Nokia innovation


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Nokia innovation

  1. 1. Innovation at Nokia: a Case Report Navin De Silva Matti P. T. Juvonen Roopinder matti.juvonen roopinder.singh
  2. 2. Contents1 Introduction 12 The History of Nokia 1 2.1 Water-powered growth . . . . . . . . . . . . . . . . . . . . . . 1 2.2 From cables to electronics . . . . . . . . . . . . . . . . . . . . 23 Nokia’s Markets, Products and Competitors 4 3.1 Company structure . . . . . . . . . . . . . . . . . . . . . . . . 4 3.2 Targeting both consumers and businesses . . . . . . . . . . . . 5 3.3 The state of the mobile telephony market . . . . . . . . . . . . 6 3.4 Competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.4.1 Mobile Handsets . . . . . . . . . . . . . . . . . . . . . 8 3.4.2 Networks Equipment and Infrastructure . . . . . . . . 94 Technologies and Capabilities 10 4.1 Mobile Phones . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.2 Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.3 Multimedia . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.4 Enterprise Solutions . . . . . . . . . . . . . . . . . . . . . . . 125 Innovative Activities 12 5.1 Research Centres . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.2 Memberships . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 5.3 Proposals and Venturing . . . . . . . . . . . . . . . . . . . . . 156 Innovative Strategy 17 6.1 Early player, offensive innovator . . . . . . . . . . . . . . . . . 17 6.2 Protecting intellectual property . . . . . . . . . . . . . . . . . 187 Future Challenges and Opportunities 18
  3. 3. 2 The History of Nokia 11 IntroductionDuring its 140-year history, Nokia has developed from a small Finnish woodand paper firm to one of the biggest telecommunications companies in theworld. How did the shift from more traditional industries to electronics andtelecommunications happen? How has this development been possible? Andhow do Nokia’s innovative activities ensure continuing market leadershipwith new technologies and standards emerging? This report seeks to examine Nokia’s transition, development and currentactivities, with emphasis on innovation and r&d activities. It tries to explainwhy these activities have transformed the company to a mobile communica-tions powerhouse. Finally, it looks at future challenges and opportunitiesNokia faces in the mobile telecommunications sector. The main sources of information for this report are articles and researchpapers about Nokia. Newspaper sources have been used, too, as well asfinancial and statistical data by and about Nokia. Interviewing company em-ployees was not possible: Nokia has a Standard Operating Procedure dictat-ing that the company is not willing to discuss its innovation processes. Someresearch into Nokia innovation and r&d activities uses anonymous companyinsiders in their interviews.12 The History of Nokia2.1 Water-powered growthThe company Nokia is named after the town of Nokia in south-west Finland.Industry in the area started in the 1860s when a groundwood mill was builtin Nokia by engineer Fredrik Idestam. Nokia was an ideal place for suchindustry due to nearby resources, particularly hydro power provided by therapids around the town.2 Idestam’s company did well due to the increased demand for paper andcardboard in the industrialising Europe. The expansion of the companydrove the town forward and new infrastructure was built. This in turn at-tracted other companies to relocate to Nokia. The Finnish Rubber Works,which had come under mostly the same ownership as Nokia, moved therefrom Helsinki.3
  4. 4. 2 The History of Nokia 2 In the 1920s, the Finnish RubberWorks acquired both Nokia Aktiebo-lag and Finnish Cable Works fromHelsinki, established in 1912 to meetthe demands of the spread of electric-ity and telephone.4 At the same timethe company started using the brandname Nokia.5 The three companiesoperated relatively independently un-til 1967 when they merged to form OyNokia Ab.62.2 From cables to electronicsNokia first ventured into electronics in1960 when an electronics department Figure 1: ‘Nokian’ rubber boots are foundwas established at the Finnish Cable in nearly every home in Finland. Even theWorks. The introduction of a radio Finnish defence forces use them. Nokiatelephone in 1963, data modems in no longer makes anything related to rub-1965 and a digital telephone switch in ber, but in Finland the boots are still as-the early 1970s already foreshadowed sociated with Nokia. (Source: http:// company’s future in telecommuni-cations.7 In 1967, electronics was stilla small business for Nokia, generating3% of the company’s net sales.8 Nokia’s first major internationally successful telecommunications prod-uct was the dx 200 digital telephone switch. In mid-1970s Nokia had li-censed the e10 switching system from cit-Alcatel and renamed it dx 100.Due to the centralised design of the system, it was not practical to use insparsely-populated areas, that is, most of Finland. Nokia started designing anew, decentralised digital switch and named it dx 200. The product was asuccess both in Finland and internationally.9 Toward the 1980s, Nokia was making a variety of electronic productsincluding televisions, monitors and computers. Meanwhile, the opening ofthe world’s first international mobile telephone network Nordic Mobile Tele-phone (nmt) in Scandinavia and Finland opened bigger markets for Nokia’sradio telephone products. In 1981 Nokia produced the first car telephones
  5. 5. 2 The History of Nokia 3for the nmt network, and in 1987 the first handportable, Mobira Cityman,in cooperation with Salora.10 The new industry of mobile telephony openedmarkets not only for consumer products. The technology required largeamounts of network infrastructure, and Nokia was a large manufacturer ofthese alongside Ericsson.11 When the gsm standard was cre-ated by Groupe Spéciale Mobile in1987, Nokia was ready to start de-veloping technology for the new stan-dard.12 The new digital technology of-fered a number of advantages over pre-vious generation phones, most notablyincreased quality with decreased band-width demand. The first telephoneavailable to consumers was intro- Figure 2: The Mobira Cityman was theduced by Nokia in 1991. In the same world’s first handportable mobile phoneyear, Radiolinja, a Finnish mobile net- for the NMT network. This picture is takenwork operator, opened the world’s in 1987 at the hotel Kalastajatorppa infirst gsm network using Nokia’s net- Helsinki, Finland. In this well-plannedwork technology.13 publicity stunt, the General Secretary of For most of the 1980s, Nokia the Communist Party of the Soviet Union,continued to expand on all fronts, Mikhail Gorbachev, was handed a City- man with which he called the Soviet Min-headed by president Kari Kairamo.14 istry of Communications. (Source: http:It wasn’t until the turn of the decade // Nokia started narrowing its focus.This has been credited partly to business decisions by Jorma Ollila, the newpresident of Nokia Mobile Phones since 1990 and the president and ceo ofNokia since 1992, and partly to the recession in Finland in the beginning ofthe 90s.15 Nokia continued to focus its operations to mobile telecommunicationsthroughout the 1990s by divesting non-core businesses. The company riditself of its cable manufacturing and television production businesses in 1996,followed by tuners and loudspeakers the following year.16 By then, Nokiawas a household name for a number of products, so the new companies stillwanted to be associated with the name Nokia. That may be why there area
  6. 6. 3 Nokia’s Markets, Products and Competitors 4Figure 3: Nokia has increased its emphasis on electronics since the 1960s. By mid-90s,all other business areas were sold. (Source: Palmberg, 2002, 147)companies called ‘nk Cables’, ‘Nokian Footwear’, and ‘Nokian Tyres’.∗ Nokia has continued to narrow its focus by selling parts of the companyand then using the newly formed companies as subvendors. As an example,in 1999 Nokia sold its phone battery charger business to Salcomp from whichthe company now buys its chargers.17 Although about 90 per cent of Nokia is in non-Finnish ownership, thecompany’s headquarters remain in Espoo, Finland. Jorma Ollila has period-ically warned Finland, known for its high tax rates, that the company mayeventually move more of its operations to countries charging lower taxes.3 Nokia’s Markets, Products and Competitors3.1 Company structureAlthough most consumers probably know Nokia by its mobile phones, thecompany has four key business areas. Nokia’s business groups were reor-ganised in the beginning of 2004. Nokia’s second biggest business group,Networks, was the only group that stayed intact in the reorganisation. NokiaMobile Phones was effectively split into parts. The new Mobile Phones groupfocused on actual telephone devices. Nokia Enterprise Solutions focuses on ∗ the ‘n’ suffix denotes the genitive case in Finnish, so the name ‘Nokian Tyres’ means‘Nokia’s Tyres’ or ‘Tyres of Nokia’.
  7. 7. 3 Nokia’s Markets, Products and Competitors 5 Customer and Market Operations Technology Mobile Enterprise Multimedia Networks Platforms Phones Solutions Research, Venturing, Business Infrastructure and Operating Resource SourcingFigure 4: Nokia is divided into four business groups. Across these groups span three“horizontal groups” that manage some activities throughout the company. (Adaptedfrom wireless mobility solutions to enterprises. Nokia Multimedia wasset up to develop mobile phone solutions that enable rich content “in theform of images, games, music and a range of other attractive content” aswell as other smartphone solutions.18 In addition to reorganising the company into the four business groups,Nokia established new functions across the groups. In the new organisation,sales and marketing, for example, is handled by one company-wide groupspanning across four business groups. According to Nokia, the aim of theglobal functions is to “enable global care of customer relations and chan-nels, economies of scale in operations as well as better horizontal leverage oftechnologies, business opportunities and common support”.19 Nokia Mobile Phones is the biggest business group of the company, ac-counting for 71% of net sales in 2003. Networks was the second biggestgroup accounting for 19% of net sales. Multimedia is third with 8% andEnterprise Solutions fourth with 2% of net sales.†203.2 Targeting both consumers and businessesNokia’s markets are remarkably varied. The company has a very strongfocus on telecommunications, with all of its business areas selling mobiletelecommunications products or services. The Mobile Phones group designs † After the restructuring in 2004, Nokia has retroactively published financial data about2003 organised in such a way as to reflect the reorganisation.
  8. 8. 3 Nokia’s Markets, Products and Competitors 6products for consumers while Nokia Networks targets telecommunicationsoperators and Enterprise Solutions targets enterprises by providing completesolutions for business communications. As discussed earlier, the shift in focus to telecommunications has been theresult of a conscious decision made by Nokia in the early 90s. Nokia wasan early player in the wireless communication field in a country where theprerequisites were in place for developing a mobile network. The decisionto leverage this knowledge in an upcoming market was a bold one, but itseems to have paid off. Not only was Nokia able to become a big playerin the market, but it has also been able to create new markets based on theknowledge acquired, thereby fuelling its own growth. For example, NokiaMultimedia creates products for mobile phones; the demand was created bythe increased mobile phone penetration. Nokia has been involved with mobile phones since the opening of theFinnish arp (Autoradiopuhelin, “Car Radio Phone”) network in 1971. Nokiabuilt base stations, networks and telephone apparatus for the network.21The world’s first international mobile telephone network, Nordic MobileTelephone (nmt), opened in Scandinavia and Finland in 1981, and Nokiamanufactured the first car phones for the network. In early 1980s, the nmtnetwork “remained as the world’s most extensive mobile network measuredby the number of users.”22 The network was popular well into the 90’s andoperational until the year 2000. By the time the gsm standard was drafted, Nokia was already experi-enced in designing and manufacturing mobile phones. This gave the com-pany a considerable advantage when beginning to venture into the secondgeneration mobile phone markets.‡3.3 The state of the mobile telephony marketIn terms of product life cycle, Nokia originally entered the fluid stage ofthe market. Mobile phones were first manufactured in Finland for Finnishand Scandinavian customers with few competitors. Even now, Nokia seemsto start new model manufacturing in its Finnish factories before migratingproduction to other countries for larger-scale production. Because the mobile ‡ The term ‘second generation’ mobile phone is misleading in the sense that, for Nokia,it was actually the third generation. Although the arp could be considered the first mobilephone, it was technically closer to a two-way radio and relied on manual telephone exchanges.
  9. 9. 3 Nokia’s Markets, Products and Competitors 7phone industry is not fully matured, multiple network standards exist whichforced Nokia to build separate products for different markets. This appliesto both network products and telephone handsets.23 When mobile phone technology was new, worldwide mobile networksdid not exist. Instead, countries had their own networks with different tech-nologies. Interoperability between different networks was not possible, so atelephone bought in one country could not be used in another. Although atechnical point, this could be thought as a lack of a dominant design. It is noteworthy that, while mobile telephony was a new field, the deviceswere essentially thought of as new, improved telephones. The dominant de-sign of a telephone had been in place for a long time and, as such, the firstmobile telephones were not necessarily very innovative feature-wise. Theearly competing products were quite similar from a consumer standpoint,but this should perhaps be considered a sign of the maturity of telephony ingeneral, not mobile telephony specifically. It is argued that the mobile phone market does not support the conceptof dominant designs. Funk (2004) explores this idea: “Research suggeststhat the concept [of dominant designs] does not apply to some products andsystems and a single dominant design has not emerged in many industries.The strongest criticism of this concept comes from Klepper.” Funk arguesthat the rise of the dominant design arises from the acceptance of the networkstandards and thus the standard itself acts as the dominant design. The acceptance of the worldwide gsm standard in 1987 by thirteen Eu-ropean countries enabled companies to start designing products for a muchlarger market.24 The number of competitors in the market grew fast, partlydue to previously local players entering the global market. In the beginningmobile phone saturation was still quite low due to the high cost of bothdevices and services. The functionality of basic mobile handsets from various manufacturersis now similar. However, manufacturers have started to design new devices,integrating computers, personal digital assistants and remote controllers intoone device. At the moment companies are producing both basic mobiles andsmartphones. Even different models of smartphones from the same companycan have very different designs in terms of user interface and features. Basicmobiles are being replaced by new multi-function handsets which are still ina state of evolution.
  10. 10. 3 Nokia’s Markets, Products and Competitors 8 Handsets Infrastructure Others 1.00% Nortel 18.00%Nokia 31.32% Others 25.84% Nokia 30.00% Siemens 11.00% LG Electronics 7.19% Alcatel 2.00% Siemens 7.62% Motorola 14.20% Samsung 13.83% Ericsson 38.00%Figure 5: Market shares of the major companies in mobile handsets and WCDMAinfrastructure products. Nokia is currently the market leader in handsets and sec-ond in WCDMA network equipment. (Source: and CompetitorsMany of Nokia’s main competitors exist in both the Mobile Phones andthe Networks business groups. The leading manufacturers of mobile hand-sets are Motorola, Samsung, Siemens and lg Electronics, while the world’slargest network equipment providers are Ericsson, Motorola, nec, Lucentand Siemens.3.4.1 Mobile HandsetsIn the 90s Nokia surpassed its rival Ericsson as the worlds leading mobilehandset manufacturer. Currently, Nokia faces the strongest competition fromMotorola and Samsung. Although at the moment Nokia is currently theindustry leader, lately Samsung has rapidly increased its market share. Motorola currently ranks second in worldwide mobile phone marketshare. The company announced better than expected fourth quarter earningsin 2003, while Nokia lost some of its market share. This trend continued in2004, when Motorola’s sales increased during the first two quarters at theexpense of Nokia. However, the gap between Motorola and its closest com-petitor, Samsung, closed during the same period. It was only in the thirdquarter of 2004 that Nokia recaptured its market share of approximately30%.25 Following the Asian Financial Crisis in 1997, Samsung focused on the
  11. 11. 3 Nokia’s Markets, Products and Competitors 9mobile phone market and the company was reorganized to be more efficientand slimmer. Samsung’s main advantage over other manufacturers is that it isthe largest producer of lcd screens and is the world leader in memory chips,both of which are used in mobile phones.26 Samsung’s development model ismore market-driven than that of Nokia: product features are determined bydesigners and are based on what can be marketed, in contrast with Nokia’sscience-driven development. Samsung has six design labs worldwide andplans to double its number of designers to 300. This approach appears tohave been successful and currently Samsung is ranked 3rd after Motorola bya very narrow margin.273.4.2 Networks Equipment and InfrastructureDuring the last few years, worldwide infrastructure equipment sales havebeen poor. This is partly due to the saturation of market in second generationnetwork equipment. Overall, Networks equipment sales fell in 2002 by 20%,and this trend continued in 2003 when Nokia suffered an unexpected dropin sales. The main reason for this was low sales and high shipping costs of3g equipment complimented by a slow uptake of the technology in Europe.28Both Ericsson and Nokia expected a further decline in sales in 2003. Aftersuffering losses for two consecutive years, Ericsson reported a profit in thefinal quarter of 2003.29 The industry leader in mobile network equipment is currently Ericsson.The company reported a strong gain in second quarter profits, due to salesof networks equipment and also due to cost cutting measures undertakenthe previous year. Sales of networks equipment in Asia, North America andEurope resulted in a rise in sales by 18%.30 However sales during the thirdquarter of 2004 fell, and Ericsson reported a decline of 2%, Nokia 7% andMotorola 11%.31 Motorola appears to have been more successful in sales of cdma2000networks than wcdma networks. Manufacturers such as Samsung and Qual-comm have chosen to compete in this market only. Nortel obtained severalcontracts for wcdma equipment, while Lucent has sold networks to Japanand Germany. Lucent which ranked fourth in 2003, lost 3% of its marketshare to 8% and now ranks fifth after Nortel which holds 11% of the mar-ket.32
  12. 12. 4 Technologies and Capabilities 10Figure 6: The evolution of Nokia’s mobile phones 1994–1999. Nokia designed newphones for the GSM network first before producing varieties for different network stan-dards. The modular design of handsets make it easy to separate handset design fromthe underlying network technology. (Source: Funk, 2004, 150)4 Technologies and CapabilitiesAs explained in section 3.1, Nokia operates four separate business groups:Mobile Phones, Networks, Multimedia, and Enterprise Solutions.334.1 Mobile PhonesThe Mobile Phones group is responsible for all mobile phone handset devel-opment. Nokia manufactures phones for different standards and technolo-gies that are in use in different countries. gsm is the most common in Europebut the wcdma standard is emerging. Many countries have their own stan-dards. Nokia has developed mobile telephones for as long as the technology hasexisted. Although the arp standard (mentioned in section 3.2) was techni-cally and from a user point of view closer to a two-way radio than a mobiletelephone, it was still Nokia’s first publicly available mobile telephone. Thenmt technology followed, along with other analogue technologies, and latergsm.
  13. 13. 4 Technologies and Capabilities 11 Although the technical requirements of telephone networks have changedover time, Nokia has been able to use its existing technologies when develop-ing new devices. Communication with the network is just a small part of amodern mobile telephone. Other aspects of the product development, suchas user interface and power consumption remain the same from one networktechnology to another. Much of the development effort can be reused forother networks, so it makes sense to develop devices for a large audienceeven if that means supporting multiple technologies.4.2 NetworksNokia Networks develops solutions for telephone networks. The group de-velops mobile base stations and other infrastructure products and servicesfor the different mobile phone standards. Apart from mobile telephony, Net-works also develops devices for other networks, including broadband devicesand professional communication networks including the tetra network. Nokia’s first digital telephone switch, the dx 200, has been available sincethe 1970s.34 The early interest in digital telephone technology fuelled thedevelopment of mobile network infrastructure devices for the early mobilephone standards. Nokia was a major supplier of the Scandinavian nmt net-work technology along with Ericsson. As mentioned in section 2.2, Nokiastarted developing devices for the gsm network as soon as the standard wasfinalised. Currently the company supports all major current and emergingnetwork standards.35 Much of what was said about different technologies in mobiles phonesapplies to networks, too. Provided development is done in a structured andmodular fashion, much of the technology is interchangeable between differ-ent standards. This makes it easy to support the multitude of network tech-nologies that exist now and in the future. Nokia has been successful in usingthis development process and therefore has been able to compete in all differ-ent mobile networks.4.3 MultimediaThe Multimedia group creates devices and applications as well as contentfor mobile multimedia applications. The group is responsible for developingnew smartphone solutions that incorporate music, video, games and othercontent.36
  14. 14. 5 Innovative Activities 12 The Multimedia group is a new addition to Nokia’s organisation. Thegroup diverged from the Mobile Phones group to further develop smart-phones and advanced multimedia capabilities in mobile handsets. Althoughthese can be seen as features of mobile phones, they do not necessarily dependon the telephone network or other technology of the handset. New smartphones are currently approaching and even surpassing thefunctionality of traditional pdas (Personal Digital Assistants). The latest gen-eration of smartphones has all the features of a typical pda, plus those of amobile phone. These new phones can be thought of not as telephones withpda functionality but rather as pdas with built-in telephones. Nokia’s deci-sion of separating handset development (Mobile Phones) from user interfacemay have anticipated this paradigm shift.4.4 Enterprise SolutionsThe Enterprise Solutions group develops solutions for businesses by incor-porating technologies from different groups. Enterprise Solutions productsinclude mobile devices and networks for internal enterprise networks. Dueto the requirements of the enterprise sector, emphasis in security and mobilityare essential. The group aims to develop complete solutions to “help compa-nies mobilize their workforces while ensuring the security and reliability oftheir networks”.37 This group is most clearly a fusion of different technologies. EnterpriseSolutions uses technologies and experience from all other groups and pro-vides solutions independent of existing public telephone networks. The baseinfrastructure can be thought of as a small-scale public telephone networkwith special mobile devices implementing custom functionality.5 Innovative ActivitiesNokia’s investments in r&d activities are in line with other major radicaltechnological innovators: in 2003, Nokia spent 12.7% of its net sales onr&d. As much as 39% of Nokia’s employees work in r&d. Nokia’s r&dactivities are broken into two categories: short and medium term, and longterm. The short and medium term activities include developing products tomaster certain key technologies rather than creating new technologies. Longterm activities include generating new and innovative technologies and prod-
  15. 15. 5 Innovative Activities 13Figure 7: Nokia’s cooperation network in Finland reaches to a large number of compa-nies and universities. Only organisations with three projects or more are listed. (Source:Ali-Yrkkö and Hermans, 2002, 17)ucts in the market. This is where new products emerge, current markets aredisrupted and directions changed. Long term activities also include changingthe way that the company runs by innovating new methods of running theorganisation. This enables Nokia to adapt to current and future trends of theindustry and market, and even to change the company’s core businesses.38 In general, Nokia manages its r&d activities by interacting with universi-ties, research institutes, standards bodies and other companies worldwide. Inaddition to research and development, Nokia plays a strong role in monitor-ing and influencing the open standards used in their products, for examplethe nmt and gsm networks.5.1 Research CentresNokia’s research centres are located worldwide. The main role of the re-search centres is to manage and coordinate the company’s relationships withexternal bodies. The relationships include cooperation in r&d and standard-
  16. 16. 5 Innovative Activities 14Figure 8: Unlike many companies with centralised research and development centres,Nokia has research operations around the world. (Source: Standards are critical in the telecommunications industry as interop-eration between different systems is essential to increasing the size of marketsand opening new ones. Nokia has research centres dealing with a number ofproduction areas:39Software & Application Technologies Laboratory develops and builds new applications and software as well as prototypes. More importantly, Nokia’s software platforms are researched here, to make third party application development as easy as possible.Multimedia Technologies Laboratory integrates audio, video, human inter- faces, games and multimedia into mobile devices and other products. The short term strategy of this laboratory is to improve current prod- ucts and prototypes to enable end-users to maximise their device’s abil- ity. The long term goal is to look into new, unexplored technologies.Computing Architectures Laboratory researches into new hardware and soft- ware platforms that can enable more functionality, performance and productivity in a device. This can include devices for commercial, en- terprise, multimedia and even gaming industries.Networking Technologies Laboratory comes up with new ideas and improve- ments to existing networking protocols, technology and standards to
  17. 17. 5 Innovative Activities 15 improve end-to-end connectivity. It develops networking and service concepts to complement Nokia’s current product line.Radio Technologies Laboratory develops and designs new radio and wire- less technologies. Example of research are antennas and electromagnet- ics. The above laboratory areas overlap functionally. Nokia have three cat-egories that all projects tend to fall in: Mobile Applications, MultimediaDevices and Wireless Access. Since most projects require skills in many areas,it is efficient to gather teams of diverse skills to work in those categories. Thishas proven to work well, as the research centres produce half of the patentsthat Nokia holds.405.2 MembershipsAnother source of innovation in Nokia is its strong involvement in creatingstandards and specifications in the telecommunications industry. New solu-tions, technologies and products are developed during the process of drawingup standards and conforming to them. Different companies and institutionscan access these standards and specifications to develop new products intothe market. Examples of Nokia’s involvement in standards and specifica-tions include the System 60 platform for the Symbian operating system andthe gsm protocol.415.3 Proposals and VenturingNokia wants to give an image of being open to new ventures and propos-als. To this end, it has expressed its willingness to review business proposalssubmitted via an online application form. Many competitors have followedthis trend to extend the research and development process to external bodiesthrough proposals and venturing. Research projects done in cooperation with universities range from minorstudies to large projects. Sometimes the projects are part of a universityinitiative that Nokia can benefit from. When venturing with other companies, Nokia tends to share the risk, costand resources. Rather than building and innovating current markets andcore businesses, the venturing process attempts to identify new businesses
  18. 18. 5 Innovative Activities 16that may one day be incorporated into Nokia’s core business, a culture thatmay have characterised Nokia’s growth since the beginning. The venturingprocess is handled by the Nokia Venturing Organisation (nvo). Nokia hasinternal programmes, such as the annual “Venturing Challenge”, which areopen to all employees to promote the culture of innovation. There are three phases to the venturing process: Research, Analysis andValidation, and Funding:42Research: During the research phase, nvo shares its breadth of knowledge and resources to identify the validity of the business proposal. In cases where the technology does not exist, nvo will commission the research.Analysis and Validation: nvo attempts to look for market and returns oppor- tunity for the venture. The proposal’s business and marketing model will be reviewed thoroughly. This phase is to identify potential pitfalls in the proposal and find solutions to overcome them.Funding: Most funding for venturing proposals come from Nokia Venturing Partners (nvp), a venture capital firm and investor. Nokia invests in nvp for profit and market feedback for new and upcoming technologies.43 One of the programmes that helpNokia get the most out of its diverseventuring projects is Innovent, whichhelps entrepreneurs convert their ideasinto commercial businesses. The In-novent team’s main focus is to helpentrepreneurs tap into Nokia’s knowl-edge about various markets, technolo-gies and business models. Innoventprovides resources to entrepreneurs inthe form of finances, research supportand Nokia’s strong networking withinthe industry. Examples of Nokia’s re- Figure 9: The Nokia Fitness Monitor is ancent ventures include the Nokia Fit- example of a product developed throughness Monitor and Nokia One connec- the Innovent program. (Source: http: // service for enterprises.
  19. 19. 6 Innovative Strategy 176 Innovative Strategy6.1 Early player, offensive innovatorNokia has all the characteristics of an offensive innovator. It is a marketleader; its r&d spending was 12.7% of net sales in 2003; it funds new re-search projects and companies; and it has created a large patent portfolio. From a development point of view, mobile phones have two distinct parts.As Jeffrey L. Funk explains, “[m]obile phone firms typically define productfamilies in terms of different analog and digital air-interface standards; thesestandards define the interface between the phone and base station. Withina specific standard, different models are developed for different users anduser needs.”44 Nokia has been influential in designing many of the networkstandards. The network technologies themselves are standardised, so variations inthe actual air-interface are not possible. Technical innovation comes fromdeveloping products that are smaller, more integrated and consuming lesspower than previously. New handsets, notably the new smartphones, alsoadd features to the standard mobile. Because of the need to develop productsfor different standards and keep a wide selection of models in the market,competitive manufacturing is vital, too. The innovation process in mobile phones is a chain-linked one, with manyparties involved. First of all, products have to be manufactured by specifica-tions set in the standards. This is the first requirement and the basis for anydesign. Second, development in manufacturing, component and battery tech-nology enables manufacturers to add new features and improve designs, forexample by improving battery life or adding colour screens. Customer demand plays an important role, too. For example, when thegsm standard was developed, text messaging was envisaged as a feature notdissimilar to what pagers were used for. The first gsm handsets could onlysend predetermined messages such as “call secretary” or “I’ll be late”. Textmessages proved to be a success, though, and so new products were builtwith that in mind. This led to the development of features such as predictivetext input, to make it easier to type with the small keypad.
  20. 20. 7 Future Challenges and Opportunities 186.2 Protecting intellectual propertyThe worldwide esp@cenet patent database reports 32,774 patents with Nokiaas the applicant.45 The United States Patent and Trademark Office (uspto) re-ports 3,723 patents assigned to Nokia in the United States. Clearly, the com-pany tries aggressively to protect its intellectual property. As an example ofNokia’s eagerness to patent even small innovations, uspto patent 5,241,583describes the now ubiquitous ‘menu-∗’ keypad combination for locking thekeypad.46 Nokia has also been active in trying to push strong ip laws in Europe.47In early November 2004 Nokia announced it is taking legal action againstSagem, a French handset manufacturer, for copying its designs, and Vitelcomof Spain for violating its technical patents.48 Although Nokia protects its intellectual property against unauthoriseduse, it also licenses some of its technologies to competitors. A notable ex-ample is the Series 60 Platform, a user interface for the Symbian os whichis an operating system for smartphones. The Series 60 Platform is licensedto a number of mobile phone manufacturers including Samsung, Panasonic,Siemens and lg.49 Nokia currently owns 47.9% of Symbian itself.507 Future Challenges and OpportunitiesNew technology presents new challenges. The big players in second genera-tion mobile equipment do not automatically become leaders in third gener-ation technology, too. Currently, Nokia is in a strong position to keep itsmarket leadership, but more investments in research and development areneeded. Nokia has announced that it will cut its r&d expenditures by theend of 2006. This can partly be justified because the basic development of3g technology is already done. However, in a dynamic business environmentthe importance of investing in r&d should never be forgotten. As second generation mobile technology markets are reaching saturation,Nokia is investing heavily in devices supporting the new third generationstandards. 3g networks haven’t gained popularity as fast as either manu-facturers or operators expected. Mobile infrastructure requires significantinvestments from the provider, and if consumers don’t see the advantage inusing 3g technology, popularity of the new devices may stay low for a longtime. Currently, all of Nokia’s business areas depend on the popularity of the
  21. 21. 7 Future Challenges and Opportunities 19new technology. New innovations are required to improve the functionalityof the 3g technology, to give them a significant edge over current productsand prompt consumers to switch. As with most technological fields, competition changes rapidly in mobiletelecommunications. New companies emerge and existing ones diversify toenter the market. Currently Samsung is growing rapidly; the company seemsto be able to answer consumer demand rapidly and produce new and com-petitively priced devices. Mobile phones are becoming commodities, drivingprices down and making them more price-sensitive. Because of this, inno-vations in process development and manufacturing technology may be whatgives companies the competitive advantage. It is possible that the next tech-nical breakthrough does not come from any of the big companies at all. Per-haps a new player in the field can emerge and grab a significant market share,much like Nokia was able to do twenty years ago. Hopefully by then Nokiahas been able to diversify its business and keep developing new, innovativeproducts and services. After all, high-tech companies do not like to deal withcommodities.
  22. 22. Notes 20Notes 1 J. Ali-Yrkkö and R. Hermans, ‘Nokia in the Finnish Innovation System’, (Helsinki, Fin-land: The Research Institute of the Finnish Economy ETLA, June 2002), ISSN 0781–6847 2 K. Kuikkaniemi, A town called Nokia, URL: 3 ibid. 4 Nokia’s History, URL:,8764,1125,00.html 5 N. K.-G. Fogelholm, The Founding of Nokia, URL: 6 ‘Nokia’s History’ 7 ibid. 8 Fogelholm 9 C. Palmberg, ‘Technological systems and competent procurers – the transformation ofNokia and the Finnish telecom industry revisited?’ Telecommunications Policy 26 (2002),ISSN 0308–5961 10 ‘Nokia’s History’; Palmberg 11 T. Engdahl, Matkapuhelinten kehitys, URL: 12 History of GSM, URL: 13 Ali-Yrkkö and Hermans, ‘Nokia in the Finnish Innovation System’ 14 Fogelholm; History of Nokia, URL: 15 Fogelholm 16 ‘Nokia’s History’ 17 EQT Scandinavia II Fund Acquires Salcomp, URL: 18 Nokia takes the next step in structuring its organization for convergence and growth, URL: 19 ibid. 20 Nokia Financial Statements, URL:,1080,2218,00.html 21 Engdahl 22 Ali-Yrkkö and Hermans, ‘Nokia in the Finnish Innovation System’ 23 J. L. Funk, ‘The Product Life Cycle Theory and Product Line Management: The Caseof Mobile Phones’, IEEE Transactions on Engineering Management 51 May (2004):2, ISSN0018–9391 24 Ali-Yrkkö and Hermans, ‘Nokia in the Finnish Innovation System’ 25 Worldwide Mobile Phone Market Grows 23%, Nokia Re-Enters 30% Share Bracket,According to IDC, URL: – visited on 4 Novem-ber 2004 26 H. Brown and J. Doebele, ‘Samsung’s Next Act’, Forbes 174 July (2004):2, ISSN 0015–6914 27 ‘Worldwide Mobile Phone Market Grows 23%, Nokia Re-Enters 30% Share Bracket,According to IDC’; D. Rogers, ‘Handset Combat’, Marketing (UK) September (2003), ISSN0025–3650
  23. 23. Notes 21 28 A. Gonsalves, ‘Nokia Lowers Forecasts; Blames Network Equipment Sales’, URL: – visited on 11 March 2003 29 M. Moore, ‘Ericsson Races Past 2Q Expectations’, Information Week URL: – visitedon 21 July 2004 30 ibid. 31 T. Cohen, ‘Motorola set to win market share, beat Nokia-CEO’, Yahoo! Finance URL: – visited on 11 Nov 2004 32 ‘UMTS and 3G market share distribution’, URL: 33 About Nokia, URL:,8764,72,00.html 34 Fogelholm 35 ‘About Nokia’ 36 ibid. 37 ibid. 38 ibid. 39 ibid. 40 ibid. 41 ibid. 42 ibid. 43 Nokia Venture Partners, URL: 44 Funk 45 Europe’s network of patent databases esp@cenet, URL: 46 United States Patent and Trademark Office Home Page, URL: 47 Nokia and Software Patents, URL: 48 ‘Nokia Challenges Sagem, Vitelcom on Patents’, (4 November 2004) URL: 49 Series 60 Platform, URL:,,43196,00.html 50 Symbian OS – the mobile operating system, URL:
  24. 24. References 22References1. The A. S. Popov Central Museum of Communications, URL: .2. About Nokia, URL:,8764,72,00.html .3. Europe’s network of patent databases esp@cenet, URL: .4. History of GSM, URL: .5. History of Nokia, URL: .6. The History of Nokia 1865–2002, URL: .7. Nokia – Innovent, URL: http: //,1522,,00.html?orig=/innovent .8. Nokia and Software Patents, URL: .9. Nokia Financial Statements, URL:,1080,2218,00.html .10. Nokia takes the next step in structuring its organization for convergence and growth, URL: .11. Nokia Venture Partners, URL: .12. Nokia’s History, URL:,8764,1125,00.html .13. Series 60 Platform, URL:,,43196,00.html .
  25. 25. References 2314. Symbian OS – the mobile operating system, URL: .15. ‘UMTS and 3G market share distribution’, URL: .16. United States Patent and Trademark Office Home Page, URL: .17. Worldwide Mobile Phone Market Grows 23%, Nokia Re-Enters 30% Share Bracket, According to IDC, URL: http: // ndmViewId=news_view&newsId=20041104005182&newsLang=en – visited on 4 November 2004.18. EQT Scandinavia II Fund Acquires Salcomp, URL: .19. The Story of Finland – Finland in a changing world economy, URL: worldeconomy/index.html .20. Nokia in Brief, URL: NOKIA_MAIN_18022/CDA/Categories/AboutNokia/Company/ _Content/_Static_Files/nokiainbrief.pdf .21. ‘Nokian kännykkämyynti alkanut kontata’, (4 April 2004) URL: .22. ‘Nokia Challenges Sagem, Vitelcom on Patents’, (4 November 2004) URL: technologyNews&storyID=6713922&section=news .23. Nokia defines goals and actions for leadership in dynamic mobile communications market, URL: .24. ‘Nokia to cut R&D expenditures – expects to save hundreds of millions by 2007’, Helsingin Sanomat International Edition (5 November 2004) URL: http: // .
  26. 26. References 2425. Ahonen, P., Communications superpower, URL: http://virtual. .26. Ali-Yrkkö, J., ‘The role of Nokia in the Finnish Economy’, (2001) URL: .27. Ali-Yrkkö, J. and Hermans, R., ‘Nokia in the Finnish Innovation System’, (Helsinki, Finland: The Research Institute of the Finnish Economy ETLA, June 2002), ISSN 0781–6847.28. Ali-Yrkkö, J. and Hermans, R., ‘Nokia: A giant in the Finnish innovation system’, in:: Schienstock, G., editor, Embracing the Knowledge Economy: The dynamic transformation of the Finnish Innovation System, (Cheltenham, UK: Edward Elgar Publishing Ltd., 2004). – chapter 6, 106–127.29. Alkio, J., ‘Nokia hakee lisää tehoa tutkimukseen’, Helsingin Sanomat (6 November 2004).30. Alkio, J., ‘Suurten operaattoreiden mielestä Nokian asenne on muuttunut’, Helsingin Sanomat (6 November 2004).31. Arnold, E. et al., Evaluation of Finnish R&D Programmes in the Field of Electronics and Telecommunications (ETX, TLX and Telectronics I), (Helsinki, Finland: Tekes, 2002) URL: .32. Brown, H. and Doebele, J., ‘Samsung’s Next Act’, Forbes 174 July (2004):2, 102–107, ISSN 0015–6914.33. Cohen, T., ‘Motorola set to win market share, beat Nokia-CEO’, Yahoo! Finance URL: http: // duid=mtfh38896_2004-11-11_13-30-11_l11024442_newsml – visited on 11 Nov 2004.34. Cowell, A., ‘Nokia’s slide puts damper on Finns’ great expectations’, International Herald Tribune (6 September 2004) URL: .35. Crockett, R. O., ‘Is Nokia Missing an Important Call?’ Business Week Online March (2002), Accessed through EBSCO.
  27. 27. References 2536. Engdahl, T., Matkapuhelinten kehitys, URL: .37. Fogelholm, N. K.-G., The Founding of Nokia, URL: .38. Funk, J. L., ‘The Product Life Cycle Theory and Product Line Management: The Case of Mobile Phones’, IEEE Transactions on Engineering Management 51 May (2004):2, 142–152, ISSN 0018–9391.39. George, N. and Budden, R., ‘Nokia accuses Sagem of copying its designs’, Financial Times URL: 38827420-2e07-11d9-a86b-00000e2511c8.html – visited on 4 November 2004.40. Gonsalves, A., ‘Nokia Lowers Forecasts; Blames Network Equipment Sales’, URL: – visited on 11 March 2003.41. Hansson, M., ‘FOCUS: Ericsson Market Share Gains Set To Continue’, Yahoo! Finance URL: – visited on 22 October 2004.42. Junkkari, M., ‘Nokia leikkaa tuotekehitystään’, Helsingin Sanomat (6 November 2004).43. Kuikkaniemi, K., A town called Nokia, URL: http://virtual. .44. La Monica, P. R., ‘Flip-phone flip-flop’, CNN Money [2004], April URL: http: // .45. Moore, M., ‘Ericsson Races Past 2Q Expectations’, Information Week URL: jhtml?articleID=23903612 – visited on 21 July 2004.46. Paija, L., ‘What is Behind the Finnish ‘ICT Miracle’?’ (2003) URL: .
  28. 28. References 2647. Palmberg, C., ‘Technological systems and competent procurers – the transformation of Nokia and the Finnish telecom industry revisited?’ Telecommunications Policy 26 (2002), 129–148, ISSN 0308–5961.48. Palojärvi, J., ‘Rahapula kiusaa t&k-toimintaa (R&D faces financing problems)’, Prosessori March (2002) URL: .49. Puttonen, V., ‘Onko omistamisella väliä? (Does ownership matter?)’, (Helsinki, Finland: Finnish Business and Policy Forum EVA, 2004) URL: , ISBN 951–628–409–4.50. Reinhardt, A., ‘Nokia’s Goal: Cell-Phone Planet’, Business Week Online September (2004), Accessed through EBSCO.51. Rogers, D., ‘Handset Combat’, Marketing (UK) September (2003), 22–23, ISSN 0025–3650.52. Ruokanen, T., ‘Suomen menestyksen eväät: tiekartta tulevaisuuteen (Roadmap to Finland’s Future Success)’, (Helsinki, Finland: Finnish Business and Policy Forum EVA, 2004) URL: , ISBN 951–628–415–9.53. Sipilä, K., A country that innovates, URL: http://virtual. .54. Vesikansa, J., Finnish industry today after major changes, URL: intNWSAID=28308 .