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Nokia and Innovation MBA Individual Assignment 2012

Nokia and Innovation MBA Individual Assignment 2012



This was the individual assignment on Nokia's Innovation Strategy, written for the Innovation, Entrepreneurship and Design module for my MBA at Imperial College.

This was the individual assignment on Nokia's Innovation Strategy, written for the Innovation, Entrepreneurship and Design module for my MBA at Imperial College.



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    Nokia and Innovation MBA Individual Assignment 2012 Nokia and Innovation MBA Individual Assignment 2012 Document Transcript

    • M100 Individual Assignment – Nokia’s Innovation Strategy 1 Innovation - Individual Assignment 2012 Analysing Nokia’s Innovation Strategy Raj Sambwani This individual assignment is focused on Nokia, once the world’s largest and most profitable mobile phone products and services manufacturer and distributor globally. I have previously worked at Nokia and have seen some of the transitions the company has gone through on the inside as well as an outsider, and am personally interested in understanding disruptions in the mobile phone and services market. Nokia was an industry leader for a very long period while the industry continued to be in a consolidated market, delivering incremental innovation in the marketplace. When Apple introduced the iPhone, it revolutionized and redefined the mobile phone industry, shifting the main focus from the device to the full service experience for the consumer and an ecosystem within the industry. Nokia is currently viewed as a laggard by both industry analysts and industry pundits, primarily based on its current performance in the marketplace as well as non-performing strategic partnership with Microsoft (at least the current snapshot view). Samsung is now the No.1 mobile phone provider as of Q1 2012, replacing Nokia from the position it has held since 1998.
    • M100 Individual Assignment – Nokia’s Innovation Strategy 2 Nokia within the Industry Structure Nokia within the Industry Structure Era of Ferment/Disruption Growth Consolidation Maturity Pioneering Innovation “Fast Follower” Innovation Incremental Innovation Business Model Innovation Nokia Feature Phones (Low end) Nokia Smartphones (High end) Nokia OVI Services
    • M100 Individual Assignment – Nokia’s Innovation Strategy 3 Nokia seemed to be playing in 2 parallel industries before the introduction of the iPhone: 1. A high growth, high end market for smartphones and mobile services, which was attracting innovation from Samsung, HTC and quite a large number of new entrants but where the software platform and the services strategy was a clear differentiator, and 2. A consolidated, low end feature phone market where there was a drive towards pushing new features into the phone at the lowest possible price point. Synergies and cross-learnings across the two areas were leveraged as much as possible within the company, but this was largely an incumbent trying to maintain their market position, focusing on managing a large portfolio of phones and software platforms and believing that their innovation strategy was right on track, until Apple introduced the iPhone. The innovation strategy was one of focusing mainly on improving the mobile phone, innovating on software features tied to new camera features (better camera, better phone calls, smaller and larger screen formats). The focus was also on innovating across all market segments and introducing mobile phones to satisfy the needs of every user on the planet, while playing on a global basis. There was also the clear challenge of the business strategy clashing with the innovation strategy globally. While Nokia’s success was largely driven by its major success and hence market share growth in Western Europe, the success was driven by Nokia’s innovation in product features, and a strong set of distribution relationships in retail as well as the operators. Supply chain innovation and efficiencies meant that Nokia could easily satisfy the needs of retail. However, with regions outside Europe, the operators largely controlled the distribution channel to consumers, and were much more stringent about how the mobile phones needed to be customized to meet user needs. This required a different co-development and innovation approach with the operators, or a concerted bet to somehow disrupt the market. While market shares in Western Europe reached 30- 40% in major markets, Nokia’s market share remained below 5% in North America since the right flexible innovation model could not be developed to tackle the operators in the market. Step Change in the mobile phone industry 2 key changes in the market caused Nokia’s innovation strategy and market share to be questioned. At the high end, Apple pursued an innovation strategy that disrupted the high end smartphone market, blurring the lines between the product and the services experienced, and creating a powerful ecosystem that ensured that Apple was reaping financial rewards by being a middleman for services (mobile applications and music) while creating the richest product/service experience in the market. On the low end, extremely low cost Chinese and Taiwan manufacturers were entering the market at a rapid pace. In Shenzhen, there were small 20 people sweatshops that could create mobile phones for less than US$ 40 and also fulfill order sizes from 50 to 1000s. These low end phones could complete with 90% of the basic features of the Nokia phones in the market, which were priced at ~US$ 50.
    • M100 Individual Assignment – Nokia’s Innovation Strategy 4 Innovation Portfolio Nokia Innovation Projects with the Portfolio Matrix Several innovation projects are evidently currently in progress within Nokia: 1. New Feature Phones Feature phones continue to be a key volume driver within the Nokia business, and innovation (improvements in product, process and service with a heavy focus on operational efficiency) continues to be key to keep the momentum, while continued focus on operational efficiency improvements help with keeping price points competitive. Price competitiveness is a key requirement to compete against low cost Chinese competitors and for price sensitive consumers in emerging markets. 2. “Nokia OVI” The Nokia Ovi mobile data service was shut down as part of the strategic Microsoft platform relationship, and replaced with Microsoft’s Windows Marketplace (similar to Apple’s AppStore). This “me-too” product continues to be key to ensuring a full product-service experience similar to the Apple iPhone experience. Nokia’s innovation centres on being able to influence the developments within Windows Marketplace, although the level of influence and impact on Microsoft’s plans is unknown. 3. Location Platform Innovation in location-based services is critical to Nokia’s future and also to continue to justify the US$8B acquisition of Navteq, provider of world class mapping technology. Some parts of this platform is New Core Product Benefit New Improvement Variant No Change Next Generation Incremental Base EnablingTechnology Consumer Value Perception Radical Windows Phone Platform Location Platform New Feature Phones "Nokia OVI" Nokia Lumia
    • M100 Individual Assignment – Nokia’s Innovation Strategy 5 already in use in Microsoft’s Bing Maps search engine, and differentiation in these type of services is one cornerstone of Nokia’s innovation and growth strategy, both from a consumer experience as well as marketing and positioning. 4. Nokia Lumia The new smartphone, Nokia Lumia, has received mixed responses as the first product from the Microsoft/Nokia strategic alliance, although some enthusiasts claim that it is a pretty good high end mobile phone. The halo effect from this innovation has to be sustained while Nokia tries to continue the release of new product innovations for consumers. 5. Windows Phone Platform Stephen Elop, Nokia’s CEO, has been clear that the Microsoft partnership is critical to the success of the company, and the bet on the Windows Phone platform is the innovation platform to create new core experiences that Nokia has not been able to develop itself to compete in the marketplace. Conclusions and Recommendations on Nokia’s innovation portfolio The Microsoft strategic relationship is financially lucrative for Nokia, but patience is wearing thin with investors as a result of the lack of direct impact in the marketplace. The innovation and product release roadmap has been fuzzy at best, and the recent launch of Nokia Lumia has made very little progress in helping with the market share erosion. Nokia’s innovation strategy seems to be weak based on the innovation portfolio and analysis through the matrix.
    • M100 Individual Assignment – Nokia’s Innovation Strategy 6 Comparing to Samsung Nokia could take some learnings from the Samsung innovation approach – one of placing several bets in a fast moving market and delicately balancing strong partnering with go-it-alone approaches. Samsung has placed bets on 3 different OS approaches: Android to ride on Google’s market leadership, Windows Phone to hedge and not rule Microsoft out as well as announcing their internally developed OS strategy to potentially compete on being able to innovate on next generation experiences. Samsung also has a parallel development going to tackle the lucrative and high growth Tablets market, capturing at least some mindshare with the release of a competing 7” form factor to the iPad. Samsung’s App Store is based on the Google Android AppStore, but is also branded their own and they are rapidly recruiting app partners as part of their own drive. The Samsung SIII has also been a hit product and ensured that Samsung is considered as a credible alternative to Apple products. Recommendations on useful changes In my opinion, there are several changes to the innovation portfolio that are critical for Nokia to improve its position in innovation, hence several recommendations are outlined below that could be taken to reverse the downward spiral the company is on: 1. Re-evaluate the Microsoft relationship A critical review of the Microsoft relationship is required to ensure that Nokia is capturing value from the co-development relationship with Microsoft, beyond financial returns. Radical EnablingTechnology Next Generation Incremental Base New Core Product Benefit New Improvement Variant No Change Consumer Value Perception Android + Win Phone + Internally developed OS Strong Partnering Samsung AppStore Samsung SIIISamsung Tablets
    • M100 Individual Assignment – Nokia’s Innovation Strategy 7 2. Distribution relationships, especially online In my opinion, Nokia needs a reevaluation of the distribution relationships across all markets, in particular online. While negotiating power may have been reduced as a result of their loss of the leadership position, they have an opportunity to innovate and capitalize on direct sales through the online channel as a key channel to reach consumers, and iron out the inherent challenges with a new distribution model. 3. Flexibility in the US Nokia is capitalizing on the Microsoft relationship as a key growth strategy for the US, and I believe that there is an opportunity to drive their innovation strategy directly through improving the partnerships with smaller content players as a way of drawing ideas and product development opportunities in- house. 4. Mobile standards Patent war Nokia’s arsenal of patents is powerful, and yet Nokia has been extremely silent through the patent wars that have started between Apple and Samsung. While not directly related purely to the innovation strategy, there is a need for Nokia to get some voice in the wars to improve their image as an innovation company. 5. Multiplatform OS strategy Betting on a single horse is always a very risky strategy, and one that Nokia has chosen at this point. While there are pros and cons of every approach, the Android/Google ecosystem is becoming a strong competitor to the Apple ecosystem. Innovation for multiple platforms seems like a logical decision for Nokia, in conjunction with the review of the Microsoft relationship. 6. Positioning as a platform/service/ecosystem provider Nokia’s positioning as a company, and hence its approach to innovation, requires some revision. By leveraging the Microsoft relationship, Nokia increasingly is looking like a mobile phone manufacturer more than a real innovative player in the ecosystem, and developers are increasingly moving away from them as a development platform. References: Gartner Press Release, May 2012 “Gartner Says Worldwide Sales of Mobile Phones Declined 2 Percent in First Quarter of 2012; Previous Year-over-Year Decline Occurred in Second Quarter of 2009” http://www.gartner.com/it/page.jsp?id=2017015