A few years before Apple introduced the iPhone, research engineers at Nokia prepared a prototype of an Internet-ready, touch-screen handset with a large display, which they thought could give the company a powerful advantage in the fast-growing smartphone market.
The prototype was demonstrated to business customers at Nokia’s headquarters in Finland as an example of what was in the company’s pipeline, according to a former employee who made the 2004 presentation in Espoo.
But management worried that the product could be a costly flop, said the former employee, Ari Hakkarainen, a manager responsible for marketing on the development team for the Nokia Series 60, then the company’s premium line of smartphones. Nokia did not pursue development, he said.
“It was very early days, and no one really knew anything about the touch screen’s potential,” Mr. Hakkarainen explained. “And it was an expensive device to produce, so there was more risk involved for Nokia. So management did the usual. They killed it.”
As Nokia’s new chief executive, Stephen Elop, takes over this month, he faces a formidable task: to regain the company’s lost ground in the smartphone segment of the global phone market, especially in the United States, while maintaining its worldwide dominance as the largest maker of mobile phones.
His biggest obstacle, according to Mr. Hakkarainen, as well as two other former employees and industry analysts, may well be Nokia’s stifling bureaucratic culture. In interviews, Mr. Hakkarainen and the other former employees depicted an organization so swollen by its early success that it grew complacent, slow and removed from consumer desires. As a result, they said, Nokia lost the lead in several crucial areas by failing to fast-track its designs for touch screens, software applications and 3-D interfaces.
In 2004, one said, the company rejected an early design for a Nokia online applications store — an innovation that Apple, Nokia and other handset makers adopted three years later. Nokia also did not improve its Symbian operating system, needed to support a more sophisticated smartphone. And though it introduced the industry’s first touch-screen devices in 2003 — the 6108 and 3108 phones, which worked with a stylus — it did not perfect the technology to fingertip precision before Apple did.
Nokia still lacks a convincing response to the iPhone. Last week it announced that software errors would delay shipments of its long-awaited N8 touch-screen phone.
A Nokia spokeswoman, Arja Suominen, declined to address any specific criticisms by the three former employees, playing down their roles. They were, she said, “managers with individual roles or leaders of small teams.”
She also said that Mr. Elop, 46, a Canadian who had run Microsoft’s business software division, and the first non-Finnish chief executive, would not give interviews yet. He began work on Sept. 21, and is spending his first weeks meeting with Nokia employees, suppliers, phone operators and software developers.
“I am sure there are things we could have done better and innovations we missed,” Ms. Suominen added. “But that happens to all companies. We have been very successful with some other innovations.”
She cited Nokia’s large patent portfolio and its 770 Internet Tablet, a compact, flat-screen device without a phone, released in 2005. It worked with a pen stylus and was made for Internet browsing but is no longer sold.
Henry Tirri, who leads Nokia’s long-term research unit, mentioned the development of Chinese character recognition, a social networking service for India and software that makes panoramic photos from a series of images. None have been matched by rivals, he said. But none have been game changers, as the iPhone was.
Mr. Tirri, whose unit has about 600 employees at 12 sites worldwide, said the company was trying to change its culture. “We have made a real effort to transform and open the research channels” since 2004, he said. ( CONTINUE )
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