1124_mz_54nokia

On a slushy morning in early March, Stephen Elop, a Canadian executive who built his résumé at U.S. technology companies, found himself in front of 2,000 Finns delivering a speech about failure. Six months earlier, Elop had been hired away from Microsoft (MSFT), where he oversaw the company’s Office products, to lead Nokia (NOK), the world’s largest manufacturer of mobile phones. At its peak, in 2002, it contributed 21 percent of all of Finland’s corporate tax revenue, and its success over the past dozen years has fueled the nation’s sense of possibility in the same way that General Motors (GM) once propelled the aspirations of the U.S. Elop’s message to his employees in the factory town of Salo was that, despite the 450 million phones the company sold in 2010—402 million more than Apple (AAPL)—almost everything Nokia had done since 2007 was wrong.

Without slides or props, Elop stood in the town’s gymnasium and explained his signature decision as chief executive officer: to dump Nokia’s homemade Symbian software, which has shipped on some 400 million phones, in favor of Microsoft’s nine-month-old Windows Phone 7 software that runs on a mere 4 million. Elop spoke in his usual manner, an engineer’s earnest, you-know-as-well-as-I-do appeal to reason. As he marched through his logic, the Nokia employees, aware that their new boss had only recently arrived from the very company whose software they would now be humiliatingly forced to use, betrayed no signs of emotion. Rather, a heavy silence filled the room, as if Elop were a defense attorney being watched for signs of inconsistency.

Much of what Elop had to say wasn’t news to his audience, but it was still distressing. In his measured telling, Apple and Google (GOOG) had changed the industry from handset-focused to software-focused. Symbian had fallen too far behind to have any hope of catching up. Worse, the company’s great hope for the future—a software platform created with chipmaker Intel (INTC), called MeeGo—wasn’t ready to pick up the slack. He tried to negotiate a deal with Google to run Android, but Google refused to give the world’s biggest phonemaker any advantages over its smaller partners, meaning Nokia’s corps of 11,600 engineers would have next to no ability to add their own innovations to Google’s software. "It just didn’t feel right," Elop says to the crowd. "We’d be just another company distributing Android. That’s not Nokia! We need to fight!"

Silence.

For a moment, Elop, 47, lays into the complacency he sees settling over the company. When he asks how many people in the crowd use an iPhone or Android device, few hands go up. "That upsets me—not because some of you are using iPhones, but because only a small number of people are using iPhones. I’d rather people have the intellectual curiosity to understand what we’re up against."

Finally, after emphasizing that he believes mismanagement—not a lack of innovation—is what ails the company, Elop gets personal. "I’m deeply apologetic that I can’t give you every bit of information about how this will impact each of you. That really sucks," he says of the layoffs destined to hit Salo’s employees as a result of abandoning Symbian and MeeGo. "But my commitment to you is that we will get through this as quickly and transparently as we can. And I think we’re going to make the best choices for the future." Within minutes the crowd has dispersed and headed back down the snowy road to the Nokia factory that since 1928 has been cranking out radios, TVs, and, more recently, cell phones. By Finnish standards, it could have gone worse. "It wasn’t exactly a standing ovation, but people didn’t walk out feeling resentful," says Ram Kuppuswamy, the plant’s manager. "The disappointment doesn’t go away. But this helped.

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