Microsoft Becomes a Manufacturer after Acquiring Nokia

Nokia’s mobile phone business makes Microsoft a handset manufacturer as well as a software and service company.

When it sold its mobile phone division earlier this month, Nokia was saying goodbye to consumer product manufacturing and Microsoft was saying hello. Nokia has fallen from a mobile communication industry leader — you remember its game-changing car phones in 1982 and brick-like cellphones in 1987 — to a loser in the innovation race, overtaken first by the BlackBerry, then by the iPhone.

Three years ago, Nokia tried to rebound by hiring Steven Elop away from Microsoft. Now, Elop is going back to Microsoft — which is paying $7 billion for the mobile phone acquisition — and he is taking 32,000 employees and a manufacturing arm with him.

The odds of successfully transplanting Nokia’s manufacturing operations onto the Microsoft organization, like liver surgery, will depend on the health of the transplant, the health of the recipient, and the skills of the surgeon and healthcare team. I have to be skeptical about all three in this case.

If complaints about the quality of its Lumia series phones are any indication, Nokia’s manufacturing system is not as good as it needs to be. Moving it to Microsoft will bring any waste, inefficiency, causes of defects, and supply chain deficiencies with it. Microsoft is not known as a center of quality excellence either. A company with a history of releasing software with bugs and security holes would seem to be a poor candidate for defect-free manufacturing.

As for Elop’s ability to pull it off, I’m not sure how well he’s done at Nokia. After arriving there he issued a classic “burning platform” call-to-action memo to kick off his new strategy. Three years later, he hasn’t turned Nokia around. Furthermore, Elop is not a manufacturing guy. Has he been hands-off, leaving it up to the Nokia manufacturing management team, or did he try jump in and take charge without understanding the complexities?

I’m one of those industry watchers convinced that lean thinking is an absolute requirement for doing business, especially in manufacturing, and that top management must build it into the company. Steven Elop should waste no time starting to find out for himself what lean manufacturing truly means, because it takes a long time to absorb. (He could start by reading any of Jeff Liker’s articles here on our site. Like Bill Ford, he could fill top management slots with lean-savvy leaders from companies like Boeing and Toyota who could coach him as well as lead business units.

There are many things lean thinking could do Nokia’s phone manufacturing management. For a start, it would be to help them understand cost in a different way from mainstream beliefs. Instead of a narrow focus on labor costs and outsourcing, if that has been their view, lean would open the scope to total costs, from end to end of the extended multi-player supply chain. And by revealing the effects of poor quality, late delivery, and inventory, while identifying improvement opportunities, lean could provide specific strategies for overcoming barriers to cost reduction.

Lean speeds up all process cycles, including time-to-market of new products. There is a growing body of lean product development experience that too few companies have made themselves aware of. With the extremely short life cycles of mobile devices, it’s mandatory to aggressively compress typically inefficient new product development processes.

Furthermore, as it developed maturity in lean, it could see the interdependence of development, design, engineering, supply chain planning, and operations in making the entire organization competitive. Parent company Microsoft could put such lessons to work.

The “burning-platform” approach wasn’t enough to revitalize Nokia three years ago. But by using lean to put out the fire and, more importantly, to build a stronger platform, the whole company could be more resilient and profitable. This period of change is a perfect time to begin building a lean organization.

Karen Wilhelm has worked in the manufacturing industry for 25 years, and blogs at Lean Reflections, which has been named as one of the top ten lean blogs on the web.