Nokia chairman offers advice on guiding management to stay on top of innovation.
When the iPhone was introduced in 2007, Nokia chairman Risto Siilasmaa, admits he didn’t see it as a game changer and trusted management at the telecommunications firm that the device would only be a cult-fan favorite.
Siilasmaa, who is credited with helping turn Nokia around since then, learned his lesson and under his direction the focus became, and still is, “our technology, our products, our people, our customers and our competition, as well as our competitiveness now and in the future.”
The following is a Q&A with Siilasmaa — the former interim Nokia CEO, and author of the just-released "Transforming Nokia: The Power of Paranoid Optimism to Lead Through Colossal Change". He shares what he learned and how boards can ensure their CEOs are staying on top of innovation.
Nokia has been through dramatic changes in the past few years, teetering on bankruptcy as technological changes left the company behind. Many see your leadership on the board as “a big reason Nokia even has a future,” as the global management consultant McKinsey & Company said in article about you and the company in 2016. How does a board even begin to put its arms around the continuous “colossal change?”
The big challenge for any board is to learn what’s really going on in the company and the industry. Rather than restricting yourself to the granular level of “What are the company’s problems?,” try to go one level higher to the way the company identifies and responds to symptoms that affect the company’s health and wellbeing. If your company’s culture allows it, these three questions provide a structured way to think about things:
Are we discussing the right things? This is a major challenge for any team. Talking about the company’s balance sheet, corporate social responsibility, compensation structure, cybersecurity preparedness and so on is important but, to be honest, has very little long-term strategic significance. The topics that really matter are those that help the board understand the competitive status of the company: the future environment for target customers, the company’s sources of competitiveness, how its core technologies and products will compare with the competition’s going forward, and other subjects that explain the company’s present performance and dictate how the company might perform in the future.
Are we discussing the right topics the right way? Even if you have the right agenda and are dedicating a thoughtful amount of time to the factors that will decide the company’s success or failure, if you’re not able to have deep and candid discussions, then the time spent will not produce useful results. Questions must be encouraged and welcomed, not just on a superficial level but as far down as it takes to divulge a realistic response.
Are we comfortable challenging the leaders’ opinions? No leader can be above criticism or questions, but many boards find it difficult to challenge the CEO or the chairman. To be able to do that requires immense trust between both parties, something that can only be achieved through careful cultivation of the relationship.
All companies run into trouble at some point. With these three questions to help fine tune your early warning system, you’ll have a better chance of recovering sooner and less painfully.
How were you and the board able to help the CEO keep on top of all the disruptive changes and make necessary changes? Can you discuss one or two specifics?
The CEO and I changed the agenda of board meetings to reduce time spent on topics of secondary importance: corporate governance, share price, compliance, media coverage and social responsibility. These are meaningful topics but not as important when the ship is sinking. Instead, we focused on fundamentals: our technology, our products, our people, our customers and our competition, as well as our competitiveness now and in the future. These are the right things to talk about in any company but especially a company in the midst of massive change.
We tried to teach the management to explain to the board what defines our success in the market. This was not just about stating, “This is what we need to do now.” It was understanding why: Why do we think this technology or this feature will be important? Why will these actions make us good in these things? Why do we assume we’re on the right path? Why is this approach the best way to track our progress?
For each of these topics, the goal was always to find alternative paths forward. If you have only one path forward, you become a passenger. If you have alternatives, you can make choices. You are in control.
That said, the board needs to be very thoughtful of how it intrudes so that the roles of the management and the board don’t get mixed in a bad way. The Nokia board was able to help by focusing largely on the major future scenarios, then asking a ton of questions for management to answer around likely scenarios. That put structure to the future for both the management and the board which, in turn, helped the management make sense of the possibilities for the future.
We knew this put a heavy burden on the management but the board helped the management by creating an environment in which it was easy to openly discuss our difficult situation. As a member of the management team explained, the old approach was, “Don’t you dare bring bad news to us without a solution.” The new one was, “Bad news is good news. We will help you find a solution.”
You joined the Nokia board a year after Apple’s smartphone was introduced in 2007. Did you realize then it was going to be a game changer? Why?
Even though I watched the introduction of the iPhone remotely on a small screen, I was deeply moved and thought it was the best product launch I had ever witnessed. But did I think it was a complete game-changer? No. I trusted the analysis of Nokia management. When they claimed that the iPhone would only appeal to Apple fans —a rabid cult with limited potential membership — I initially believed them.
The point is, I didn’t have any higher wisdom. Most people don’t. And at the time, Nokia’s management had such credibility as experts in the field that it was very difficult to doubt their assessment.
However, it would have been healthy to think through a scenario where touch devices would become a majority of all devices. What would be the early indicators of that transformation? What would happen to us in our current state of preparedness? What action could we take right now to build a better balance of risk and reward?
What questions do you ask top management when it comes to disruptive risks?
I try to make sure that we spend enough time thinking about the downside. It’s always more attractive to focus on how we might win, rather than trying to understand how we could lose. During the Windows Phone selection process, for example, we spent 98% of the time thinking about how to make it a success. Very little time was spent thinking through alternative scenarios: “What if this doesn’t work? What might make this not work? Where would a failure leave us?”
Scenario-based thinking can help raise those thorny questions. For almost any challenging situation, we can name a few different paths the future might take. By exploring these possible paths, deciding whether they are positive or negative for us and defining actions that we can take both right now and later to influence their outcome, scenario mapping enables you to minimize the likelihood that you might overlook something important and maximize the likelihood that you are prepared for whatever scenario eventually occurs.
How do you foster collaboration between management and the board before and through transformation?
It starts with talking about the kind of relationship that should exist. And it also helps to document the desired outcome. Board charters can help if they’re written the right way. At Nokia, we came up with “The Golden Rules,” a set of guidelines for how the board would operate and the principles we would apply as we worked together and with management.
You need to discuss the guidelines with the management to make sure they agree. Then, most importantly, you need to walk the talk. Trust is only built through actions— by unfailingly encouraging people to seek out and share bad news, by not punishing them when they do, and by constantly rewarding accountability.
Laying down a foundation of trust is absolutely paramount. In times of trouble and transformation, trust both greases the gears and is the glue that holds everything together.
We are also building a more equal relationship between the board and management team. For instance, as part of our annual board evaluation, we ask management team members to anonymously rate the board. Everyone gets evaluated, both on the management team and the board. We all need to perform at our best.
Do you think directors need to educate themselves about the latest digital disruptions? How do you do that? What’s the big disrupter on your mind right now?
Absolutely. The board needs to educate itself and the company needs to help them. But each individual board member also is responsible for continuing to educate himself or herself. One of our Golden Rules for how the board operates is that we expect the board to become familiar with the issues and the people handling them, so the board can serve as a brain trust, ready and able to support the management by strategically sharing the benefits of its collective knowledge and experience.
The big disrupter on my mind right now is the potential for machine learning and artificial intelligence to disrupt almost everything. To understand how it really works, I went back to school. I signed up for a series of six online courses, doing a project with each course to gain a hands-on understanding. Then I created a presentation that I wish someone had given me. It’s also on YouTube where it’s been watched by over 50,000 people so far. I describe this in more detail in the book and in a story I wrote for Harvard Business Review.
How do you bolster accountability without squashing entrepreneurial leadership?
Accountability is the cornerstone of entrepreneurial leadership. When you care — and care deeply — about everything that happens to the business, your colleagues, your customers and your products, you feel accountable, regardless of your role. When you have an entrepreneurial mindset, everything is your responsibility.
In an Economist interview earlier this year you said, “Success is toxic.” What did you mean by that exactly, and how does that apply to the boardroom and making sure the CEO stays ahead of disruption?
All companies make mistakes, but companies suffering from their own huge success may become unable to admit or even see those mistakes, and therefore become culturally unable to recover. I’ve had multiple discussions with chairmen and CEOs of successful companies who have asked me to explain what happened to Nokia and how they can ensure that won’t happen to them. The fact that they are asking those questions shows they are already concerned, which means they’re thinking the right way.
One of the most valuable lessons I learned was to recognize the four toxic symptoms of success:
• Bad news doesn’t reach you or your team.
• Your team doesn’t dig for negative news or hard facts.
• Decisions are constantly postponed and watered down.
• There is often just a single plan with no alternatives.
Being truly successful needs to make you worried. Today’s success can obscure tomorrow’s possible failures. You must remain constantly alert for indicators that suggest an organizational culture ill-prepared to cope with change. Every time you start believing that your advantage is so strong that new entrants can’t compete, you should slap yourself in the face and say, “I’m wrong even if I don’t yet know how.”
If board members aren’t sure that their top management team is paranoid enough about the constant changes impacting their companies and industries, what should they do next week, next month and next year?
By far, the best weapon board members have is asking questions: Why do you think X can’t happen? What would we do if it looks like X is actually stating to happen? How do we find out as early as possible that X might happen? What do you think would be the worst-case scenario?
And the best question of all is a why question. For instance, “Why is our strategy good?” is very hard to answer, but trying to prove that your strategy is strong is a healthy exercise. Presenting a strategy is easy; proving it is good is extremely difficult. In any case, everyone wins as their understanding increases.
By creating a culture characterized by data-driven analysis, regular deep dives to understand root causes, an imperative to consider the downside and a discipline of thinking in alternatives, you can combat the toxicity of success and better prepare to withstand coming storms.