Ericsson Global Strategy Project

INSEAD
–
GLOBAL
STRATEGY
ELECTIVE
–
PROFESSOR
S.
RANGAN
(MAY
2012,
12J
MBA)

Leveraging
Globality
at
Ericsson

Turning
local
innovation
into
global
technologies

Team:
Yumi
Aizawa,
Arnaud
Bonnet,
Martin
Garnes,
Prasanth
Karumanchi

Logo
from
http://www.logostage.com/logo/ericsson/#.T9II0OIth-‐M
(copyright
by
Ericsson)

Index

Ericsson
..................................................................................................................................................
2

Facilitating
innovation
by
leveraging
globality
–
a
three-‐tiered
approach
............................................
5

Decentralized
decision-‐making
to
empower
staff
to
take
ownership
of
ideas
.................................
5

Organizational
Culture
for
utilizing
global
capabilities
......................................................................
8

Cross-‐regional
Sub-‐networks
facilitates
information
sharing
..........................................................
10

The
advantages
of
global
innovation
...................................................................................................
12

Learning
from
Ericsson:
Rolling
out
its
approach
to
innovation
to
other
industries
...........................
13

We
are
grateful
to
INSEAD
alumna
Carla
Belitardo
(Ericsson,
Brazil)
for
discussing
the

innovation
process
at
Ericsson
with
us.

1

“…To
build
our
networked
society,
our
innovations
need
to
be
offered
more
widely
than
to

operators
alone.

We
are
finding
new
ways
to
extend
our
reach.

Today,
we
also
address

sectors
like
utilities,
TV
&
Media…”
(Ericsson
2011
Annual
Report)

Ericsson

Major
innovations
in
communication
methods
have
been
key
to
the
progress
of
society.

The
invention
of
the
telegraph
in
the
1790s
was
followed
by
the
invention
of
the
telephone

in
the
1870s,
and
the
emergence
of
mobile
telecommunication
networks
in
the
1980s.

Almost
a
century
separated
each
major
technological
improvement.

But
over
the
past
20

years,
rapid
innovation
has
revolutionised
the
way
we
communicate,
and
the
emergence
of

smart
phones
has
meant
that
network
operators
have
needed
to
find
ways
of
handling

increasing
volumes
of
data
as
well
as
providing
new
customer-‐focused
services
to
develop

new
sources
of
revenue.

Founded
in
1876,
Swedish
telecom
equipment
maker
Ericsson
has
been
at
the
forefront
of

innovation
in
this
truly
global
industry:
from
inventing
Bluetooth
technology
to
bringing

mobile
Internet
to
the
heart
of
the
Amazon.

Ericsson
is
the
world's
largest
mobile

telecommunications
equipment
vendor1
with
a
market
share
of
around
38%.2

According
to

the
company’s
2011
annual
report,
its
market
share
in
mobile
network
equipment
makes
it

twice
that
of
the
number
two
player.3

Ericsson’s
technology
underpins
much
of
the

hardware
that
makes
cell
phone
networks
actually
work4,
and
the
company’s
main

customers
are
network
operators.

Over
the
past
years,
Ericsson
has
realised
that
to

1

http://en.wikipedia.org/wiki/Ericsson

2

February
2012
estimate:
http://www.ericsson.com/news/1589097

3

http://www.ericsson.com/thecompany/investors/financial_reports/2011/annual11/results/board-‐directors-‐
report-‐2011/competitive-‐assets

4

http://vivauniversity.wordpress.com/2011/10/24/key-‐to-‐ericssons-‐success-‐forget-‐the-‐market-‐leader-‐focus-‐
on-‐the-‐neglectedunderserved-‐market/

2

maintain
its
competitive
edge,
it
cannot
only
offer
services
to
its
direct
customers,
the

network
operators.

It
started
looking
at
how
the
end-‐users
of
the
services
it
manages
(users

of
mobile
phones)
use
their
phones
and
what
they
use
it
for.

In
2008,
Ericsson
launched
its

Collaborative
Idea
Management
programme
worldwide,
an
initiative
aimed
at
enabling
its

employees
to
innovate
every
day
across
the
organisation.5

The
company
created
the
concept
of
“The
Networked
Society”,
and
it
believes
that

technology
has
allowed
us
to
interact,
innovate,
and
share
knowledge
in
news
ways6
that

did
not
exist
only
a
few
years
ago.

As
we
enter
this
new
era,
an
increasing
number
of

devices
will
be
connected
through
typically
wireless
networks,
and
Ericsson
wants
to

continue
to
play
a
leading
role
in
connecting
those
devices
and
ultimately
people.

With
over

108,000
employees
around
the
world
and
serving
customers
in
180
countries7,
Ericsson

owns
the
largest
patent
portfolio
for
mobile
communications
for
2G,
3G
and
4G

technologies,
representing
around
30,000
patents.8

Moreover,
the
company
claims
to
own

25%
of
standard-‐essential
patents
for
the
next-‐generation
4G
(Long
Term
Evolution)

communication
which
allows
for
high-‐speed
data
transfer
between
mobile
phones
and
data

terminals9
.
This
makes
Ericsson
the
largest
single
holder
of
essential
patents
for
the

technology10
which
is
seen
as
the
next
major
wireless
protocol
to
be
rolled
out
by
network

operators
around
the
world.

How
does
a
company
with
activities
in
180
countries,

and
that

operates
in
an
industry
dominated
by
rapid
technological
change
leverage
its
global

presence
to
remain
at
the
forefront
of
innovation?

What
drives
a
company
that
is
present

5

http://www.managementexchange.com/story/everyone-‐innovates-‐everyday-‐collaborative-‐idea-‐
management-‐ericsson

6

http://www.ericsson.com/networkedsociety

7

http://www.ericsson.com/thecompany/company_facts

8

http://www.ericsson.com/thecompany/company_facts/patents

9

http://en.wikipedia.org/wiki/LTE_(telecommunication)

10

http://www.ericsson.com/thecompany/company_facts/patents

3

in
developed
markets
to
spend
time
bringing
internet
communication
to
difficult-‐to-‐reach

areas
in
the
Amazon
region,
and
why?

These
are
some
of
the
questions
that
fascinated
us

about
Ericsson,
and
that
we
tried
to
understand
while
researching
this
report.

More

surprisingly,
at
a
time
of
increasing
competition
and
rapid
technological
change,
R&D

expenses
as
a
percentage
of
sales
have
been
decreasing
at
Ericsson
over
the
past
3
years
as

the
company
gained
market
share
and
increased
its
revenue
despite
the
financial
crisis

affecting
the
industry
as
a
whole,
while
R&D
expenses
have
been
fairly
constant
and
at
a

higher
level
(as
a
percentage
of
sales)
at
its
closest
independent
competitor
Alcatel-‐Lucent

(see
tables
1
and
2).

Ericsson
–
Financial
Highlights
(Source:
Annual
Report
2011)

SEK
in
millions
2011
2010
2009

Sales
226,921
203,348
206,477

Net
income
(N.I)
12,569
11,235
4,127

R&D
expenses
32,638
31,558
33,055

N.I
/
Sales
5.53%
5.52%
1.99%

R&D
/
Sales
14.3%
15.5%
16.0%

Table
1:
Summary
of
financial
data
for
Ericsson

Alcatel-‐Lucent
–
Financial
Highlights
(Source:
Annual
Report
2011)

EUR
in
millions
2011
2010
2009

Sales
15,327
15,658
14,881

Net
income
(N.I)
1,144
(292)
(504)

R&D
expenses
2,472
2,593
2,465

N.I
/
Sales
7.46%
-‐1.86%
-‐3.38%

R&D
/
Sales
16.1%
16.6%
16.5%

Table
2:
Summary
of
financial
data
for
Alcatel-‐Lucent

4

Why
is
Ericsson
able
to
reduce
its
R&D
expenditure
while
still
innovating,
and
what
can

companies
in
different
industries
learn
from
Ericsson
and
the
way
it
uses
its
global
presence

to
innovate
and
roll
out
new
technologies
quickly
and
cost-‐effectively?

Facilitating
innovation
by
leveraging
globality
–
a
three-‐tiered
approach

Our
discussions
with
Ms.
Belitardo
and
our
analyses
of
multiple
case
studies
on
innovation

at
Ericsson,
suggested
that
there
are
three
areas
that
facilitate
innovation
at
Ericsson:

• Decentralised
decision
making
processes

• Organizational
Cultures,
and

• Cross-‐regional
sub-‐networks.

Decentralized
decision-‐making
to
empower
staff
to
take
ownership
of
ideas

Ericsson
recognised
that
in
a
large,
global
organisation,
innovation
takes
different
aspects

(spanning
the
range
of
product
innovation
to
business
model
innovation),
and
that
if
the

company
is
to
promote
an
innovation
culture,
managing
the
generation
of
ideas
becomes
a

complex
task.

Hence
in
2008,
they
launched
a
company-‐wide
collaborative
idea

management
programme
that
is
implemented
like
a
pull
based
internal
idea
marketplace
–

an
open
network
for
the
exchange
of
ideas
built
around
a
host
of
defined
innovation
needs

–
without
any
central
control
or
steering.11

Ericsson
is
organised
by
regions
(for
example
Latin
America,
North
America,
Africa,
etc..),

and
each
region
reports
to
the
HQ.

Each
region
has
responsibility
for
its
P&L
accounts,
and

the
company
has
deliberately
taken
steps
to
empower
its
regional
offices
by
decentralizing

decision-‐making
process.

Rather
than
only
focusing
on
its
core
business
of
telecom

11


5

infrastructure
and
having
its
HQ
organise
and
dictate
R&D
efforts,
each
regional
office

targets
the
end-‐users
in
the
local
market/community
by
understanding
their
market
needs

(for
example,
people
in
the
Amazon
region
needed
internet
access
to
communicate
with

remote
areas,
and
the
LatAm
regional
office
focused
on
understanding
which
services
were

needed
by
the
users
before
bringing
in
the
telecom
infrastructure
that
is
then
made

available
to
the
operators
that
are
Ericsson’s
direct
customers).

The
decentralized
decision-‐

making
gives
each
regional
office
a
high
level
of
discretion
on
how
to
focus
their
efforts,

thus
allowing
them
to
identify
local
needs
and
create
solutions
beyond
headquarters’

capabilities.

Thus,
as
figure
1
shows,
a
decentralised
decision
making
at
the
local
level

leads
to
new
innovations
within
a
region,
and
that
innovation
can
then
be
transferred
to

other
regions
across
the
world
as
and
when
required.

This
process
not
only
creates
value

for
the
local
region
and
all
its
stakeholders
(the
regional
office,
the
operator
that
benefits

from
a
new
source
of
income
and
the
end-‐user
that
gains
access
to
new
services),
but
it
also

allows
Ericsson
as
a
company
to
capture
value
from
generating
revenue
from
products
and

services
that
are
relevant
to
a
specific
market.

Innovation

Decentralized
decision-‐making

Figure
1:
How
decentralised
decision-‐making
at
Ericsson
promotes
innovation

6

Examples
of
this
decentralised
process
include:

(1)
The
Mobile
Weather
Alert
developed
for
the
community
in
Lake
Victoria
in
Uganda12,
a

mobile
application
that
improves
the
safety
of
fishermen
through
detailed,
customized

weather
forecasts.
Ericsson,
in
partnership
with
the
World
Meteorological
Organization
and

the
Uganda
Department
of
Meteorology,
have
developed
the
application
and
content,
while

the
National
Lake
Rescue
Institute
is
supporting
the
end-‐user
and
usability
studies.
The

operational
model
(core)
has
been
designed
for
scale
and
replication.

(2)
The
Community
Power
project
from
Kenya13,
where
off-‐grid
base
stations
are
placed
in

areas
without
electricity
grid
coverage,
powered
by
renewable
energy
sources
such
as
wind

and/or
solar
power,
with
the
ability
to
share
excess
power
to
the
nearby
communities,

institutions
and
individuals.
Depending
on
the
excess
energy,
the
base
stations
has
been

shown
to
be
able
to
power
mobile
phone
charging
(which
drives
network
usage),
and
in

larger
scale
deployments
(with
creation
of
mini-‐grids
between
multiple
base
stations)

powering
street
lights,
clinics
and
schools
for
an
entire
community.
The
development

process
has
been
run
with
replication
in
mind.

(3)
In
Curibita,
Brazil’s
sustainable
city,
Ericsson
has
partnered
in
the
development
of
a
fleet

management
system
for
wireless
connected
buses,
resulting
in
increased
trust
in
public
for

safe
transportation
and
a
reduction
in
fuel
cost
and
travel
time14.
The
system
was
jointly

developed
with
DataProm,
Vivo
and
Telefonica,
and
has
recently
attracted
the
attention
of

12
http://www.ericsson.com/thecompany/sustainability_corporateresponsibility/technology_for_good/mobile
_weather_alert

13
http://www.ericsson.com/thecompany/sustainability_corporateresponsibility/technology_for_good/commu
nity_power

14
http://www.ericsson.com/thecompany/sustainability_corporateresponsibility/technology_for_good/connect
ed_busses_in_curitiba

7

various
cities
around
the
world
which
are
considering
launching
similar
services.

In
each
of

these
projects,
new
innovation
has
come
as
a
result
of
targeting
local
needs
and
creating

solutions,
which
can
then
be
expanded
globally
to
other
regions.

Organizational
Culture
for
utilizing
global
capabilities

A
decentralised
structure
needs
the
correct
communication
platform
for
the
exchange
of

ideas
to
actually
happen.

Ericsson
has
developed
an
organizational
culture
for
global

collaboration
and
knowledge
transfer,
which
manifests
itself
in
two
ways:

1. When
they
have
identified
a
market
need
that
needs
to
be
filled,
Ericsson
employees
are

encouraged
to
first
look
first
inside
the
company
(including
both
HQ
and
other
regions)

for
solutions
before
looking
outside
the
company
to
local
vendors.
The
HQ
can
help

facilitate
the
search
for
new
innovations
within
the
company,
but
employees
are
more

generally
encouraged
to
find
the
solution
by
themselves.

This
approach
seems
to
lead

to
a
proactive
workforce
which
encourages
collaboration
within
the
company,
across

different
regions.

Employees
see
it
naturally
to
look
across
the
globe
to
leverage
the

corporation’s
global
capabilities.
If
the
solution
exists
in
a
different
region/office,
a
price

will
be
negotiated
with
the
office
or
region
holding
the
patent/technology/product.

2. Ericsson
employees
therefore
continuously
have
to
look
outside
their
regions
when

developing
local
solutions.

Since
employees
know
that
there
might
be
a
global
demand

(from
other
regions)
for
a
novel
solution
they
are
developing
for
their
local
markets,

every
solutions
is
as
far
as
possible
made
replicable
(the
core
of
the
concept),
with
an

add-‐on
layer
for
localisation
(“the
wrapper”),
as
shown
in
figure
2.

8

Core:
StaYc

across
regions

Wrapper:

customized

across
regions

Figure
2:
Design
framework
for
innovative
products
at
Ericsson

Many
innovations
in
global
firms
are
not
transferrable
(i.e.
they
cannot
easily
be
replicated

in
a
different
region),
often
because
of
company
politics,
or
the
costs
required
to
re-‐

engineer
a
product
or
solution
to
meet
local
tastes
and
demands.
At
Ericsson,
these
issues

appear
to
be
addressed
by
having
an
open
structure
of
collaboration
that
is
entrepreneurial

in
that
few
of
the
discussions
are
centralised
(although
employees
know
that
the
HQ
is

available
to
help
if
help
is
required).

Local
regions
can
champion
their
ideas
to
other
regions

and
the
“buying-‐in”
or
innovation
pull
mechanism
avoids
layers
of
bureaucracy
that
may
be

observed
in
firms
where
decision
making
is
more
centralised
through
HQ.

As
shown
in
figure
2,
the
innovating
group
can
sell
the
“core”
technology
of
the
product
to

the
adopter
group,
and
the
latter
can
develop
a
localized
“wrapper”
according
to
its
needs

and
specifications.
The
innovator
group
will
continue
to
innovate
within
this
framework
as

long
as
it
is
allowed
to
“sell”
the
products
to
other
parts
of
the
firm
because
it
not
only

generates
revenues
for
the
group;
it
also
streamlines
the
adoption
process,
decreasing
the

costs.

9

With
a
new
tool
for
collaborative
idea
management
that
it
launched
globally
in
2008
under

the
name
IdeaBoxes15,
Ericsson
moved
away
from
pushing
innovation
efforts
to
its
regional

offices.

The
system
was
designed
and
implemented
as
a
pull
based
internal
idea

marketplace,
transparent
and
open
to
all
employees.

Adoption
within
the
firm
is
voluntary,

and
each
innovation
manager
has
the
choice
of
whether
to
utilize
the
tool
or
not.

As
the

system
is
open
to
all
employees,
ideation
goes
beyond
R&D
and
this
emphasises
how

Ericsson
recognises
that
its
employees
are
the
most
important
source
of
new
ideas,

regardless
of
their
job
description.
As
of
July
2011,
the
system
had
registered
over
15,000

ideas
while
supporting
Ericsson
in
the
effort
of
building
a
culture
of
collaboration
across

borders
and
units.

Cross-‐regional
Sub-‐networks
facilitates
information
sharing

One
of
the
biggest
challenges
for
global
firms
is
information
sharing
and
knowledge

management.
Innovation
often
comes
down
to
simply
connecting
already
existing
dots,
and

a
solution
to
your
problem
may
well
already
exist
in
another
region.
Solutions
developed

elsewhere
may
also
be
applied
differently
in
your
region,
and
hence
addressing
problems

that
it
was
not
intentionally
developed
to
solve.
However,
all
of
this
will
never
happen

unless
information
is
flowing
between
regions.
And
given
the
amount
of
information
and

innovation
in
a
corporation
the
size
of
Ericsson,
it
is
simply
not
possible
for
everyone
to

know
about
everything,
even
with
the
very
successful
implementation
of
IdeaBoxes.
So
how

can
we
assure
that
the
relevant
information
is
shared?
Ericsson
has
a
global
innovation

center
working
to
identify
and
globally
roll
out
selected
innovations.
However,
one
cannot

assure
that
the
innovation
center
is
qualified
to
decide
which
innovations
have
global

potential
and
which
do
not.
In
addition
to
this,
some
innovations
may
not
be
globally

15


10

applicable,
but
could
be
useful
in
one
or
two
other
countries.
One
of
the
measures
Ericsson

has
implemented
to
avoid
such
lost
opportunities
is
to
develop
sub-‐networks
where
certain

departments
connect
globally
across
regions.
We
have
illustrated
this
by
the
example
of
the

sustainability
teams.
A
cross-‐regional,
matrix-‐like
network
exists
between
people
working

on
sustainability
projects
(see
figure
3).
Through
such
sub-‐networks,
Ericsson
increases
the

Regional
knowledge

Cross
regional
sub-‐network

Regional
knowledge

Regional
knowledge

Figure
3:
Cross-‐regional
sub-‐networks
based
on
function

likelihood
that
relevant
information
reaches
the
different
regions,
and
as
such
they
are
able

to
connect
more
of
the
available
“dots”
that
exist
within
their
company.
Specifically,
the

Community
Power
project
has
been
replicated
in
the
Amazon16,
and
is
currently
in
process

to
be
replicated
in
Surinam.
The
Bus
Fleet
Management
system
has
drawn
attention
from

several
other
regions,
and
is
likely
to
be
rolled
out
to
other
locations
in
the
near
future.
This

has
come
directly
as
a
result
of
communication
within
the
cross
regional
network
for

sustainability.
If
all
transfer
of
knowledge
and
innovation
was
to
be
channelled
through

headquarters,
it
is
likely
that
some
of
these
opportunities
would
not
have
been
recognized.

16
http://www.ericsson.com/thecompany/sustainability_corporateresponsibility/enabling_communication_for
_all/connecting_the_amazon

11

The
advantages
of
global
innovation

The
structure
at
Ericsson
not
only
encourages
innovation,
but
it
ensures
the
alignment
of

innovations
with
the
firm’s
strategy.
This
is
achieved
by
encouraging
internal
“trading”
of

innovative
products
and
solutions,
creating
a
fair
incentive
system
while
at
the
same
time

enabling
development
of
projects
that
otherwise
would
not
have
been
financially
viable.

On
a
firm
level,
this
structure
also
helps
in
the
reduction
of
training
and
support
costs
as

employees
don’t
have
to
be
educated
on
innovative
thought
process
and
sharing
new
ideas

and
technology
because
they
are
incentivized
to
do
so17.
Furthermore,
it
also
helps
in

optimizing
research
and
development
because
costs
are
shared
between
groups
that
adopt

an
innovative
product,
which
again
leads
to
incentivizing
innovation.

From
a
Global
Strategy
viewpoint,
we
believe
that,
Ericsson
leverages
its
global
position
to

“distribute”
innovation.
Ericsson’s
structure
empowers
regional
offices
to
gain
advantage

over
their
competitors,
by
adopting
and
localizing
innovation
from
other
regions
instead
of

reinventing
them.
Thus
Ericsson
first
focuses
on
the
benefits
that
it
can
bring
to
its
direct

customers
and
the
end-‐users
of
its
services
(B↑).

This
customer-‐centric
innovation

approach
increases
the
number
of
clients
(N↑)
who
can
see
how
Ericsson
wants
to
help

them
meet
their
goals,
i.e.
innovation
and
adoption
act
as
client
acquisition
tools
for

Ericsson.
The
costs
of
adoption
of
technologies
that
have
been
developed
within
the

company
in
a
different
region
are
usually
significantly
less
than
that
developing
a
similar

service
from
scratch,
and
this
causes
the
costs
to
go
down
(C↓).

Moreover,
there
is
already

expertise
in
the
new
product/service
within
the
company,
the
costs
of
training
staff
is

reduced
since
employees
can
learn
from
each
other

17


12

informally
when
they
source
the
technology.

Further,
when
a
group
adopts
a
product
from

a
different
region,
it
is
investing
in
a
product
that
has
already
been
tested
and
that
is
mostly

free
of
bugs,
which
decreases
the
risk
associated
with
launch
of
a
new
product
or
service

(σ↓).

Hence,
from
a
strategic
perspective,
the
innovation
structure
at
Ericsson
is
crucial
to

creating
and
capturing
value
for
the
firm.

Learning
from
Ericsson:
Rolling
out
its
approach
to
innovation
to
other
industries

Ericsson
is
able
to
leverage
innovation
globally
through
their
unique
organisational
structure

and
its
decentralised
approach
to
innovation.
The
combination
of
formal
and
informal

organizational
structure,
as
well
as
a
culture
for
innovation
and
collaboration
enables
the

firm
to
leverage
innovation
globally.
As
a
result,
Ericsson
increased
its
benefits
and
number

of
customers
and
decreased
costs
and
risk
associated
with
the
innovation.

Now,
having
seen
this
theory,
what
could
other
industries
learn
from
the
‘Ericsson
style

innovation’
and
benefit
from
replicating
this
theory
within
their
firm?
We
believe
that
a
firm

in
a
fast
moving
industry
which
is
driven
by
customer
demand
could
benefit
from
replicating

the
‘Ericsson
style
innovation’.

For
example,
in
the
innovation-‐driven
high
technology
and

the
consumer
products
sector,
R&D
costs
are
typically
high,
and
there
are
transaction
costs

associated
with
rolling
out
technologies
fast
and
“localising”
them
to
specific
markets.

Ericsson’s
innovation
design
framework
that
consists
of
two
layers
(“core”
and
“wrapper”)

can
enable
such
industries
to
reduce
their
time
to
market
while
enhancing
collaboration

between
global
offices
which
need
to
buy
in
core
technologies,
by
copying
the
core
part
and

only
changing
the
wrapper
to
meet
local
needs.

Such
quick
roll-‐out
of
new
products
may
be

critical
in
maintaining
and
developing
a
competitive
edge.

13

Secondly,
this
approach
can
substantially
decrease
the
overall
R&D
cost
and
optimise
the

Sales/R&D
ratio.

Sustainability,
profitability
and
growth
are
3
components
that
are
essential
to
firm’s
success

and
innovation
is
an
important
element
for
firms
to
be
sustainable.
However
the
common

question
that
firms
face
is
how
to
remain
innovative?
The
‘Ericsson
style
innovation’
gives

an
insight
to
this
question.
The
Ericsson
style
enables
the
firm
to
be
innovative
in
a
low
cost

and
low
risk
way
as
well
as
capturing
growth
in
new
markets
efficiently,
and
spreading
novel

solutions
through
a
culture
that
promotes
proactive
cross-‐pollination
between
regions.

14

Ericsson Global Strategy Project

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