Case 15-2 Microsoft, Nokia, and the Finnish Government: A Promise Made, a Promise Broken?
At the turn of the 21st century, Microsoft seemed invincible as both a firm and an operating system and controlled the tech industry by completely overshadowing its nemesis, Apple. After launching successful operating systems like Windows XP and 2000, the company gained wealth, recognition, and power by creating a near monopoly over personal computing devices.(1) Although they were not the pioneers of user-friendly operating systems (accolades to Apple for developing the first mass merchandised system), they were enjoying a 97% market share. In 2000, personal computers were the only available noncommercial computing devices, and Microsoft dominated them all.(2)
As of 2005, the demand for smartphones started to increase, and the market increased opportunities for new entrants. Microsoft’s decline started in 2007 after Apple introduced the first iPhone. The market was moving away from Microsoft’s products; compared to Apple’s Mac operating system, Windows Vista was barely holding up and was considered inferior to its predecessor, Windows XP. Apple showed tremendous growth over the next decade, and Wall Street announced that Apple was valued higher than Microsoft in 2010. Google then introduced its Android system to compete with Apple’s iPhone OS. This new system was adopted by the other half of the smartphone industry. As a late entrant, Microsoft introduced their first Windows Phone in 2010, and the next year, they announced their commitment to Finnish expertise in the telecommunications sector by partnering with Nokia and functioning as one team. This arrangement permitted all Nokia devices to use Microsoft operating systems, which reintroduced Microsoft to the smartphone market.(3)
By 2013, there were approximately 2.5 billion computing devices, including tablets, that were dominated by three companies: Microsoft, Google, and Apple. The total number of personal computer sales had yet to reach 500 million, but smartphones had already sold more than 1.5 billion units over a decade.(4) Smartphones had dominated the tech industry as the major item in the personal computer market. Apple’s iPhone was a huge success, which created billions of dollars’ worth of supplementary revenue from mobile applications. In this respect, Apple’s iTunes and Samsung’s alignment with Google enhanced user experiences with smartphones. Microsoft, on the other hand, was not prepared for the sudden shift in the market, and although still a tech giant, they were clearly caught off guard.
With its market cap at 20%, Microsoft desperately wanted to regain market share. They installed a new CEO, who was tasked with realigning the company under the “One Microsoft” vision. The company was ready to change its business model, to increase the speed of innovation, increase efficiency, and rebuild the company culture. To that end, they announced Office 2013, a new operating system called Windows 8.1, and Xbox One, their new gaming console.(5)
In 2013, the agreement between Microsoft and Nokia became more than a partnership as Microsoft bid to acquire Nokia in a $7.2 billion deal. Founded in 1865, Nokia is a Finnish telecommunications and technology company that engaged more than 90,000 employees and reported around $12 billion in annual revenues. This was a big move for Microsoft, since Nokia had experienced its own declines, as indicated by its stocks dropping by 80% in the prior few years. Both companies had ignored the winds of change, and both paid the price for letting their competitors slide past them.(6)
The acquisition of Nokia, however, was delayed by numerous legal issues with the Finnish government, who approved the deal with the understanding that layoffs would not be forthcoming. The purchase was finally approved by the numerous international governmental regulatory agencies in the first quarter of 2014. With purchase in hand, Microsoft felt they now had good access to the mobile phone industry with $50 billion in annual sales. Three months after the deal was inked, Microsoft’s first major action was to lay off 18,000 people in their workforce. This was the largest layoff in the tech industry, but it helped Microsoft save about $600 million a year.(7)
Finnish prime minister Alexander Stubb received a call in July 2014 from Stephen Elop, the head of Microsoft Corp.’s device business and a former Nokia Corp. chief executive. Elop alerted him that Microsoft would cut 1,100 of the 4,700 jobs in Finland that came with its purchase of Nokia’s mobile phone operations. Mr. Stubb called the layoffs “extremely regrettable” and said the government would do all it could to cushion the blow to those affected. Finnish politicians issued statements calling on Microsoft to show social responsibility and offer retraining and generous severance packages to the people it was dismissing, something that Nokia has done in the past in Finland and abroad. Some went further and accused Microsoft of reneging on the promises it supposedly made about job security and Finland’s place in its strategy. “You can say we were betrayed,” said Finland’s newly minted minister of finance, Antti Rinne, a Social Democrat.(8)
1. Who are Microsoft’s key stakeholders in this case? Why?
2. Using the five forces model from Chapter 2, describe how the changes in the computer technology industry impacted Microsoft’s ability to compete. Which force most negatively impacted Microsoft? Why?
3. What seems to be Microsoft’s ethical approach? How does this approach seem to impact their human resource management decisions?
4. Describe the conflict between stakeholders’ interests and the Finnish government’s perception of Microsoft’s lack of social responsibility to Nokia’s employees. Whom do you side with and why?
5. Instead of layoffs, what if Microsoft decided to decrease the total compensation to Nokia employees? What part of that package would you decrease and why?
6. Besides changing the compensation package, what other human resource management options might Microsoft consider rather than layoffs