Article

The International Journal of

Entrepreneurship and Innovation
Nokia on the slope: The failure of 1–8
ª The Author(s) 2017
a hybrid open/closed source model Reprints and permission:
[Link]/[Link]
DOI: 10.1177/1465750317742843
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Malgorzata Ciesielska
Teesside University Business School, Teesside University, UK

Abstract
This case study explores the origins of Nokia’s decline in the mobile technology market, as an unsuccessful attempt to
introduce an open-source strategy into the business. Nokia created a hybrid model, which codified conflicting principles
taken from closed and open mode of collaboration. A series of implementation problems resulted in Nokia struggling to
attract open-source partners, growing issues with managing in-house staff and ultimately failing to develop a new mobile
operating system fast enough to stay competitive. Key learning outcomes: At the completion of the case study,
students will understand the complexity of open innovation implementation when paradigmatic differences between
businesses and/or partners are not resolved.

Keywords
hybrid innovation model, knowledge integration, Nokia, open source

Background challenges the traditional proprietary business approach

because it is ruled by a different intellectual property
Open innovation has become a new paradigm for under-
regime and populated by a variety of participants with dif-
standing industrial progress. It works on the premise that
ferent ideologies. But above all, a fully open R&D process
widely distributed knowledge leads to innovation, which
makes a company more vulnerable to its competitors. It
occurs at the interspaces between a diverse range of groups
also risks that their competitive advantage may be easier
and organizations (Swan and Scarbrough, 2005). Primarily
to copy. However, somewhat ironically, the whole body of
to advance their technology and systems, businesses
open innovation research offers a little in-depth analysis of
need to make use of both internal and external ideas
the organizational and legitimacy problems involved in
(Chesbrough, 2003). Open innovation models enable creating a hybrid open-source/corporate structure. Ruuska
customers and users to contribute their knowledge to a
et al. (2009) argue that any knowledge integration requires
company’s R&D processes. Many companies now under-
crossing not only temporal, spatial and task boundaries but
stand the benefits of this and have incorporated such mod-
also authority, social and identity boundaries. The former
els to strengthen their creativity and profits (Weber, 2004).
ones may be less visible and harder to overcome. Genera-
Open-source software (OSS) is the common field in which
tion of knowledge is a collective activity and as such
open innovation takes place. However, we must remember
requires substantial levels of coordination between hetero-
that OSS is a community-based model of development, not
geneous agents and common coherent institutional back-
a business model per se, and its existence precedes the ground in order to succeed (Antonelli, 2006: 234):
concept of open innovation.
‘Knowledge does not spill freely and automatically in the
Extant studies suggest that the open innovation models
atmosphere: dedicated efforts are necessary to create the
offer many opportunities, although they also bear risks.
institutional context into which external knowledge can be
Although it can be argued that open innovation is inevita-
acquired and to reduce its uncontrolled leakage’. Literature
ble, it remains a challenge for business organizations seek-
ing to benefit from external knowledge sources but still
operating like closed systems. The change in the business
Corresponding author:
model requires not only adapted structures and systems but Malgorzata Ciesielska, Teesside University Business School, Teesside
also redefining of a company’s role in those structures and University, Middlesbrough, Tees Valley, TS1 3BA, UK.
systems (Ciesielska, 2010). The open paradigm also Email: [Link]@[Link]
2 The International Journal of Entrepreneurship and Innovation XX(X)

identify employees, R&D personnel (Schroll and Mild, This company that achieved so much with its product design in
2011), non-R&D personnel (Robertson et al., 2012) and the 1990s must develop an entirely new set of innovation skills
managers (Jones, 2006) as important gatekeepers for in order to create, develop, and manage a platform – an eco-
absorbing new knowledge. Laviolette et al. (2016) report system of other companies that build their offerings on top of
that both non-research and development personnel can play Nokia’s. (Chesbrough, 2011: 5)
a crucial role in inbound open innovation.
In their seminal work, Meyer and Rowan (1977) noted But this has not fulfilled. Instead, this case shows that
that individuals in organizations tend to get involved in interaction between organizations that share an open envi-
symbolic actions that aim to decouple from formal struc- ronment often results in emerging paradoxes (Munoz and
tures. Decoupling means that organizations tend to Lu, 2011).
adopt various formal solutions in response to a range of
institutional pressures, but do not necessarily enact those
structures. When organizations have to deal with incom- From Symbian to Maemo
mensurable institutional or stakeholders’ pressures, they During the 10 years leading up to the Microsoft takeover
often start to couple their activities, talks and decisions in in 2013, Nokia’s Internet tablet/smartphone product
odd manners (Brunsson, 2003). The concept of organiza- announcements and releases were entangled with organi-
tional hypocrisy explains how organizations struggling for zational changes in the company (see Figure 1). Nokia
legitimacy and satisfying interests of different parties talk started to work on a multimedia device quite early. The
and decide about important issues, showing their involve- development process was initiated in 2002 with the Nokia
ment in one direction while in practice acting in the oppo- 7700, which was based on Symbian. Symbian was an old
site direction. This implies that if a company makes many proprietary operating system which Nokia had used for
statements and reveals future plans, actual executions may years. However, it soon became obvious that the current
be far away (or even opposite) from those declarations. platform had its limitations and would potentially be
However, the organizational hypocrisy strategy only works unsuitable as an operating system for new types of
if people assume that talks are leading to coherent actions embedded mobile devices, such as smartphones. New,
and it is not revealed that the organization is decoupling innovative solutions were clearly needed, but Nokia
its talks from activities (Brunsson, 2003). Swan and Scar- didn’t seem to have any ideas, or a business partner that
brough (2005), in their study on the politics of networked could provide an answer.
innovation, highlight that the power of the system may At that time, there was a very small number of Nokia
constitute barriers to innovation and make knowledge engineers who had links to the OSS world and this was
integration efforts less effective. Enberg et al. (2006) enough to start a quasi-hobbyist project to develop a
argue that little effort has been devoted to developing Linux-based mobile operating system. Linux is an example
alternatives to rationalistic project management concepts of free OSS and, since its development in 1991, it has
of how and with what mechanisms knowledge integration become the main operating system for the world’s super-
processes are utilized in the context of uncertainty and computers. Initially, Nokia’s management did not take the
political pressures. idea seriously. In fact, this attitude continued until the engi-
neering team came up with the first actual product proto-
type: tablet N770.
The case Tablet N770 offered an Opera Internet browser, Internet
In 2013, Nokia sold their mobile branch to Microsoft for radio access and a media player. The device and its oper-
US$ 7.17 billion. After several years of outstanding success ating system, Maemo, were officially announced in 2005 at
and rising profits, the company had already failed in its the LinuxWorld Fair and Conference in New York City. It
transition to smartphones and a customer-focused business was at this point that Nokia’s management declared that the
model (Doz and Kosonen, 2008). But the problems started Maemo project was an initial step in creating an open-
in the early 2000s when the company seemed to lose its source product for broadband and Internet services; they
strategic sensitivity. This is possibly due to a great success also stated that the company would now be coordinating
during the 1990s, which made its leaders underestimate and regularly launching new versions of the software.
rising competitive threats and a new phase of technological At this stage, all Nokia had was an Internet-enabled
progress in the mobile industry (Ciesielska, 2010). prototype device, but this gave hope for maintaining their
Although it is true that Nokia did not stop working on competitive position in the future. With the right invest-
incremental changes to its operating system, Symbian, its ment and attitude, Nokia had a chance to create a device
major investment and hopes were put into the open-source which incorporated new and exciting smartphone technol-
Maemo project. As accurately noted by open innovation ogy. However, Nokia’s development process was relatively
expert Henry Chesbrough, Nokia’s approach to innovation slow and other big players in the market (primarily Google
should have embraced radical changes. and Apple) had already been working intensively on the
Ciesielska 3

Figure 1. Nokia’s Internet tablet development line. Source: the author, developed from Ciesielska (2010: 38).

idea of smartphones packed with Internet browsing and desired. In 2009, Nokia was working on the Maemo 5
multimedia utilities. system, which also incorporated Qt libraries.
The second generation of tablet, N800, was rolled out in The following section describes Nokia’s hybrid model,
January 2007. In October that same year, the third-genera- taking into account key organizational principles related to
tion, N810 became available on the market. The operating intellectual property rights, knowledge distribution, mem-
system was upgraded to Maemo 3, then to version 4; the bership, incentives, authority and coordination of the
devices were additionally equipped with an integrated cam- project and the dominant mode of communication.
era and a Skype/VoIP application. Unlike previous tablets,
the N810 had a side slider with a full QWERTY keyboard,
together with a touchscreen, a Mozilla Internet browser,
Nokia’s hybrid model
Google Talk and GPS navigation. Nokia became involved with OSS in two distinct ways.
However, until 2009 and the N900 model, the Internet Firstly, it contributed to well-established projects, such as
tablet was a product without a SIM card designed for Inter- the Linux kernel or GNOME. GNOME is a desktop envi-
net browsing via a wireless local area network (WLAN). ronment for GNU/Linux and UNIX-type operating systems
The N900 was the first embedded system that successfully and it is used for managing applications. The code from
combined the mobility and size of a cellular phone and, to a these established projects became the basis for creating an
certain extent, the usability of a laptop. Unlike a regular operation system on Nokia’s Internet tablets. The second
phone, it was programmable according to the user’s needs way Nokia got involved in OSS was by starting its own
and they could develop, upgrade and install software as open-source community. The [Link] website, and its
4 The International Journal of Entrepreneurship and Innovation XX(X)

community, was aimed at producing free applications for was to produce more patents. After Nokia became involved
Nokia devices. The code from [Link] was supposed to in OSS development in 2008, it had to officially reformu-
be free of charge (both for Nokia and its customers) via an late its strategy and (at least within OSS operations) switch
application store. goals from increasing the number of useful patents to
However, not all components of the new software were expanding its collaborative networks.
open sourced. Some of it came from commercial vendors or At the same time, Nokia stated on [Link] that
was developed internally by the company and released as a the OSS licensing model is preferred by the company. But
closed module. The mixed structure in which Nokia hoped despite this, Nokia went on to execute a highly confusing
to bring innovation was an open-source/business hybrid. approach, both internally and externally. It applied a
This hybrid was constructed around a mixture of organizing ‘novelty rule’ for its engineers, one which stated that any
principles which merged the open-source and commercial code potentially constituting a ‘competitive advantage’
mode of software development. should not be open sourced unless agreed with the manage-
ment. In fact, this attempt at a competitive advantage dif-
ferentiation is perhaps the most important factor in this
Knowledge integration and distribution whole argument: The nature of most open-source licensing
The operating system for Internet tablets, Maemo (later makes it impossible to patent any top-up solutions. If the
MeeGo), was composed primarily of free and open- novelty rule were taken to extremes, many crucial upgrades
source software. Nokia’s vision (or perhaps propagated might not have been returned to the upstream projects,
visualization) of Maemo was its centrality, in the sense that which is against community spirit. It seems that the differ-
it took bits and pieces from different OSS projects and entiation between clear and novelty was not only uncertain
compiled them into the operating system via the coopera- to begin with, but that the definition was also at the discre-
tion of the Nokia and Maemo communities ([Link] tion of various levels of management within the company,
website). Approximately 25% of the packages on the which further confused an already unstable hybrid business
Maemo platform were taken directly from OSS upstream model. The reality of Nokia’s activities not only contra-
projects; 50% of the packages originated in OS upstream dicted some of its strategy presentations, but they were also
projects, but were modified internally by Nokia; and the incoherent in themselves. This did not go unnoticed. On
remaining 25% of the packages constituted proprietary many occasions during conferences, meetings, blog posts
components (Jaaksi, 2007). Thus, approximately 75% of and private conversations, OSS developers unofficially
the operating system for Nokia tablets had external inputs. complained about Nokia creating double standards.
Nokia was involved in those projects at various levels of
engagement. This participation in the upstream OSS proj-
ects enabled the access and transfer of necessary knowl- Membership
edge to develop Maemo OS. A volatile balance seemed to Typical OSS projects are voluntary and gather together
exist between different interests regarding knowledge shar- independent developers, corporate employees, open-
ing. On the one hand, Nokia started to understand the source firm programmers, translators and users. The main
advantages of following and directly contributing to issue facing Nokia’s Maemo-related network was not how
upstream processes. Initially, they tried to fork the projects to restrict membership, as it is in more commercially
and develop them internally, but they then had to subcon- oriented project, but rather the difficulty in engaging capa-
tract companies to post factum reintegrate the code. The ble participants who were interested in developing projects
critical point in this process was the translation of open- for Nokia (preferably for free).
source logics on the corporate grounds, and explaining to Nokia became involved in the open-source movement
the mangers where the gains came from. According to Ari by employing developers through a number of arrange-
Jaaksi, Nokia’s vice president, its work with Maemo taught ments, including work contracts, subcontracting, support-
Nokia to avoid ‘forking’ the code. To benefit fully from ing companies via task-oriented contracts and sponsoring
open-source processes, a company should make an effort talented individuals in non-contractual, ‘favour-for-a-
not to deviate significantly from its upstream components; favour’ relationships. Most developers involved in open-
if they are working on their own version of the source code source operations at Nokia were previously engaged in
repository, too many differences make it difficult to incor- major OSS projects. From the company side, it seemed
porate software upgrades. to be a conscious strategy to recruit people with proven
expertise, in order to acquire necessary knowledge and
skills, as well as advance Nokia’s reputation and position
Intellectual property in OSS communities.
Nokia was a corporation that, for many years, focused on However, the recruitment process wasn’t easy and on
the closed R&D model. Not long before it started integrat- several occasions the brightest people within OSS weren’t
ing OSS, its research centre explicitly stated that its mission willing to enter into any formal agreements with Nokia.
Ciesielska 5

Consequently, the corporation needed to try and interest a while the rest of the employees were using the standard,
developer in a particular bug or problem and hope that he or well-protected network.
she would work out a solution. So by employing, subcon- As well as Internet access, Nokia was also extremely
tracting or sponsoring people in this way to do the open- careful about what was allowed to be publicly said about
source-related jobs, Nokia pushed its own projects forward its plans and R&D activities. Officially, almost no deci-
and enabled developers to make a living from their hobby sions were made public until the last moment, just before
projects. However, many open-source developers didn’t the release of a product or a piece of software. In practice,
want to pursue long-term career plans with Nokia and sus- a lot of plans and activities became secret de Polichinelle,
taining loyalty became a major issue. as they were already distributed among trusted informal
networks and never released to the rest of the company.
On many occasions, Nokia’s open-source system devel-
Coordination opers admitted revealing more details of their internal
Authority and control in the open-source world is a difficult work than what was formally permitted. This happened
thing to maintain. Nokia tried to keep an influence over in various ways, such as by hinting at external collabora-
many OSS organizations, usually by sponsoring and parti- tors or allowing outsiders to Nokia to test unreleased
cipating in foundation boards. This ensured that the corpo- pieces of software. And although such behaviour went
ration kept a voice in what was developed and influenced against corporate policy, there was not a single case when
its development further, at least formally. However, the a developer was sanctioned for it. Middle management
decisions made by core developers were, to a large extent, usually understood that this is how open-source collabora-
entirely independent. Because of this, the upstream OSS tion worked and so another inconsistency became com-
project stayed beyond Nokia’s direct control. mon practice.
Nokia, as all other participants in this process, could
download updates and submit code to the main repository
(subject to acceptance from the core development group).
Teaching note
Thus, on upstream open-source grounds, Nokia had full
power over its own actions and its own submissions. How- Case synopsis
ever, it could never have been sure which alignments This article presents Nokia’s journey from closed to open
would be made between its own code and the upstream knowledge integration model. It shows that initially an easy
one. This seemed to be a serious concern for top manage- start with involvement in open-source communities and
ment and, in this context, Nokia’s decision to buy Qt being able to make use of OSS is not enough to succeed
library was clearly an effort to gain full control over one with open innovation. Several key management issues
of the projects and its submissions. which contributed to Nokia’s failure are highlighted: an
At the same time, Maemo’s highly controlled environ- inability to engage external contributors and gain trust in
ment actively discouraged many talented developers. As OSS communities, the implementation of an unclear,
well as this, Nokia also learned that attracting such devel- hybrid business model with open collaboration being used
opers, and gaining their full commitment, didn’t just within the company’s core competitive advantage area and
require their trust in Nokia’s ability to run the project effec- HRM-related problems related to managing open-source
tively. Working with them primarily required trust in the style of work.
company’s declaration to support the open-source move-
ment. The company’s indecisiveness about their sharing
policy, and their difficulty in recruiting permanent staff and Learning outcomes
relocating them to Finland, resulted in a high staff turnover At the completion of the case study, students will:
and lowered commitment. HRM became even more chal-
lenging as a result.  understand the complexity of open innovation
implementation when paradigmatic differences
between businesses and/or partners are not resolved;
Communication  be able to critically evaluate a hybrid knowledge
Despite Nokia’s declared openness, OSS developers faced innovation model and how it might create difficul-
problems with communication which came into direct ties at the operational level;
conflict with open-source principles. For instance, the  identify challenges of management in relation to
corporation’s Internet security policy created some bur- OSS developers; and
den on OSS development. Since open-source work is done  analyse strategies which corporations may employ
primarily online and, as a result, dual solutions were to successfully benefit from the OSS (and similar)
implemented. For instance, there was a separate, unoffi- movement and how organizational hypocrisy can
cial infrastructure available for the OSS contributors, lead to failure of open innovation projects.
6 The International Journal of Entrepreneurship and Innovation XX(X)

Table 1. Nokia’s hybrid model of innovation and its problems.

Problems with implementation: enacting conflicting

Organizing principles Nokia’s business – OS hybrid organizational principles

Knowledge integration 1.
Three sources of code: OSS, subcontractors – Internally: lack of specialized knowledge of
and distribution and Nokia internally. Some software OSS development; need to coordinate
components are closed (proprietary), while activities among departments and managers;
others use OSS licensing. Main burdens for traditionally proprietary mindset background
knowledge creation. – Externally: securing submission primarily
2. Boundary objects: the code repository, solving Nokia’s, but not wider OSS
documentation, financial documentation, community’s problems; corporate plans versus
business plans, prototypes and so on. fragmented OSS process
3. Most key internal solutions are kept in-house;
key external solutions are incorporated; the
rule of ‘competitive advantage’
Intellectual property Knowledge is quasi-public, different licensing types Internally: unclear, introducing confusion
ownership used
Membership restriction 1. Membership is open (externals), although Willingness to work for Nokia, either formally or
and incentives there is a core of selected employees and voluntary depends on the trust in their expertise,
subcontractors. and trust in the company’s declaration to support
2. Salaries, fees, sponsoring, creating learning open-source project.
possibilities, creating, building career Difficulty in recruiting permanent staff and relocate
possibilities and assessing candidates for job them to Finland. Loyalty problems.
offers
Authority and Problematic (peer/company review and control), the Clash of open-source mentality with corporate
coordination ‘connecting people approach’ encouraging self- strategy. Identity problems. Inconsistency in
organization within the limits policies slows the development.
Dominant mode of Technology-mediated, face-to-face interactions at Open-source developers striving to work in the open,
communication meetings/conferences (usually more often than while corporate policy is to retaining intellectual
once a year, networking, PR) property
OSS: open-source software.

Discussion questions and analysis models. Totally unrestricted knowledge sharing would
have made all R&D processes available to direct compet-
What are the potential benefits and risks with implementation
itors. On the other hand, Nokia learned that sharing-only
of open innovation paradigm? Extant studies suggest that the
OSS collaboration is beneficial for a business. Nokia was
open innovation model offers many opportunities for busi-
taking the source code from the OSS projects and changing
nesses. By introducing more diversity, linking variety of
two-thirds of it in-house, for use on the Internet tablet. This
people and companies, it encourages organizational change
seemed not to be cost or time effective. Although Nokia
and ‘the loose coupling between the innovation process of
claimed that it was making efforts to ensure that the mod-
the firm and its business model invites close examination of
ifications were accepted into the main projects, insider’s
this coupling’ (Chesbrough, 2006a: 33).
perspectives reveal that the internal policy was driven by
However, the open innovation model also bears many
the competitive advantage rule. Such a policy resulted in
risks. A fully open R&D process makes a company more
submitting only minor repairs of bugs to open-source proj-
vulnerable to its rivals by making their competitive advan-
ects and thus contradicted the rules of the open-source
tage easier to copy. Although the strategic perspective
system (Ciesielska and Westenholz, 2016).
argues that open innovation is inevitable, it remains a chal-
The Nokia case accumulated problems related to
lenge for business organizations seeking to benefit from
knowledge integration from both closed and open innova-
external knowledge sources but still operating like closed
tion models (Ulhøi, 2004). This happened because Nokia
systems. The change in the business model requires not
had to deal with internal functional divisions, while an
only adapted structures and systems but also the redefining
external OSS community promoted an ethic that was ideo-
of a company’s role in those structures and systems
logically contradictory and hard to control. Technical
(Ciesielska and Westenholz, 2016).
details and other types of knowledge translations were
judged by their commercial value and kept in secret. But
Why did Nokia’s new knowledge integration model become from the OSS perspective, knowledge sharing is a basis
problematic over time? It is clear that Nokia needed a better for collaboration. Nokia’s hybrid model and its problems
balance between closed and open knowledge integration are summarized in Table 1.
Ciesielska 7

How did Nokia’s managers deal with the employment and but is expected to effectively contribute to the project.
motivation issues of OSS developers? From the internal Working in the open makes the company vulnerable to its
knowledge integration perspective, developers often com- competitors. Therefore, it is crucial that the company
plained about constant reorganization. At one point, they rethinks their competitive advantage and makes sure the
had to adjust to new structures and processes every several open collaboration doesn’t threaten their market position
months. Since open-source operation tasks were connected (Chesbrough, 2006b).
only to software development, they had to cooperate with
Tackling internal difficulties of implementation. All strategic
the hardware designers. Not only does this type of knowl-
change will cause implementation problems and switching
edge divide both departments, but the company was also
from a closed innovation model to a hybrid one is not an
divided ideologically. The case shows that not enough
exception. In this case, the particular difficulty comes from
effort was put into proper integration and coordination,
the need to mix conflicting ideas about how internal orga-
both at ideological and practical level.
nization and HRM should work. The case shows that the
Other problematic issues included strategic manage-
hybrid organization concept may seem easy to implement
ment decisions and their practical consequences. Some
in theory, but in practice, there are a range of ideological
employees believed that strategic decisions were some-
and commitment problems to proposed solutions. By tack-
times taken without real consideration for technical issues
ling them early enough, a company can prevent turf wars
and at meetings developers were rarely listened to. Even-
and workforce distress, thus saving money and potentially
tually, Nokia’s managers found that developing a hybrid
saving the business entirely. More about hybrid origina-
structure closely linked to, and dependent on, an exterior
tions and responses to contradictions within them can be
collaboration network required them to manage the coex-
found in Battilana and Dorado (2010), Jay (2013) and
istence of conflicting values. However, that knowledge
Battilana and Lee (2014).
came to them too late, as they constantly failed to maintain
and span boundaries between public and private, open and
closed and contractual worker versus professional develo- Declaration of conflicting interests
per (Ciesielska, 2010). Other research also shows that in the The author(s) declared no potential conflicts of interest with
absence of scripts for how to deal with the tensions between respect to the research, authorship, and/or publication of this
logics, there is ambiguity around choice of goals, target article.
population or management principles (Battilana and
Dorado, 2010). Funding
The author(s) disclosed receipt of the following financial support
for the research, authorship, and/or publication of this article: this
Can you identify key strategies that could have prevented Nokia research was supported by Copenhagen Business School and the
from failing? Velux Foundation, Denmark.
Building long-term relationships with OSS communities.
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