Updated: Sep 25
Management turnover during the period surrounding an acquisition is challenging, particularly when new leaders don’t share the same passion for the merger. Leadership change created uncertainty for Nokia employees. Announced layoffs coupled with differences in leadership style created more suspicion and distrust of those leading the merged companies. Had Microsoft been sensitive and aware of differences in the way Nokia employees view and interact with management, many problems could have been avoided.
Many Microsoft managers moved to executive positions in Nokia right before the acquisition. Stephen Elop, a former employee of Microsoft, joined Nokia as the company’s CEO and President in December 2010. Elop joined the Finnish company with the mandate to reclaim lost market share and increase profitability. Not even three months later, in February 2011, Nokia announced a partnership with Microsoft; this entailed Microsoft’s software being used on all Nokia devices. After a few years, Microsoft decided to turn its partnership with Nokia into an acquisition. September 2013 marked the beginning of the new Microsoft Mobile (the merged Microsoft and Nokia venture). With the acquisition, many executives from Nokia moved over to the newly-created Microsoft Mobile. This included Elop, who moved companies to become the Executive Vice President of Microsoft’s devices division.
Soon after the acquisition was complete, Steven Ballmer (then CEO of Microsoft) announced his decision to step down as CEO. He was succeeded by Satya Nadella. One critic claimed, “Mr. Ballmer agreed to the deal as he was stepping down as chief. It was almost a fitting dud to end his tenure.”
Management turning over from Ballmer to Nadella meant that the newly formed Microsoft Mobile division would begin operating without the executive that pioneered the acquisition of Nokia’s mobile division. Worse still, Nadella displayed little interest in the Microsoft Mobile division and even “announced a strategy shift away from a ‘devices and services’ focus” a few months after acquiring Nokia. The management turnover, as well as the commentary on moving away from devices, dealt a psychological blow to Finnish employees, impairing their ability to design innovative products.
In addition to acquiring Nokia’s ailing mobile phone division, Microsoft acquired 32,000 employees. The employees functioned as part of Microsoft Mobile, though they were headquartered in Finland. This move may have been destructive because the Nokia employees were “coming from a completely separate culture.” While it can be difficult for employees to adjust to a new corporate culture, they can eventually thrive. However, it does take time for employees to acclimate. It is apparent from the quantity of cuts that Microsoft had little patience for its Microsoft Mobile experiment. Microsoft’s lack of patience is displayed by the number of layoffs related to Microsoft Mobile: 12,500 (July 2014), 7,800 (July 2015), 1,850 (May 2016), and finally, 2,850 (July 2016). In just three short years, Microsoft cut 25,000 jobs from Microsoft Mobile. The layoffs led to a severe brain drain, depleting the human capital that Microsoft paid so much to acquire.
Large Power Distance vs. Small Power Distance
Both Finland and the U.S. fall on the small power distance side of the scale. This indicates that people within an organization are less likely to accept hierarchical authority. In the case of these two countries, Finland is even lower on the power distance scale than the U.S., indicating that power is more decentralized in Finland than in the U.S. Thus, employees in Finnish companies tend to prefer and operate with more autonomy than those working for American firms.
This small difference between cultures led to problems when Microsoft merged Nokia’s mobile phone unit into its operations. “The combination of the two companies has created more disconnects and mistrust than continuity or synergy. There is (sic) lots of politics and click-ish behavior throughout all levels.” With power more equally distributed between organizational levels, it was easier for Finns to become closer with upper management and create a siloed atmosphere for the Americans coming into the merged company. Management did not provide any help in this regard; in fact, management created a sense of fear that permeated the company creating more distrust and confusion among employees and executives. “A culture of status inside Nokia made everyone want to hold onto power for fear of resources being allocated elsewhere or being demoted.”
Consensual vs. Top-Down
Finns are very consensual in their decision making; decisions are made as a group. The process of making decisions can be time consuming because each person within the group is consulted, but when the decision is made, it is implemented quickly and is generally inflexible to change. In the case of Nokia, decisions were made collectively with the executives in Finland. One employee commented that Nokia is “focused on the Finnish way of doing business.” Another former employee in the U.S. described Nokia as a “ship that can be slow to turn — patience, persuasion, and often travel to Finland are required to initiate change.”
Since the U.S. is a top-down decision-making culture, Americans working with Nokia before the merger found it hard to work with the “Finnish way” of decision making. Employees in the U.S. are used to short discussions and more implementation while Finns are slower and more detailed in the decision-making process. Even though Microsoft is a U.S.-based company, Microsoft Mobile was headquartered in Finland, allowing the Finnish mindset of consensus decision-making to persist.