Changing the guard at Nokia – Olli-Pekka Kallasvuo takes the helm

Jorma Ollila caught the Finnish media by surprise at the beginning of August when he announced that he would be stepping aside next year from managing Nokia full time. Succeeding him will be Olli-Pekka Kallasvuo, rising from within the company to take charge of the crown jewel of Finnish industry.

Kallasvuo is currently responsible for the Mobile Phone business group, Nokia's best performing division.
Pekka Ala-Pietilä, who was previously considered favourite to succeed Ollila, chose the same opportunity to announce his departure from the company. In an unusually frank statement, Ala-Pietilä admitted that he did not have enough drive to lead a giant of Nokia's stature.

Even though the change of leadership at Nokia was one of the summer's major news events in Finland, it did not come as a huge surprise. Ollila's intention to leave was well known within his immediate circle, and he had said that on becoming CEO he had promised his wife that his tenure would not last more than twelve years. That promise almost held good as he exceeded the twelve-year limit by only a couple of years. The announcement from Nokia was communicated to investors well ahead of the expiry of Ollila's five-year contract.

Ollila's departure is a big media event not only because Nokia is Finland's largest and most valuable company, but also because the 'Ollila myth' has started to take on a life of its own in the press. One aspect of the myth is the belief that the power Ollila enjoyed by being head of Nokia was an end in itself. The change in leadership, however, disproved the theories that Nokia's number one would cling stubbornly to his position, like so many ageing company directors do.

After the news of his departure, speculation mounted about Ollila's future. He himself categorically refuted any intention of accepting any political overtures. Ollila feels most at home in the world of business and his single-minded nature would not necessarily be suited to tinkering away at compromises needed in politics.

An interesting detail concerning the sporadic media speculation that Ollila was going to enter politics was revealed shortly after the news broke about the change in leadership. The presidential candidate of the main opposition party, the National Coalition Party, Sauli Niinistö, revealed in his new book that he had asked Ollila to stand in the previous presidential elections. According to Niinistö, Ollila had not dismissed the idea out of hand at the time, but promised to consider the matter over the summer. The answer was "no" and perhaps it was at that point that Ollila finally stopped harbouring any political ambitions.

There is plenty of demand in the business world for leaders of Ollila's calibre and he has in fact already accepted an offer. He will be joining perhaps one of Europe's most challenging companies, the Anglo-Dutch oil giant Royal Dutch Shell, as Non-Executive Chairman of the Board. He takes up the position at the beginning of June 2006. Royal Dutch Shell is the world's fourth largest company in terms of turnover, only Wal-Mart, BP and Exxon exceed it.
Finns have made it to the top in international organizations, Formula 1 motor racing, and as orchestral conductors, but in the world of business a Finn has never before achieved a position of the stature of Chairman of the Board of Royal Dutch Shell.

Remaining at Nokia part-time

Although Ollila will no longer be receiving a full-time salary from Nokia next year, he does not intend to leave the company altogether, but will become part-time Chairman of the Board. He had been acting as full-time Chairman at Nokia since 1999. This kind of full-time role as Chairman is common in the United States, but less so in Europe, especially in Finland.

Olli-Pekka Kallasvuo faces a completely different set of challenges from the ones Jorma Ollila confronted on becoming Nokia's CEO in 1992. During Ollila's tenure, the communications sector experienced an unparalleled revolution, which fanned a 200-fold increase in the use of mobile phones. Kallasvuo will have a tough job keeping Nokia's growth on track, given that the company's net sales have fallen over the last three years.

Fortunately for Kallasvuo and Nokia the number of mobile phone users is continuing to increase. During the next 5 to 10 years the number of mobile phone users will rise from two billion to three billion. The market and number of phones sold by Nokia has therefore grown and continues to grow, but at the same time the average price of mobile phones has come down and this is eroding Nokia's net sales and margins. Kallasvuo will have a considerable task if he has a mind to return profit margins to the levels of more than 20% that were achieved in years gone by.

It is encouraging though that on the whole Nokia has been successful in managing the changes in the mobile phone market. The company has been able to introduce more expensive handsets onto the market, while grabbing the market for cheaper models. Nokia's market share, which varies slightly depending on the research institute, is hovering around 35%. However, the strong overall figure hides some worrying trends. For example, Nokia's position has become weaker in North America during 2005.

Kallasvuo – the only remaining member of the Dream Team

Jorma Ollila initiated Nokia's growth in 1992 at which time the other members of the Executive Management team, nicknamed the dream team, were Matti Alahuhta, Pekka Ala-Pietilä, Sari Baldauf and Kallasvuo. At that point in time all the members of the team were either side of forty and had started out from modest beginnings in Finland. Now, as a result of stock options, they are all multimillionaires. Sari Baldauf left Nokia at the turn of the year and acts mainly as a professional board member. Alahuhta moved from Nokia's head office in Espoo to the top floor of the glass office tower next door to become President of Kone, the manufacturer of lifts and escalators. When Ala-Pietilä leaves Nokia, Kallasvuo will be the only original member of the team still with the company.

Kallasvuo's career at Nokia started in the finance department where he arrived from the banking world in 1980. At that time Nokia was a manufacturer of cables, paper, rubber boots and electronics, a maker of general merchandise.

Kallasvuo did not, however, remain a number cruncher for long, but in true Nokia fashion moved around in different management jobs. From being Chief Financial Officer he moved to Texas where he was responsible for Nokia's American market, and from there he advanced two years later, in autumn 2003, to lead the Mobile Phone Division. Kallasvuo's colleagues in Nokia's current Group Executive Board are not Finns of a similar age, but are a relatively international outfit , which includes the Australian Simon Beresford-Wylie, General Manager of the Networks Business Group, the Norwegian Hallstein Moerk, Executive Vice President of Human Resources, the American Richard A. Simonson, Chief Financial Officer and Simonson's compatriot Mary T. McDowell, General Manager of Enterprise Solutions.

Since the announcement of the forthcoming change in leadership, the international media have speculated on Nokia's future. The company has been linked at times with the router manufacturer Cisco or with Apple, creator of the iPod. These alternatives seem unlikely in view of Nokia's history. The secret of Nokia's success has been the company's own resources and not a single corporate acquisition has been undertaken. A majority of analysts have rejected any potential fusion with other large technology players.

An additional line of defence for Nokia's independence is the company's EUR 10 billion in cash funds, which can help Nokia and Kallasvuo sustain even serious failures in business operations. Moreover, it should be borne in mind that Nokia's Group Executive Board still has a majority of Finns, which includes, in addition to the aforementioned members, Anssi Vanjoki, Pertti Korhonen, Tero Ojanperä, Yrjö Neuvo and Veli Sundbäck. Neuvo, a former scientist, is retiring and the Group Executive Board appointed two new members in September 2005. They are Kai Öistämö, 40, who inherits Kallasvuo's position as General Manager of Mobile Phones, and Robert Andersson, 44, who rises to become Executive Vice President of Customer and Market Operations.

Many of the kingpins in the business world in Finland come from industrial dynasties or are the offspring of prosperous families. At Nokia, in contrast, family background has not proven to be a route to the Group Executive Board. The exception is Robert Andersson, whose father is an influential Professor of Law, Edward Andersson. Andersson senior sat on Nokia's Board of Directors from 1973 to 2000.

There has been no hint from either Kallasvuo or Nokia of the company's head office being relocated from its home in Espoo, Finland, to anywhere else. Kallasvuo himself lives in Helsinki with his wife Ursula Ranin, who has been a successful Vice President and legal officer at Nokia, although she will leave the company before having to be her husband's subordinate.

Nokia's new CEO is the son of a pharmacist from the village of Lavia in western Finland. He graduated from the University of Helsinki and is a Master of Laws with court training. In his spare time, Kallasvuo can be found either on the golf course or tennis court and in winter on the ski slopes. In addition, he professes an interest in political history.

Unlike Jorma Ollila, Olli-Pekka Kallasvuo, or O.P. as he is known to his friends, has not had a high profile in public debate. He is the quiet, thoughtful type.

But Kallasvuo does have a significant job as Chairman of the Board of the financial group, Sampo, and as the boss of one of Finland's most colourful figures in the world of finance, Björn Wahlroos. Sampo began a period of success in 2001 when Wahlroos became Group CEO and Kallasvuo Chairman of the Board.