"Success Paradox" - Why Best Companies Fail.
When fortune favours us greatly, we become inexpressibly corrupt and unconscionable in our conduct – African Proverb
A paradox is a statement or proposition that seems self-contradictory or absurd but in reality, expresses a possible truth. It can also be a person or thing that combines contradictory features or qualities.? “Paradox of success” is a phenomenon which describes how forces that propel organizations to unusual success are the same forces that dragged them down the abyss of failure.
The Baddest Man on the Planet. Opponents dreaded him. Michael Spinks’ narrative of hitting the canvas in just 91 seconds would likely be a bestseller. The fastest title match in boxing history. With a career that spanned 20 years, 58 fights, 50 wins and 44 knockouts, he is regarded as one of the greatest of all time (GOAT) - alongside two boxing legends, Mohammed Alli and Joe Frazier.
But he was as reckless with money as he was with opponents. Despite grossing a whopping $500 million from fights and endorsements, he would later sink into bankruptcy. No thanks to his unreasonable spending habit. Mike “Iron” Tyson needs no elaborate introduction. Easily the most controversial boxer ever. Needless to say, his success almost became his nemesis.?
With that being said, many organizations may not be as reckless or randy as Mike Tyson, but like him, their success got to their heads and they got careless and dropped the ball. These are organizations that once dominated markets, shaped competitive landscapes, intimidated competitors and wowed customers.?
Today, many of them have become history. Some are still alive, frantically trying to stage a comeback. How far they would be able to push that agenda is left to them. Nokia, Blackberry, Blockbuster, Yahoo, Toys R Us, KMart and so on belong here. Many of these companies are either dead or have completely lost their shine.??
Google is in a class of its own. Google is undoubtedly one of the most successful companies in history. But it would be a poster child to illustrate the fact that current success can be a limiting factor for accessing opportunities that will drive future success of organizations. That companies must always be open to risk-taking and eschew self-preservation, or organizational conservatism as much as possible.?
Before I dig my heels in this discourse, I did mention in this article, “To compete in uncertain times, flip the rules of the game” that I would do a sequel and further build more spines around some of the thoughts I shared therein.?
In the piece, I did state that successful companies often fail when their leaders only focus on short-term performance such as product design improvement which would meet the needs of current customers.??
Consequently, they neglect opportunities for disruptive product innovations. Even when they sense an opportunity, they commit glibly. They don’t follow through. They don’t have the conviction to commit enough resources to these emerging opportunities which may very well define the future of the businesses.?
Why? They would rather preserve their profit sanctuary than have it disrupted. Even if the consequences of their action might later spell doom. Their default strategy is? “Wait and See”. Which is often a dangerous position to take in business.?
For instance, Google is now forced to play catchup in an industry it helped to create, artificial intelligence. It is well known that Google created the platform for the AI startup firm, OpenAI to flourish.?
In 2017, some revered Google researchers scripted a paper, I will touch on this later, which describes what is now commonly known as ChatGPT. Google never went the whole hog because it feared it might end up cannibalizing its cash cow, Search Engine. Which on average fetches more than 50% of its total revenue.?
But why would an innovative company like Google, an astounding $1.3 trillion behemoth just leave money on the table for an upstart like OpenAI? I argue that though the ChatGPT shock may not be enough to drown the Whale, that is Google, in River Lagan like the Titanic, it’s clear it has to do something drastic to stay afloat and deflect the fiery darts of fierce competitors like Microsoft, OpenAI and a handful of open source AI startups that are already jostling for market domination.?
To say Google is afraid is to understate the fact. There is some fire burning on Google's hilltop. According to a leaked report, one Google top executive was quoted to have said the company was losing the battle for the AI market. To whom exactly? Shockingly, Google is more afraid of many nameless upstarts than its two most prominent competitors Microsoft and OpenAI.?
Why “Wait and See” is a fatal strategy in the emerging AI market.
Google embraced the “Wait and See” strategy to its peril. “Wait and See” is a risk management strategy firms use to minimize their risks and protect their organizations from potential loss. It is often used in internationalization, in a situation where the company is looking to enter a new or emerging market, say, Africa or Asia, for example.?
The idea is to always make layered investments, waiting at intervals to see how the returns on such investments pan out. In other words, the outcome or returns on the investments would determine the size of the next investments. Before it eventually decides to plunge in fully. Or decides otherwise.
In an MIT research report, Wait and See Could Be a Costly AI Strategy, the author noted that Wait and See could be a risky strategy in the AI industry though it is intended to minimize risk. According to the report, early adopters like OpenAI, Synthesis AI, Jasper, Cohere, Anthropic, Inflection AI, and whatnot could split up to $1 trillion in profit.??
Surprisingly, 95% of companies have not embraced AI technology. To estimate the potential of AI, the author analyzed data from about 400 use cases across 19 industries and then simulated the data using factors such as the corporate intent to adopt, AI’s impact on cash flow and the profit linked to adoption.?
The result showed that early diffusers (companies that will use AI to transform their operations within the next few years) doubled their profits by 2030 and grew their gross profit by an additional 4% at the expense of their competitors. On a global scale, early diffusers would make a corporate profit of $1 trillion, which is 10% of the current profit pool.?
Late AI adopters might get run over by intense competition.
Under normal circumstances, the adoption of technology in corporate organizations takes the form of an S-shape when plotted on a graph. The adoption takes off slowly at the start or when the technology is first introduced, and later rises as it nears the middle and then falls again and then flattens. Companies usually wait at the start because they want to weigh the possibility of the technology maturing before taking a bet against beating the rivals to the punch.
Deciding to wait or dive in full blast depends on the intensity of the competition.? Waiting will be an effective strategy in a situation where it incurs lesser risk to the waiter.?
Let me explain?
If you are familiar with the adoption of ATM technology in Nigeria. This began in the early 2000s or a bit earlier. The low-level competitive intensity to adopt the technology actually lessened the risk for late adopters because of a lack of interoperability payment standards at the time. (A problem Mitchell Elegbe’s Interswitch would later fix).
Research has shown that there is a higher level of competitive intensity around IT systems. Making waiting rather dangerous for late adopters. One study shows that competition surrounding AI technology is intense. Early adopters are even using AI to drive top-line growth rather than just internal efficiency. Across sectors – transportation, financial services, manufacturing, and retail, profits of early adopters are expected to grow 20% higher than non-adopters of AI.?
The early adopters noted that half of this expected growth is achieved by stealing the lunch of their competitors. Meanwhile, one in seven of non-adopters noted that their profit would plunge by more than 10%. It goes without saying that AI is such a big deal.? In 2022, the artificial intelligence market was valued at $136.6 billion while the global market is projected to reach $1,811.8 billion by 2030.?
Paradox of success
A paradox is a statement or situation that may be true but seems impossible or difficult to understand because it contains two opposite facts or characteristics. It is a proposition that seems self-contradictory or absurd but in reality, expresses a possible truth. It can also be a person or thing that combines contradictory features or qualities.? For example, Africa is one of the most endowed continents in the world in terms of natural and human resources. Yet it is home to many of the world’s poorest people.?
That being said, in a research paper, Paradox Theory and the Success Paradox (Miguel, Linda L Putnam, 2019), the authors define a paradox as “the contradictory yet interrelated opposites that exist simultaneously and persist over time”. They avowed that success no matter how phenomenal often leads to tunnel visioneering, overconfidence in dominant explanations, and institutionalized labels that reinforce dominant logic.
This is also referred to as the Icarus paradox or paradox of performance. Paradox of success refers to ways in which we persist on a well-worn path, using the same strategies because we have been successful in the past. In other words, we tend to rely on previous paths that paved the way for victory or success as well as evidence of future success. This phenomenon is so pervasive that it has caused the failure of many successful organizations.?
Miller (1990), suggests that success can lead to a path of convergence and work its will to undermine forces of divergent outcomes. Therefore, as organizations agree on a line of action and get desired results, the strong performance of the organization fuels a defensive mindset which may drive dysfunctional outcomes (Amason and Mooney, 2008: 407).?
In other words, though an organization may actually reap the benefits of convergence, such as high performance, market leadership, top-of-mind awareness, brand loyalty etc. which are not bad in themselves, they may cultivate in their employees desensitized mindsets that glibly simplify divergent issues in the environment.?
Said differently, employees may become so internally focused that they lose touch with the realities in the business landscape. Therefore, the same factors that made the organization successful are the same factors that will slide it into decline.???
According to Miller (1993), an organization with a success paradox has a deep chink in its armour. The organization feeds off an architecture or structure that breeds narrowness and consistency. In effect, this syndrome drives a nail of homogeneity through the organizational system so much so that it cannot discern, read or interpret contradictory signals in the business environment.?
Therefore, the Paradox Theory is a particular approach to oppositions which sets forth “a dynamic equilibrium model of organizing that depicts how cyclical responses to paradoxical tensions enable sustainability and potentially produces peak performance in the present that enables success in the future” (Smith and Lewis, 2011:381).
The Dilemma of Innovation
The “success paradox” mirrors the core narrative of late Harvard professor Clay Christensen’s book, The Innovator’s Dilemma. ?The book posited that the factors that made some of the best firms successful were the very same factors that buried them. He observed that the best firms succeeded because they listened to their customers and consequently invested in technology, products, manufacturing and capabilities that best satisfied the next-generation needs of their customers.?
Paradoxically, the best firms met their Waterloo because they listened to their customers and invested in technology, products manufacturing and capabilities that satisfied the next-generation needs of their customers. “This is one of the innovators’ dilemmas: Blindly following the maxim that managers need to keep close to their customers can sometimes be a fatal mistake”, he noted.?
Before making the statement above Prof. Clay had beamed his research lens on the disk drive1 industry. He wanted to understand why some of the world’s best firms could not stay on top of the disk drive industry.?
Well, a bit of background into the disk drive industry will help.?
The disk drive industry
IBM, International Business Machine, pioneered the disk drive industry with its introduction of the first drive between 1952 and 1956. It was called RAMAC (Random Access Memory for Accounting and Control), it was the size of a large refrigerator, incorporated fifty 24-inches disks and could store 5 Megabytes. IBM created some of the basic architectural foundations that went on to define the industry. This included the removal of its removable rigid packs (1961), floppy disks (1971), and Winchester architecture (1973).
As IBM improved the design of the disk drive to meet its own needs, the emergence of the disk drive industry was happening at the same time. Two markets emerged – Plug Compatible Market (PCM) and Original Equipment Market (OEM). The PCM was developed by a number of firms that sold the disks directly to customers and a few IBM competitors like Univac, Control Data and Burroughs that were fully vertically integrated and manufactured their own disks.
That said, the Original Equipment Manufacturers (OEM) emerged in the 1970s and was dominated by non-computer manufacturers. These included Nixdorf, Wang, and Prime and whatnots. By 1976, the disk drive industry was worth $1 billion – 50% driven by captive production (perhaps for in-house use of the manufacturers) while 25% was split between PCM and OEM segments.
The next decade and more saw the significant growth of the disk drive industry undergirded by market disruptions and technology-driven improvements. Meanwhile, around this time, the share of the PCM had been dented so much that the OEM controlled three-quarters of the market.?
By 1995, the value of the disk drive market had galloped to $18 billion. As of 1976, of all the seventeen industry actors, notably large well-diversified firms, IBM was last-man-standing. Others which included Diablo, Ampex, Memorex, EMM, and Control Data had either failed or had been acquired by 1995. It is telling to note that within the same timeframe, out of the 129 additional firms that entered the industry, 109 of these failed.?
It is also important to note that apart from Fujitsu, IBM, NEC, and Hitachi, all of the companies that remained by 1996 had entered the industry as startups after 1976.
The corollary is that many of the best firms, so-called have been ably displaced by smaller and more innovative startups. Firms that did not have a performance streak or “paradox of success” as baggage that impeded innovation.?
Some have argued that the demise of these great firms was due to the fast-paced technological innovations that invaded the disk drive industry. Truly the speed of technological innovation was maddening and neck-breaking. For instance, the disk drive makers increased the number of megabits year on year by 35%, from 50Kb in 1967 to 110Mb by 1995. Similarly, the physical size of the disk was also reduced by 35%.
One study of the technology industry revealed that most of the manufacturers have established a track record of performance over time. For instance, Intel pushed the limit of the speed of its microprocessors ahead by about 20 percent per year. In 1979, it was 8 megahertz (MHz), 8088, and a 133 MHz Pentium chip in 1994.?
An analysis of the technology change in the disk drive industry presents two types of technology change – one that sustained the industry rate of improvement and one that was powered by disruptive changes.?
The former sustained the industry’s rate of product performance using metrics such as total capacity and recording density, which might be either radical or incremental.? On the other hand, disruptive changes revolutionized the entire business models and product ecosystems. Unfortunately, the latter change was what drowned many of the best firms.?
This goes back to the point made earlier that the factors that made the best firms successful were the very ones that got them capsized in the sea change powered by disruptive innovations.??
Now let’s bring this home and narrow home in on Google and see how the Paradox of Success or the Paradox of Performance enamoured its consistent diffidence, persistent convergence and willful dependence on past successes blunt its ability to discern industry-changing signals in its business environments, namely the generative AI signals.
Google, search engine powerhouse?
A bit of history. In 1996, two brilliant Stanford PhD students (Larry Page and Sergey Brin) founded Google. The idea powering the company was simple: create a search engine that will use links to rank the importance of websites. Google, formerly known as “Backrub” was the eighteenth entrant in the then-emerging search engine market. Whereas the likes of Yahoo, WebCrawler, Altavista, Lycos, Dogpile, Ask Jeeves, Excite, and whatnot competed.?
With no business plan, but a “conviction of steel" and a “courage of conviction”, they embarked on a mission to, “organise the world’s information and make it universally accessible and useful”.? Within a few short years, Google had dominated the search engine market. Investments came in truckloads. Venture firm Kleiner Perkins Caufield & Byers and Sequoia Capital invested $25 million in Google in 1999.
In 2000, Google created Adwords which allowed marketers to buy relevant keywords that appeared next to search results.? This service would propel Google to one of the richest companies in the world. Google launched Gmail in 2004, which became so popular because of its large storage space and had a bevvy of productivity services such as Google Docs which has rivalled Microsoft Word to date.
In 2005, Google launched life-impacting tools such as Google Maps to help people find new locations especially where they have never been before. Later, it launched Google Earth, a 3-D mapping technology that allows users to see far-flung places on their computer monitors. In July 2005, it acquired Android, a smartphone software for $50 million. With $1.5 billion, it acquired YouTube in 2006. To grow its advertising business, it bought DoubleClick for $3.1 billion. It helped the company to scale its business beyond search.
The new service allowed Google to work directly with web publishers and serve them with display advertisements across the internet. Released Chrome in 2008, to challenge Microsoft’s Internet Explorer and Apple’s Safari.? Android, its OS became the most widely used operating system in the US only 27 months after its release.? Its appetite for growth grew deeper, acquiring companies such as HTC for $12.5 billion. In 2015, it folded into a holding company, Alphabet, which includes Nest, Google X, Fiber and Google Ventures.
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As I type this line, Google is the fourth most valuable company in the world, worth $1.529 trillion. If Google were a country, it would have been the twelfth richest country in the world. Said differently, Google is as rich as the country of Australia with a GDP of $1.54 trillion but richer than Spain, Mexico, Indonesia, and Saudi Arabia and half the size of the GDPs ($3.1 trillion) of all 54 African countries.???
Google’s blind spot.
With its bevvy of disruptive products, Google is indisputably one of the most innovative companies in the world. Needless to say, that innovation is synonymous with the market capitalization of companies. In 2016, Google became the most valuable company in the world, upstaging Apple, an innovative company powerhouse.?
That same year, Google’s CEO, Sundar Pichai announced that Google would now be an “AI-first” company. Whatever that meant. Two years before his proclamation, Amazon had released Alexa, a virtual voice assistant - it can play your audiobook and music list, tell you the weather, set your alarm, play your audiobooks etc.? This obviously bore a chink in the armour of Google as the “organizer of the world information”.
As if Amazon’s jab wasn’t threatening enough, seven years later, another competitor would blindside Google. This time, it’s a small San Francisco-based startup, OpenAI with the launch of ChatGPT, a bot which generates anything from sitcom plots, original jokes, application letters and resumes, solves complex problems, and whatnot. OpenAI’s innovative offering is redefining search and making the search giant restless.
Hence, the hushed release of Bard. In other words, Google is now a challenger in a market it helped to create. Microsoft, Google’s archrival in the search engine space is not pretentious about its intention to win the AI-powered search war. Satya Nadella, CEO of Microsoft announced, “a new day” for search…“the race starts today” just a day after Google’s Bard was released. True to Satya’s words, Microsoft has just released a new version of Bing with AI features more advanced than ChatGPT. On top of that, Microsoft has already invested $10 billion in OpenAI.
?How Google Pioneered Generative AI
It is well documented that Google pioneered generative artificial intelligence research. In 2017, researchers at Google in a seminal work, “Attention Is All You Need” proposed a new network architecture which could analyze text – and called it transformers. This invention formed the foundation for generative artificial intelligence, AI and later facilitated the development of AI-powered apps such as ChatGPT and whatnots for creating content.?
In addition, the research work also culminated in the creation of Google’s own large language model, LaMDA. It was first introduced at its I/O event. It can generate texts and engage in complex conversations. The model worked so well that the engineer who worked on it said it had a soul and was sentient – able to perceive or feel things. But Google later dismissed the claim and got rid of the engineer too.?
All the authors of the paper have left except one. Six have started their own companies, while one has joined OpenAI.? One of the authors, who is also the CEO of Cohere, Google’s AI competitor, commented on the bureaucracy at Google, “It is a matter of the freedom to explore inside a huge corporation like Google,” He added, “You can’t really freely do that product innovation. Fundamentally, the structure does not support it. And so you have to go build it yourself.”?
Why did Google fail to lead the AI charge?
It is no secret Google makes most of its revenues from search. Why change a winning formula when it is bringing revenues in truckloads? Sounds logical in games like football. Right?? For years, Google has milked its search engine which was why it was reluctant to let go of its “goldmine”, its well-known source of income for something relatively unknown, generative AI.?
For instance, in 2022, Google made $162.45 billion from search out of a total revenue of $279.81 billion. This also includes ads on its Search Engine Results Page and other products such as Google Play, Gmail and Google Maps. Search has always been the company’s cash cow, a breakdown of the revenue source shows that Search contributed the lion's share, 58.1%. The second source of revenue was Google Network, $32.78 billion or 11.7% of the total. YouTube ads were third with $29.24 billion and 10.5% of Google’s total revenue. Hardware, apps and content earned $29.06 billion, 10.4% of total revenue. Its cloud services brought in 26.26 billion, representing 9.4% of the company’s total revenue.
That being said, Google perhaps knew AI would eventually impact the world of search. Yet it felt safer to play Wait and See. Why? It couldn’t take its eyes off the massive revenue it was reaping from search, having over 85% of the global market share and over 80% in the US. Instead of exploring white spaces for “fresh and new opportunities”, it was busy updating its algorithms – a complex system of data designed to fetch data from Google’s vast database when they are being queried.?
I’ll explain.
Web pages are domiciled in Google index which contains large and diverse information and data. The algorithms are created to assist users to locate the desired information from a large pool on the web. Look at it this way. You type in Google search, “Hotels in Lagos”. Of course, there are many hotels in Lagos. The algorithm uses what is commonly referred to as a spider that crawls the web pages, looking for this information in the Google index – just like the index at the back of a book.?
The spider looks for the information or data and returns the information on its Search Engine Result Page – which it will display as links. The algorithm works its will to make sure that the process is efficient and seamless. Meanwhile, all this takes place in a matter of seconds. Google considers factors such as high-quality content that matches the intent of search, page speed and technical SEO, on-page optimization and meta tags, referring domains and external links etc.
So, you can understand why Google keeps refining its algorithm. The aim is to make the process of search look seamless. For instance, in 2000, Google introduced the Google Toolbar, which triggered the conversation around Search Engine Optimization.?
The main features included website search, Page Rank and automatic location of the website.?
The toolbar was updated about eight times further. In 2003, Google announced this at the SES conference, an engineering science conference organized by Northeastern University, Boston. The intention was to update the algorithm every month but later decided it would be day-to-day. In 2003 alone, it made about five major updates. Between 2000 and 2022, Google has refreshed its algorithm about 60 times. Rightfully so.?
Unfortunately, upgrading its algorithm, good in all intent and purpose, was responsible for its almost noncommittal behaviour towards ChatGPT. Needless to say, Google might have embraced the type of change that works to sustain its search engine, not the one that would disrupt it ( as noted in the disk drive industry technology).? Unfortunately, embracing changes that sustain an industry always proves fatal in the end. This is what nailed Nokia’s coffin.
Nokia, the pride of Finland
Perhaps the biggest Finnish brand ever! Nokia was not just a Finnish company; it was an institution. Its annual budget was bigger than that of its host country, Finland. Nokia hasn’t always done telecommunications. It began as a pulp mill in 1865 and later went into manufacturing rubber. Then, it made and sold flexible cables. Towards the end of the 20th century, it expanded into mobile phones and pioneered the feature phones market.?
Sold it for a little over €100 a piece. Back then, nearly everyone had a Nokia phone.?
It became a global brand, hence.
Its ruthless focus on functionality and design was responsible for its long unbroken market domination roughly from 1996 through 2006. But then competition from cheaper phones would dent its share of the market. Also, its near neglect of the North American market, where it had only a 7%? share, and its concentration on Asia and Europe, might have opened a crevice for the likes of Apple and Samsung to creep in.?
Anyway, Apple established a new category (even though Nokia actually created the first smartphone, The Communicator), the smartphone, the iPhone in 2007 and changed the game. Of course, Apple redefined the value proposition with its new product - now people could use their phones to browse the internet, send and receive mail, listen to music on the go and much more. The phone was now more than a device for making and receiving calls. It was people’s life on the go.?
Nokia was caught napping. It wobbled and fumbled to nail down an appropriate response, thankfully, the volume of its phone shipment was still good. So, it maintained the status quo. Meanwhile, in 2008, Google introduced the Android operating system, on which HTC and Samsung phones ran. It was reported that Nokia actually dismissed the entrance of these so-called wannabes only to later discover they have been stealing its lunch for a while.??
Why Nokia failed.
No successful company wants to or has to fail. But the reality, as you might infer from all great companies that failed, is that their successes soon became their Achilles' heels. In other words, the same factors that made them successful eventually led to their misfortunes.?
Nokia is no exception.?
Nokia pioneered the telecommunications market as well as played huge roles in advancing the global system for mobile communication or GSM in the late 1980s and early 1990s. But its failure to adjust to the acceptance of the smartphone was its greatest undoing to date.?
Meanwhile, before 2007 when Apple launched the iPhone, it ruled the market. Thereafter, it started losing the market. In just about five years, it lost more than 90% in market value. For instance, in 2011, it held about 76% market share advantage over Samsung, by the end of 2012, that had shrunk to about 42%. In 2007, it held over 50% of the market but by the end of Q2 in 2013, its market share was 3.1%. At its peak, Nokia was valued at $300 billion, Microsoft sold it to HMD, a Finnish OEM for only €350 million.?
Many reasons have been put forward why the company failed. According to one INSEAD professor, its culture was the culprit, “This (company culture) led middle managers to over-promise and under-deliver. One middle manager told us that ‘you can get resources by promising something earlier, or promising a lot – It is sales work’.?
Alluding to this fact, another Professor noted that people placing the fall of Nokia at the doormat of either Apple or Samsung are painfully wrong. According to him, the problem began long before the duo entered the smartphone market. In the article, “The Strategic Decisions That Made Nokia Fail”, he noted that Nokia’s failure as can be observed in most mature and successful companies was caused by its success which inevitably bred conservatism and hubris. Which always drives poor strategy processes which ultimately drives poor strategic decisions. A once agile company given to experimentation is now risk-averse and therefore less innovative.?
The article noted that Nokia’s success actually triggered its problems. It is well known that in the mid-1990s, the company almost broke when its supply chain collapsed. In response, the company worked its will to create a more efficient system and scaled up production than its competitors.?
Hence, while the number of employees grew by 150% from 1996 to 2000, that is 27,353 employees, within the same period, sales exploded by 503%. Hence, managers were more focused on short-term imperatives than on long-term initiatives such as focusing resources on innovative activities and experimentation.
So, the core business prioritized incremental improvements while it created a nimble team that drove its main innovation activities. (This is similar to Google’s focusing on updating its search algorithms and then setting up a research team that set the stage for generative AI). The small team was credited with the creation of the first smartphone (not Apple as many people believe), the Communicator, the Camera Phone in 2001 and then the second generation of the smartphone 7650.
The Search for a “third growth leg”
Nokia wanted very badly to grow a “third leg”, a new growth area, in addition to its mobile phone and telecommunications infrastructure arm, Nokia Mobile Phone and Nokia Networks respectively. It created Nokia Ventures Organization (NVO). The NVO was very successful because it was able to discern a number of innovations that were well ahead of their time such as the “Internet of Things”, and a multimedia healthcare product which is still actively earning revenue to date. But the NVO would run into problems later because its organization, which is focused on developing long-term initiatives, is at variance with the short-term performance of the core organization.
Matrix organization
Well, Nokia continued to post great results, sales figures were up, and customer loyalty was impressive but it was losing its sense of agility and entrepreneurialism. The same factors that made it amply successful.??
The company lumbered under a matrix structure where managers with varied priorities and performance criteria were lumped together. Managers struggled, obviously, because they were used to a decentralized system. Unfortunately, mid-level managers were poorly skilled and untrained in the underlying negotiations that propel a successful matrix organization.?
For instance, Nokia Mobile Phone, NMP was perpetually locked in the product development matrix between product line executives with responsibilities for profit & loss and managers of “common horizontal platforms” who had to allocate scarce resources.?
The implication of this is that a product development executive, for example, would need to acquire skills in software development and software development project management to be effective within the matrix. Unfortunately, most of the managers were not trained in either.?
Hence, decision-making dragged and product development and releases lagged behind scheduled release dates. By the end of 2004, it was clear top management lacked the prerequisite technological and strategic knowledge to resolve the conflicts within the matrix. Consequently, the company left a market chasm for low-quality phones from Asia to proliferate the market and hence eroded its differentiation strategy while putting pressure on it to lower the cost of production.?
The final straw.
Of course, once deadlines were not met, and release dates thrown out the window, Nokia had to keep defending what it had. It was clear its Symbian operating system was more of a liability than an asset. The problem was that it was device-centric whereas the game has changed from product to platform. Symbian delayed new product releases since each model has to be designed and tested with a new set of codes. By 2009, Nokia phones were running on 57 different and incompatible versions of Symbian.
So, why did Nokia fail????
It failed because it failed to adapt quickly to the changing environment. The competitive sandbox had shifted from software and no longer hardware. While Nokia was designing shining new features, new entrants like Apple and Samsung were investing in developing mobile applications. Said differently, the customer value propositions have shifted from making and receiving calls with the phone, rather phones were now an integral aspect of people’s lives and lifestyles, a useful companion for working, relaxing, getting weather updates, scheduling meetings, learning, getting information and news etc.?
Ironically, Nokia posted some of its best results in the late 2000s. This goes to show that success both in the past and present cannot guarantee future success. Unfortunately, only a few organizations have learnt this lesson. Although, Nokia may be back to winning ways as the recent figures showed.?
According to Statista, the company generated €24.9 billion in net sales in 2022, which is a 12.16% increase over the last year. In another report, the brand is back on the top five list of smartphones in 23 countries in 2022 up from 17 in 2021. This news is exciting, but can’t ensure its return to the top of the totem pole in the smartphone market.?
Conclusion.
It is well-known, startups fail. Some say, only one in five startups succeed and proceed beyond the first five years. The reality is that successful, mature companies are not insulated from failure. While startups may fail for many reasons - insufficient funding, poor product-market fit, poor management, etc.?
Ironically, the reason why successful companies succeed is their success. They have all the factors that were probably responsible for the collapse of the startups. But they failed all the same. It drives home the point that success can in fact be a slippery ground for successful organizations or high-performing organizations like Google and Nokia.?
This is the paradox of success, a phenomenon that describes why successful companies fail because they were very successful - by consistently travelling on the well-worn path of past successes and willfully neglecting and deliberately pursuing the opportunities that the future holds. This is the reason why Google is chasing OpenAI for the generative AI market and the same reason Nokia is almost a footnote in the narrative of the smartphone market, which it helped to create long before the emergence of the iPhone.???
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