A cautionary tale for sustainability-seeking CEOs

At SustainAbility we are in the business of transforming business: helping companies to move to truly sustainable business models and supply chains.

But for the leaders of the global corporations with whom we work, real transformation – as opposed to low-risk, step-by-step change – can seem daunting. And, sure enough, it is. But whether they admit it publicly or not, most CEOs are equally daunted by the prospect of what awaits if they fail to prepare in the face of diminishing natural resources, population growth, and climate change.

So what does today’s daunted CEO need? Inspiration, of course – and what better than a textbook example of a global company which transformed itself virtually overnight.

For 25 years from 1967, Nokia was an industrial conglomerate with interests in everything from paper products and tires to military equipment and chemicals. But when Jorma Ollila became President and CEO in 1992, he made a bold strategic decision: to focus on telecommunications and move out of all other businesses. This move showed terrific foresight and led to the reinvention of the company.

Nokia quickly rose to become the world’s leading manufacturer of mobile phones, a position it has enjoyed for nearly two decades. Could this example of corporate transformation in the face of rapidly evolving global markets not serve as a model for sustainability-conscious business leaders today?

Well possibly, but 1992 feels like a very long time ago, and how are the mighty fallen. Last month Nokia’s current CEO sent a company-wide memo telling employees that the business stood on a “burning platform.” Before the shock had sunk in he followed up with a public announcement that would have been unthinkable just two or three years ago: a new strategic alliance with one time nemesis Microsoft to use Windows 7 for all future high-end phones. Many of Nokia’s employees downed tools and walked out hearing the news, and one highly-respected industry analyst has stated that the only logical end game might be for Microsoft to buy Nokia.

To those outside the mobile industry, this might all seem a bit dramatic. After all, in terms of unit shipments Nokia is still the biggest mobile phone vendor in the world. But most of those units are at the low end – basic handsets that do little more than make calls and send texts – where margins are razor thin. In the far more lucrative “smartphone” space, Nokia has failed to respond to the rise of Apple’s iPhone and Google’s Android (a software suite upon which any half-decent device manufacturer can build a handset with iPhone-like abilities in a few short months).

To understand just how important the smartphone battleground is, consider this: last quarter a meagre 4% of phones sold globally bore an Apple logo, but they equated to 20% of the industry’s total revenue and a staggering 50% of total profit.

To many in the mobile industry, the flames licking at Nokia’s heels have been evident for a long time. So how did the company which seemingly wrote the book on transformation let itself get to the point where the only strategy left is to ‘jump’?

Maybe this reaction to the recent events, from an ex-Nokia executive, holds the key:

Nokia’s problem is not, and has never been, that it lacks for creative, thoughtful, talented people, or the resources to turn their ideas into shipping product. It’s that the company is fundamentally, and has always been, organized to trade in commodities. Whether those commodities were stands of timber, reams of paper, reels of cable, pairs of boots, or cheap televisions for deployment in hotel chains, much the same basic logic applied: acquire, or manufacture, great quantities of a physical product for the lowest achievable cost, and sell for whatever the market will bear.

Perhaps Nokia’s 90s makeover was not quite as profound as it appears. Granted, the company rapidly transformed its core business, profitability, and product portfolio – pretty much everything that’s visible to an outside observer – but what about what’s not visible?

Could it be that the one thing Jorma Ollila failed to change was the company culture? This would certainly make sense: there must have been plenty of individuals at Nokia who saw the looming threat of Apple and Google, and they must have been buzzing with ideas about how to fight back. Why then is the platform still burning? Were these individuals unable to overcome the same pile ‘em high and sell ‘em cheap mentality that continued to pervade the organisation two decades after it had catapulted Nokia to the number one spot in the first place?

If this is true, what can the Nokia story teach today’s business leaders about transformation?  I would argue that there is a valuable lesson here for the sustainability-seeking CEO: your own foresight and a willingness to act, however great, will only get you so far. The real challenge is to overcome your organisation’s cultural inertia. You may be able to manage near-term crises, and even turn them to your advantage, but the challenges facing humanity today – and thus your business – are extremely complex, only partially understood and rapidly evolving.

To prosper with any certainty in the long term, businesses must attain a level of organisational resilience and adaptability that can only come from embedding sustainability into their very DNA: every process, every product, every person. Get this right, and by the time your platform starts burning, you’ll be so far away you won’t even see the smoke.

This article first appeared on The Guardian website on March 15, 2011.