National Employee Morale Day: Nokia Cuts 4,000

New Nokia (NYSE: NOK) CEO Stephen Elop received a signing bonus of 5 million euros to join the struggling handset company. His base salary is 1.1 million euro. The new chief executive announced today that he would dismiss 4,000 employees over the next year. He will also outsource Nokia’s Symbian development to Accenture (NYSE: ACN) and use that to move another 3,000 people off his firm’s payroll. The plan will cut Nokia’s R&D costs by 1 billion euros a year. That will happen at a time when Nokia probably needs to increase its product development efforts to gain market share in the smartphone business.

Nokia has decided to bet on the Microsoft (NASDAQ: MSFT) Windows Mobile operating system as its path to increased market share which it will have to gain from Apple (NASDAQ: AAPL), Research In Motion (NASDAQ: RIMM), and an army of Google (NASDAQ: GOOG) Android powered smartphones. The plan is a long shot according to almost every industry expert. Windows Mobile has very little market presence. The fact that Nokia is still the leader in handset sales worldwide does not mean it has leverage to move up-market. It may rue the day that it parted with it Symbian development operations. The aged operating system might have served Nokia well if it was aggressively updated.

Elop’s layoff plans are similar to what most CEOs of troubled companies do. They reject the past by cutting the staff that made the past possible.  Elop says he needs a year to launch a line of competitive phones. A year is like a century in the smartphone business.

Elop had other options, most of which were better than the one he has picked. He might have engineered a merger with RIM. He might have sought a joint venture or merger with Motorola or Sony Ericsson. These two companies at least have a modest presence in the smartphone business. Nokia’s manufacturing scale and global relationships with cellular service providers would have helped a new venture. Nokia elected to go with a long odds strategy instead.

Elop’s plans have cost 4,000 people their jobs. And, he has probably already made a decision that will doom Nokia’s future place in the smartphone industry.

Douglas A. McIntyre