Wednesday, 25 September 2013

So Nokia, what now?

With the dust starting to settle and the Proxy documents becoming available the situation with Nokia starts to look a little clearer.

Public opinion in Finland is starting to turn against the deal.  Elop's massive bonus and the board's evasive and inaccurate statements have been massive PR own-goals.

If I had the money and the contacts I would start immediately to do something about it.

Nokia's 'market cap' has jumped back up to about $20B so a hostile takeover is going to require up to $15B but I still think it can be done.

If it were orchestrated in concert with a shareholder revolt it might need to gain substantially less than the 56% of the voting stock needed to guarantee victory.  By promising to dilute the stock by 67% after a successful takeover I could keep the share price from escalating too substantially and force the big US funds that are backing Microsoft to take a painful bath on their investments.

I understand that between them they controlled about 15% of the stock when they parachuted Elop into the board.  That's an investment of $8.5B which is currently worth less than $3.5B.  That's clearly a long term strategy that is predicated on Microsoft successfully acquiring Nokia's phone business and on the rump of Nokia being worth something when they cash out.  If Microsoft get nothing and I can drop Nokia's share price down to $2 in the process that investment might be worth barely $1B.  They'd get it all back eventually but they'll be suffering in the meantime with $7B of capital locked up where they can't touch it.

What would I do with Nokia once I was in control?

Well sacking the board would be an obvious first start.

I've talked at length here about how I would restructure the company but I think over time I would break it up into a number of smaller companies.   A swarm of interconnected and interdependent companies each run by partners with a stake in their individual company.  I might consider using that mechanism to bring ex-Nokia employees back into the fold.  Jolla, QT and Vertu would be excellent examples of potential partners in a resurgent Nokia ecosystem.

I think I've explained how I would prefer to incentivise staff elsewhere but with Nokia I've run some mathematical models in my head.  Without real numbers about remuneration inside Nokia its hard to be precise but I think a minimum salary of €30k would be a step up for the average employee and a maximum of about €80k would be a substantial step down for the best paid executives.

I would start by introducing six pay bands rising in €10k steps from the minimum to the maximum. Everyone would get a pay rise except those that were already earning more than the maximum who would be getting a pay cut.  The savings at the top would easily pay for the increased costs further down the totem pole.  I imagine we might lose quite a few of those taking a pay cut and I would be able to sincerely wish them well where ever the ended up.

Over the first year I would slowly introduce a Reputation system that determined an employees pay grade.  Employees would rate each other and those ratings would determine an employees salary.  The bottom half of the company would be paid the minimum, the next quarter would be one grade higher and so forth and so on.

Staff employing essential skills that they had invested time, effort and personal capital in would be remunerated for those skills as if they were Capital.  The company would purchase the use of that skill with a Bond that paid a pro-rata dividend that reflected the market price of that skill.

Obviously all of the above is open to substantial revision depending on actual circumstances.

As to products Nokia might well be in a bad way.  There almost certainly exists a contractual obligation to continue using WP as the primary OS for at least 18 months but I don't think that is a substantial hurdle.

I have been thinking a lot about brand image, for both Apple and Nokia, quite a lot lately.  It seems to me that a great many people already have substantial amounts of these company's hardware products lying around gathering dust.

They are popular brands because they are good products.  I think Apple's walled garden approach is not doing them any favours in the long term, as all monopolist activities naturally must, and that there is a better way.

I think by cultivating an 'open hardware' paradigm a great deal could be gained.  By openly permitting and assisting the modifying and upgrading of obsolete hardware by the customer community one would not only gain goodwill but substantial free advertising.  If a ten year old handset can be seen still working and performing some interesting and valuable function the brand can only gain from that.

This could easily be extended right into current handsets.  One could offer handsets for sale with WP pre-installed, as contractually stipulated, but offer easily installed, fully warranted, free images of other operating systems to customers that wanted them. Meego, Sailfish, Firefox, Tizen and Android could all be made available at little or no cost.  One could document and open up all the hardware to allow enthusiasts to easily modify their own handsets, at their own risk, and thus become the preferred hardware platform of the enthusiast community. By giving the customer the freedom to make the device their own they make the brand their own.

And then there is the patent portfolio.  Here I don't really know.  What Nokia still has and what obligations they are irrevocably embroiled in is unclear.  What I would like to do is create some sort of open-source patent licence that created a community of innovators who shared ideas and technology and competed on implementation.  The faster innovation occurs the better it is for everyone.

The idea that an innovator is best served by excluding others from the market so that he might extract the maximum amount of profit from that market for the longest possible period is wrong-headed on the face of it. Real wealth is created by driving costs down, to drive prices down, to enlarge the size of the potential market.

All I need is a white knight with access to the right contacts or capital.  Or both.

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