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The Nokia Revolution


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It is amazing how things change and change so fast. The concepts that are mentioned here are possibly still relevant and the company still did those things well. Why then did it lose out! We can all have theories post-facto. The truth is how businesses and people can avert such situations without taking too many risks. Or shroud they?

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The Nokia Revolution

  1. 1. Concentrated Knowledge™ for the Busy Executive Vol. 23, No. 10 (2 parts) Part 2, October 2001 • Order # 23-25 FILE: STRATEGIC MANAGEMENT ® Success Factors of an Extraordinary Company THE NOKIA REVOLUTION THE SUMMARY IN BRIEF In its transformation from a small pulp mill in Finland to the leading worldwide force in cellular and mobile information technology, the Nokia By Dan Steinbock Corp. has irrefutably redefined the term “evolution” in the context of global business. In The Nokia Revolution, Dan Steinbock traces, with pinpoint detail, the steps Nokia took to gain and maintain its position at the head of such a rap- idly changing technology field, as well as the occasional misstep that CONTENTS helped the company learn important lessons and come back stronger. Strategic Intent: New Among the things that have made Nokia special are the following: Customers, New Rules ● Strategic Intent. As it moved into increasingly deregulated markets, Pages 2, 3 Nokia faced a bevy of new challenges and competitive shifts, all of which it A Process-Driven tackled by fearlessly addressing new opportunities outside its organization Organization and a new process focus within its organization. Page 3 ● Global Focus. Nokia’s propensity for thriving in times of upheaval Global Focus: served it well in the cellular industry, where the company was forced to set Nokia Targets global objectives or fall behind its competitors. Niche Markets ● Strategic Market-Making. By considering both unique competen- Pages 3, 4 cies and market-based industry segments, Nokia’s executive board hit upon a strategy that has served it well in a dynamic environment. Strategic Market-Making ● Focus on People. Nokia treats human resource management issues Pages 4, 5 with the same focus as it has tackled more strategic business issues. In ‘Nokians’ and Human doing so, the company has defined the key values and key challenges for its Resource Management “Nokians” to address in the short- and long-term. Page 5 ● Global R&D. At Nokia, research and development apply across the Nokia’s Global R&D entire value chain, rather than simply in more technical sectors of the com- Pages 5, 6 pany, enabling the company to strike a necessary balance between techno- Upstream Innovation logical factors of its business (upstream processes) and more people- or Pages 6, 7, 8 service-related factors (downstream processes). Are you ready to learn how Nokia does it? Turn the page and Downstream Innovation get started ... Page 8 Published by Soundview Executive Book Summaries, 10 LaCrue Avenue, Concordville, Pennsylvania 19331 USA ©2001 Soundview Executive Book Summaries • All rights reserved. Reproduction in whole or part is prohibited.
  2. 2. THE NOKIA REVOLUTIONby Dan Steinbock— THE COMPLETE SUMMARY PART I: GLOBAL FOCUS STRATEGYStrategic Intent: Nokia addressed competitive shifts by fearlessly jump- ing into new opportunities as deregulation spread acrossNew Customers, New Rules Europe, enabling the company to establish strong In the 1980s and 1990s, mobile communications mar- footholds in the United Kingdom and Germany, amongkets were changing dramatically, and Nokia found itself other newly open markets. By the late 1990s, Nokia washaving to change its structure and strategies in order to known for its ability to listen and respond to market devel-keep up. The company’s leadership knew it had to trans- opments in a rapid, efficient and flexible manner; the com-form its organization, developing new capabilities, build- pany was more agile and entrepreneurial than many of itsing new strategic advantages on those capabilities, and large competitors — a trait not lost on customers lookingglobalizing its efforts. Nokia’s customer focus — always for a flexible, responsive mobile communications vendor.a strong point — would need to become even stronger. The Price of Success In this period, Nokia’s customer base moved from the Nokia’s success caused its share of problems. Bytraditional, state-owned and regulated Postal, Telegraph May 1996, the company experienced staggering dropsand Telephone (PTT) customers to deregulated markets. in profit (a 70 percent decline in the first quarter) andAs a result, it found lots of old rules changing. operating profit (a 62 percent decline), which ● Regulations. Customers that were once driven by stemmed, in large part, from several years of hyper-compliance to regulation were now free of those regu- growth and its accompanying logistics challenges:lations; private sector customers replaced government- ● Newer, larger work force. In 1995 alone, Nokiaowned and -operated businesses as Nokia’s chief cus- added 7,000 employees to its work force to meet cus-tomers and target audiences. tomer demand for its phones in Europe and Asia. ● Orders. Nokia could previously count on orders ● Productivity. Problems with suppliers and deliveryfor a particular product line; as the market changed, of components caused the company’s productivity levelcustomers demanded more integrated turnkey solutions to tail off considerably, from 15 percent to 3 percent.on common platforms. ● A stagnant American market. The market for ● Work force. In the past, the typical work force digital handsets in the United States did not grow aswas technically driven. When the market shifted, so expected, due to regulatory delays.did the work force’s specialties — away from strictly ● Cheap analog. Analog phone manufacturers cuttechnical expertise, toward more business- and market-ing-driven work. prices as much as 50 percent in this period, as the move to digital technology in many countries was ● Business cycles. Prior to the change in the market, hung up in regulations.Nokia could rely on highly predictable order and deliv- (continued on page 3)ery cycles. When the rules changed, so did thosecycles, which became increasingly less predictable. The author: Dan Steinbock is an affiliate researcher at ● Competitive pressures. Whereas Nokia’s chief the Columbia Business School Institute forcompetition was national in nature before the mobile TeleInformation (CITI), and a visiting virtual professor atcommunications market changed, the market shift saw the Helsinki School of Economics and BusinessNokia and its competitors forced to go global, to keep up Administration. Steinbock is the author of The Birth of Internet Marketing Communications and Triumph andwith one another. The steady evolution of product prices Erosion in the American Media and Entertainmentand price structures eroded rapidly in this period, while times grew increasingly faster. Service also Copyright© 2001 by AMACOM. Summarized by per-became a key competitive issue; customers demanded mission of the publisher, AMACOM, 1601 Broadway,higher levels of service than ever before, forcing Nokia New York, NY 10019. 375 pages. $27.95. 0-8144-0636-X.and its competitors to comply or step aside. Published by Soundview Executive Book Summaries (ISSN 0747-2196), 10 LaCrue Avenue, Concordville, PA 19331 USA, a division of ConcentratedKnowledge Corporation. Publisher, George Y. Clement. V. P. Publications, Maureen L. Solon. Editor-in-Chief, Christopher G. Murray. Published monthly.Subscriptions: $195 per year in U.S., Canada & Mexico, and $275 to all other countries. Periodicals postage paid at Concordville, PA and additional offices. Postmaster: Send address changes to Soundview, 10 LaCrue Avenue, Concordville, PA 19331. Copyright © 2001 by Soundview Executive Book Summaries. Available formats: Summaries are available in print, audio and electronic formats. To subscribe, call us at 1-800-521-1227 (1-610-558-9495 outside U.S. &Canada) Multiple-subscription discounts and Corporate Site Licenses are also available. . Soundview Executive Book Summaries ®2
  3. 3. The Nokia Revolution — SUMMARYStrategic Intent: New Customers, New Rules(continued from page 2) Strategic Intent and Despite understandable market anxiety, Nokia held Senior Managementfirm to its focus strategy, even in the midst of its logis- In its attempts to move from old-style strategictics problems, which the company understood, correctly, planning to new management and strategic meth-to have stemmed from its reorganization just prior to the ods, Nokia’s leadership recognized that simple cost-market shift. The company’s leadership knew it had to cutting measures were not enough to compensatenot only catch up and adapt to its external environment, for past excesses — the company simply had toit also had to upgrade and innovate its IT strategies, then develop future-driven strategies. Nokia neededalign those strategies with a new strategic direction. ■ strategic intent that would motivate every employee, not strategic memos drafted at headquarters for the investment community. Nokia’s then-current capa-A Process-Driven Organization bilities and resources would not accomplish this. The origins of Nokia’s recovery and market superiori- In addition to restructuring efforts designed to cutty can be traced to 1992, when Mikko Kosonen, the costs, Nokia focused on three key themes in its strate-company’s vice president of corporate planning, gic intent for future competition — globalization,launched an IT strategy study that helped move Nokia strategy and structure, and volatile environments.toward process-based management. The study identi- These phases involved competing for intellectual lead-fied two core business processes common to all busi- ership, shaping and shortening migration pathsnesses at Nokia Telecommunications: product develop- between current and future markets and industryment (R&D) and customer commitment (order fulfill- structures, and competing for market power and posi-ment). This realization led to the institution of a new tion as new opportunities helped form new industryaccount management structure that would serve as an structures. As part of developing a strategic intent, Nokia’sinterface between all the company’s divisions and their leadership had to create a sense of urgency in acustomers, rather than between the customer and a sin- management environment that was, at best, skepti-gle product line, as had been the case in the past. cal. Titles were not important — teamwork was. The goal of the study was to increase Nokia’s cus- Nokia challenged its managers to rely less on actualtomer orientation, looking at its businesses from the resources, concentrating instead on buildingcustomer’s perspective, leading to new performance resourcefulness, just as it had to exploit the pace atmeasures that focused on customer value. Such a focus which new competitive advantages had to be built toalso benefited the company’s efforts at innovation, deter rivals. Japanese companies in the 1970s andwhich had always flowed through the entire value 1980s were able to create new global brand fran-chain, rather than being strictly the responsibility of a chises in this manner; Nokia was eager to followproduct development or R&D arm. their example.Two Types of Operational Processes By the mid-1990s, Nokia’s operational processes step was to turn the company into an industry giant. ■could be divided into two broad types: ● Business processes. Processes associated with the Global Focus: Nokia Targetsphysical or virtual creation of the product, its sale andtransfer to the buyer, and post-sale servicing. In prac- Niche Marketstice, they can be divided into upstream and downstream In global competition, short product life cycles forcedprocesses. companies to emphasize innovation, as well as to rec- ● Corporate processes. Processes that reinforce busi- ognize new opportunities and exploit them with betterness activities by providing purchased inputs, technology timing. Because of high R&D costs, however,development, human resources management and a variety economies of scale were critical.of company-wide functions. In practice, these processes Nokia’s leadership recognized that in this new environ-can be seen in management, performance measurement ment, the ability to segment markets and target nicheand control, HR management, and R&D activities. segments within those markets was a key success factor. Nokia put these processes into action in its process As Nokia saw a niche opportunity, it tailored its strat-chain by firming up its commitment to partners, chan- egy to the narrow segment. Since the company wasnels, suppliers and buyers, creating long-standing rela- faster, more flexible and more responsive than its largertionships through a commitment to customers. The next (continued on page 4) Soundview Executive Book Summaries ® 3
  4. 4. The Nokia Revolution — SUMMARYGlobal Focus: Nokia Targets Niche Markets(continued from page 3) Rising Tigers, Falling Dragonscompetitors, it could use its niche to gain access to the Nokia’s global strategies in the mid-1990s wereentire market. In the course of this competitive effort, shaped mostly by the global business paradigm ofNokia moved from low-end to high-end markets; while strategist and consultant Jean-Pierre kept many of its defense and government contracts, it Jeannet noted that, in changing environmental cir-also targeted customers around the globe as its cellular cumstances, old-style vertical giants (or “dragons,”products got smaller and more popular. in Jeannet’s parlance) had been descending, while new-style horizontal players (“horizontal tigers”) hadHow to Lead Globally been ascending. The horizontal tigers would dictate For Nokia’s leadership, global growth strategies for the future, he wrote, because companies would havecompanies in its high-technology markets encompassed to carefully pick the businesses they want to global-several critical determinants, each of which precipitated ize — thus the shift from broad-based, unfocusedNokia’s success in global wireless markets: businesses to niche companies focused on the glob- ● Set global objectives and enter lead market al imperative.early. Fast-growing challengers establish global orien-tation and objectives prior to the start of a high growth businesses and to introduce and develop new businessphase; they enter lead markets during the earliest phas- ideas. The NVO consisted of Internet and home com-es of their evolution. munications entities, a mobile display appliances entity, ● Exploit industry shifts. Global challengers exploit and two venturing units — each reflecting the conver-first-mover advantage, optimizing industry shifts and gence of wide-area mobile communications and local-achieving fast-paced growth. area computing, creating innovative types of high-speed ● Develop global products. Global challengers must mobile multimedia services.develop innovative, high-quality products and achieve Nokia also leveraged strategic leadership through itsrapid geographic spread for those products. “collective mind” — its executive board, creating a flat ● Build selective, functional foreign investments. yet potent organizational structure that has served theGlobal challengers must accumulate selective foreign company well in the fast moving environments inassets and closely spaced investments, in order to sus- which Nokia has so remarkably excelled. In the yeartain their competitive strategies. 2000, the board consisted of chairman Jorma Ollila and ● Nurture global coordination and learning. eight chief executives, representing key strategic pointsGlobal challengers must nurture global coordination throughout the company. Because the board membersand increase learning, distributing skills and developing each bring something unique to the table, the entity as aglobal functional networks and a global mindset. ■ collective is able to refine Nokia’s corporate strategy on a continuous basis. As Ollila and the board gained more experience inStrategic Market-Making the industry and began to ponder the transition from By 1999, Nokia was comprised of three core business traditional cellular businesses to the mobile Internet,groups — Nokia Networks, Nokia Mobile Phones and Nokia’s leadership aimed to create a “new managementNokia Communications Products — as well as a corpo- paradigm,” designed to cope with developments andrate research unit (Nokia Research Center, or NRC). challenges in the dynamic markets into which the com-While the company was well on its way to pioneering pany was stretching. The paradigm combined twothe mobile digital economy, its segment of “other oper- major schools of thought in strategic management:ations” (most of which were contained within the The first school of thought was the resource-basedCommunications Products group) experienced a sub- view, which focused on unique competencies.stantial operating loss that year. As a result, Nokia’s Companies that bought into this view competed by max-leadership recognized that, to compete in rapidly imal leverage of the competencies in current and/orexpanding markets (such as the multimedia-enabled future market spaces. The problems Nokia saw in focus-third-generation systems, or 3G, market), it would have ing on this view alone were that it was too slow, tooto build new capabilities from scratch and prepare once driven by past performance, and too focused on history.again for organizational transition. The second school of thought was the market-based The company founded Nokia Ventures Organization view, which focused on the most attractive industry seg-(NVO), a five-part entity whose goals were to push thelimits of Nokia’s growth beyond the scope of its current (continued on page 5) Soundview Executive Book Summaries ®4
  5. 5. The Nokia Revolution — SUMMARYStrategic Market-Making sibility) and openness (to each other and to new(continued from page 4) ideas) Nokia believes that the combined competencies ofments. Companies using this view compete by differen- the whole organization, its operational mode, and effi-tiation, low cost or focus. cient processes, serve as the foundation for future suc- Taken separately, neither view could meet the full cess and growth. This manifests itself in many ways:range of Nokia’s needs; when employed as a combina- daily work is often carried out in cross-functionaltion — as part of the company’s market-making strate- teams; social interaction skills are stalwart course mate-gies — Nokia’s leadership found a paradigm that could rials in the Nokia Learning Centers; feedback is solicit-tackle head-on the new management challenges faced ed from employees, and is acted global companies in fast-changing markets. The Nokia also engaged its “Nokians” to identify criticalapproach would allow the company to focus on both challenges for companies operating in a rapid-growthforesight and execution, and to compete by timing and environment, challenges that hold particular importancespeed — essential aspects for Nokia, which wanted to for Nokia. The challenges they identified were as follows:lead in rapidly evolving mobile cellular markets. ■ ● Create organizational conditions for rapid growth. Nokia must maintain its entrepreneurial spirit, creating an“Nokians” and Human organizational structure that enables the expansion and increased number of employees that growth requires with-Resource Management out slowing or stifling core processes. Nokia’s strategic intent would never have succeeded ● Don’t recruit — marinate. Recruiting criteriawithout its people; thus, the company has treated should be kept clear. Employees must be aligned quicklyhuman resource management (HRM) issues as strategic with the processes and values of the company and mustissues, with the same focus it has used to tackle global- be able to deal with the kinds of unpredictability andization and innovation. At Nokia, HRM encompasses uncertainty that accompany rapid growth. This alignmentvalue activities such as recruiting, hiring, training, should be forged by team training at the beginning anddevelopment and compensation; it also supports busi- end of orientation — a “marinating” that eliminates theness and corporate processes and the entire value chain. boundaries between “work” and “learning.”While the company struggled at first with inconsisten- ● Reinforce humility. The history of the cellularcies arising from the dispersion of HRM activities industry is one of cyclical successes and failures. Asthroughout the company, it joined its internal forces in companies boost their capabilities, it is easy for rigiditythe effort to maintain four key values: and, eventually, arrogance, to slip into the organiza- 1. A drive to achieve customer satisfaction tion’s operations, rendering it vulnerable to quicker, 2. Respect for the individual more innovative, less arrogant competitors. Nokians are 3. Willingness to achieve and belief in continuous trained to recognize external changes and respond rap-learning idly to them; they are also trained to respect humility 4. Encouraging sharing (information and respon- rather than arrogance. ■ PART II: TOWARD THE MOBILE INFORMATION SOCIETYNokia’s Global R&D es, driven by the expansion of Nokia. Nokia’s innovation strategies integrated R&D into the entire corporate struc- In most companies, research and development (R&D) ture, across business units and particularly at the NRC,encompasses a range of activities, reflecting efforts to where its many innovation-related activities embodiedimprove products and processes. At Nokia, R&D the entrepreneurial spirit of a small organization expand-applies across the entire value chain, rather than just the ing to meet the needs of the global environment.traditional engineering department, influencing both theupstream (operations, logistics, new product develop- Nokia often spends less on R&D than its rivals. At thement) and downstream (marketing, sales, service) height of its focus on cellular technologies, Nokia spentprocesses in unique and strategic ways. between four to seven percent of its revenues on R&D, far behind the 16 percent investment made by close Nokia’s R&D activities increased steadily throughout competitor Ericsson by the end of the 1990s. Whatthe 1990s, even as the national innovation system in the Nokia’s R&D efforts lack in comparative funding, theycompany’s home country of Finland also increased (up compensate for in efficiencies in leveraging and exploit-to 3 percent of GDP by 1998); indeed, it can be said thatthe growth of Finnish R&D was, for all practical purpos- (continued on page 6) Soundview Executive Book Summaries ® 5
  6. 6. The Nokia Revolution — SUMMARYNokia’s Global R&D in a product, to make it easier for customers to use.(continued from page 5) While these different business units might approach R&D from different angles, the R&D process chaining new knowledge. The company’s R&D strategy was itself consists of three phases:to develop generic platforms that could be quicklyadapted to different standards. Nokia also chose to 1. Research and technologies (the initial genericfocus on software development, the primary value- development level).added component in a handset. This allowed Nokia to 2. Technology and platforms (defining goals andconcentrate its R&D on high-margin, high-quality prod- looking beyond immediate product development).ucts, while selling older models to the low-end market. 3. Concurrent engineering (focusing advanced prod- Nokia’s global network of R&D outposts also distin- uct development on creating products that fulfill cus-guishes it from many of its competitors. Whereas in the tomer needs. This approach is intended to cause develop-past, many industry leaders have located their R&D activi- ers, from the outset, to consider all elements of the prod-ties in their home base, close to where strategic decisions uct life cycle, from conception through disposal). ■are made, by the end of the 1990s, many established R&Dnetworks were housed in foreign countries, to tap valuablewells of knowledge and/or address needs specific to that Upstream Innovation With a process chain that was designed to satisfymarket. Nokia is no different although, considering the suc- existing and potential customer needs, Nokia has beencesses for which their network has been responsible, the active in both upstream and downstream innovation. Itscompany has not released information on the location or on upstream efforts have been focused not on technologyits key R&D programs, due to competitive interests. innovation (which has been more prominent for com- When selecting new R&D sites, contemporary global petitors like Ericsson and Motorola), but in the buildingcompanies tend to find it helpful to carefully articulate of new capabilities and the leveraging of strategic stan-the primary objective of each site. While Nokia’s R&D dards coalitions.expenditures have been dwarfed by competitors likeEricsson, its successes have come because each site has Building New Capabilitiesdeveloped objectives based on a radical approach, one Nokia’s approach to creating and sustaining its visionthat relied on three central tenets: of the mobile information society has always followed a ● Focus on applied science. Throughout the 1990s, single motto — “Look at the next challenge.” For exam-Nokia’s R&D became increasingly focused, practical, ple, the company’s efforts to develop a portable machineand applied, and continued to be extended globally that could utilize Internet and computer technologies (firstthough networked research communities and intensified seen in the Nokia Communicator in 1996) stemmed fromcollaboration. Nokia’s ability to build new capabilities by doing three ● Diverse base of suppliers and partners. The impor- key things: managing development capabilities, movingtance Nokia placed on platforms triggered a wide array of from development to product usage, and fostering growthtechnology and standards coalitions, mirroring an indus- opportunities that emanated from those efforts.try-wide push toward using an increasingly diverse base In the turbulent cellular environment, superior man-of suppliers and partners to foster innovation. agement of development capabilities was Nokia’s key ● Tightly knit teams. Industry leaders often form to competitive advantage. Development projects in mosttightly knit teams of experts to develop new generations companies tend to fall into one of five categories:of major products and processes, teams that provide a ● Applied research or advanced developmentknowledge center and continuity over several genera- projects. These projects aim at inventing new sciencetions of products. At Nokia, the significance of the or capturing new know-how for application in specificexecutive board, as well as key product process and development projects.customer commitment teams, has been extraordinary. ● Alliance or partnered projects. These projects find The team aspect of Nokia’s R&D efforts are of par- the company “buying” a newly designed product and/orticular interest. The common denominator of Nokia’s process from another firm to leverage in-house develop-R&D stems from concurrent engineering efforts in ment efforts. Nokia’s efforts with Bluetooth, Symbian,which product development, sales, and production units and others are an example of a partnered approach.act in cooperation, from the beginning of a project to its ● Breakthrough development projects. These proj-conclusion. For example, when product development ects create the first generation of an entirely new prod-begins, so does marketing planning; sales is also uct and process, breaking new conceptual and/or tech-involved, explaining how features might be embedded (continued on page 7) Soundview Executive Book Summaries ®6
  7. 7. The Nokia Revolution — SUMMARYUpstream Innovation(continued from page 6) Nokia’s R&D Misstepnological ground for the company, as the Since the 1980s, Nokia’s R&D has played a criti-Communicator did for Nokia. cal role in executing the company’s strategic intent, ● Platform or generational development projects. especially in scenarios for the future. The compa-These projects typically have a design life of several ny’s successes, however, were not achieved withoutyears and establish the basic architecture for a set of some failures.derivative projects to follow. One of those was “Nokia Future Watch,” a state- of-the-art strategy and knowledge-creating project ● Derivative development projects. The projects, vital to the NRC. The failure of this project illus-such as Nokia’s niche product lines, tend to be signifi- trates the fact that companies must sometimescantly narrower in scope and resource requirements gamble on the future in emerging markets, andthan platform projects. that, sometimes, that gamble does not pay off. Nokia, like many other technology companies, under-stands that long-term success depends on the sustained play appliances, and multimedia terminals.ability to build on excellent products, a capabilities-to-development continuum that is fueled by great people, as Standards Coalitionswell as through what it termed “transformational acqui- Nokia’s other upstream strength lies in its develop-sitions.” In the late 1990s, Nokia proceeded through this ment of and participation in standards coalitions; indeed,dual development of capabilities in five phases: over time, the company has co-opted rivals into strategic ● Assessment of acquisition needs. These predevel- alliances and identified key technologies that have led toopment investigations (of market, technologies, etc.) the creation of key coalitions, including the following:made use of information available through external ● Symbian. Nokia cobbled together a coalition of itschannels (venture capitalists, customers, channel inter- closest competitors, along with palmtop softwaremediaries, etc.). maker Psion and electronics giant Matsushita, to found ● Expansion of due diligence. In this phase, Nokia Symbian, a company designed to speed up the evolu-identified potential targets and defined capability tion of wireless information devices. In the course ofrequirements Symbian’s development efforts, Nokia took a dominat- ● Integration and retention. In this phase, Nokia’s ing role in the creation of such future-looking terminalsfocus moved to the internal organization (on such as featurephones, smartphones and communicators.issues as cooperative work efforts), in order to integrate ● Bluetooth. Nokia also co-launched this consortiumthe target company into Nokia’s capabilities and to for wireless connectivity, which consists of nearlyretain key employees. 1,200 active members, aiming to create an open stan- ● Development projects. Nokia’s focus shifted in dard for short-range communications between differentthe fourth stage to individual projects seeking to meet electronic devices.goals on timing, budget, and performance. ● WAP. The Wireless Application Protocol is the ● New product introductions. In this last phase, the communication standard that allows mobile phones torole of the business unit diminished as focus shifted have access to the Internet. This standard came abouttoward introducing new products into the marketplace. as a result of cooperation between Nokia, Ericsson, andConversely, other units (logistics, marketing, etc.) Motorola, but it was Nokia’s active leadership in devel-began to play a larger part. oping the standard that enabled it to bridge the gap It was this view of acquisition that would motivate between second- and third-generation markets.Nokia’s interest in Silicon Valley in the late 1990s, ele- In technology sectors, complexity requires coopera-vating their investigation of and investments in new tion. Nokia obtained from external sources those com-businesses and technologies by establishing the NVO, a plexities that had become too costly in terms of strate-separate organization running parallel to the company’s gic flexibility and financial resources. They expectedother three core business groups, whose purpose was to their coalitions to unlock benefits unobtainable throughfoster growth opportunities beyond the scope of the internal means, or by simple mergers. In particular, theexisting business groups. The NVO sought to develop company sought five kinds of benefits:areas with growth potential over a five year period, ● Access to expertise. Strategic coalitions enable theexploring new business areas facilitating future growth participants to acquire, pool, or sell access to the knowl-and boosting Nokia’s product and business develop- edge or ability to perform activities. For Nokia, accessment in key areas, including the Internet, mobile dis- (continued on page 8) Soundview Executive Book Summaries ® 7
  8. 8. The Nokia Revolution — SUMMARYUpstream Innovation(continued from page 7) Standardization andto knowledge likely contributed to its involvement with Downstream InnovationSymbian, which allowed the company to catch up with Unlike some of its key cellular rivals, Nokia has optedhandheld technology leaders. not to run its own semiconductor production, choosing ● Scale economies and learning. Pooling volume instead to purchase components from outside vendors.serves to raise the scale of the activity or the rate of While the company has been able to avoid the heavylearning about how to perform over that of each compa- expenditures and risks inherent to semiconductors, it isny operating separately. nevertheless more vulnerable than its competitors to ● Shaping rivalry. Companies employ coalitions to distribution and market others entering an industry to develop a technolo- This decision is, however, typical of Nokia’sgy that would affect its competitors’ business, or to emphasis on downstream innovation, at the expenseshape competition in their favor. of upstream innovation; while its rivals have devel- ● Risk reduction. Because no single partner bears oped new technologies, Nokia has been more intentthe full risk and cost of the coalition activity, such part- on listening to its customers.nerships provide attractive mechanisms to reduce risk. ● Upstream standardization. This benefit was found it had to deal with a chasm framework focused onunique to Nokia, in that, by initiating upstream coali- the gaps between different life-cycle markets: movingtions and promoting open standards built on external- from business-to-business to consumer markets, andization, Nokia has weakened its competitor’s strengths maintaining its industry leadership by creating new prod-(upstream innovation) while increasing its own (down- uct generations. Nokia bridged the chasm by developing astream innovation). ■ model of its target customers, then developing strategies to capture the lead segments in each target, enabling their products to “trickle down” to other segments as well.Downstream Innovation Branding In anticipation of new products and markets, Nokia Early in the cellular age, Nokia’s key branding objec-does not proceed from upstream to downstream process- tive was to make its mobile phones a global brand prod-es (technology over customers), but from downstream to uct, with the key messages being inspired technology,upstream (customers over technology). Two key areas in ease of use and durability. It — like such brand leaders aswhich this approach is evident are in the company’s Nike, Daimler-Benz, and Phillip Morris before it — mar-strategies on market segmentation and branding. keted its products as a single brand, considering the brandMarket Segmentation in every aspect of the value chain, from design to produc- From the beginning of the cellular era, Nokia tion to distribution. Such a holistic approach to brandingexcelled in product and market segmentation, because dictated that Nokia would have to penetrate its entirethe company listened to its customers, anticipated needs organization with its unifying branding message.and met them head-on. In this customer-focused By attempting to brand its entire company, Nokiaapproach, marketing strategy has played a critical role, focused on several distinct strategic endeavors, includ-in terms of the type and timing of segmentation, partic- ing the following:ularly in the following areas: ● Listening to the customer. The point was not how a ● Lifestyle. Nokia’s market strategies have been certain technology worked, but whether or not it con-focused on researching how their customers use their tributed to customer satisfaction. Cellular standardsproducts in real life situations. Only by listening to and would change and shift, but brand awareness would not.understanding its customers can the company obtain the ● Consistent look and feel. Nokia’s branding madespecific information needed to differentiate its products sure the look and feel of its mobile phones would befrom competitors on the basis of usage and needs. the same worldwide. Although each market had its own unique requirements, there were sufficient similarities ● Design. Using its unerring focus on the needs of its for a single, unified approach to branding.customers, Nokia developed creative product designs ● Communicating humanity. Rather than focus onthat fulfilled those needs, enabling buyers to gain realbenefits from those products. the technical features of their products, Nokia sought to communicate in its branding the emotional benefits of ● Technology-Adoption Life Cycles. In transitioning purchasing a Nokia product. Their phones were “mostbetween upstream and downstream activities, Nokia human,” “designed for you and I,” etc. ■ Soundview Executive Book Summaries ®8