A few years before Apple introduced the iPhone in early 2007, the prototype of an Internet-ready, touch-screen handset with a large display made the rounds among upper management at Nokia, the largest maker of mobile phones in the world.
The prototype developed by Nokia’s research centers in Finland was seen as a potential breakthrough by its engineers that would have given the company a powerful advantage in the fast-growing smartphone market. But instead of putting the device into production, Nokia waited, deeming the interface too immature and risky.
The decision, which has not been previously reported, allowed Apple; Research in Motion of Canada, the maker of BlackBerry phones; Samsung and LG of South Korea; and others to steal a beat in a main battle for the industry’s future.
“We had it all in place; everything was ready to go,” said Kai Nyman, who at the time was Nokia’s chief architect for the unit responsible for Internet services. “We couldn’t get it through the organization.”
As Nokia — which has just hired its first non-Finnish chief executive — attempts to turn its troubled high-end lineup around, the company faces an obstacle almost as formidable, according to three former executives, as its rivals: its stifling bureaucracy.
In interviews, the now-departed veterans portrayed an organization so swollen by its early success that it grew complacent and slow moving and removed from customers. As a result, it lost the lead in several vital areas by failing to put its designs for touch- screens, software applications and 3-D interfaces on a fast track.
The task of remaking Nokia, which has fallen far behind in the United States and has so far failed to develop a convincing response to the iPhone, has been given to Stephen Elop, a 46-year-old Canadian who ran Microsoft’s business software division.
Mr. Elop began work last Tuesday. He…