This week Smartphone history was made. In response to Nokia’s declining  market share, Nokia’s CEO Stephen Elop and Microsoft CEO Steve Ballmer announced a historic strategic partnership which involves Nokia adopting the Windows Phone 7 operating system and integrating Nokia’s own applications into the Microsoft Marketplace.

Nokia has always been very good at making hardware but has struggled to transform the company to meet the challenges of new rivals in the form of BlackBerry, Apple iPhone and Google Android.

There is no question that Nokia was, and is, good at making mobile phones. But the internet has transformed mobile devices into handheld PCs, and more recently the game has changed again with smartphone application ecosystems and usability becoming key factors for success.

3 years ago Apple changed the face of Smartphones with the introduction of the iPhone, but Nokia seemed unable to respond until late last year with the hiring of their new CEO and Microsoft Veteran Stephen Elop.

Indeed it wasn’t just Nokia, even Microsoft was facing Smartphone market share decline but the difference is that Microsoft is a fighter, seemingly incapable of defeat and very good at rapid change even at an Organisational level. Microsoft recognised they needed to up their smartphone game and responded last year with the great new Windows Phone – essentially dealing them back into the game.

You just need to look back at the monumental change Microsoft faced in the 90’s when they nearly missed the Internet wave – once they recognised that fact, change was swift. Microsoft ended up winning the web browser wars and securing their future.

The big question is: Can Nokia change, or more specifically, can Mr Elop change the culture of Nokia to make it adaptable to rapid change at an organisational level?  The bottom line is that Nokia needs to launch a device soon, not a year from now.

Strategically they have a great plan with both companies benefiting and plenty of synergy. Microsoft benefits more in my opinion as it gets the Bing search and Marketplace platform on many more devices plus some useful applications for its Application Marketplace which help it compete with Apple’s Appstore. Other companies benefit also: the mobile carriers, dealers, resellers, distributors and application developers all have a good opportunity.

So all in all it makes perfect sense – Microsoft is great at software, Nokia is great at hardware, put the two together and bish-bash-bosh you’ve potentially got a great consumer and business device. Nokia will have more challenges in the months and years ahead but I think with great leadership, Nokia could turn this around and prosper again in the long run.