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Wednesday, September 4, 2013

From Nokia, an Executive Who Knows the Difficulties at Hand

From Nokia, an Executive Who Knows the Difficulties at Hand

Richard Drew/Associated Press

Stephen Elop will step down as Nokia’s chief and head an expanded devices team at Microsoft.

When Stephen Elop takes on Microsoft’s challenges as the new head of its mobile computing business, he will find plenty of parallels from his three years running Nokia: both are established companies blindsided by new innovators and troubled almost as much by pride and internal fiefs as by technology shifts, according to former executives and company watchers.

What Mr. Elop’s Nokia experience doesn’t show is a history of engineering turnarounds that could be translated to Microsoft. Before Microsoft’s $7.2 billion purchase of Nokia’s devices and services business was announced late Monday, Nokia’s stock was off about 60 percent since Mr. Elop joined the company in September 2010.

Mr. Elop made many tough choices, including major layoffs, selling office space and shedding pet technologies like an aging operating system for mobile devices. Those calls prevented an even worse outcome, and gave the Finnish company a badly needed sense of urgency, analysts said. But he failed to stop the company’s declining market share and he leaves â€" at best â€" a work in progress at Nokia.

As part of the Microsoft deal, Mr. Elop agreed to step down as Nokia’s chief executive and rejoin Microsoft when the deal closes, which is expected to happen in early 2014. He will lead an expanded devices team inside Microsoft, responsible for both hardware and Microsoft’s business in things like games and music.

He also puts himself in the running to succeed Steven A. Ballmer, Microsoft’s chief executive, who last month announced he would be leaving within 12 months. “His hat is firmly in the ring, running a very important division for Microsoft’s future,” said Crawford Del Prete, an analyst at IDC who has known Mr. Elop for many years. “He could have just exited Nokia, but the fact that he’s there shows he is a very ambitious guy.”

Mr. Elop, a 49 year-old Canadian, came to Nokia from Microsoft, where he ran the business division, a senior leadership job that includes Microsoft’s lucrative Office software. Before Microsoft, he ran the information systems of Juniper Networks, a computer networking company, and ran field operations for Adobe, which makes tools for digital content. He came into Adobe from another acquisition, when Adobe purchased a company he ran called Macromedia.

He is a father of five, including triplet girls and a daughter he adopted from China. He is close to his family, uprooting them for his first Microsoft job only at his son’s urging. But then Mr. Elop left his family in Washington while he relocated to Espoo, Finland, where Nokia is based.

“It’s a beautiful place, but it’s very hard to be that far away from your family,” said Leslie Nakajima, a former Nokia executive who now runs communications for the Mozilla Foundation, makers of the Firefox browser. Through a spokeswoman, Mr. Elop declined to be interviewed.

When Mr. Elop arrived at Nokia, it was still the world’s leading maker of mobile phones. But it had been struggling for years to match smartphone competitors. First, BlackBerry wooed business customers with phones that had an easy-to-use keyboard for typing out e-mails. Apple’s iPhone, which came out in June 2007, and Google’s Android operating system in October 2008, represented an even bigger challenge with smartphones that closely tied hardware, software and a wide variety of customer-pleasing applications.

Nokia had turned down an early chance to be Google’s partner in Android, partly because its purchase of a mapping company could have presented a conflict with Google Maps. That relationship went to Samsung, now the world’s biggest smartphone maker. Instead, Nokia’s strategy involved managing five different operating systems, and making scores of different phones for markets across the world.

“A kind of arrogance had crept into the company, a feeling that they really understood exactly what consumers wanted,” said Mr. Del Prete. “That was a real problem when they were assaulted by BlackBerry and Apple.”

Early in his tenure, Mr. Elop wrote an internal memo that compared Nokia to a man on a burning oil platform who is forced to jump into icy waters. Mr. Elop’s point: If the company didn’t make some drastic, risky decisions, it was doomed to fail. Mr. Elop’s “burning platform” memo recalls a similar missive written a few months earlier by Ray Ozzie, Microsoft’s chief software architect, as he left Microsoft. Mr. Ozzie wrote about a company in thrall to its past success, troubled by internal complexity and unable to react to fast-moving competitors, particularly in a world dominated by new mobile devices and services.

Mr. Elop could see that Nokia faced similar issues, but he may not have been prepared for the firestorm when he announced in February 2011 that the company would drop development on multiple operating systems, switch to Microsoft’s Windows Mobile operating system and lay off thousands of employees. Older-model Nokia phones were orphaned, and newer phones with Microsoft software did not arrive on the market for months.

“People were already sore, because they felt like there would be a deal with Microsoft as soon as he came on,” said a former Nokia executive, who requested anonymity to maintain professional ties. “There was uncertainty, there was infighting, and the market share plummeted.”

Mr. Elop was making a risky decision that still hasn’t paid off.

“He had to do something,” said Mr. Del Prete. “Smartphones change so fast, and this was a company where workers expected to stay their whole lives.”

While the first models of Nokia phones running Microsoft software were expensive and failed to excite consumers, Mr. Del Prete added, “they are making progress. They are adding developers. It will take longer than people envision, and it will take the coffers of Microsoft.”

A version of this article appears in print on September 4, 2013, on page B4 of the New York edition with the headline: From Nokia, an Executive Who Knows All Too Well The Difficulties at Hand.