Nokia's failure to innovate

As Nokia sinks into a sea of red those at the helm of the company must surely be hoping that the worst is over. However, this optimism will also no doubt be tinged with a profound regret that its’ current predicament could have been avoided.

Overnight, Nokia posted a net loss of $1.68 billion, about four times their loss of $433 million during the same period a year earlier and more than double the loss anticipated by analysts. The good news is that the company isn’t burning through its cash in quite as rapid a rate as the market had predicted.

This wisp of positivity should, however, be tempered by the revelations of Frank Nuovo, a former chief designer at Nokia, who has told the Wall Street Journal that Nokia had a smartphone and a tablet in the works a decade before Apple burst into the scene.

Essentially, Nokia had seen the mobile future but did nothing about it.  

Nuovo’s comments to the WSJ, reveal that a research team at Nokia had shown management a touch screen phone almost seven years before the iPhone was released. That’s not all, Nuovo claims that Nokia also had everything it needed to build a tablet computer a decade before the iPad became the poster child of a new generation of computingfailure to

"Oh, my God," Nuovo told the paper. "We had it completely nailed."

A lament that will no doubt be uttered by a multitude of Nokia shareholders - who are no doubt appalled at how things really played out. So what happened? Why did these devices not find their way into the hands of customers, who were already in thrall of Nokia’s phones?

There are a number of painful lessons here that are not just unique to the mobile market, or Nokia. Research in Motion finds itself in a similar situation as it failed to translate its dominance in the corporate sector, especially in the security space, to success. 

The failure to translate cutting edge research into tangible products is a product of a short-term outlook that makes the incumbents lazy, where the focus is squarely put on ensuring that the next set to financial results are better than the last one. That’s easy to do when you are a dominant player in the market and there’s easy money to be made. But to stay on top a company to figure out a way to stake its claim on the next big game changer and that takes more than just by spending billions of dollars in research.

Nokia reportedly spent $US40 billion on research and development over the past decade but as the WSJ reports the research efforts were hamstrung by internal rivalries and disconnect between the research and the strategy teams.

It’s not just a case of Nokia failing to bring innovative products into the market, it made a strategic call that the ‘low end’ of the mobile market will remain a secure base for a substantial time. That punt did not pay off as the iPhone wowed the consumers. Nokia spend billions building operating systems (Symbian) only to discard them, while a company like Samsung immediately jumped on the chance to join forces with Google and Android.

What we have here is a failure to take a risk and persevering with a path that in the long run would have paid off. There is no guarantee that Nokia would be sitting in Apples’ position but at least it wouldn’t be in it the position it finds itself in now.

The one good thing to come out all that R&D for Nokia is that it is sitting on a $US6 billion pile of patents, which will provide Nokia the breathing space it needs to see if its belated alliance with Microsoft will pays dividends.

As Nokia’s boss Stephen Elop gets ready to systematically sell the patent portfolio every sale will highlight the high price that the company has had to pay for its complacency.