nokia.pdf

S w
W11594
NOKIA: FROM IN-HOUSE TO JOINT R&D
PhD student Marcus Møller Larsen and Professor Torben Pedersen wrote this case solely to provide material for class discussion.
The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have
disguised certain names and other identifying information to protect confidentiality.
Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written
permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies
or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University
of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca.
Copyright © 2011, Richard Ivey School of Business Foundation Version: 2012-10-03
INTRODUCTION
For the management of Nokia Denmark, the question of defining the future strategic directions for its
product development activities was a vital issue that boiled down to some key concerns. Nokia Denmark
was a subsidiary of the world’s largest telephone manufacturer, the Nokia Corporation, and was one of
the largest of Nokia’s many product development units dispersed all around the world. The Danish site
developed somewhere between six and 10 mobile phones per year, depending on instructions from the
Nokia headquarters located outside the Finnish capital of Helsinki.
In 2007, Nokia Denmark decided to deepen its relationship with one of its current suppliers, Taiwanese-
based Foxconn—the world’s largest electronics component manufacturer with most of its facilities in
mainland China—in a joint R&D (JRD) setup in which Foxconn was given the responsibility of
developing and testing selected mobile phones. Development of more complex mobile phones with new
and sophisticated technologies was still retained in-house in Denmark, but the more standardized and less
complex products with known techniques were outsourced to Foxconn. However, while the decision to
approach Foxconn was originally motivated by a need to release pressure on in-house product
development capacity, by 2010 the in-house/JRD organization had become a central facet of Nokia
Denmark’s product development organization.
Recent developments in the Nokia environment had spurred lively debates as to how the company should
move forward. Indeed, as newly appointed CEO Stephen Elop expressed it: “In the five weeks since
joining Nokia, I have found a company with many great strengths and a history of achievements that are
second to none in the industry. And yet our company faces a remarkably disruptive time in the industry,
with recent results demonstrating that we must reassess our role in and our approach to this industry.
Some of our most recent product launches illustrate that we have the talent, the capacity to innovate and
the resources necessary to lead through this period of disruption. We will make both the strategic and
operational improvements necessary to ensure that we continue to delight our customers and deliver
superior financial results to our shareholders.”1
Changes to the company, its strategy and organization
1
Nokia interim report, 2010, Q3.
D
o
N
o
t
C
o
p
y
o
r
P
o
s
t
This document is authorized for educator review use only by REHAF FOULA, HE OTHER until May 2020. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu
or 617.783.7860

9B11M114
were therefore inevitable, although it was impossible at this point in time to predict what precisely would
happen.
Still, the Danish management knew that the time would come when they would have to present, justify
and defend their strategy for how the product development division of Nokia Denmark should evolve.
Accordingly, three different strategic options had been outlined:
1. Nokia Denmark could scale up the JRD with Foxconn to eventually suspend more of the in-house
product development. While this seemed to be a highly drastic move, it would allow Nokia
Denmark to focus exclusively on more creative and value-adding activities such as the
architecture and concept mapping of new mobile phones.
2. Conversely, Nokia Denmark could phase out the JRD with Foxconn and pursue fully in-house
product development. This would require Nokia Denmark to employ more resources on simple
standardized projects, but it would also save the costs of controlling and coordinating the
interfaces and interdependencies between the two companies.
3. The last option would entail a continuation of the parallel organizational structure that had
emerged in recent years. This could give Nokia Denmark the best of both worlds. However,
experience had shown that the balancing act between in-house and JRD product development was
far from straightforward.
Obviously, there were no easy answers to how Nokia Denmark should position its product development
in the future. Each of the strategic alternatives had its own benefits and disadvantages, and these needed
to be carefully identified, assessed and weighed against each other. Moreover, what would be the
consequences of pursuing one strategy over another? Cautious prioritization would determine which
qualified choice had to be made. However, given the broad array of stakeholders and considerations that
had to be included in the final decision, the Danish management knew perfectly well that the task in front
of them was indeed not an easy one.
NOKIA CORPORATION: FROM RUBBER SHOES TO MOBILE PHONES
The vision of Nokia Corporation was called Connecting People in order to “empower everyone to share
and make the most of their life by offering irresistible personal experiences.”2
The Finnish multinational
was the world’s largest manufacturer of mobile devices with an estimated 31 per cent of global market
share at the end of 2010. The same year, Nokia produced approximately 432 million mobile devices and
had a net sales of €42 billion and an operating profit of €2 billion. Its global workforce consisted of
130,000 employees in 120 countries all around the world. Thirty thousand people were employed in R&D
in 16 different countries (see Exhibit 1).
The company was founded in 1865 by Fredrik Idestam, a mining engineer, as a groundwood pulp mill to
manufacture paper in the town of Nokia (thereby the name). In the first century after its establishment, the
company became a major industry focusing particularly on rubber. It was not until 1967 when merging
with a cable company created what became known as the Nokia Corporation that it began focusing on the
electronics industry. This milestone gave Nokia the ideal position for pioneering mobile communications
as it begun developing a number of path-breaking products. In 1992, Nokia decided to focus solely on
telecommunications. This decision, which coincided with the mobile revolution of the 1990s, made Nokia
the world’s largest mobile phone manufacturer by the end of the decade. In the past 10 years, Nokia was
increasingly focusing its telecommunications business on related products and services such as
multimedia devices, smartphones and Internet services.
2
www.nokia.com/about-nokia/company/vision-and-strategy, accessed December 18, 2011.
D
o
N
o
t
C
o
p
y
o
r
P
o
s
t
or 617.783.7860

9B11M114
Products, Markets and Competition
By 2010, Nokia’s product portfolio was separated into three categories to represent its target customer
segments. First, Mobile Phones covered cost-effective voice and messaging phones. According to Nokia,
“Our Mobile Phones sub-unit addresses markets where there has been, and we believe there continues to
be, significant potential for growth in mobile devices, as well as where we believe there is significant
potential for growth in services.”3
Second, Smartphones included the portfolio of mobile devices that
provided advanced technologies and services; as Nokia explained, “Our smartphones are advanced
mobile devices optimized for creating, accessing, experiencing and sharing multimedia as well as
business use.”4
Nokia’s smartphones were powered by Symbian S60 and MeeGo, both open source
operating systems maintained by Nokia, and accounted for approximately 30 per cent of worldwide
smartphone sales in 2010. Third, Mobile Computers—the smallest of Nokia’s segments—focused on the
market for high-performance, high-end compact computing devices and services.
Nokia had the industry’s largest distribution network with more than 650,000 points of sale all over the
world. The company was particularly strong in China, India, the Middle East and Africa. In fact, in 2010,
16 and 22 per cent of Nokia’s net sales came from Greater China and the Asia-Pacific region,
respectively. The Middle East and Africa represented 14 per cent. Europe was still the largest market with
36 per cent of net sales, while 5 per cent came from the United States and 7 per cent came from Latin
America. The two largest single markets were China and India, followed by the United Kingdom,
Germany and the United States (see Exhibit 2).
On the competitive front, Nokia was still the largest mobile phone manufacturer in the world, measured
both in market share and revenue. By 2010, Nokia was a global market leader with 31 per cent market
share, while the second largest mobile phone manufacturer was Samsung with 20 per cent market share
(see Exhibit 3). However, compared to the same period in 2009, Nokia’s share had fallen by 11 per cent.
Other competitors included both traditional mobile phone suppliers such as LG, Motorola, Palm,
Research in Motion and Sony Ericsson as well as more recent smartphone entrants such as Apple, Google
and HTC. Market analysts claimed that while Nokia performed well in the mid-end market, it was
struggling both in the low-priced and high-end markets.5
The Finnish company was particularly losing
market shares in the expanding premium smartphone market where entrants such as Apple’s iPhone and
Google’s Android-based solutions were increasingly dominating the field. Although Nokia’s Symbian
platform accounted for 28 per cent of the global smartphone market in 2010, making it the second largest
behind Google’s Android solution, the market share had fallen from 39 per cent in 2009 (see Exhibit 4).
However, Nokia’s Symbian platforms were mostly used in cheaper mobile phone solutions and did not
capture the more lucrative top end of the smartphone market.6
In an attempt to establish a third major
player in the smartphone market along with Google and Apple, Nokia announced at the beginning of
2011 an ambitious partnership with Microsoft to operate most future Nokia smartphones by Windows
Mobile.
A Global Organization
Nokia’s organization was divided into three business groups (see Exhibit 5). The Devices & Services
segment—Nokia’s core business area—comprised Mobile Solutions (responsible for developing and
managing the portfolio of smartphones and mobile computers), Mobile Phones (responsible for
3
Nokia annual report, 2009.
4
Ibid.
5
http://news.xinhuanet.com/english2010/world/2011-01/28/c_13710223.htm, accessed December 18, 2011.
6
www.eetimes.com/electronics-news/4212987/Nokia-s-CEO-likens-company-to-burning-oil-rig, accessed December 18,
2011.
D
o
N
o
t
C
o
p
y
o
r
P
o
s
t
or 617.783.7860

9B11M114
developing and managing the portfolio of affordable mobile phones), and Markets (responsible for
managing the supply chain, sales channels, brand and marketing activities). Besides this, Nokia had also
NAVTEQ and Nokia Siemens Network. NAVTEQ was a wholly owned subsidiary that focused on
providing comprehensive digital map information and related location-based content and services for
automotive navigation systems, mobile navigation devices, Internet-based mapping applications and
government and business solutions. Nokia Siemens Network—a jointly owned venture with Siemens—
provided mobile and fixed network infrastructure, communications and network service platforms, as well
as professional services to operators and service providers.
Nokia’s organization was highly globalized. For the production of mobile devices, the company operated
10 manufacturing facilities in nine different countries around the world. Nokia produced its line of luxury
mobile devices in the United Kingdom. Production plants in Salo in Finland, Beijing in China, and Masan
in South Korea manufactured high-value, low- to medium-volume devices. And the six other production
facilities—Komárom in Hungary, Cluj in Romania, Dongguan in China, Chennai in India, Manaus in
Brazil and Reynosa in Mexico—produced high-volume, cost-focused mobile devices.
Nokia’s R&D activities could be separated between the short- to medium-term needs and long-term
needs. The short- to medium-term R&D employed a market approach to ensure a high visibility of and
accountability for the creation process of mobile phones, smart phones and mobile computers from start
to finish, as well as ensuring a better time to market and better R&D productivity. Nokia had established
strong R&D presence in Beijing, China; Copenhagen, Denmark; Greater Helsinki, Salo, Tampere and
Oulu, Finland; Ulm, Germany; Bangalore, India; London and Farnborough, United Kingdom; and San
Diego, United States. The long-term R&D emphasized more exploratory technology development whose
focus lay beyond the development of current products, services, platforms and technologies. The research
was carried out in a global network of research centres and laboratories, often in close collaboration with
leading universities and research institutions such as the Massachusetts Institute of Technology (MIT) in
the United States, Cambridge University in the United Kingdom and Tsinghua University in China.
In contrast to most of its competitors, Nokia had a highly integrated value chain, including R&D,
manufacturing, distribution and marketing. By 2010, it delivered more than 432 million units from 10
factories around the world—more than anyone else in the industry. A huge challenge for Nokia was
therefore to diligently control and optimize the high volumes and supply logistics. Analysts had even
speculated that a major core competence for Nokia was its integrated high-tech manufacturing and
logistics, which allowed for an extremely rapid execution of built-to-order mobile phone customization
processes.7
NOKIA DENMARK: DEVELOPING MOBILE PHONES AT THE TECHNOLOGICAL FOREFRONT
In 1996, Nokia opened the doors of the newly built Nokia House in Frederikskaj in Copenhagen,
Denmark. The buildings were located right next to one of its closest competitors, Samsung, and also close
to where another competitor, Ericsson, previously had had its Danish R&D centre. Prior to Nokia, the
buildings had belonged to Phillips, the Dutch electronics company, as its R&D site. Nokia acquired the
facilities from Phillips in 1994 and hired a number of Phillips’ redundant engineers. “The inauguration of
the new house is the result of strong growth in Nokia’s operations in Denmark,”8
wrote Nokia in a press
release in 1996. With roughly 300 employees, the new house would market mobile phones and
7
R. Mudambi, “Location, control, and innovation in knowledge-intensive industries,” Journal of Economic Geography, 8:5,
2008, pp. 699-725.
8
Nokia press release, August 30, 1996.
D
o
N
o
t
C
o
p
y
o
r
P
o
s
t
or 617.783.7860

9B11M114
communications equipment for all the analog and digital systems in Denmark. Additionally, it would host
an R&D unit that concentrated on the research and development of future mobile telephone systems.
In 2010, 14 years after the facilities were inaugurated, the Danish site had grown to become the largest
Nokia development centre outside Finland, with approximately 1,200 employees. About 60 per cent were
engineers, equally distributed between software and hardware engineers.9
One in four of the employees
came from countries other than Denmark (42 different nationalities were represented), and roughly 6 per
cent held a high strategic position in the global Nokia corporation.
The primary function of the Danish site was the development of mobile phones, including every aspect
from R&D to sourcing and logistics to marketing and market segmentation. Besides the software, a basic
mobile phone contained only a few individual hardware parts, including a sophisticated circuit board(s),
antennas, an LCD screen, keyboard, microphone, speaker, battery and a number of other smaller
components (see Exhibit 6). More specifically, the development of the mobile phone could be divided
into the following sub-categories: mechanics, electromechanics, electronics and software; in addition,
operations, product validation, quality, display, sourcing and customer care had to be taken into account.
All these categories formed the organization of the project development unit, and each team was
responsible for optimizing the different technologies and supply chain of the mobile phone. For the
management of product development, one of the most critical tasks was to ensure the coordination and fit
between the different teams and technology suppliers. Particularly challenging was to ensure that the
interfaces between hardware and software were flawless and did not cause any problems. This interface
management was therefore highly resource demanding.
About six to 10 mobile phones were developed every year in Denmark. The site was quite famous in the
global Nokia organization for the many bestselling and path-breaking products and technologies it had
developed. For example, the legendary Nokia 3310—one of the most successful Nokia mobile phones
with almost 200 million units sold—had been developed in Copenhagen. Moreover, the Series 40
software platform and application user interface software—used on Nokia’s broad range of mid-tier
mobile phones—was also developed in Denmark. “The employees in Copenhagen understand how to
combine the fascination of the technological possibilities with commercial success,” said Peter Røpke,
senior vice-president of R&D. “Without bragging, here in Copenhagen we are the best at combining
technological challenges with business opportunities.”10
Product Creation Process: From Idea to the Market
In the Danish unit, the development of mobile phones followed a generic production creation process with
the purpose of developing new products and related process capabilities based on orders from the product
and portfolio management and by using verified technologies provided by Nokia or external partners.
Based on an initial two-page specification of the overall intention of the mobile phone (e.g., overall
technological requirements, market segmentation, price estimation, etc.) received from headquarters in
Finland, product development encapsulated three broad phases: concept mapping (CM), product
development (PD) and product maintenance (PM) (see Exhibit 7). In the first phase, the CM, the focus
was to identify the business target and to freeze the business case. “Here, we have tons of different ideas
that we narrow down to one winning concept that we believe in,”11
explained Tomi Kuparinen, head of
program management at Nokia Denmark. This is where new ideas and technologies were integrated
conceptually into what would become products according to the overarching customer segments and
9
www.go.dk/virksomheder/index.asp?act=profil/13265, accessed on December 18, 2011.
10
Ingenøren, January 12, 2008.
11
Interview Tomi Kuparinen, September 2010.
D
o
N
o
t
C
o
p
y
o
r
P
o
s
t
or 617.783.7860

9B11M114
instructions received from headquarters, i.e., where the boundaries of the project and the product would
be defined. When the product had satisfied the pre-specified criteria of what the concept should achieve, it
was then handed over to the next phase.
The second phase, PD, concerned the entire process from the conceptualized business case to
maintenance of the product. This phase was characterized by five distinct milestones—from PD0 to
PD4—that could only be reached if an assigned steering committee approved the development. PD0
marked the initiation of the product program; PD1 was the product development release (full functionality
of the product); PD2 was the manufacturing release (full performance of the product); PD3 the delivery
release (product ready for the market); and PD4 was the PD program determination (handover to product
maintenance). The intention with this setup was therefore to ensure an optimal process development with
transparency for stakeholders.
The last phase in PD was related to product maintenance and delivery to the markets. Here, the focus was
to ensure the physical integration of the product components and technologies into the finished product.
The phase was driven by a number of criteria including whether the factories were able to manufacture
the product; if all components were carefully defined and tested; and if all sales channels for the
distribution from different countries were defined and open. Moreover, there was a strong emphasis on
reducing the overall production costs of the product and its components. The last phase was therefore
devoted to ensuring that the mobile phone would be ready to be released on the market.
In sum, the whole process could be characterized as a system where good ideas were funneled and
converted into a marketable product. As Ulrik Heins, a Nokia Denmark product development manager,
clarified, “concept mapping is creating a lot of different ideas and finding the ones with most promise;
product development is basically maturing what we now have—a concept; and product maintenance is to
keep the product alive and integrate different components. We have divided the process into these three
parts as each phase requires different competences and mindsets.”12
A JOINT R&D MODEL
In 2007, Nokia Denmark decided to outsource a few selected product development projects to Taiwanese
based Foxconn in a joint R&D (JRD) setup. Foxconn—a multinational subsidiary of Chinese Hon Hai
Precision Industries Co. Ltd.—was the world’s largest maker of electronics components with $59.3
billion in revenue in 2010 and more than 920,000 employees. According to its annual report, “Foxconn
Technology Group is the most dependable partner for joint-design, joint-development, manufacturing,
assembly and after-sales services to global Computer, Communication and Consumer-electronics (“3C”)
leaders.”13
The company focused on fields of nanotechnology, heat transfer, wireless connectivity,
material sciences and green manufacturing processes. It had 12 factories in nine cities in China besides
one partially owned Sony factory in Baja California, Mexico, and one factory in Chennai, India. Its
largest site, Longhua Science & Technology Park (referred to as Foxconn City), employed alone about
400,000 workers, included 15 factories, worker dormitories and even a downtown shopping area. Despite
a number of controversies in the media concerning mistreatment of employees, Foxconn was the
manufacturer for a number of large companies including Apple, Dell, Microsoft and Sony-Ericsson.
Among other things, Foxconn was the manufacturer of Apple’s famous iPhone and iPad.
An instruction from the Nokia headquarters in Finland to increase the number of mobile phones
developed each year from approximately four to as many as a dozen drew the Danish site to outsource to
12
Interview Niels Eilersen and Ulrik Heins, January 2010.
13
www.foxconn.com, accessed on December 18, 2011.
D
o
N
o
t
C
o
p
y
o
r
P
o
s
t
or 617.783.7860

9B11M114
Foxconn. In an attempt to reach out to a broader group of customers to capture additional market shares
with new products and services, the Nokia CEO at the time, Olli-Pekka Kallasvuo, embarked on an
aggressive diversification strategy in 2007. However, as in-house engineers and resources in Copenhagen
were already scarce, the instructed threefold increase in the number of phones developed each year
presented the Danish management with a major capacity problem. Nokia Denmark’s product
development engineers were already running at a high capacity so the management had to find another
way of accommodating the headquarters’ request. They therefore decided to approach Foxconn to ease
the capacity burden by outsourcing some selected projects. “It wasn’t a top-down, but a bottom-up
decision,” Ulrik Heins recalled. “The individual development sites were told that they should make X
number of products, and then it was up to the local management to find out what the heck we should do.
We didn’t have the capacity to make all these products, and our guys couldn’t deliver it. We then found
out that we should make some joint R&D.”14
Specifically, while the development of lead products (e.g.,
with breakthrough innovations) was retained in-house in Denmark, selected “copy product” projects
(products with less complex technologies that have been used in previous models) were outsourced to
Foxconn.
Foxconn had been chosen for a number of reasons. Besides the obvious cost-saving motivation of
relocating product development capacity to China, Foxconn—as one of the largest companies in the field
of electronic component manufacturing—had much relevant knowledge and expertise that Nokia
Denmark saw the potential of tapping into. For instance, it had a long history of developing technological
products for major contractors around the world and possessed much experience of optimizing product
development processes. In addition, Foxconn had supplied electronics components to Nokia for a number
of years prior to the full-scale outsourcing decision. Their already established relationship therefore eased
the process of relocating entire product development projects to China.
In regards to the generic product development value chain, the actual JRD process was initiated at the end
of the concept mapping phase when representatives from Foxconn flew into Copenhagen for two to three
weeks of intensive collaboration. This way, the Foxconn representatives were given the opportunity to
become fully integrated into how the product should be developed, what the conceptual and technological
expectations to the product were, and how the overall product development mindset should be. The
control of the project was then handed over to Foxconn who would adjust and mature the project in all
manners so that it could be shipped back to Copenhagen for product maintenance after roughly six
months. To ensure that the product development process would proceed as smoothly as possible, the
Danish management had instructed its Taiwanese partner to replicate the product development
organization as it was in Copenhagen (see Exhibit 8. This meant that the organizational structure was
similar to the Danish one and also that Foxconn followed the same milestones for the PD process that had
been defined in Copenhagen (i.e., PD0 to PD4). However, despite having handed over the project to
China, Nokia Denmark was still largely involved in the entire process. In order to supervise the life-cycle
of the PD projects, Nokia Denmark and Foxconn arranged weekly video conference meetings to discuss
the status of each project as well as specific technological and organizational challenges or alterations that
might have occurred. Moreover, the two partners also met either in Denmark or in China every six to
eight weeks.
The Effects of the JRD
The JRD began when Nokia Denmark asked Foxconn, which had the necessary competence, to develop
some simple plastics and mechanics for its mobile phones. However, the Danish management soon
realized that this was not the most optimal solution as it required too much overhead management from
14
Interview Niels Eilersen, Ulrik Heins and Brian Lodahl, August 2010.
D
o
N
o
t
C
o
p
y
o
r
P
o
s
t
or 617.783.7860

9B11M114
the Danish unit. “We ended up reviewing their drawings, controlling the quality and checking whether the
test results were good enough,”15
Niels Eilersen, a product program manager at Nokia Denmark,
explained. Particularly, as the interface between electronics and mechanics in the mobile phones is critical
in the PD process, it soon became evident that the geographical distance between China and Denmark
complicated the management of this interface for the worse. As an experiment, the management decided
to ask Foxconn to expand its organization to include test facilities that could match Nokia’s test
requirements and knowledge about electronics so that they could also take over the development part. “It
was sort of an evolution in which we began with mechanics, but soon found out that it was not quite
enough, so we asked the partner to build competences in electronics and tests,” said Eilersen. “As a result,
we could start the full JRD programs.”16
Interestingly, when Nokia demanded new competences from
Foxconn such as electronics, the Taiwanese company would typically respond by buying a relevant
electronics company as a means for gaining the necessary knowledge and match the requirements.
“They’re surprisingly fast,” elaborated Eilersen. “If we demand a certain competence, they will find and
acquire a local company with the necessary competences, which will be included in the next projects.
Sometimes it works and other times it doesn’t.”17
Indeed, Foxconn was known by its customers for its
agility and fast decision-making. This was one of the key reasons why Nokia turned to Foxconn in the
first place.
Second, another positive effect was related to the PD life-cycle and the consequent product time-to-
market. Prior to engaging Foxconn in the JRD, Nokia Denmark had an average PD time of 12 to 15
months. However, as the Nokia management realized that Foxconn was able to perform the same tasks
with the same quality in only eight months, they began questioning their in-house processes and
procedures. “What’s going on? How can they be so fast? Working together with Foxconn has actually
been a kind of a wake-up call for us,” Ulrik Heins explained. “They have demonstrated that they can
make products that are on a level with our products, and they can even make it faster than us with the
same quality. This was a surprise for many in Copenhagen.”18
The engineers in Copenhagen thus became
inspired to learn more about how Foxconn worked and how it was able to operate that rapidly.
Eventually, with insights and knowledge from Foxconn, a significant learning process made Nokia reduce
its PD time by roughly six months. The decision to outsource selected PD projects to Foxconn thus
increased Nokia’s organizational flexibility considerably. By incorporating Foxconn in the development
process, the Danish management to a larger extent could allocate and prioritize more resources on more
complex and value-adding projects.
At the same time, however, the JRD collaboration with Foxconn had also presented Nokia Denmark with
some notable challenges. For instance, there had been a large internal resistance among Nokia engineers
towards relocating PD projects to an external supplier and towards teaching an external partner how to
make Nokia phones. Ulrik Heins elaborated, “People in Nokia see it as if we are selling our core
competences. On a design level, people have been very nervous and cautious towards the JRD. In the old
days, it was rocket science to make good mobile phones. That’s not the case today, however. Everybody
can easily buy all the necessary phone components on the market. But if you have made these
components internally for the last 20 years, you will think that it is still a core competence for the
company.”19
Thus, the act of convincing and changing the mindset of the Nokia employees towards
valuing the product development collaboration had been—and still was—a major challenge.
15
Ibid.
16
Ibid.
17
18
Ibid.
19
Ibid.
D
o
N
o
t
C
o
p
y
o
r
P
o
s
t
or 617.783.7860

9B11M114
The task of successfully aligning Nokia organizationally with the outsourced PD projects had been
another unexpectedly challenging process. While the Nokia management had hoped that the outsourced
projects would largely be self-manageable, requiring minimum intervention from Nokia’s side, they soon
realized that safeguarding against misinterpretation and misbehaviour required substantially more
resources than initially expected. The Danish management had initially thought that they would be able to
merely hand the product over to Foxconn after the concept mapping and receive it back for product
maintenance some months later. However, it became evident that frequent meetings and monitoring on
the JRD were necessities. For this reason, roughly eight full-time Nokia employees were employed to
follow the JRD from Copenhagen while the product was being developed by 30 to 50 engineers in China.
Another issue was the fact that Foxconn supplied many of Nokia’s most significant competitors such as
Apple, Sony-Ericsson and Motorola. A legitimate fear was therefore whether Nokia’s technology would
be misappropriated by Foxconn employees and leaked to other companies. However, the Danish
management was confident that this would not be a problem. As Ulrik Heins clarified, “It is completely
watertight. And that is absolutely necessary, or else we would have had problems working with them.
There was actually an episode where Apple lost some technology, so we asked our partner what they then
did for Apple. The reply we got was that they didn’t know. They are divided to the extent that they cannot
even communicate to other employees working with other partners. It is completely hermetically
sealed.”20
On a more cultural note, embedding a Taiwanese company into the PD process had caused some
noteworthy avenues of frustration. Although the output of the Chinese engineers was of a very high
quality, one particular exasperating issue was the extremely high employee turnover in the Taiwanese
company. “We use a lot of resources in educating Chinese engineers,” Ulrik Heins said, referring to new
engineers who are flown to Copenhagen to learn about Nokia’s product development techniques and
procedures, “and then, six months later, these engineers disappear to another company, and we have to
use additional resources on educating new employees. In a sense, we have become an educational centre.”
Obviously, this issue would not have been a problem if Foxconn possessed the necessary Nokia PD
knowledge internally so that they could train and educate its own employees with minimum interference
from Copenhagen. Yet, there were no good answers to whether this would be the most optimal solution to
this challenge.
THE WAY FORWARD FOR NOKIA DENMARK
The Nokia Corporation had a history of being highly decentralized and organized to encourage creativity,
entrepreneurship and responsibility. “It’s the way the organization creates a meeting of minds among
people. How do you send a very strong signal that this is a meritocracy, and this is a place where you are
allowed to have a bit of fun, to think unlike the norm, where you are allowed to make a mistake?,”21
Jorma Ollila, Chairman of Nokia, asked rhetorically. The decision to outsource the development of a
number of mobile phones to Foxconn had indeed been an entrepreneurial act in an otherwise highly
integrated corporation. This was something Ulrik Heins could confirm: “It’s really learning-by-doing.
Nokia is kind of a cowboy company. We plunge into things, muddle our way through and eventually
become wiser. It is not that much design in the things we do. We go out and try, and then we adjust.”22
However, the time had now arrived for the Danish management to rationalize its entrepreneurial spirit.
Based on a thorough assessment of PD activities, a decision and a strong business case of which direction
the company should take needed to be made.
20
Ibid.
21
E.M. Olson, S.F. Slater and T. Hult. “The importance of structure and process to strategy implementation,” Business
Horizons, 48, 2005, pp. 47-54.
22
D
o
N
o
t
C
o
p
y
o
r
P
o
s
t
or 617.783.7860

9B11M114
Exhibit 1
NOKIA CORPORATION KEY FIGURES
HIGHLIGHTS 2010 2009 2008 2007 2006
Income statement (EURm)
Net sales 42,446 40,984 50,710 51,058 41,121
Gross profit n.a. 13,263 17,373 17,277 13,379
Research and development expenses (5,863) (5,909) (5,968) (5,636) (3,318)
Selling and marketing expenses n.a. (3,933) (4,380) (4,397) (3,314)
Administrative and general expenses n.a. (1,145) (1,284) (1,165) (666)
Operating profit 2,070 1,197 4,966 7,985 5,488
Profit before tax 1,786 962 4,970 8,268 5,723
Profit 1,850 891 3,889 6,746 4,306
Ratios (%)
Return on capital employed n.a. 6.7 27.4 54.3 45.8
Net debt to equity (gearing) (43) (25) (14) (61) (68)
Personnel 132,427 123,553 125,829 112,262 68,483
NET SALES BY REPORTABLE SEGMENTS 2010
EURm
2009
EURm
Change
%
Devices & Services
Net sales 29,134 27,853 4
Operating profit 3,299 3,314 5
Research and development expenses 2,954 2,984 1
NAVTEQ
Net sales 1,002 670 50
Operating profit (225) (334) 33
Research and development expenses 751 653 15
Nokia Siemens Networks
Net sales 12,661 12,574 1
Operating profit (686) (1,639) 58
Research and development expenses 2,156 2,271 (5)
Source: Nokia annual report, 2006/2010.
D
o
N
o
t
C
o
p
y
o
r
P
o
s
t
or 617.783.7860

9B11M114
Exhibit 2
SALES FIGURES AND GEOGRAPHY, 2009
Net sales by market area (%)
10 Major market, net sales (EURm)
Source: Nokia annual report, 2009.
Europe, 34%
Asia-Pacific,
21%
Greater
China, 18%
Middle East
& Africa,
13%
Latin
America,
9%
North
America, 5%
China, 5990
India, 2809
UK, 1916
Germany,
1733
USA, 1731
Russia, 1528
Indonesia,
1458
Spain,
1408
Brazil,
1333
Italy,
1252
D
o
N
o
t
C
o
p
y
o
r
P
o
s
t
or 617.783.7860

9B11M114
Exhibit 3
GLOBAL MARKET SHARES
Vendor 4Q2010 million
units shipment
4Q2010
market share
4Q2009 units
shipment
4Q2009
market share
Year-over-year
change
Nokia 123.7 30.8% 126.8 37.2% (2.4%)
Samsung 80.7 20.1% 68.8 20.2% 17.3%
LG Electronics 30.6 7.6% 33.9 10.0 % (9.7%)
ZTE 16.8 4.2% 9.5 2.8% 76.8%
Apple 16.2 4.0% 8.7 2.6% 86.2%
Others 133.4 33.2% 92.8 27.3% 43.8%
Total 401.4 100% 340.5 100 % 17.9%
Source: IDC press release,
http://www.idc.com/about/viewpressrelease.jsp?containerId=prUS22679411&sectionId=null&elementId=null&pageType=SY
NOPSSY.
Exhibit 4
SMARTPHONES MARKET SHARE
Vendor 4Q2010 million
units shipment
4Q2010
market share
4Q2009 units
shipment
4Q2009
market share
Year-over-year
change
Nokia 28.3 28.0% 20.8 38.6% 36.1%
Apple 16.2 16.1% 8.7 16.1% 86.2%
Research In
Motion
14.6 14.5% 10.7 19.9% 36.4%
Samsung 9.7 9.6% 1.8 3.3% 438.9%
HTC 8.6 8.5% 2.4 4.5% 258.3%
Others 23.5 23.3% 9.5 17.6% 147.4%
Total 100.9 100.0% 53.9 100.0% 17.9%
Source: IDC press release,
www.idc.com/about/viewpressrelease.jsp?containerId=prUS22689111&sectionId=null&elementId=null&pageType=SYNOPS
SY, accessed on December 18, 2011.
D
o
N
o
t
C
o
p
y
o
r
P
o
s
t
or 617.783.7860

9B11M114
Exhibit 5
NOKIA ORGANIZATIONAL STRUCTURE
Source: www.nokia.com, accessed on December 18, 2011.
Exhibit 6
COMPONENTS OF A NOKIA PHONE
Source: http://electronics.howstuffworks.com/cell-phone6.htm, accessed on December 18, 2011.
Corporate Executive Board
Corporate
Functions
Mobile
Solutions
Mobile
Phones Markets
Nokia Siemens
Network
NAVTEQ
D
o
N
o
t
C
o
p
y
o
r
P
o
s
t
or 617.783.7860

9B11M114
Exhibit 7
NOKIA’S PRODUCTION CREATION PROCESS
Source: Nokia internal presentation.
Product Portfolio
Planning
Product Development Product Maintenance
Road
mapping
Concept
mapping
Productisation
Delivery capability implementation
Marketability
Product management
P
0
P
4
P
2
P
1
P
3
Product
main-
tenance
Ramp
down
D
o
N
o
t
C
o
p
y
o
r
P
o
s
t
or 617.783.7860

9B11M114
Exhibit 8
JRD ORGANIZATIONAL STRUCTURE
Source: Nokia internal presentation.
Product development
manager
Software Mechanics Electro
mechanics
Hardware
Product development
manager
Software Mechanics Electro
mechanics
Hardware
Nokia Copenhagen
Foxconn China
D
o
N
o
t
C
o
p
y
o
r
P
o
s
t
or 617.783.7860

nokia.pdf

Recommended

Recommended

More Related Content

Similar to nokia.pdf

Similar to nokia.pdf (20)

Recently uploaded

Recently uploaded (20)

nokia.pdf