the pace of change and innovation Microsoft has clearly tried to protect its Windows franchise. Seemingly blind to the changing world around it and no longer able to simply buy out competitors its corporate culture has morphed into a “let’s form the wagons into a circle and defend” mentality. Similarly it is quite clear that the early stellar success of Nokia and its huge market presence prevented it from spotting significant changes in the market place at an early stage. You can go back as far as the development of the flip phones to see the first signs of their corporate myopia. Whilst Samsung were one of the first to move away from the mono-block phone, Nokia maintained a strong focus on what had given it success in the first place. The result was that over a very short period of time it was to be taken over by fast moving and more innovative businesses. Then of course Steve Job’s iPhone totally changed the world.

Perhaps by acquiring Nokia, Microsoft will be able to transform itself as it has clearly failed to do in recent times.  If not then we are probably seeing the merger of two companies on a journey to eventual decline - whether it is slow or fast!

The leadership lessons
So how do these problems develop and what leadership lessons can be learnt from Nokia and Microsoft?

Well there is the old adage that “a fish rots from the head” and much of what has happened has to be placed at the leadership level of both companies. Of course it must be difficult for leaders to do radical things when their businesses are doing so well and shareholders and investors are praising you and lavishing you with huge incentive and stock plans. But leadership means leading and not just defending and holding on to what you have got.

Equally success means that many leaders become surrounded by people who will only want to reinforce the status quo and protect you from either bad news or counter views and perspectives. The next thing that happens is that you then develop a culture whereby anyone who questions things and argues for a radical or different way of doing business is labeled as “difficult or not one of us” Now sooner or later, you really are going to get into trouble as you have developed an organization that has fallen into the CIA Trap.

By the CIA Trap we mean that your organization has become Complacent, Inward Focused and Arrogant. The effect is to be blind to what is happening externally and in business this is fatal, as Nokia has found out with the iPhone.

So what can leaders do to stop falling into the CIA Trap?

1. Ensure you surround yourself with different views and opinions not just “yes” people. Seek out and promote people who don’t just follow the corporate line. Encourage an atmosphere of genuine challenge and innovation.

2. Ensure your promotion and incentive mechanisms encourage diversity and new ideas. Promote from outside the business as well as from within. Allow people to try new things and don’t punish failure as so often happens in large businesses

3. Meet lots of customers and stay in the real market place – don’t get seduced by the corporate round of shareholder and senior executive conferences. Spend time talking to real customers and don’t just focus at a senior customer level. Meet the people who use your product and service on a daily basis not just those who buy and sign the cheques for your product.

4. Really listen to what your customers are saying. Too many companies ask their customers about their offerings and then simply ignore the feedback. That way you get early warning signals that you are doing what they want.

5. Spend quality time looking at what your competitors are up to – go beyond the superficial and look deeper at how they are succeeding or failing.

6. Look beyond your industry boundaries and see what is happening in the wider world and in other industries and spaces.